UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of
February
2022
PEARSON plc
(Exact
name of registrant as specified in its charter)
N/A
(Translation
of registrant's name into English)
80 Strand
London, England WC2R 0RL
44-20-7010-2000
(Address
of principal executive office)
Indicate
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reports
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cover of Form 20-F or Form 40-F:
Form
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pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934
Yes
No X
Pearson 2021 Preliminary Results and strategy update
(Unaudited)
|
25 February 2022 Strong
financial performance and building growth
momentum
|
Andy Bird, Pearson's Chief Executive, said:
"2021 has been a year of strong progress with the Group's financial
performance ahead of expectations. This reflects disciplined
management of the business, operational execution, commitment of
colleagues around the world and their ability to successfully
navigate challenging market conditions.
Pearson has been reorganised and refocused with a new purpose to
'add life
to a lifetime of learning' at the heart of everything we do. Our
direct-to-consumer strategy is being driven by Pearson+, which had
2.75 million registered users at the end of 2021, with a strategy
in place to engage more consumers and grow beyond Higher Education.
Pearson is a digital first business, with consumer grade products,
and the momentum across the company underpins our confidence for
further growth in 2022 and beyond."
Underlying sales
growth1 of
8%
● Led by Assessment & Qualifications up 18%,
driven by 19% growth in Professional Certification (VUE) with OnVUE
continuing to benefit from growth in the IT sector. US Student
Assessment grew 17% and Clinical Assessment was up 30% with strong
product launches in the year. Pearson VUE and Clinical Assessment
revenues have now grown in comparison to 2019, showing more than
post-COVID-19 recovery.
● Virtual Learning up 11% due to strong enrolment
growth in Virtual Schools in the prior academic year (2020-21).
Underlying enrolment growth of 7% in Online Program Management
(OPM).
● English Language Learning up 17% due to COVID-19
recovery in both International courseware and Pearson Test of
English (PTE).
● Workforce Skills up 6% with strong growth in GED
and TalentLens.
● Higher Education down 5%, with growth in Canadian
and UK Courseware offset by a 6% decline in US Higher Education
Courseware.
Adjusted operating profit¹ up 33% on an underlying
basis to £385m
●
Driven by operating leverage on revenue growth and
cost savings offsetting cost inflation and investment to accelerate
future growth.
●
Adjusted earnings per share¹ of 34.9p (2020: 28.7p) after an
effective tax rate charge of 20% (2020: 14%) and net interest
charge of £57m (2020: £61m).
Strong cash performance
●
Operating cash inflow¹ increased on a headline basis
from £315m in 2020 to £388m in 2021 due to the
drop-through of increased operating profits and an improvement in
net working capital partially offset by an increase in capital
expenditure.
Balance sheet strength supports investment and increased
shareholder returns
●
Acquisitions of Credly and Faethm to support growth
strategy in Workforce Skills division.
●
Year-end net debt reduced to £350m (2020:
£463m) with leverage at 0.6x (2020: 0.8x).
●
Proposed final dividend of 14.2p (2020: 13.5p), which
equates to a full year dividend of 20.5p (2020:
19.5p).
●
Intention to commence a buyback to repurchase shares
of £350m in 2022.
Statutory results
●
Sales increased 1% to £3,428m (2020:
£3,397m), reflecting underlying performance, portfolio changes
and currency movements.
●
Statutory operating profit was £183m (2020:
£411m). The decrease in 2021 is mainly due to the gain on sale
of PRH recognised in 2020 and restructuring costs in 2021 partially
offset by improved trading profits, reduced intangible charges and
gains on the 2021 business disposals.
●
Net cash generated from operations of £570m
(2020: £450m).
●
Statutory earnings per share of 21.1p (2020:
41.0p).
Significant strategic progress
●
Direct to Consumer: Launched direct to consumer
strategy led by new digital learning service, Pearson+, which
continues to make good progress with 2.75m registered users at the
end of 2021, reflecting a strong uptake from MyLab and Mastering
users, 133k paid subscriptions, and a latest app store rating of
4.8.
●
Higher Education: Pearson's flagship Higher Education
product, Revel, completed the move to incorporate the Pearson
Learning Platform's capabilities, providing enhanced features, and
a new visual design for mobile.
●
Workforce Skills: Acquired Faethm, the workforce AI
and predictive analytics company in September 2021, and in January
2022, Credly, the market leader in digital workforce credentialing,
to further enhance Pearson's Workforce Skills
capabilities.
●
Simplification: The disposal of Pearson's Brazilian
K12 Sistemas business completed on 1 October 2021. Marketing is
progressing well with other businesses under strategic
review.
●
Today, we are announcing the acquisition of Clutch
Prep, an online video-based learning service that will rapidly fuel
Pearson+ with quality original video tutorials.
2022 outlook
●
Confident of further group revenue growth, with
adjusted operating profit, interest and tax expected to be in line
with current market expectations2.
●
Assessment & Qualifications revenue growth of low
to mid-single digits with strong margins maintained.
●
Growth in Virtual Learning with low-single digit
growth in Virtual Schools and high-single digit growth in Online
Program Management (OPM) and further margin expansion through
operational efficiency improvements in OPM.
●
English Language Learning revenue growth of
mid-single digits. Business continues to recover from COVID-19 with
further margin improvement expected.
●
Significant revenue growth in Workforce Skills
underpinned by the acquisitions of Faethm and Credly. Margins will
be break-even as we invest to accelerate growth.
●
Higher Education revenue to decline, but by less than
last year, with margin stabilisation reflecting cost efficiencies.
We expect enrolments to decline, but at a lower rate than in 2021,
although that could improve. We also expect pricing pressure to
continue due to the shift from print to ebooks and Pearson+, and
from bundles to digital only, offset by continued recapture of the
secondary market.
2025 ambition
●
We expect the Group to achieve mid-single digit
revenue CAGR from 2022 to 2025 and for margins to remain relatively
stable in the near term, as we invest to drive growth, improving by
2025 to mid-teens.
|
Strategy update
In March 2021, we presented our lifetime of learning strategy. Our
priorities continue to centre on building a company that is digital
first, puts the consumer at its heart, and delivers high quality
learning products at scale to more people than ever
before.
To do that, we created a new organisational structure with five
core divisions, underpinned by a dedicated direct to consumer team
that successfully launched Pearson+ last July. We have also
recently introduced a new company purpose: 'to add life to a lifetime of
learning.' We redefined
Pearson's purpose for the new reality of a world in which learning
is becoming more fluid and exists inside and outside of formal
education.
The success of Pearson and the work we do has never been more
important. The world is changing, and the very definition of
learning is expanding. We no longer move only in a linear fashion
through school, into higher education, and then on to employment.
All of us are learning all the time. Pearson is re-focused and
re-organised to capitalise on this new wave of
learning.
We also recognise that learning is no longer a phase of life, it's
a lifelong journey. The need to upskill and reskill has never been
more urgent. So, while we'll continue to work with long standing
partners such as schools, universities, and colleges, we are also
increasingly working with employers. Companies now play a critical
role in that learning lifecycle and we have an opportunity to help
individuals and employers turn the great resignation into the great
re-engagement. The recent acquisitions of Faethm and Credly in our
Workforce Skills division signal the direction of travel you can
expect from us, including the expansion into data as a service for
employers and into credentialing for workers. In English Language
Learning, we are building a business aimed at being the destination
for committed English learners. We are focused on continuing to
grow our institutional business and high stakes assessments, while
building a direct-to-consumer strategy.
There are three reasons why Pearson will win in this new
environment:
1.
We are the world's leading learning company with a strong brand, an
unmatched scope and scale; and have the deep expertise of thousands
of employees who deliver high quality, trusted learning solutions
every day.
2.
We have a great foundation of established businesses that are
well-managed, cash generative and underpin the company
financially.
3.
We are bringing together the multiple facets of our expertise to
deliver innovative digital learning products through a more
connected commercial and consumer strategy.
Pearson is not just a collection of individual businesses, but,
increasingly, a highly interconnected company, with capabilities
that work together to help people learn at multiple points in their
lives. Pearson has the potential to accelerate growth when we
leverage our businesses in a coordinated fashion across the entire
spectrum of learning.
Pearson+ is critical to fulfilling that strategy. We're building
Pearson+ as the premier digital learning ecosystem for life -
whether through school, university, work, languages, or life skills
- for a growing addressable market globally. Pearson+ will become
the core digital offering for this company, reaching multiple
demographics and learners, giving us the opportunity to create a
meaningful business on a global scale. Consumers need a way to
discover, learn, build skills, and show credentials and they want a
great user experience. We can deliver that with a broader Pearson+
vision, by drawing on the assets of each Pearson business and
leveraging our growing relationships with students, consumers, and
enterprises. We can also support this with a robust data
infrastructure. The possibilities are vast when we can connect
these assets into one trusted ecosystem designed to meet
consumer-led learning where it happens.
We also continue to evolve our sustainable business plan to align
with our company strategy and purpose and to drive
learning for everyone. We have placed renewed energy into building
our talent and our innovation culture, so our people can make
a difference at scale. As we become more digital, we're
providing products with a smaller carbon footprint, along with
products and services that meet the demands of a green economy and
content that influences action. As such, we are on track with our
goal to make Pearson a net zero carbon business by
2030.
We believe our strategic priorities, combined with our disciplined
approach to capital allocation, will enable us to create
sustainable, long-term value for every Pearson stakeholder. Today,
we are setting out the financial framework that underpins our
strategy and have ambition through leveraging the opportunities
across the business to exceed these targets. Importantly, we
believe that Pearson is now in a position to sustainably grow not
only revenues but also profits and cashflows after allowing for
continued investment in our growth ambition. Furthermore, progress on our
growth priorities can be measured through our Key Performance
Indicators (KPIs).
Financial expectations
Segment
|
2021 Revenue (£m)
|
Margins 2021*
|
2022 expectations
|
Revenue CAGR 2022 to 2025
|
Margins 2025*
|
Revenue
|
Margins*
|
Assessment & Qualifications
|
1,204
|
18%
|
Low to
mid-single digit
|
Maintained
|
Low to
mid-single digit
|
Maintained
|
Virtual Learning
|
713
|
4%
|
Low to
mid-single digit
|
Incremental
improvement in Virtual Learning due to OPM
efficiencies
|
Mid-high
single digit
|
Low
double digit
|
English Language Learning
|
238
|
6%
|
Mid-single
digit
|
Improvement
versus 2021
|
Mid-high
single digit
|
Mid-teens
|
Workforce Skills
|
172
|
16%
|
Existing
business: Mid-high single digit
>40%
for Faethm and Credly
|
Break-even
|
2025
revenues more than double 2021
|
Low
double digit
|
Higher Education
|
849
|
9%
|
Down
less than 2021
|
Stabilisation
|
Low to
mid-single digit
|
Mid-teens
|
Strategic review
|
252
|
9%
|
|
|
|
|
Group
|
3,428
|
11%
|
Growth
|
In line
with market expectations
|
Mid-single
digit
|
Mid-teens
|
*Adjusted operating profit margins
KPIs
KPI
|
Objective
|
KPI Measure
|
2021 Actual
|
2020 Actual
|
Digital growth
|
Drive digital revenue growth
|
Underlying growth in Group digital and
digital-enabled sales
|
9%
|
(2)%
|
Virtual Schools US enrolments
|
111k
|
109k
|
OPM student enrolments
|
275k
|
245k
|
OnVUE volumes
|
3.0m
|
2.1m
|
Higher Education US digital registrations
|
11.4m
|
12.3m
|
PTE volume
|
436k
|
350k
|
Consumer Engagement
|
Create
engaging and personalised consumer
experiences
|
NPS for Connections Academy
|
+62
|
+60
|
NPS for PTE
|
+56
|
+60
|
Pearson+ registered users
|
2.75m
|
n/a
|
Product Effectiveness
|
Improve the effectiveness of our products to
deliver better outcomes
|
PTE speed of score return
|
1.2 days
|
1.5 days
|
VUE test volumes
|
16.8m
|
12.9m
|
VUE Partner retention
|
99%
|
96%
|
Higher Education product usage - text units
|
5.4m
|
5.4m
|
Investing in Talent
|
Enhance
our employee experience and help employees
progress through learning
|
Number
of employees upskilling or reskilling
|
71%
|
63%
|
Employee
NPS
|
+8
|
+17
|
Inclusion & Diversity
|
Build
an inclusive culture and increase diverse
representation
|
% of
diverse candidates in leadership development and mentoring
programmes
|
100% of
programmes have a minimum of 50% diversity
|
n/a
|
% of
diverse candidates in leadership succession plans
|
Women =
72% BIPOC/BAME = 24%
|
n/a
|
Sustainability Strategy
|
Achieve
net zero carbon by 2030
|
Progress
against achieving net zero carbon by 2030, as measured through
percentage carbon reduction
|
26% reduction vs 2018 base*
|
25% reduction vs 2018 base*
|
*Figures
have been restated to reflect relevant
disposals.
This announcement contains inside information.
Contacts
|
|
|
Investor Relations
|
Jo
Russell
|
+44 (0)
7785 451 266
|
Media
|
Tom
Steiner
Gemma
Terry
|
+44 (0)
7787 415 891
+44 (0)
7841 363 216
|
Teneo
|
Charles
Armitstead
|
+44 (0)
7703 330 269
|
Virtual event
|
Pearson's full year results hybrid presentation today at 0900
(GMT). Register to receive log in details: https://pearson.connectid.cloud/register
|
|
Forward looking statements: Except for the historical information
contained herein, the matters discussed in this statement include
forward-looking statements. In particular, all statements that
express forecasts, expectations and projections with respect to
future matters, including trends in results of operations, margins,
growth rates, overall market trends, the impact of interest or
exchange rates, the availability of financing, anticipated cost
savings and synergies and the execution of Pearson's strategy, are
forward-looking statements. By their nature, forward-looking
statements involve risks and uncertainties because they relate to
events and depend on circumstances that will occur in future. They
are based on numerous assumptions regarding Pearson's present and
future business strategies and the environment in which it will
operate in the future. There are a number of factors which could
cause actual results and developments to differ materially from
those expressed or implied by these forward-looking statements,
including a number of factors outside Pearson's control. These
include international, national and local conditions, as well as
competition. They also include other risks detailed from time to
time in Pearson's publicly-filed documents and you are advised to
read, in particular, the risk factors set out in Pearson's latest
annual report and accounts, which can be found on this website
(www.pearsonplc.com). Any forward-looking statements speak only as
of the date they are made, and Pearson gives no undertaking to
update forward-looking statements to reflect any changes in its
expectations with regard thereto or any changes to events,
conditions or circumstances on which any such statement is based.
Readers are cautioned not to place undue reliance on such
forward-looking statements.
Financial
Overview
|
|
|
|
|
|
£m
|
2021
|
2020
|
Headline
growth
|
CER
growth*
|
Underlying
growth
|
Business performance
|
|
|
|
|
|
Sales
|
3,428
|
3,397
|
1%
|
7%
|
8%
|
Adjusted
operating profit
|
385
|
313
|
23%
|
33%
|
33%
|
Operating
cash flow
|
388
|
315
|
|
|
|
Adjusted
earnings per share
|
34.9p
|
28.7p
|
|
|
|
Statutory results
|
|
|
|
|
|
Sales
|
3,428
|
3,397
|
|
|
|
Operating
profit
|
183
|
411
|
|
|
|
Profit
for the year
|
160
|
310
|
|
|
|
Net
cash generated from operations
|
570
|
450
|
|
|
|
Basic
earnings per share
|
21.1p
|
41.0p
|
|
|
|
Dividend
per share
|
20.5p
|
19.5p
|
|
|
|
Net
debt
|
(350)
|
(463)
|
|
|
|
Throughout
this announcement: a) Growth rates are stated on an underlying
basis unless otherwise stated. Underlying growth rates exclude
currency movements, and portfolio changes. b) The 'business
performance' measures are non-GAAP measures and reconciliations to
the equivalent statutory heading under IFRS are included in notes
to the attached condensed consolidated financial statements 2, 3,
4, 5, 7, and 14.
2022 consensus on the Pearson website
as at 12th
November 2021; median adjusted operating profit of £416m,
interest £57.5m, tax rate 21%, £:$ 1.37.
*Constant exchange rates are calculated by
assuming the average FX in the prior year prevailed through the
current year.
Operational review
£ millions
|
2021
|
2020
|
Headline
growth
|
CER
Growth*
|
Underlying
growth
|
Sales
|
|
|
|
|
|
Assessment
& Qualifications
|
1,204
|
1,082
|
11%
|
18%
|
18%
|
Virtual
Learning
|
713
|
692
|
3%
|
11%
|
11%
|
English
Language Learning
|
238
|
218
|
9%
|
17%
|
17%
|
Workforce
Skills
|
172
|
163
|
6%
|
7%
|
6%
|
Higher
Education
|
849
|
956
|
(11)%
|
(5)%
|
(5)%
|
Strategic
review
|
252
|
286
|
(12)%
|
(9)%
|
1%
|
Total
|
3,428
|
3,397
|
1%
|
7%
|
8%
|
|
|
|
|
|
|
Adjusted operating profit
|
|
|
|
|
|
Assessment
& Qualifications
|
216
|
147
|
47%
|
59%
|
59%
|
Virtual
Learning
|
32
|
29
|
10%
|
28%
|
28%
|
English
Language Learning
|
15
|
1
|
1,400%
|
1,600%
|
1,600%
|
Workforce
Skills
|
27
|
26
|
4%
|
4%
|
8%
|
Higher
Education
|
73
|
93
|
(22)%
|
(15)%
|
(15)%
|
Strategic
review
|
22
|
16
|
38%
|
38%
|
27%
|
Penguin
Random House
|
-
|
1
|
(100)%
|
(100)%
|
-
|
Total adjusted operating profit
|
385
|
313
|
23%
|
33%
|
33%
|
See note 2 in
the condensed consolidated financial statements for the
reconciliation to the equivalent statutory
measures.
*Constant
exchange rates are calculated by assuming the average FX in the
prior year prevailed through the current
year.
Assessment & Qualifications
In Assessment & Qualifications, revenue increased 18% on an
underlying basis and 11% on a headline basis. Professional
Certification (VUE) revenue was up 19%, with OnVUE continuing to
benefit from growth in the IT sector. US Student Assessment revenue
was up 17% and Clinical Assessment revenue was up 30% with strong
product launches in the year. Pearson VUE and Clinical Assessment
revenues have now grown in comparison to 2019, showing more than
post-COVID-19 recovery. Adjusted operating profit increased 59% in
underlying and 47% in headline terms due to the operating leverage
on revenue growth partly offset by currency movements.
Pearson VUE revenue grew 19% in underlying terms with test volumes
increasing 30% to 16.8m due to COVID-19 recovery, new client
launches and growth in existing programmes. We renewed 99% of our
expiring contract base and fully resumed exam deliveries in our
testing centres. Volumes in OnVUE, Pearson's online proctoring
service, grew 46% to 3m reflecting continuing demand for remote
testing and as a complementary expansion to our test centre-based
delivery options.
In US Student Assessment, revenue increased 17% in underlying terms
due to new contract wins and a return to state testing in 2021,
following 2020 COVID-19-related cancellations.
In Clinical Assessment, revenue increased 30% in underlying terms
due to new product releases and a backlog of demand for mental
health services as in-person assessments resumed and schools
reopened. Revenue growth continued for our digitally delivered
assessments as they have become more widely accepted.
Virtual Learning
Revenue grew 11% on an underlying basis and 3% on a headline basis
reflecting strong enrolment growth in Virtual Schools in the
2020/2021 academic year, with good underlying enrolment growth in
OPM.
Adjusted operating profit grew 28% in underlying terms, due to
operating leverage and efficiency improvements in OPM more than
offsetting the investment in our Virtual Schools' platform and
customer care support, as well as margin impact in OPM due to
discontinued programs. Headline profit grew 10% with good growth in
adjusted operating profit partially offset by currency
movements.
Virtual Schools performed strongly driven by 43% enrolment growth
in new and existing schools for the 2020/2021 academic year. We
opened five new full-time, online partner schools in Florida, Rhode
Island, Colorado, South Carolina, and Oregon. We also announced our
first Connections Academy in the state of Virginia, which begins
enrolment in March 2022, one school in New Mexico moved from a
partner school to district programme. This brings the 2021/2022
total number of partner schools to 47 in 30 states. Enrolments in
the 2021/2022 academic year grew by 2% despite a significant
unwinding of the "covid cohort".
In OPM, we saw good underlying enrolment growth of 7% as Maryville
University extended its OPM partnership for online degrees in the
high-demand field of Nursing through to 2033 and Northeastern
University added a new online master's degree and certificate
programs in Nursing and Healthcare. We ended the year with a total
of 477 programs across 31 partners with the addition of 43 new
programs in North America across 21 partners, and 7 new programs
internationally where underlying enrolments grew by more than
80%.
English Language Learning
In English Language Learning, sales were up 17% on an underlying
basis and 9% on a headline basis due to COVID-19 recovery in both
International courseware and Pearson Test of English (PTE) where
volumes grew 25% compared to 2020.
Adjusted operating profit increased in underlying and headline
terms due to increased revenue.
Workforce Skills
In Workforce Skills, sales were up 6% on an underlying and headline
basis, predominantly driven by strong growth in GED and TalentLens
due to a recovery from COVID-19 and further expansion of their
enterprise sales. GED test volumes increased by 43%, enabled by the
provision of online proctored testing, launched in June 2020, which
grew by 200%. BTEC and Apprenticeship sales grew by 4%, with
strong international growth partially offset by lower growth in the
UK, as registrations declined as a result of COVID-19 disruption
and rebates for exam cancellations continued in 2021.
Adjusted operating profit grew 8% in underlying terms, with strong
flow through of sales growth operating leverage. Headline profits
grew 4% with good underlying growth offset by portfolio
changes.
Higher Education
In Higher Education, sales declined 5% for the full year on an
underlying basis and 11% on a headline basis with growth in
Canadian and UK Courseware more than offset by an underlying 6%
decline in US Higher Education Courseware.
Adjusted operating profit declined 15% in underlying and 22% in
headline terms. This is driven by the combined effects of the
revenue declines and continued investments in our content and
platforms (inclusive of Pearson+).
We saw continued momentum in Inclusive Access where sales to
not-for-profit institutions grew 18% representing 16% of total US
Higher Education Courseware revenue versus 13% last
year.
Strategic review
Sales
in our international courseware local publishing businesses under
strategic review were up 1% on an underlying basis and down 12% on
a headline basis for the full year.
|
FINANCIAL REVIEW
Operating
result
Sales increased on a headline basis by £31m or 1% from
£3,397m in 2020 to £3,428m in 2021 and adjusted operating
profit increased by £72m or 23% from £313m in 2020 to
£385m in 2021 (for a reconciliation of this measure see note 2
to the condensed consolidated financial statements).
The
headline basis simply compares the reported results for 2021 with
those for 2020. We also present sales and profits on an underlying
basis which exclude the effects of exchange, the effect of
portfolio changes arising from acquisitions and disposals and the
impact of adopting new accounting standards that are not
retrospectively applied. Our portfolio change is calculated by
taking account of the contribution from acquisitions and by
excluding sales and profits made by businesses disposed in either
2020 or 2021. Portfolio changes mainly relate to the sale of
Pearson Institute of Higher Education ('PIHE') in 2021, the sale of
the K12 Sistemas business in Brazil in 2021 and the sale of our
remaining interest in Penguin Random House ('PRH') in the first
half of 2020. Acquisitions, including Spotlight and Faethm in 2021,
had only a small impact on reported sales and profits.
On an underlying basis, sales increased by 8% in 2021 compared to
2020 and adjusted operating profit increased by 33%. Currency
movements decreased sales by £206m and decreased adjusted
operating profit by £30m. Portfolio changes decreased sales by
£27m and decreased adjusted operating profit by £1m.
There were no new accounting standards adopted in 2021 that
impacted sales or profits.
Adjusted
operating profit excludes intangible charges for amortisation and
impairment, acquisition related costs, gains and losses arising
from acquisitions and disposals and the cost of major
restructuring. A summary of these adjustments is included below and
in more detail in note 2 to the condensed consolidated financial
statements.
|
|
|
|
All figures in £ millions
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
183
|
411
|
Add
back: Cost of major restructuring
|
|
214
|
-
|
Add
back: Intangible charges
|
|
51
|
80
|
Add
back: Other net gains and losses
|
|
(63)
|
(178)
|
Adjusted
operating profit
|
|
385
|
313
|
In
March 2021, the Group announced a major restructuring programme to
run primarily in 2021. The programme includes the reorganisation of
the Group into five global business divisions and the
simplification of the Group's property portfolio. The restructuring
costs in 2021 of £214m mainly relate to the impairment of
right of use property assets, the write-down of product development
assets and staff redundancies. There were no costs of major
restructuring in 2020.
Intangible
amortisation charges in 2021 were £51m compared to a charge of
£80m in 2020. This reduction is due to a decrease in
acquisition activity in recent years and additional intangible
charges which were recorded in 2020 and are not repeated in
2021.
Other
net gains and losses in 2021 largely relate to gains from the
disposal of PIHE and the K12 Sistemas business in Brazil offset by
costs related to the acquisition of Faethm and the wind down of
certain strategic review businesses. In 2020, other net gains and
losses largely relate to the sale of the remaining interest in
PRH.
The
statutory operating profit of £183m in 2021 compares to a
profit of £411m in 2020. The decrease in 2021 is mainly due to
the gain on sale of PRH recognised in 2020 and restructuring costs
in 2021 partially offset by improved trading profits, reduced
intangible charges and gains on the 2021 business
disposals.
Net finance costs
Net interest payable reflected in adjusted earnings in 2021 was
£57m, compared to £61m in 2020. The decrease is mainly
due a reduction in interest payable on lease liabilities following
the disposal of PIHE.
Net finance income relating to retirement benefits has been
excluded from our adjusted earnings as we believe the income
statement presentation does not reflect the economic substance of
the underlying assets and liabilities. Also included in the
statutory definition of net finance costs (but not in our adjusted
measure) are interest costs relating to acquisition or disposal
transactions, 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 and other gains and losses are excluded from adjusted
earnings as they represent short-term fluctuations in market value
and are subject to significant volatility. Other gains and losses
may not be realised in due course as it is normally the intention
to hold the related instruments to maturity (for more information
see note 3 to the condensed consolidated financial
statements).
In 2021, the total of these items excluded from adjusted earnings
was income of £31m compared to income of £4m in 2020. Net
finance income relating to retirement benefits decreased from
£6m in 2020 to £4m in 2021 reflecting the comparative
funding position of the plans at the beginning of each year and
higher prevailing discount rates. In 2021, finance income of
£6m relating to the revaluation of the US K12 disposal
proceeds was recorded compared to £26m in 2020, and there were
gains on long-term interest rate hedges and foreign exchange gains
on unhedged inter-company loans and cash and cash equivalents in
2021 compared to losses in 2020. For a reconciliation of the
adjusted measure see note 3 to the condensed consolidated financial
statements.
Taxation
The effective tax rate on adjusted earnings in 2021 was a charge of
19.5% compared to an effective tax rate charge of 13.7%
in 2020. The increase in the effective rate is mainly due to a
benefit from the release of tax provisions due to the expiry of the
relevant statute of limitation which was recorded in 2020 and is
not repeated in 2021.
The reported tax charge on a statutory basis in 2021 was a credit
of £3m (1.8%) compared to a charge of £44m
(12.5%) in 2020. The principal reasons for reduction in the
tax charge are the benefit received from the revaluation of
deferred tax assets following the increase in the UK tax rate from
19% to 25% together with a benefit from a change in Italian tax
accounting treatment.
The Budget in March 2021 announced an increase in the UK
corporation tax rate to 25% with effect from 1 April 2023. This was
substantively enacted on 24 May 2021. The UK corporation tax rate
increase has resulted in an increase of £27m in the UK
deferred tax liability associated with the UK Group pension plan
asset position, which has been recognised in other comprehensive
income, together with a £25m increase in UK deferred tax
assets, which has been recognised in the income statement. The
UK corporation tax rate change is beneficial to the Group's
statutory tax as it increases the value of certain UK tax
attributes of the Group such as tax losses and, as noted above,
reduces the overall statutory tax charge.
Operating tax paid in 2021 was £60m (2020:
£10m). In 2020 tax paid was impacted by refunds received in
the US and UK relating to historical periods. Non-operating tax
paid was £117m in 2021 (2020: refund £12m) of which
£97m relates to the ongoing EU Commission investigation into
whether certain aspects of the UK tax system constituted State Aid
(see note 15 for further details). The Group expects to recover the
funds in due course. The £97m is recognised as a non-current
tax asset.
A net deferred tax asset of £17m is recognised in
2021 compared to a net £30m deferred tax liability in 2020.
The movement is primarily due to the unwind of deferred tax
liabilities. The current tax creditor principally consists of
provisions for tax uncertainties. There are contingent liabilities
in relation to tax as outlined in note 15 to the condensed
consolidated financial statements.
Other
comprehensive income
Included
in other comprehensive income are the net exchange differences on
translation of foreign operations. The loss on translation of
£6m in 2021 compares to a loss in 2020 of £109m. The loss
in 2021 arises due to the strengthening of the US dollar being
offset by the weakening of other currencies used by the Group. A
significant proportion of the Group's operations are based in the
US and the US dollar strengthened in 2021 from an opening rate of
£1:$1.37 to a closing rate at the end of 2021 of
£1:$1.35. At the end of 2020, the US dollar had weakened
from an opening rate of £1:$1.32 to a closing rate of
£1:$1.37 and this movement was the main reason for the loss in
2020.
Also
included in other comprehensive income in 2021 is an actuarial gain
of £149m in relation to retirement benefit obligations of the
Group. The gain arises from the favourable impact of changes in the
assumptions used to value the liabilities in the plans and in
particular movements in the discount rate. The actuarial gain in
2021 of £149m compares to an actuarial loss in 2020 of
£23m. There is a £61m tax charge related to retirement
benefit obligations recognised in other comprehensive income, which
is primarily driven by the change in the UK corporation tax rate
from 19% to 25% in 2023 increasing the deferred tax liability held
on the balance sheet.
Fair
value gains of £24m have been recognised in other
comprehensive income and relate to movements in the value of
investments in unlisted securities held at fair value through other
comprehensive income. In 2020, fair value gains of £14m were
recognised in other comprehensive income.
In
2021, a gain of £4m was recycled from the currency translation
reserve to the income statement in relation to businesses disposed.
In 2020, a loss of £70m was recycled from the currency
translation reserve to the income statement in relation to the
disposal of PRH.
Cash
flow and working capital
Our
operating cash flow measure is an adjusted measure used to align
cash flows with our adjusted profit measures (see note 14 to the
condensed consolidated financial statements). Operating cash inflow
increased on a headline basis by £73m from £315m in 2020
to £388m in 2021. The increase is largely explained by the
drop-through of increased operating profits and an improvement in
net working capital offset by an increase in capital
expenditure.
The
equivalent statutory measure, net cash generated from operations,
was £570m in 2021 compared to £450m in 2020. Compared to
operating cash flow, this measure includes restructuring costs but
does not include regular dividends from associates. It also
excludes capital expenditure on property, plant, equipment and
software, and additions to right of use assets as well as disposal
proceeds from the sale of property, plant, equipment and right of
use assets (including the impacts of transfers to/from investment
in finance lease receivable). In 2021, restructuring cash outflow
was £24m compared to £38m in 2020.
In
2021, there was an overall £176m decrease in cash and cash
equivalents compared to an increase of £679m in 2020. The
decrease in 2021 is primarily due to repayments of borrowings of
£167m, dividends paid of £149m, tax paid of £177m,
interest payments of £67m, capital expenditure of £176m,
acquisitions of £69m and repayments of lease liabilities of
£88m. These were offset by the cash inflow from operations of
£570m and proceeds from disposals of businesses and
investments of £131m.
Working
capital provisions continue to be an area of focus for the Group in
light of the impact of COVID-19 on trading, in particular the
adequacy of inventory and bad debt provisions. Reductions in the
total level of inventory held by the Group are driven by the
digital first strategy and the resulting reduction in physical
product. The increase in trade and other liabilities held by the
Group is driven by timing differences which have increased deferred
income, an increase in accruals related to severance and the
recognition of deferred consideration in relation to acquisitions
made in 2021. The increase in trade and other receivables held by
the Group is driven by revenue growth which has increased debtors
despite strong collections and an overall reduction in the bad debt
provision.
Liquidity
and capital resources
The
Group's net debt reduced from £463m at the end of 2020 to
£350m at the end of 2021. The decrease is largely due to
positive operating cashflow, proceeds from disposals of businesses
and investments and the disposal of lease liabilities with PIHE
partially offset by consideration paid for acquisitions and tax,
interest and dividend payments. Tax payments in 2021 include
amounts related to State Aid which the Group expects to recover in
due course.
In
May 2021, the Group repaid the remaining €195m of its
€500m Euro 1.85% notes. In June 2020, the Group completed the
issuance of £350m guaranteed notes maturing 4 June
2030.
At 31 December 2021, the Group
had available liquidity of c£1.6bn, comprising central cash
balances and its undrawn $1.19bn Revolving Credit Facility (RCF).
In February 2022, the Group renegotiated its revolving credit
facility, extending the maturity of $1bn of the facility by one
year to February 2026.
In
assessing the Group's viability for the five years to December
2026, the board analysed a variety of downside scenarios
including a severe but plausible scenario where the Group is
impacted by all principal risks from 2022 as well as reverse stress
testing to identify what would be required to either breach
covenants or run out of liquidity. The severe but plausible
scenario modelled an impact from risks which in aggregate were
significantly greater than seen in 2021 continuing throughout the
five year period.
Even under a severe downside case, the Group would maintain
comfortable liquidity headroom and sufficient headroom against
covenant requirements during the period under assessment even
before modelling the mitigating effect of actions that management
would take in the event that these downside risks were to
crystallise. The downside scenarios assume that the RCF will be
available throughout the period to 31 December 2026.
At 31 December 2021, the Group was rated BBB- (stable outlook) with
Fitch and Baa3 (stable outlook) with Moody's.
Post-retirement
benefits
Pearson
operates a variety of pension and post-retirement plans. Our UK
Group pension plan has by far the largest defined benefit section.
We have some smaller defined benefit sections in the US and Canada
but, outside the UK, most of our companies operate defined
contribution plans.
The
charge to profit in respect of worldwide pensions and
post-retirement benefits amounted to £58m in 2021 (2020:
£54m), of which a charge of £62m (2020: £60m) was
reported in adjusted operating profit and income of £4m (2020:
£6m) was reported in other net finance costs. The slight
increase in the operating charge in 2021 is mainly explained by
curtailments recognised in 2020 which are not repeated in
2021.
The
overall surplus on UK Group pension plans of £410m at the end
of 2020 has increased to a surplus of £537m at the end of
2021. The increase has arisen principally due to the actuarial gain
noted above in the other comprehensive income section. In total,
our worldwide net position in respect of pensions and other
post-retirement benefits increased from a net asset of £325m
at the end of 2020 to a net asset of £471m at the end of
2021.
Businesses
acquired and businesses disposed
In
September 2021, the Group completed the acquisition of 100% of the
share capital of Faethm Holdings Pty Limited ('Faethm'), having
already held 9% of the share capital previously. Total
consideration for the acquisition was £65m comprising cash
consideration of £49m, £6m related to the Group's
existing interest in Faethm and £10m of contingent
consideration payable in 2 years. Net assets acquired of £27m
have been recognised on the Group's balance sheet including
£21m of acquired intangible assets. Goodwill of £38m has
also been recognised in relation to the acquisition.
In
2021, the Group also made two smaller acquisitions for total
consideration of £11m and acquired interests in two
associates, Smashcut and Academy of Pop, for total consideration of
£17m. There were no significant acquisitions in
2020.
The
cash outflow in 2021 relating to acquisitions of subsidiaries is
£55m. In addition, there is a cash outflow relating to the
acquisition of associates of £10m and investments of £4m.
In 2020, the cash outflow in relation to acquisition of
subsidiaries was £6m which related to prior year acquisitions,
and the cash outflow in relation to acquisition of investments was
£6m.
In
March 2021, the Group announced the sale of its interests in K12
Sistemas in Brazil. The sale completed on 1 October 2021 for R$789m
realising a gain on disposal of £84m in 2021.
In
March 2021, the Group announced that it was launching a strategic
review of its international courseware local publishing businesses.
The strategic review is progressing in line with plan. The related
assets have been assessed in light of IFRS 5 'Non-current Assets
Held for Sale and Discontinued Operations' and they do not meet the
criteria to be classified as held for sale.
In
November 2020, the Group announced the sale of its interests in
PIHE in South Africa. At the end of December 2020, the assets and
liabilities of PIHE were classified as held for sale on the balance
sheet. The sale completed on 5 February 2021 for nominal
consideration realising a loss on disposal of £5m in
2021.
In
December 2019, the Group announced the sale of its remaining 25%
interest in PRH. The business was sold at the beginning of April
2020 for $675m realising a profit of £180m.
The
cash inflow in 2021 relating to the disposal of businesses of
£83m mainly relates to the disposal of the K12 Sistemas
business and deferred proceeds from the US K12 Courseware sale in
2019 offset by cash disposed with PIHE and other disposal costs. In
addition, in 2021 there is a cash inflow of £48m relating to
the disposal of certain investments held at fair value through
other comprehensive income. The cash inflow in 2020 of £631m
mainly relates to the disposal of PRH and the deferred proceeds
from US K12.
Further
details relating to these transactions can be found in notes 11 and
12 to the condensed consolidated financial statements.
Dividends
The
dividend accounted for in our 2021 financial statements totalling
£149m represents the final dividend in respect of 2020 (13.5p)
and the interim dividend for 2021 (6.3p). We are proposing a
final dividend for 2021 of 14.2p bringing the total paid and
payable in respect of 2021 to 20.5p. This final 2021 dividend
which was approved by the Board in February 2022, is subject to
approval at the forthcoming AGM and will be charged against 2022
profits. For 2021, the dividend is covered 1.7 times by
adjusted earnings.
Share buyback
On
24 February 2022, the Board approved a
£350m share buyback programme in order to return
capital to shareholders. The programme will commence as soon
as is practicable. The shares bought back will be cancelled
and the nominal value of the shares will be transferred to the
capital redemption reserve.
In
2020, approximately 30m shares were bought back and cancelled at a
cost of £176m. The nominal value of these shares, £7m was
transferred to the capital redemption reserve.
CONDENSED
CONSOLIDATED INCOME STATEMENT
for
the year ended 31 December 2021
|
|
|
|
all figures in £ millions
|
note
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
|
Sales
|
2
|
3,428
|
3,397
|
Cost of
goods sold
|
|
(1,747)
|
(1,767)
|
Gross
profit
|
|
1,681
|
1,630
|
|
|
|
|
Operating
expenses
|
|
(1,562)
|
(1,402)
|
Other
net gains and losses
|
2
|
63
|
178
|
Share
of results of joint ventures and associates
|
|
1
|
5
|
Operating
profit
|
2
|
183
|
411
|
|
|
|
|
Finance
costs
|
3
|
(68)
|
(107)
|
Finance
income
|
3
|
42
|
50
|
Profit
before tax
|
4
|
157
|
354
|
Income
tax
|
5
|
3
|
(44)
|
Profit
for the year
|
|
160
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
Equity
holders of the company
|
|
159
|
310
|
Non-controlling
interest
|
|
1
|
-
|
|
|
|
|
|
|
|
|
Earnings per share (in pence per
share)
|
|
|
|
Basic
|
6
|
21.1p
|
41.0p
|
Diluted
|
6
|
20.9p
|
41.0p
|
The
accompanying notes to the condensed consolidated financial
statements form an integral part of the financial
information.
CONDENSED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for
the year ended 31 December 2021
|
|
|
|
all figures in £ millions
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
160
|
310
|
|
|
|
|
Items
that may be reclassified to the income statement
|
|
|
|
Net
exchange differences on translation of foreign operations -
Group
|
|
(6)
|
(109)
|
Currency
translation adjustment disposed
|
|
4
|
(70)
|
Attributable
tax
|
|
10
|
(13)
|
|
|
|
|
Items
that are not reclassified to the income statement
|
|
|
|
Fair
value gain on other financial assets
|
|
24
|
14
|
Attributable
tax
|
|
(3)
|
(6)
|
Remeasurement of
retirement benefit obligations - Group
|
|
149
|
(23)
|
Attributable
tax
|
|
(61)
|
2
|
Other
comprehensive income / (expense) for the year
|
|
117
|
(205)
|
|
|
|
|
Total
comprehensive income for the year
|
|
277
|
105
|
|
|
|
|
Attributable
to:
|
|
|
|
Equity
holders of the company
|
|
276
|
105
|
Non-controlling
interest
|
|
1
|
-
|
CONDENSED
CONSOLIDATED BALANCE SHEET
as
at 31 December 2021
|
|
|
|
all figures in £ millions
|
note
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
366
|
515
|
Intangible
assets
|
10
|
2,769
|
2,742
|
Investments
in joint ventures and associates
|
|
24
|
6
|
Deferred
income tax assets
|
|
57
|
32
|
Financial
assets - derivative financial instruments
|
|
30
|
45
|
Retirement
benefit assets
|
|
537
|
410
|
Other
financial assets
|
|
113
|
138
|
Income
tax assets
|
|
97
|
-
|
Trade
and other receivables
|
|
129
|
223
|
Non-current assets
|
|
4,122
|
4,111
|
|
|
|
|
Intangible
assets - product development
|
|
894
|
905
|
Inventories
|
|
98
|
129
|
Trade
and other receivables
|
|
1,257
|
1,118
|
Financial
assets - derivative financial instruments
|
|
2
|
18
|
Income
tax assets
|
|
26
|
-
|
Cash
and cash equivalents (excluding overdrafts)
|
|
937
|
1,097
|
Current assets
|
|
3,214
|
3,267
|
|
|
|
|
Assets
classified as held for sale
|
|
7
|
73
|
Total assets
|
|
7,343
|
7,451
|
|
|
|
|
Financial
liabilities - borrowings
|
|
(1,245)
|
(1,397)
|
Financial
liabilities - derivative financial instruments
|
|
(30)
|
(40)
|
Deferred
income tax liabilities
|
|
(40)
|
(62)
|
Retirement
benefit obligations
|
|
(66)
|
(85)
|
Provisions
for other liabilities and charges
|
|
(7)
|
(8)
|
Other
liabilities
|
|
(95)
|
(80)
|
Non-current liabilities
|
|
(1,483)
|
(1,672)
|
|
|
|
|
Trade
and other liabilities
|
|
(1,256)
|
(1,196)
|
Financial
liabilities - borrowings
|
|
(155)
|
(254)
|
Financial
liabilities - derivative financial instruments
|
|
(4)
|
(12)
|
Income
tax liabilities
|
|
(125)
|
(84)
|
Provisions
for other liabilities and charges
|
|
(40)
|
(25)
|
Current liabilities
|
|
(1,580)
|
(1,571)
|
|
|
|
|
Liabilities
classified as held for sale
|
|
-
|
(74)
|
Total liabilities
|
|
(3,063)
|
(3,317)
|
|
|
|
|
Net assets
|
|
4,280
|
4,134
|
|
|
|
|
Share
capital
|
|
189
|
188
|
Share
premium
|
|
2,626
|
2,620
|
Treasury
shares
|
|
(12)
|
(7)
|
Reserves
|
|
1,467
|
1,324
|
Total
equity attributable to equity holders of the company
|
|
4,270
|
4,125
|
Non-controlling
interest
|
|
10
|
9
|
Total equity
|
|
4,280
|
4,134
|
The
condensed consolidated financial statements were approved by the
Board on 24 February 2022.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for
the year ended 31 December 2021
|
|
|
|
|
Equity
attributable to equity holders of the company
|
|
|
all figures in £ millions
|
Share
capital
|
Share
premium
|
Treasury
shares
|
Capital
redemption reserve
|
Fair
value reserve
|
Translation
reserve
|
Retained
earnings
|
Total
|
Non-controlling
interest
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
At
1 January 2021
|
188
|
2,620
|
(7)
|
18
|
53
|
388
|
865
|
4,125
|
9
|
4,134
|
Profit
for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
159
|
159
|
1
|
160
|
Other
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
24
|
(2)
|
95
|
117
|
-
|
117
|
Total
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
24
|
(2)
|
254
|
276
|
1
|
277
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
28
|
28
|
-
|
28
|
Transfer of gain on
disposal of FVOCI investment
|
-
|
-
|
-
|
-
|
(44)
|
-
|
44
|
-
|
-
|
-
|
Issue
of ordinary shares
|
1
|
6
|
(1)
|
-
|
-
|
-
|
-
|
6
|
-
|
6
|
Buyback
of equity
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Purchase of
treasury shares
|
-
|
-
|
(16)
|
-
|
-
|
-
|
-
|
(16)
|
-
|
(16)
|
Release
of treasury shares
|
-
|
-
|
12
|
-
|
-
|
-
|
(12)
|
-
|
-
|
-
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(149)
|
(149)
|
-
|
(149)
|
At
31 December 2021
|
189
|
2,626
|
(12)
|
18
|
33
|
386
|
1,030
|
4,270
|
10
|
4,280
|
2020
|
At 1
January 2020
|
195
|
2,614
|
(24)
|
11
|
39
|
567
|
911
|
4,313
|
10
|
4,323
|
Profit
for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
310
|
310
|
-
|
310
|
Other
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
14
|
(179)
|
(40)
|
(205)
|
-
|
(205)
|
Total
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
14
|
(179)
|
270
|
105
|
-
|
105
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
29
|
29
|
-
|
29
|
Transfer of gain on
disposal of FVOCI investment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Issue
of ordinary shares
|
-
|
6
|
-
|
-
|
-
|
-
|
-
|
6
|
-
|
6
|
Buyback
of equity
|
(7)
|
-
|
-
|
7
|
-
|
-
|
(176)
|
(176)
|
-
|
(176)
|
Purchase of
treasury shares
|
-
|
-
|
(6)
|
-
|
-
|
-
|
-
|
(6)
|
-
|
(6)
|
Release
of treasury shares
|
-
|
-
|
23
|
-
|
-
|
-
|
(23)
|
-
|
-
|
-
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(146)
|
(146)
|
(1)
|
(147)
|
At 31
December 2020
|
188
|
2,620
|
(7)
|
18
|
53
|
388
|
865
|
4,125
|
9
|
4,134
|
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for
the year ended 31 December 2021
|
|
|
|
all figures in £ millions
|
note
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
Net
cash generated from operations
|
14
|
570
|
450
|
Interest
paid
|
|
(67)
|
(63)
|
Tax
(paid) / received
|
|
(177)
|
2
|
Net
cash generated from operating activities
|
|
326
|
389
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
Acquisition of
subsidiaries, net of cash acquired
|
11
|
(55)
|
(6)
|
Acquisition of
associates
|
|
(10)
|
-
|
Purchase of
investments
|
|
(4)
|
(6)
|
Purchase of
property, plant and equipment
|
|
(64)
|
(53)
|
Purchase of
intangible assets
|
|
(112)
|
(81)
|
Disposal of
subsidiaries, net of cash disposed
|
12
|
83
|
100
|
Proceeds from sale
of joint ventures and associates
|
12
|
-
|
531
|
Proceeds from sale
of investments
|
12
|
48
|
-
|
Lease
receivables repaid including disposals
|
|
21
|
41
|
Loans
repaid by related parties
|
|
-
|
48
|
Interest
received
|
|
13
|
13
|
Dividends from
joint ventures and associates
|
|
-
|
4
|
Net
cash (used in) / generated from investing activities
|
|
(80)
|
591
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
Proceeds from issue
of ordinary shares
|
|
6
|
6
|
Buyback
of equity
|
|
-
|
(176)
|
Purchase of
treasury shares
|
|
(16)
|
(6)
|
Proceeds from
borrowings
|
|
-
|
346
|
Repayment of
borrowings
|
|
(167)
|
(230)
|
Repayment of lease
liabilities
|
|
(88)
|
(92)
|
Dividends paid to
company's shareholders
|
|
(149)
|
(146)
|
Dividends paid to
non-controlling interest
|
|
-
|
(1)
|
Net
cash used in financing activities
|
|
(414)
|
(299)
|
|
|
|
|
Effects
of exchange rate changes on cash and cash equivalents
|
|
(8)
|
(2)
|
Net
(decrease) / increase in cash and cash equivalents
|
|
(176)
|
679
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
1,113
|
434
|
Cash
and cash equivalents at end of year
|
|
937
|
1,113
|
For
the purposes of the cash flow statement, cash and cash equivalents
are presented net of overdrafts repayable on demand. These
overdrafts are excluded from cash and cash equivalents disclosed on
the balance sheet.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
1. Basis of preparation
The condensed consolidated financial statements have been prepared
in accordance with the Disclosure and Transparency Rules of the
Financial Conduct Authority and in accordance with UK-adopted
International Accounting Standards. On 31 December 2020, IFRS as
adopted by the European Union at that date was brought into UK law
and became UK-adopted International Accounting Standards, with
future changes being subject to endorsement by the UK Endorsement
Board. The Group transitioned to UK-adopted International
Accounting Standards in its condensed consolidated financial
statements on 1 January 2021. This change constitutes a change in
accounting framework. However, there is no impact on recognition,
measurement or disclosure in the period reported as a result of the
change in framework. The condensed consolidated financial
statements have also been prepared in accordance with the
International Financial Reporting Standards as issued by the
International Accounting Standards Board (IASB). In respect of
accounting standards applicable to the Group, there is no
difference between UK-adopted International Accounting Standards
and IFRSs as issued by the IASB.
The condensed consolidated financial statements have also been
prepared in accordance with the accounting policies set out in the
2020 Annual Report, except as outlined above, and have been
prepared under the historical cost convention as modified by the
revaluation of certain financial assets and liabilities (including
derivative financial instruments) at fair value.
No new standards were adopted in 2021. 'Interest Rate Benchmark
Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and
IFRS 16)' is effective from 1 January 2021 and in addition, the
Group has early adopted the amendment to IFRS 16 'COVID-19 related
rent concessions beyond 30 June 2021'. The amendments do not have a
material impact on the condensed consolidated financial statements.
The Group has also considered the IFRIC interpretation on
'Configuration and Customisation costs in a Cloud Computing
Arrangement' and concluded that it does not have a material impact
on the condensed consolidated financial statements.
The 2020 Annual Report refers to new standards that the Group will
adopt in future years but that are not yet effective in 2021. The
Group does not expect these to have a material impact.
In assessing the Group's ability to continue as a going concern for
the period to 30 June 2023, the board analysed a variety of
downside scenarios including a severe but plausible scenario where
the Group is impacted by all principal risks from 2022 as well as
reverse stress testing to identify what would be required to either
breach covenants or run out of liquidity. The severe but plausible
scenario modelled a severe reduction in revenue, profit and
operating cash flow from risks which in aggregate were
significantly greater than seen in 2021 continuing throughout 2022
to 2023.
At 31 December 2021, the Group had available liquidity of
c£1.6bn, comprising central cash balances and its undrawn
$1.19bn Revolving Credit Facility (RCF). In February 2022, the
Group renegotiated its revolving credit facility, extending the
maturity of $1bn of the facility by one year to February
2026. Even under a severe downside case, the Group would
maintain comfortable liquidity headroom and sufficient headroom
against covenant requirements during the period under assessment
even before modelling the mitigating effect of actions that
management would take in the event that these downside risks were
to crystallise.
The directors have 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 for a
minimum of the next 12 months. The condensed consolidated financial
statements have therefore been prepared on a going concern
basis.
The preparation of condensed consolidated financial statements
requires the use of certain critical accounting assumptions. It
also requires management to exercise its judgement in the process
of applying the Group's accounting policies. The areas requiring a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the condensed
consolidated financial statements, have been set out in the 2020
Annual Report.
For the year ended 31 December 2021, in light of the new strategy
and organisation design, a key judgement has been added in respect
of the allocation of goodwill to cash generating units and groups
of cash generating units. In addition, in 2021, the Group has
undertaken a programme to simplify its property portfolio to occupy
a significantly smaller square footage. The recoverability of right
of use assets and in particular assumptions related to the ability
to sublease leased assets in the future has become a key area of
estimation.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
1. Basis of
preparation continued
As set out in the 2020 Annual Report, other areas where assumptions
and estimates are significant include the recoverability of
goodwill balances, the valuation of tax balances, provisions for
returns and the valuation of retirement benefit obligations and
assets. The recoverability of product development assets is no
longer considered an area of key estimation as the risk of a
material adjustment within the next financial year has diminished
as impairment triggers resulting from COVID-19 have reduced. In
addition, the Group has assessed the impact of the uncertainty
presented by the COVID-19 pandemic on the condensed consolidated
financial statements, specifically considering the impact on key
judgements and significant estimates along with other areas of
increased risk including provisions for bad debt, provisions for
inventory obsolescence, valuation of property related assets and
financial instruments. No material accounting impacts relating to
the areas assessed were recognised in 2021. The Group will continue
to monitor these areas of increased judgement, estimation and risk
for material changes.
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 2021 or the
assessment of going concern for the period to June
2023.
The financial information for the year ended 31 December 2020 does
not constitute statutory accounts as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that year
has been delivered to the Registrar of Companies. The independent
auditors' report on the full financial statements for the year
ended 31 December 2020 was unqualified and did not contain an
emphasis of matter paragraph or any statement under section 498 of
the Companies Act 2006.
This preliminary announcement does not constitute the Group's full
financial statements for the year ended 31 December 2021. The
Group's full financial statements will be approved by the Board of
Directors and reported on by the auditors in March
2022. Accordingly, the financial information for 2021 is
presented unaudited in the preliminary
announcement.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
for the year ended 31 December 2021
2. Segment information
On 8 March 2021, the Group announced a new strategy, which included
a new management structure and operating model. As a result, the
primary operating segments reported to the Group's chief operating
decision-maker, the Pearson Executive Management team, have changed
from 1 July 2021 to reflect the new Group structure. There are now
five main global business divisions, which are each considered
separate operating segments for management and reporting purposes.
These five divisions are Virtual Learning, Higher Education,
English Language Learning, Workforce Skills and Assessments &
Qualifications. In addition, the International Courseware local
publishing businesses are under strategic review and during this
time are being managed as a separate division, known as Strategic
Review. For the comparative period, the Group has separately
disclosed the results from the Penguin Random House associate (PRH)
to the point of disposal in April 2020. Comparative figures for
2020 have been restated to reflect the new segments.
The following describes the principal activities of the five main
operating segments:
- Assessments
& Qualifications - Pearson VUE, US School Assessment, Clinical
Assessment, UK GCSE and A Levels and International academic
qualifications.
- 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, Pearson College and
Apprenticeships.
- Higher
Education - US, Canadian and International Higher Education
Courseware businesses.
all figures in £ millions
|
|
2021
|
2020¹
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
Assessments &
Qualifications
|
|
1,204
|
1,082
|
Virtual
Learning
|
|
713
|
692
|
English
Language Learning
|
|
238
|
218
|
Workforce
Skills
|
|
172
|
163
|
Higher
Education
|
|
849
|
956
|
Strategic
Review
|
|
252
|
286
|
Total
sales
|
|
3,428
|
3,397
|
|
|
|
|
Adjusted
operating profit
|
|
|
|
Assessments &
Qualifications
|
|
216
|
147
|
Virtual
Learning
|
|
32
|
29
|
English
Language Learning
|
|
15
|
1
|
Workforce
Skills
|
|
27
|
26
|
Higher
Education
|
|
73
|
93
|
Strategic
Review
|
|
22
|
16
|
Penguin
Random House
|
|
-
|
1
|
Total
adjusted operating profit
|
|
385
|
313
|
1. Comparative amounts have
been restated to reflect the new operating
segments.
There were no material inter-segment sales.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
for the year ended 31 December 2021
2. Segment
information continued
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
|
Assessment &
Qualifications
|
Virtual
Learning
|
English
Language Learning
|
Workforce
Skills
|
Higher
Education
|
Strategic
Review
|
Total
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
Courseware
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
44
|
-
|
109
|
-
|
283
|
198
|
634
|
Products and
services transferred over time
|
14
|
-
|
26
|
-
|
558
|
33
|
631
|
|
58
|
-
|
135
|
-
|
841
|
231
|
1,265
|
Assessments
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
173
|
-
|
6
|
16
|
-
|
-
|
195
|
Products and
services transferred over time
|
973
|
-
|
72
|
119
|
-
|
-
|
1,164
|
|
1,146
|
-
|
78
|
135
|
-
|
-
|
1,359
|
Services
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
-
|
-
|
22
|
-
|
-
|
14
|
36
|
Products and
services transferred over time
|
-
|
713
|
3
|
37
|
8
|
7
|
768
|
|
-
|
713
|
25
|
37
|
8
|
21
|
804
|
|
|
|
|
|
|
|
|
Total
sales
|
1,204
|
713
|
238
|
172
|
849
|
252
|
3,428
|
2020¹
|
|
|
|
Courseware
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
43
|
-
|
106
|
-
|
313
|
208
|
670
|
Products and
services transferred over time
|
14
|
-
|
24
|
-
|
630
|
28
|
696
|
|
57
|
-
|
130
|
-
|
943
|
236
|
1,366
|
Assessments
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
138
|
-
|
3
|
7
|
-
|
-
|
148
|
Products and
services transferred over time
|
887
|
-
|
61
|
123
|
-
|
-
|
1,071
|
|
1,205
|
-
|
64
|
130
|
-
|
-
|
1,219
|
Services
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
-
|
-
|
22
|
-
|
-
|
22
|
44
|
Products and
services transferred over time
|
-
|
692
|
2
|
33
|
13
|
28
|
768
|
|
-
|
692
|
24
|
33
|
13
|
50
|
812
|
|
|
|
|
|
|
|
|
Total
sales
|
1,082
|
692
|
218
|
163
|
956
|
286
|
3,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Comparative amounts have been restated
to reflect the new operating segments.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS for the year ended 31 December
2021
2. Segment
information continued
Adjusted
operating profit is one of the Group's key business performance
measures. The measure includes the operating profit from the total
business but excludes intangible charges for amortisation and
impairment, acquisition related costs, gains and losses arising
from acquisitions and disposals and the cost of major
restructuring.
Cost
of major restructuring - In March 2021, the Group announced a
restructuring programme, to run primarily in 2021. The programme
includes the reorganisation of the Group into five global business
divisions and the simplification of the Group's property portfolio.
The restructuring costs in 2021 of £214m mainly relate to the
impairment of right of use property assets, the write-down of
product development assets and staff redundancies.
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 2021 were £51m including
impairment charges of nil. In 2020, intangible charges were
£80m including impairment charges of £12m.
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 2021 largely relate to gains from the disposal of PIHE
and the K12 Sistemas business in Brazil offset by costs related to
the acquisition of Faethm and the wind down of certain strategic
review businesses. In 2020 other net gains and losses largely
relate to the sale of the remaining interest in PRH.
The
following table reconciles adjusted operating profit to operating
profit for each of our primary segments.
|
Assessments &
Qualifications
|
Virtual
Learning
|
English
Language Learning
|
Workforce
Skills
|
Higher
Education
|
Strategic
Review
|
Penguin
Random House
|
Total
|
all figures in £ millions
|
|
|
2021
|
Adjusted operating
profit
|
216
|
32
|
15
|
27
|
73
|
22
|
-
|
385
|
Cost of
major restructuring
|
(48)
|
(48)
|
(27)
|
(28)
|
(63)
|
-
|
-
|
(214)
|
Intangible
charges
|
(13)
|
(25)
|
(3)
|
(7)
|
(2)
|
(1)
|
-
|
(51)
|
Other
net gains and losses
|
-
|
-
|
-
|
(2)
|
-
|
65
|
-
|
63
|
Operating
profit / (loss)
|
155
|
(41)
|
(15)
|
(10)
|
8
|
86
|
-
|
183
|
|
|
|
|
|
|
|
|
|
|
20201
|
Adjusted operating
profit
|
147
|
29
|
1
|
26
|
93
|
16
|
1
|
313
|
Cost of
major restructuring
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Intangible
charges
|
(29)
|
(30)
|
(7)
|
(8)
|
(3)
|
(3)
|
-
|
(80)
|
Other
net gains and losses
|
-
|
-
|
-
|
-
|
-
|
(2)
|
180
|
178
|
Operating
profit / (loss)
|
118
|
(1)
|
(6)
|
18
|
90
|
11
|
181
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Comparative amounts have been restated
to reflect the new operating segments.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
3. Net finance costs
|
|
|
|
all figures in £ millions
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Net
interest payable
|
|
(57)
|
(61)
|
Net
finance income in respect of retirement benefits
|
|
4
|
6
|
Fair
value re-measurement of disposal proceeds
|
|
6
|
26
|
Net
foreign exchange gains / (losses)
|
|
1
|
(6)
|
Derivatives not in
a hedge relationship
|
|
20
|
(22)
|
Net
finance costs
|
|
(26)
|
(57)
|
|
|
|
|
Analysed
as:
|
|
|
|
Finance
costs
|
|
(68)
|
(107)
|
Finance
income
|
|
42
|
50
|
Net
finance costs
|
|
(26)
|
(57)
|
|
|
|
|
Analysed
as:
|
|
|
|
Net
interest payable reflected in adjusted earnings
|
|
(57)
|
(61)
|
Other
net finance income
|
|
31
|
4
|
Net
finance costs
|
|
(26)
|
(57)
|
Net interest payable is the finance cost measure used in
calculating adjusted earnings. Net finance costs classified as
other net finance costs are excluded from the calculation of the
Group's adjusted earnings.
Net finance income in respect of retirement benefits is excluded as
it is considered that the presentation does not reflect the
economic substance of the underlying assets and liabilities. The
Group excludes finance costs relating to acquisition and disposal
transactions as these relate to future earn-outs or acquisition
expenses and are not part of the underlying financing. In 2021 and
2020, the fair value re-measurement of disposal proceeds relates to
the US K12 disposal in 2019.
Foreign exchange and other gains and losses are also 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. In 2021 and 2020, the foreign
exchange gains and losses largely relate to foreign exchange
differences on unhedged intercompany loans and cash and cash
equivalents. Losses on derivatives not in a hedge relationship
represent the unrealised mark to market of long-term interest rate
hedges used to fix the interest rate of borrowings.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
4. Profit before tax
|
|
|
|
all figures in £ millions
|
note
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Profit
before tax
|
|
157
|
354
|
Cost of
major restructuring
|
2
|
214
|
-
|
Other
net gains and losses
|
2
|
(63)
|
(178)
|
Intangible
charges
|
2
|
51
|
80
|
Other
net finance income
|
3
|
(31)
|
(4)
|
Adjusted
profit before tax
|
|
328
|
252
|
5. Income tax
|
|
|
|
all figures in £ millions
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Income
tax benefit / (charge)
|
|
3
|
(44)
|
Tax
benefit on cost of major restructuring
|
|
(47)
|
-
|
Tax
charge on other net gains and losses
|
|
14
|
3
|
Tax
benefit on intangible charges
|
|
(12)
|
(22)
|
Tax
charge on other net finance costs
|
|
6
|
4
|
Tax
amortisation benefit on goodwill and intangibles
|
|
8
|
24
|
Benefit
from change in tax accounting treatment
|
|
(11)
|
-
|
Tax
benefit on UK tax rate change
|
|
(25)
|
-
|
Adjusted
income tax charge
|
|
(64)
|
(35)
|
|
|
|
|
Tax
rate reflected in statutory earnings
|
|
(1.8)%
|
12.5%
|
Tax
rate reflected in adjusted earnings
|
|
19.5%
|
13.7%
|
The
adjusted income tax charge excludes the tax benefit or charge on
items excluded from the profit before tax (see note
4).
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.
In
2020, included within the tax charge relating to intangible charges
above is a one-off charge of £17m relating to the impairment
of a deferred tax asset associated with goodwill. If this item was
excluded there would be a tax credit of £10m associated with
intangible charges.
The
Budget in March 2021 announced an increase in the UK corporation
tax rate to 25% with effect from 1 April 2023. This was
substantively enacted on 24 May 2021. The UK corporation tax rate
increase has resulted in an increase of £27m in the UK
deferred tax liability associated with the UK Group pension plan
asset position, which has been recognised in other comprehensive
income, together with a £25m increase in UK deferred tax
assets, which has been recognised in the income
statement.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
6. Earnings per share
Basic
earnings per share is calculated by dividing the profit or loss
attributable to equity shareholders of the company (earnings) by
the weighted average number of ordinary shares in issue during the
year, excluding ordinary shares purchased by the company and held
as treasury shares. Diluted earnings per share is calculated by
adjusting the weighted average number of ordinary shares to take
account of all dilutive potential ordinary shares and adjusting the
profit attributable, if applicable, to account for any tax
consequences that might arise from conversion of those
shares.
|
|
|
|
all figures in £ millions
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Earnings for the
year
|
|
160
|
310
|
Non-controlling
interest
|
|
(1)
|
-
|
Earnings
attributable to equity holders
|
|
159
|
310
|
|
|
|
|
|
|
|
|
Weighted average
number of shares (millions)
|
|
754.1
|
755.4
|
Effect
of dilutive share options (millions)
|
|
5.0
|
0.0
|
Weighted average
number of shares (millions) for diluted earnings
|
|
759.1
|
755.4
|
|
|
|
|
|
|
|
|
Earnings per share (in pence per
share)
|
|
|
|
Basic
|
|
21.1p
|
41.0p
|
Diluted
|
|
20.9p
|
41.0p
|
7. Adjusted earnings per share
In order to show results from operating activities on a consistent
basis, an adjusted earnings per share is presented which excludes
certain items as set out below.
Adjusted earnings is a non-GAAP financial measure and is included
as it is a key financial measure used by management to evaluate
performance and allocate resources to business segments. The
measure also enables our investors to more easily, and
consistently, track the underlying operational performance of the
Group and its business segments over time by separating out those
items of income and expenditure relating to acquisition and
disposal transactions, major restructuring programmes and certain
other items that are also not representative of underlying
performance (see notes 2, 3, 4 and 5 for further information and
reconciliation to equivalent statutory measures).
The adjusted earnings per share includes both continuing and
discontinued businesses on an undiluted basis when relevant. The
Group's definition of adjusted earnings per share may not be
comparable to other similarly titled measures reported by other
companies. A reconciliation of the adjusted measures to their
corresponding statutory measures is shown in the tables below and
in notes 2, 3, 4 and 5.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
7.
Adjusted earnings per share continued
|
|
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
Statutory
income statement
|
Cost of
major restructuring
|
Other
net gains and losses
|
Intangible
charges
|
Other
net finance costs
|
Benefit
from change in tax accounting treatment
|
Change
in UK tax rate
|
Tax
amortisation benefit
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
Operating
profit
|
2
|
183
|
214
|
(63)
|
51
|
-
|
-
|
-
|
-
|
385
|
Net
finance costs
|
3
|
(26)
|
-
|
-
|
-
|
(31)
|
-
|
-
|
-
|
(57)
|
Profit
before tax
|
4
|
157
|
214
|
(63)
|
51
|
(31)
|
-
|
-
|
-
|
328
|
Income
tax
|
5
|
3
|
(47)
|
14
|
(12)
|
6
|
(11)
|
(25)
|
8
|
(64)
|
Profit
for the year
|
|
160
|
167
|
(49)
|
39
|
(25)
|
(11)
|
(25)
|
8
|
264
|
Non-controlling
interest
|
|
(1)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1)
|
Earnings
|
|
159
|
167
|
(49)
|
39
|
(25)
|
(11)
|
(25)
|
8
|
263
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares (millions)
|
|
|
|
|
754.1
|
Weighted
average number of shares (millions) for diluted
earnings
|
|
|
|
|
759.1
|
|
|
|
|
|
|
Adjusted
earnings per share (basic)
|
|
|
|
|
34.9p
|
Adjusted
earnings per share (diluted)
|
|
|
|
|
34.6p
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
7.
Adjusted earnings per share continued
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
Statutory
income statement
|
Cost of
major restructuring
|
Other
net gains and losses
|
Intangible
charges
|
Other
net finance costs
|
Tax
amortisation benefit
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
2020
|
Operating
profit
|
2
|
411
|
-
|
(178)
|
80
|
-
|
-
|
313
|
Net
finance costs
|
3
|
(57)
|
-
|
-
|
-
|
(4)
|
-
|
(61)
|
Profit
before tax
|
4
|
354
|
-
|
(178)
|
80
|
(4)
|
-
|
252
|
Income
tax
|
5
|
(44)
|
-
|
3
|
(22)
|
4
|
24
|
(35)
|
Profit
for the year
|
|
310
|
-
|
(175)
|
58
|
-
|
24
|
217
|
Non-controlling
interest
|
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Earnings
|
|
310
|
-
|
(175)
|
58
|
-
|
24
|
217
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares (millions)
|
|
|
755.4
|
Weighted
average number of shares (millions) for diluted
earnings
|
|
|
755.4
|
|
|
|
|
Adjusted
earnings per share (basic)
|
|
|
28.7p
|
Adjusted
earnings per share (diluted)
|
|
|
28.7p
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
8. Dividends
|
|
|
|
all figures in £ millions
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Amounts
recognised as distributions to equity shareholders in the
year
|
|
149
|
146
|
The
directors are proposing a final dividend of 14.2p per equity share,
payable on 6 May 2022 to shareholders on the register at the close
of business on 25 March 2022. This final dividend, which will
absorb an estimated £107m of shareholders' funds, has not been
included as a liability as at 31 December 2021.
9. Exchange rates
Pearson
earns a significant proportion of its sales and profits in overseas
currencies, the most important being the US dollar. The relevant
rates are as follows:
|
|
|
|
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Average
rate for profits
|
|
1.38
|
1.28
|
Year
end rate
|
|
1.35
|
1.37
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
10. Non-current intangible
assets
|
|
|
|
all figures in £ millions
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Goodwill
|
|
2,145
|
2,094
|
Other
intangibles
|
|
624
|
648
|
Non-current
intangible assets
|
|
2,769
|
2,742
|
In
2021, the CGUs and aggregations of CGUs were revised to take into
account the announcement and implementation of a new strategy
including five new business divisions and a strategic review
division. The newly created CGUs and CGU aggregations reflect the
level at which goodwill is monitored by management and mirror the
primary operating segments. Goodwill has been reallocated to the
new CGUs and aggregations of CGUs using a relative value method.
The new CGU aggregations and the associated goodwill balances are
set out in the table below:
|
|
|
all figures in £ millions
|
|
2021
|
|
|
|
|
|
|
Assessments &
Qualifications
|
|
1,198
|
Virtual
Learning
|
|
395
|
English
Language Learning
|
|
153
|
Workforce
Skills
|
|
223
|
Higher
Education
|
|
68
|
Strategic
Review
|
|
108
|
Total
goodwill
|
|
2,145
|
Following
the annual impairment review for 2021, no impairment charges have
been recorded against goodwill or intangibles. In 2020, following
the annual impairment review, impairments of £12m were
recorded against intangibles, but no impairments were recorded
against goodwill.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
11. Acquisitions
In September 2021, Pearson completed the acquisition of 100% of the
share capital of Faethm, having already held 9% of the share
capital. Faethm uses artificial intelligence and analytics services
to help governments, companies and workers understand the dynamic
forces shaping the labour market. Faethm will be part of the
Workforce Skills division. The total consideration for the
transaction was £65m, which included £10m of contingent
consideration which is payable after two years, dependent upon
meeting certain earnings targets. The contingent consideration has
been valued at the net present value of the Group's best estimate
of the amount that will be payable.
In addition, 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 will be part of the Assessments &
Qualifications division.
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. The fair values of Faethm's net assets are
provisional at this stage as management are finalising their review
of the asset valuations. The provisional goodwill arising from the
acquisition of Faethm represents assets and benefits that cannot be
separately recognised. The goodwill is not deductible for tax
purposes and at the acquisition date there were no material
contingent liabilities.
There were no significant acquisitions in 2020.
|
|
|
|
|
|
|
all figures in £ millions
|
|
|
2021
Faethm
|
2021
Other
|
2021
Total
|
2020
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
|
21
|
6
|
27
|
-
|
Deferred
tax assets
|
|
|
11
|
-
|
11
|
-
|
Trade
and other receivables
|
|
|
1
|
1
|
2
|
-
|
Cash
and cash equivalents (excluding overdrafts)
|
|
|
4
|
-
|
4
|
-
|
Trade
and other liabilities
|
|
|
(4)
|
(1)
|
(5)
|
-
|
Deferred tax
liabilities
|
|
|
(6)
|
-
|
(6)
|
-
|
Net assets acquired
|
|
|
27
|
6
|
33
|
-
|
Goodwill
|
|
|
38
|
5
|
43
|
-
|
Total
|
|
|
65
|
11
|
76
|
-
|
|
|
|
|
|
|
|
Satisfied by:
|
|
|
|
|
|
|
Cash
consideration
|
|
|
49
|
5
|
54
|
-
|
Fair
value of existing interest
|
|
|
6
|
-
|
6
|
|
Contingent
consideration
|
|
|
10
|
6
|
16
|
-
|
Total consideration
|
|
|
65
|
11
|
76
|
-
|
|
|
|
|
|
|
|
Cash flow from acquisitions
|
|
|
|
|
|
|
Cash -
current year acquisitions
|
|
|
(49)
|
(5)
|
(54)
|
-
|
Cash
and cash equivalents acquired
|
|
|
4
|
-
|
4
|
-
|
Deferred
payments for prior year acquisitions
|
|
|
-
|
(4)
|
(4)
|
(6)
|
Acquisition
costs paid
|
|
|
(1)
|
-
|
(1)
|
-
|
Net cash outflow from acquisitions
|
|
|
(46)
|
(9)
|
(55)
|
(6)
|
Faethm
generated revenues of £1m and a loss before tax of £1m
for the period from the acquisition date to 31 December 2021. If
the acquisition had occurred on 1 January 2021, there would not
have been a material impact on the Group's results.
Total
acquisition-related costs of £2m were recognised in 2021
within other operating costs.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
12. Disposals
In
February 2021, the Group completed the sale of its interests in
PIHE in South Africa resulting in a pre-tax loss of £5m. In
October 2021, the Group completed the sale of its K12 Sistemas
business in Brazil resulting in a pre-tax gain 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. In
April 2020, the Group completed the sale of the remaining 25%
interest in PRH resulting in a pre-tax profit of £180m. There
were no other material disposals in 2020. Deferred proceeds
relating to the K12 sale were received in 2021 and
2020.
|
|
|
|
|
all figures in £ millions
|
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
|
(3)
|
-
|
Property,
plant and equipment
|
|
|
(48)
|
-
|
Investments
in joint ventures and associates
|
|
|
-
|
(418)
|
Intangible
assets - product development
|
|
|
(6)
|
-
|
Inventories
|
|
|
(2)
|
-
|
Trade
and other receivables
|
|
|
(6)
|
-
|
Cash
and cash equivalents (excluding overdrafts)
|
|
|
(24)
|
-
|
Provisions
for other liabilities and charges
|
|
|
3
|
-
|
Trade
and other liabilities
|
|
|
4
|
-
|
Financial
liabilities - Borrowings
|
|
|
67
|
-
|
Cumulative
translation adjustment
|
|
|
(4)
|
70
|
Net assets disposed
|
|
|
(19)
|
(348)
|
|
|
|
|
|
Cash
proceeds
|
|
|
108
|
531
|
Costs
of disposal including business wind downs
|
|
|
(24)
|
1
|
Gain on disposal
|
|
|
65
|
184
|
|
|
|
|
|
Cash flow from disposals
|
|
|
|
|
Proceeds
- current year disposals
|
|
|
108
|
531
|
Proceeds
- prior year disposals
|
|
|
16
|
105
|
Cash
and cash equivalents disposed
|
|
|
(24)
|
-
|
Costs
and other disposal liabilities paid
|
|
|
(17)
|
(5)
|
Net cash inflow from disposals
|
|
|
83
|
631
|
In addition to the above, in 2021, proceeds of £48m were
received in relation to the disposal of certain investments held at
fair value through other comprehensive income.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
13. Net debt
|
|
|
|
all figures in £ millions
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
Derivative
financial instruments
|
|
30
|
45
|
Trade
and other receivables - investment in finance lease
|
|
100
|
112
|
Current
assets
|
|
|
|
Derivative
financial instruments
|
|
2
|
18
|
Trade
and other receivables - investment in finance lease
|
|
15
|
18
|
Cash
and cash equivalents (excluding overdrafts)
|
|
937
|
1,116
|
Non-current
liabilities
|
|
|
|
Borrowings
|
|
(1,245)
|
(1,463)
|
Derivative
financial instruments
|
|
(30)
|
(40)
|
Current
liabilities
|
|
|
|
Borrowings
|
|
(155)
|
(257)
|
Derivative
financial instruments
|
|
(4)
|
(12)
|
Net
debt
|
|
(350)
|
(463)
|
Net
debt presented above includes no borrowings (2020: £69m) or
cash and cash equivalents (2020: £19m) which are included in
assets and liabilities held for sale.
Included
in borrowings at 31 December 2021 are lease liabilities of
£633m (non-current £565m, current £68m). This
compares to lease liabilities of £752m (non-current
£676m, current £76m) at 31 December 2020. The net lease
liability at 31 December 2021 after including the investment in
finance leases noted above was £518m (2020: £622m). Net
cash excluding net lease liabilities was £168m (2020:
£159m).
On
4 June 2020, the Group completed the issuance of £350m
guaranteed notes maturing 4 June 2030. The notes bear a coupon of
3.75% and have been issued in accordance with the ICMA Social Bond
Principles 2018. The proceeds will be primarily used to finance and
re-finance delivery of education in Connections Academy, BTEC and
GED businesses to help achieve the United Nations' 4th Sustainable
Development Goal (SDG) for a Quality Education. The social bond
framework is a natural progression of Pearson's long-standing
commitment to integrating social and environmental sustainability
into the business.
In
2021, the movement on borrowings reflects the repayment of amounts
outstanding under the Group's 1.875% Euro bond. In addition, bonds
maturing in 2022 have been reclassified from non-current to current
borrowings.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
14. Cash flows
|
|
|
|
all figures in £ millions
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Reconciliation
of profit for the year to net cash generated from
operations
|
|
|
|
|
|
|
Profit
for the year
|
|
160
|
310
|
Income
tax
|
|
(3)
|
44
|
Depreciation,
amortisation and impairment charges
|
|
408
|
317
|
Net
profit on disposal of businesses
|
|
(65)
|
(184)
|
Other
net gains and losses
|
|
2
|
6
|
Net
loss on disposal of fixed assets
|
|
4
|
2
|
Net
profit on disposal of right of use assets including transfers to
investment in finance lease receivable
|
|
-
|
(6)
|
Net
finance costs
|
|
26
|
57
|
Share
of results of joint ventures and associates
|
|
(1)
|
(5)
|
Net
foreign exchange adjustment
|
|
9
|
(34)
|
Share-based payment
costs
|
|
28
|
29
|
Product
development
|
|
(6)
|
(56)
|
Inventories
|
|
22
|
35
|
Trade
and other receivables
|
|
(71)
|
(1)
|
Trade
and other liabilities
|
|
37
|
(26)
|
Retirement benefit
obligations
|
|
6
|
(1)
|
Provisions for
other liabilities and charges
|
|
14
|
(37)
|
Net
cash generated from operations
|
|
570
|
450
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
14. Cash flows continued
|
|
|
|
all figures in £ millions
|
note
|
2021
|
2020
|
|
|
|
|
|
|
|
|
Reconciliation
of net cash generated from operations to closing net
debt
|
|
|
|
|
|
|
Net
cash generated from operations
|
|
570
|
450
|
Dividends from
joint ventures and associates
|
|
-
|
4
|
Purchase of
PPE
|
|
(64)
|
(53)
|
Addition of new
right-of-use lease assets
|
|
(30)
|
(61)
|
Net
disposal of right-of-use lease assets including transfers to/from
investment in finance lease receivable
|
|
-
|
18
|
Purchase of
intangible assets
|
|
(112)
|
(81)
|
Add
back: net costs paid for major restructuring
|
|
24
|
38
|
Operating
cash flow
|
|
388
|
315
|
Operating tax
paid
|
|
(60)
|
(10)
|
Net
operating finance costs paid
|
|
(54)
|
(50)
|
Operating
free cash flow
|
|
274
|
255
|
Non-operating tax
(paid) / received
|
|
(117)
|
12
|
Net
costs paid for major restructuring
|
|
(24)
|
(38)
|
Free
cash flow
|
|
133
|
229
|
Dividends paid
(including to non-controlling interest)
|
|
(149)
|
(147)
|
Net
movement of funds from operations
|
|
(16)
|
82
|
Acquisitions and
disposals
|
|
62
|
619
|
Disposal of lease
liabilities
|
|
67
|
-
|
Loans
repaid
|
|
-
|
48
|
Proceeds from issue
of ordinary shares
|
|
6
|
6
|
Buyback
of equity
|
|
-
|
(176)
|
Purchase of
treasury shares
|
|
(16)
|
(6)
|
Other
movements on financial instruments
|
|
20
|
(29)
|
Net
movement of funds
|
|
123
|
544
|
Exchange movements
on net debt
|
|
(10)
|
9
|
Movement
in net debt
|
|
113
|
553
|
Opening
net debt
|
|
(463)
|
(1,016)
|
Closing
net debt
|
13
|
(350)
|
(463)
|
Operating
cash flow and free cash flow are non-GAAP measures and have been
disclosed as they are part of the Group's corporate and operating
measures. These measures are presented in order to align the cash
flows with corresponding adjusted profit measures.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2021
15. Contingencies
There are contingent Group liabilities that arise in the normal
course of business in respect of indemnities, warranties and
guarantees in relation to former subsidiaries and in respect of
guarantees in relation to subsidiaries, joint ventures and
associates. In addition, there are contingent liabilities of the
Group in respect of unsettled or disputed tax liabilities, legal
claims, contract disputes, royalties, copyright fees, permissions
and other rights. None of these claims are expected to result in a
material gain or loss to the Group.
On 25 April 2019, the European Commission published the full
decision that the United Kingdom controlled foreign company group
financing partial exemption ('FCPE') partially constitutes State
Aid. The Group has lodged an appeal. The Group has benefited from
the FCPE in 2018 and prior years by approximately £116m (which
does not include additional interest that would be due if this
amount had to be repaid). In February 2021, the Group received
Charging Notices requiring a payment on account of materially all
of the alleged State Aid to be made. Payments totaling £105m
(comprising tax and interest) were made during 2021 and the Group
expects to recover the funds in due course. The Group continues to
be of the view that no provision is required in respect of this
issue.
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 2017. Similar assessments may be raised for
other years. Potential total exposure (including possible interest
and penalties) could be up to BRL 1,079m (£143m) up to 31
December 2021, with additional potential exposure of BRL 98m
(£13m) 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.
16. Related parties
In 2021, the Group acquired a 40% interest in Academy of Pop and is
accounting for the investment as an associate. At 31 December 2021,
the Group had a current liability payable to Academy of Pop of
£7m which relates to the Group's initial capital contribution
that has not yet been paid. This balance is expected to be paid in
H1 2022.
In 2020, the Group disposed of its interests in Penguin Random
House and therefore Penguin Random House is no longer a related
party. Prior to the completion of the sale of Penguin Random House,
the Group received dividends of £1m from Penguin Random House
and repaid loans of £49m which were outstanding at the point
of disposal.
There were no other material related party transactions in 2021 or
2020 and no guarantees have been provided to related parties in the
year.
17. Events after the balance sheet
date
On 28 January 2022, the Group acquired 100% of the share capital in
Credly Inc, having previously held a 19.9% interest in the company.
Total consideration is c$200m comprising upfront cash consideration
of c$142m, Pearson's existing interest valued at c$42m and c$16m of
deferred consideration. Net assets acquired will mainly comprise of
acquired intangible assets.
In January 2022, the Group received $117m in relation to full and
final payment of the remaining receivable balance which arose on
the disposal of the US K-12 business in 2019.
In February 2022, the Group renegotiated its revolving credit
facility, extending the maturity of $1bn of the facility by one
year to 2026.
On 24 February 2022, the Board approved a
£350m share buyback programme in order to return
capital to shareholders. The programme will commence as soon
as is practicable.
1 Measures
are non-GAAP measures. Reconciliations to the equivalent statutory
heading under IFRS are included in notes to the attached condensed
consolidated financial statements 2, 3, 4, 5, 7 and
14. Underlying growth rates exclude currency movements, and
portfolio changes.
2Consensus
adjusted operating profit as at 12th November
2021 was £416m at average USD:GBP of
1.37.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
PEARSON
plc
|
|
|
Date: 25
February 2022
|
|
|
By: /s/
NATALIE WHITE
|
|
|
|
------------------------------------
|
|
Natalie
White
|
|
Deputy
Company Secretary
|
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