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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Pearson Plc | LSE:PSON | London | Ordinary Share | GB0006776081 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -11.50 | -1.13% | 1,003.00 | 1,005.00 | 1,005.50 | 1,015.50 | 1,001.50 | 1,013.50 | 3,550,453 | 16:35:05 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Miscellaneous Publishing | 3.67B | 378M | 0.5497 | 18.29 | 6.91B |
From Apr 2019 to Apr 2024
TIDMPSON
RNS Number : 8178J
Pearson PLC
04 April 2018
PEARSON PLC
(the "Company")
In accordance with Listing Rule 9.6.1, Pearson plc has today submitted to the National Storage Mechanism copies of each of the following documents:
Hot Features
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-- Annual Report and Accounts for the year ended 31 December 2017
-- The Notice of Annual General Meeting ("AGM") to be held on 4 May 2018
The document is available on Pearson's website at https://www.pearson.com/ar2017.html
The document will shortly be available for inspection on the National Storage Mechanism website: http://www.morningstar.co.uk/uk/nsm
IMPORTANT: EXPLANATORY NOTE AND WARNING
The primary purpose of this announcement is to inform the market about the publication of Pearson plc's Annual Report and Accounts for the year ended 31 December 2017 (the "2017 Annual Report and Accounts").
The information below, which is extracted from the 2017 Annual Report and Accounts, is included solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with Pearson plc's Preliminary Announcement issued on 23 February 2018, which is available on the Company's website at:
https://www.pearson.com/corporate/news/media/news-announcements/2018/02/pearson-2017-results.html
Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full 2017 Annual Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2017 Annual Report and Accounts.
RESPONSIBILITY STATEMENT
"Each of the directors, whose names and functions are listed on p64-65 confirms that, to the best of their knowledge:
-- The Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group
-- The strategic report contained in the annual report includes a fair review of the development and performance of the business and the position of the Group and company, together with a description of the principal risks and uncertainties that it faces.
This responsibility statement has been approved by the board on 14 March 2018 and signed on its behalf by:
Coram Williams
Chief financial officer"
RELATED PARTY TRANSACTIONS
"Joint ventures and associates
Amounts advanced to joint ventures and associates during the year and at the balance sheet date are set out in note 12.
Key management personnel
Key management personnel are deemed to be the members of the Pearson Executive (see page 11). It is this committee which had responsibility for planning, directing and controlling the activities of the Group in 2017. Key management personnel compensation is disclosed below:
All figures in GBPmillions 2017 2016 ------------------------------ ----- ----- Short-term employee benefits 12 6 ------------------------------ ----- ----- Retirement benefits 1 1 ------------------------------ ----- ----- Share-based payment costs 2 1 ------------------------------ ----- ----- Total 15 8 ------------------------------ ----- -----
There were no other material related party transactions. No guarantees have been provided to related parties."
PRINCIPAL RISKS AND UNCERTAINTIES
"The board of directors confirms that is has undertaken a robust assessment throughout 2017 of the principal risks facing the company, in accordance with provision C.2.1 of the 2016 UK Corporate Governance Code.
Our principal risks (as of 31 December 2017)
Listed in the table below (and shown on the adjacent risk map) are the most significant risks that may affect Pearson's future. A longer list of company-wide risks, plus emerging risks, was monitored and reviewed throughout the year. The most material of these are identified as principal risks. Principal risks are those which have a higher probability and significant impact on strategy, reputation or operations, or a financial impact greater than GBP50m.
The full impact of the UK's pending departure from the EU (Brexit) is still unclear, but we remain vigilant to potentially material risks for Pearson. Work continued throughout 2017 (led by a Steering Committee chaired by the CFO) to identify and mitigate any potential impact on
(a) our principal risks below, such as treasury, tax or data privacy, or (b) other areas such as UK-EU supply chain and workforce mobility, including in the event of a 'no deal' exit scenario. We continue to believe that Brexit, in whatever form it takes, will not have a material adverse impact on Pearson as a whole.
The following principal risks also relate to the material issues considered in the 2017
sustainability report: products and services, testing failure, political and regulatory risk,
data privacy, information security, customer digital experience, and safety and corporate
security. You can read more in the Sustainability section on p24-33.
STRATEGY AND CHANGE
---------------------------------------------------------------------------------
Business transformation Existing controls
and change: Ø Transformation programme
The pace and office
scope of our Ø Global learning platform
business transformation (GLP) and the enabling
initiatives increase programme (TEP) are standing
our execution Audit Committee
risk that agenda items. See 'Governance'
benefits may p76-77
not be fully Ø Regular updates with
realised, costs Pearson Executive
may increase, Ø Executive owned Steering
or that our business Committees in place
as usual activities Ø Independent assurance
may be impacted on key programmes
and do not perform
in line with Outcome of 2017 activities:
expectations. In 2017, we continued to invest
in the digital
Incorporates transformation and simplification
'Data quality of the company. The volume
and integrity' and accelerated pace of change
risk: Unavailability combined with execution interdependencies
of as we go into 2018 are keeping
timely complete this our highest rated (and
and accurate slightly increased) risk. We
data limits informed also have capabilities we need
decision- to continue to develop internally
making and increases to deliver transformation and
risk of change (See Talent risk on
non-compliance p52).
with legal,
regulatory and The GBP300m 2017-2019 cost
reporting efficiency programme remains
requirements. on track to achieve its targets.
Following the planning phase
(Increase in culminating in the August 2017
impact and probability) announcement, the programme
transitioned to implementation.
HR Fusion, part of TEP, successfully
went live in the US in June
2017. Significant progress
was also made regarding data
governance as our quality focus
and scope expanded in 2017
to global data. We now have
a much more top-down view of
product data, moving on to
sales, marketing, rights and
royalties and fulfilment. We
also started putting in place
customer data governance.
2018 outlook and plans: Business
transformation and change initiatives
will continue to support our
strategic goals to accelerate
our digital transition in higher
education, to manage the print
decline, and to reshape our
portfolio,
as outlined by our Chief Executive
on p8-10 and
covered in more detail under
our strategy in action
on p41-21.
In 2018, we will continue with
the development of the GLP,
a single, cloud-based platform
to support learners and our
digital transformation, as
well as the next phase of TEP
to further progress the simplification
of our business. Both programmes
will continue to be closely
monitored by the Audit Committee
at each meeting (you can read
more
about their oversight of key
programmes in the report from
the Chair of the Audit Committee
on p76-77).
Successful execution of all
our change programmes in 2018
will depend on having the right
change management skills (see
also Talent risk on p52).
The focus on data quality in
2018 will be supporting the
TEP North America implementation.
In addition, the new EU data
privacy law, the General Data
Protection Regulation (GDPR)
which will apply from May 2018
and spans all our underlying
systems, is a priority.
-------------------------- -----------------------------------------------------
Products and Existing controls
services: Ø Global product lifecycle
Failure to accelerate process
our shift Ø Portfolio management
to digital by Ø Audit Committee oversight
developing and of GLP
delivering (to
time and quality) Outcome of 2017 activities:
market leading Successfully managing this
global products risk underpins two of our key
and services strategic priorities - growing
that will have our market share through digital
the biggest impact transformation plus investing
on learners and in structural growth opportunities
drive growth; (see p14-17).
ensuring Pearson
offers products The likelihood of this risk
to market at occurring reduced in 2017 due
the right price to the progress we've made
and with a deal towards implementing portfolio
structure that management practices and strategic
remains investment recommendations,
competitive as as well as on pricing strategy
well as and governance in US higher
supports our education courseware.
strategy.
In 2017, we progressed our
(Decrease in understanding of the competitive
probability) and structural threats, especially
to our courseware business
in terms of general and student
buying behaviour and have taken
steps to mitigate these. For
example, we are making good
progress in shifting the business
from ownership to
'pay for use', we reduced the
price of a number of eBook
rentals and also launched a
print rental programme to give
greater convenience and value
to students.
2018 outlook and plans: Turning
this risk into an opportunity
-successfully accelerating
our shift to digital as well
as investing in and delivering
the right products and services
- is as key to successful business
performance in 2018 as it was
in 2017. A new Chief Strategy
Officer joined at the start
of 2018 see p63.
We will continue to improve
the US higher education courseware
integrated business strategy,
product lifecycle and governance,
as well as pricing strategy.
In addition to the development
of GLP, we are investing in
other innovations, such as
Artificial Intelligence, to
ensure our products stay relevant
and to become more agile in
our delivery. We are
also prioritising investment
in our fastest growing businesses
across Pearson. See p16-17
in Strategy in action.
Market research and analysis
activity across Pearson was
centralised into one Global
Insights team in January 2018.
Their remit is to develop customer
insights to inform portfolio,
product, channel and business
strategy.
-------------------------- -----------------------------------------------------
Talent: Existing controls
Failure to attract, Ø Consistent performance,
retain and talent and succession
develop staff, management processes
including adapting Ø Employee policies including
to new skill the Code of Conduct
sets required (see p27 in Sustainability)
to run the business. Ø Employee engagement
forums and action plans
(Decrease in Ø Turnover data monitored
probability) on a monthly basis
Ø Exit interviews conducted
and monitored globally
to identify any trends and
concerns
Ø Learning programmes
now offered on a single
platform for all staff (Pearson
U)
Ø Revamped external careers
website and talent
acquisition approach to improve
attraction of
digital skills
Ø Wide range of employee
benefits
Outcome of 2017 activities:
The likelihood of this risk
occurring has reduced due to
the mitigation activities successfully
implemented in 2017. However,
talent remains an ongoing priority
for the company, with a focus
on building the talent needed
to deliver the business strategy
for 2020 especially in key
areas such as digital and change
management skills.
Work was undertaken to ensure
we have clarity on the key
capabilities required to achieve
our 2020 goals, using this
to support learning and development,
assessment, development and
talent attraction.
Throughout 2017, there was
a strong focus on leadership
communication of the Pearson
strategy, as well as increased
visibility of the Pearson Executive
and leadership teams.
Employee engagement action
plans communicated across Pearson
and the Executive are reporting
progress to the Board on a
quarterly basis. Highlights
from these plans are listed
on p27 in the Sustainability
section.
An organisational health survey
was conducted, and results
and action plan shared in Q4.
Our platform for learning and
development was upgraded in
2017, increasing accessibility
to learning and development
solutions and greater flexibility
in goal-setting. Academies
were also launched for leadership
teams as well as Technology,
Product, Marketing and Finance.
These aim to increase both
our capabilities and retention.
2018 outlook and plans: Pearson
will implement further programmes
to improve connection with
the Pearson strategy, and to
increase engagement and organisational
health.
In order to build the talent
we need to deliver the 2020
business strategy, there will
additional focus on direct
sourcing and construction of
targeted talent pools to target
skills (digital), address succession
gaps, and increase diversity
in leadership roles. We will
also continue to support change
activities through Change Leadership
training and handbooks.
In 2018, there will be a stronger
focus on development planning
linked to further roll-out
of career workshops. We will
expand and upgrade Pearson
U learning, launching new Sales
Academy and leadership programmes
that support succession planning
and increase retention. We
will also further refine the
careers website to increase
employee attraction.
The Pearson Executive will
maintain their focus in 2018
on talent actions for the senior
leadership group and succession
through quarterly reviews.
-------------------------- -----------------------------------------------------
Political and Existing controls
regulatory risk: Ø Board and Executive
Changes in policy oversight
and/or regulations Ø Government relationship
have the potential teams
to impact business Ø EU referendum Steering
models and/or Committee
decisions across
all markets. Outcome of 2017 activities:
Although there has been no
overall change in the risk
rating, significant work has
been done to ensure we can
more proactively identify and
mitigate political and regulatory
risk.
Over the last two years, there
has been a specific focus on
leveraging resources across
the US and UK to build global
political/regulatory relationships,
and an international political
profile in order to understand
future international risks
and
proactively mitigate them.
In the UK, 2017 was the year
that GCSEs began their changeover
from grades A*-G to 9-1 with
English and
Maths. Our focus was on working
with government, regulator
and other awarding organisations
to demonstrate the professionalism
and solidity of the system,
which resulted in a stable
set of results.
In the US, we continued to
implement our ten priority
state strategy engaging with
new and existing office holders
in key states and worked to
shape the state and federal
regulatory and legislative
environment in favour of Pearson
strengths. This work focused
on Pearson solutions
to affordability and access
with stakeholders in Congress,
the Administration and priority
state capitals.
The full impact of the UK's
pending departure from the
EU is still unclear, but we
remain vigilant to potentially
material risks for Pearson.
Work continued throughout 2017
(led by a Steering Committee
chaired by the CFO) to identify
and
mitigate any potential impacts
on our principal risks below,
such as treasury, tax or data
privacy, or on other areas
such as UK-EU supply chain
and workforce mobility, including
in the event of a 'no deal'
exit scenario. We continue
to believe that Brexit, in
whatever form it takes, will
not have a material adverse
impact on Pearson.
2018 outlook and plans: Pearson
will continue to position itself
as a leader in the education
space, an innovator in higher
education and establish the
company as a key engine in
workforce development and economic
growth. We are also driving
opportunities to engage directly
with other businesses.
In the UK, there is ongoing
concern about the amount of
testing (and the sheer difficulty
of the new tests) in primary
schools. As a test administrator,
we are mitigating this through
a stakeholder outreach programme
on assessment.
In addition:
Ø The new 9-1 GCSEs will
be awarded in almost
all subjects
Ø Technical education:
as the government becomes
more clear about the role of
T Levels we will need
ongoing government relations,
media and thought
leadership work.
Across our educational markets
in 2018, we believe the trend
for more intrusive and voluminous
regulation in our sector will
continue. We will continue
our work from 2016 and 2017
to mitigate this.
We will continue to assess
the potential impacts of the
UK's decision to leave the
EU as the model that will replace
our membership becomes clearer.
-------------------------- -----------------------------------------------------
OPERATIONAL
---------------------------------------------------------------------------------
Testing failure: Existing controls
Failure to deliver We seek to minimise the risk
tests and of a breakdown in our student
assessments and marking systems with the use
other related of:
contractual requirements
because Ø Robust quality assurance
of operational procedures and controls
or technology Ø Oversight of contract
issues, resulting performance Investment in technology,
in negative project management and skills
publicity impacting development of our people,
our brand and including software security
reputation. controls, system monitoring,
pre- deployment testing, change
controls and the use of root
cause analysis procedures to
learn from incidents and prevent
recurrence
Ø Use of Amazon Web Services
(AWS) in Clinical and Schools
Ø IBM counter-fraud tool.
Outcome of 2017 activities:
Pearson is an education content,
assessment and related services
company and, as such, managing
this risk remains a priority.
In the US, the majority of
student testing is now conducted
via AWS, resulting in improved
availability and stability.
In the UK, we successfully
delivered the UK summer
exam series in 2017 to a high
standard of quality.
2018 outlook and plans: The
drive to continue improvements
to availability and stability
of testing systems continues.
The migration and retirement
of legacy systems in use will
continue.
Given the high stakes nature
of the UK testing business,
there remains a risk of breaches
of security either as a result
of error or of a malicious
nature. We are reviewing what
additional measures we can
put in place for 2018 to further
mitigate against potential
question paper security breaches.
The plan to upgrade Pearson's
bespoke online marking system
- ePEN - in the UK will continue
throughout 2018 with full implementation
due by the end of 2019, taking
into account the complexity
of our systems as well as external
marking contract obligations.
Clinical's Q-global will be
moving to AWS in Q1 of 2018.
Additional technology stack
updates will be implemented
during 2018 to address 2017
issues.
-------------------------- -----------------------------------------------------
Health and safety: Existing controls
Failure to adequately Ø Global health and safety
protect the health, (H&S) team
safety and wellbeing Ø Global policy and standards
of our employees, Ø Global assurance and
learners and incident reporting system
other stakeholders Ø Audit programme
from harm could Ø Regional training
adversely impact
our reputation. Outcome of 2017 activities:
The likelihood of this risk
This risk previously occurring has decreased as
incorporated a result of the outcomes of
Corporate security the following:
which is now Ø Overall implementation
part status of Pearson's H&S
of risk 9 'Corporate minimum standards continues
security and to improve globally
business resilience'. Ø The 2017 global H&S
audit programme was
(Decrease in completed across a wide range
probability) of our locations
Ø Our global H&S coordinator
role has been
formalised with a new terms
of reference
Ø The global H&S team
became a registered centre
to teach the globally recognised
Institution of
Occupational Safety and Health
(IOSH), Managing
Safely course
Ø A completely revised
global H&S Policy (with
improved governance and responsibilities)
and
standards have been developed,
which now
include good practice goals,
recognising the
H&S maturity in many of our
key markets
Ø Good progress was made
across our
15-17 H&S Strategy.
2018 outlook and plans:
Ø Implement the new global
H&S Policy and
standards and continue to improve
the application of our H&S
standards
Ø Refine and Implement
a new 18-20 H&S Strategy
Ø Deliver the IOSH Managing
Safely course to our
global H&S coordinators
Ø Review our H&S systems
to ensure they continually
evolve to reflect our changing
business
Ø Enhance our global assurance
programme to not
only provide risk-based auditing
of key locations,
but to also include advisory
reviews and focused
risk-based H&S Projects
Ø Continue to evolve our
key risk reduction programmes
covering:
- Ergonomics
- Occupational Road Risk
- Occupational health risk
management
and wellbeing.
-------------------------- -----------------------------------------------------
Safeguarding: Existing controls
Failure to adequately Ø Safeguarding policy
protect Ø Internal procedures
children and and controls
learners, particularly Ø Staff Code of Conduct
in our direct Ø Third-party risk management
delivery businesses. policy
Ø Safeguarding Steering
Committee
Ø Local safeguarding coordinators
Outcome of 2017 activities:
We continue to view safeguarding
as a fundamental obligation
to our learners and a high
priority. Although the risk
has been reduced due to our
disposal of the majority of
our direct delivery businesses,
we are exposed to greater online
risk as we move to more digital
services. There is never a
zero risk of a safeguarding
incident and organisations
should always challenge themselves
and look to improve their practice.
Hence the overall risk remains
the same.
An exercise was conducted to
test the response of selected
businesses to an online safeguarding
issue regarding a member of
staff, the results of which
were used to further refine
training and awareness, ready
for implementation in 2018.
A sexual harassment policy
for our further education business
has been developed and currently
training is being produced
to support its implementation
in Q2 2018.
2018 outlook and plans: We
will continue to develop and
question our practices around
safeguarding in 2018, with
a focus on ongoing training
and awareness across the business,
especially with regard to online
safeguarding.
We will also further refine
our safeguarding metrics and
the system used for reporting,
as well as developing and implementing
a system for external validation
of our safeguarding practice.
-------------------------- -----------------------------------------------------
Customer digital Existing controls
experience: Ø Real-time monitoring
Challenges with of systems (for service
reliability and disruptions) and reporting
availability of operational
of customer facing performance used to identify
systems could issues
result in incidents Ø Project management disciplines
of poor customer in place to
digital experience ensure enhancements and new
and impact our products
customer service meet required standards
responsiveness.
Outcome of 2017 activities:
Managing this risk is critical
to achieving our
strategic goal of accelerating
our shift to digital products
and services, and, crucially,
becoming a trusted partner.
Therefore this risk remains
high, despite the significant
improvements in 2017 to our
product stability and execution.
Mitigations were put in place
to prevent a recurrence of
the 2016 back-to-school (BTS)
issues experienced by customers.
BTS stability in the second
half of 2017 was significantly
improved, resulting in only
a few minor incidents and the
highest availability levels
seen in the last three years.
Further investment was made
in 2017 in our global learning
platform (GLP). You can read
more on this and how it underpins
our strategy and the learning
experience in 'Our strategy
in action' section on p14-15.
Customer support also improved
response times for incoming
calls and improved outgoing
customer communications during
the recent outages.
2018 outlook and plans: In
2018, there will be a continued
focus on the performance, stability
and usability of all product
platforms as well as customer
service quality and responsiveness.
Our GLP development, critical
to our digital transformation
strategy, will continue in
2018, with the first pilots
due to go live. This platform
will allow us to innovate faster
as well as better support our
learners.
-------------------------- -----------------------------------------------------
Corporate security Existing controls
and business Ø Security and resilience
resilience: policies
Corporate security: Ø Security minimum protection
Failure to standards
ensure security Ø Incident management
for our staff, process
learners, assets Ø Resilience governance
and reputation, Steering Committee
due to increasing Ø Incident management
numbers of and and DR teams
variety of local Ø Global notification
and global threats. and incident reporting tools
Ø ISO audit programme
Business resilience: Ø PQS & VUE - ISO 22301
Failure to plan accredited
for or prevent
incidents at Outcome of 2017 activities:
any of our locations. There were an increased number
Incident of incidents in 2017, which
management and fortunately did not impact
technology Pearson directly.
disaster recovery Ø Continued work across
(DR) plans may the 'Top 40' locations for
not be comprehensive planning, testing and response
across the whole Ø Increased collaboration
Group. across the organisation, improving
understanding of current and
Risk definition future risks, particularly
has changed from regarding incident response
'business continuity' and DR planning
in 2016 and now Ø Training of global incident
incorporates management teams for
corporate security, different response levels
previously reported Ø A mass notification
as part of risk system was deployed in the
6 'Health and UK and will be further deployed
safety'. globally during 2018 in order
to better communicate with
our staff and confirm their
safety during an incident
Ø We strengthened our
travel security programme,
including greater support provision
for higher risk trips
Ø In physical security,
the security policy and global
property guidelines were released
in early 2017,and contain advice
and direction for all projects
involving the build, refurbishment
and disposal of properties.
Security reviews in specific
locations resulted in a reduction
of risks and therefore improvements
for staff and learners.
2018 outlook and plans: In
2018, we will:
Ø Continue to drive security
as a proactive rather than
reactive activity, with ongoing
physical and travel security
reviews
Ø Refine the incident
response model towards a broader
regional/geographic response
Ø Continue work on the
sustainable and data specific
roll-out of the Everbridge
mass notification system
Ø Mandate travel security
training for travel to high
risk countries (due for deployment
in February)
Ø Work to refine DR planning
for any legacy systems and
applications, as well as our
support of the GLP, TEP and
the GBP300m 2017-2019 cost
efficiency programmes
Ø Grow our knowledge around
cloud-based technologies and
implement future digital resilience.
-------------------------- -----------------------------------------------------
FINANCIAL
---------------------------------------------------------------------------------
Tax: Existing controls
Legislative change Our tax strategy reflects our
caused by the business strategy and the locations
OECD Base Erosion and financing needs of our
and Profit Shifting operations.
initiative, the In common with many companies,
UK exit from we seek to manage our tax affairs
the EU, other to protect value for our shareholders,
tax reform or in line with our broader fiduciary
domestic government duties. We do not seek to avoid
initiatives, tax by the use of 'tax havens'
potentially in or by transactions that we
response to the would not
ongoing EU anti-tax fully disclose to a tax authority.
abuse We are guided by our taxation
activities, results principles, which include complying
in a higher with all relevant laws, including
effective tax claiming available tax incentives
rate, double and exemptions that are available
taxation and/or to all market participants.
negative
reputational Oversight of the tax strategy
impact. is within the remit of the
Audit Committee, which receives
(Increase in a report and risk deep dive
impact) on this topic at least once
a year (see p78 for details).
The CFO is responsible for
tax strategy; the conduct of
our tax affairs and the management
of tax risk are delegated to
a global team of tax professionals.
Outcome of 2017 activities:
This risk increased in 2017
due to the US tax reform changes
legislated in December and
the announcement in November
of the European Commission
opening decision on the United
Kingdom Controlled Foreign
Companies exemption [see note
34, contingent liabilities
on p175).
In August the Audit Committee
received an update on our tax
strategy and approved our first
tax report which was published
in September. A further update
was given to the Audit Committee
and Board in December mainly
focusing on the impact of US
tax reform.
US tax reform is not expected
to have a material impact on
our effective tax rate, however
we continue to work through
the detail and assess whether
any changes to our strategy
are appropriate.
The outcome of Brexit remains
insufficiently clear to assess
any impact on tax but we continue
to monitor.
2018 outlook and plans: We
will continue to assess (and
implement mitigation plans
if required) US legislation
changes as well as monitoring
potential tax law changes globally,
along with Brexit implications
and the State Aid situation.
2018 will see the publication
of our second tax report.
Media and public scrutiny on
tax issues will continue to
be actively monitored by group
tax and corporate affairs.
-------------------------- -----------------------------------------------------
Treasury: Controls
Failure to manage Ø Treasury policy (see
treasury note 19 starting on p156)
financial risks Ø The treasury strategy
e.g. debt and policy is also subject
repayments, key to an Audit Committee risk
corporate 'deep dive'. See p78
ratios, counterparty
risk, Outcome of 2017 activities:
rising interest Overall treasury risk has reduced
rates and over 2017 due to a proactive
transactional exercise to reduce gross debt
FX exposure. and strengthen our balance
sheet which has had a direct
(Decrease in impact on refinancing, counterparty
impact and probability) and interest
rate risk.
Pearson has no debt maturities
in 2018. We anticipate that
cash from operations, our existing
cash balances and cash equivalents,
together with availability
under our existing credit facility,
and cash from operations, will
be sufficient to fund
our operations for at least
the next 12 months.
Pearson maintains investment
grade credit ratings with Moody's
and Standard and Poor's which
facilitate good access to capital
markets. These credit ratings
in February 2018 were Baa2
(negative outlook) with Moody's
and BBB (negative outlook)
with Standard and Poor's. The
negative outlooks reflect perceived
business risk as the business
transforms, particularly in
US Higher Education.
See note 19 starting on p156
for more information on credit,
counterparty, interest rate
and transactional FX activities
in 2017.
2018 outlook and plans: In
2018, we will continue to operate
in line with our treasury policy.
More on this can be found in
note 19, starting on p156.
-------------------------- -----------------------------------------------------
LEGAL AND COMPLIANCE
---------------------------------------------------------------------------------
Data privacy Existing controls
and information Ø Information Security
security: and Data Privacy Offices
Risk of a data Ø Privacy impact assessment
privacy incident process
or other failure Ø Regular audits
to comply with Ø Automated tools
data privacy Ø Annual data privacy
regulations and training and awareness week
standards, Ø Risk management framework
and/or a weakness Ø Vendor oversight
in information Ø Audit Committee risk
security, including 'deep dive'. See p78
a failure to
prevent or detect Outcome of 2017 activities:
a malicious attack Risks concerning cyber-security
on our systems, and data privacy remain high
could result due to complex external factors.
in a major data
privacy or We now have clarity on the
confidentiality increased regulatory obligations
breach causing and their impact on Pearson,
reputational such as the new EU data privacy
damage, damage law, the General Data Protection
to the student Regulation (GDPR) which will
experience, lack apply from May 2018 and introduce
of more onerous privacy obligations
compliance and and more stringent penalties
financial loss. for non-compliance. The UK's
departure from the EU is also
adding another layer of uncertainty
with regard to the regulator,
and customers are also demanding
more from us in terms of data
privacy (e.g. GDPR and data
sovereignty).
We continued to roll out our
GDPR programme in 2017; our
work to improve the security
of our critical products; as
well as our privacy impact
assessment process for new
vendors and programmes.
Many information security risks
previously identified have
been addressed, plus there
was increased vendor oversight
in 2017. However, ongoing assessments
uncover new vulnerabilities
and risk areas arising from
increasingly sophisticated
attack strategies, as well
as Pearson's ongoing transition
to digital products, services
and cloud adoption.
In 2017, the information security
team focused on an improvement
programme for critical applications,
core platforms and infrastructure
to enable Pearson's digitisation
and simplification strategy.
In addition, we also instituted
a
programme to review our top
vendor contracts to ensure
they have the most up-to-date
data privacy and information
security wording and that they
align with GDPR where relevant.
2018 outlook and plans: The
Data Privacy Office continues
to monitor developments relating
to the UK's departure from
the EU and, where necessary,
adapt to any new UK specific
privacy developments. As Pearson
operates across several EU
Member States, we will still
need to comply with GDPR when
the UK leaves the EU.
The information security team
will continue to drive security
maturity (and also thus security
compliance to GDPR, PCI, HIPAA,
FERPA and other regulatory
requirements). A new risk management
tool has been deployed so that
security risk accountability
can be cascaded effectively.
We are conducting an inventory
of what personal and other
sensitive data we hold and
where in the organisation to
better focus our resources
and attention.
Joint data privacy and information
security activities to build
security and privacy controls
into the design critical products
(including the new global learning
platform) will continue.
Increased vendor oversight
is a critical initiative for
security and broad compliance.
-------------------------- -----------------------------------------------------
Intellectual Existing controls
property and Ø Policies in place to
rights, permissions manage and protect our IP
and royalties: Ø Global trademark monitoring
Failure to adequately platform
manage, procure, Ø Cooperation with trade
register or protect associations
intellectual Ø Monitoring of technology
property (IP) and legal advances
rights (including Ø Patent programme in
patents and general place
copyright) in Ø Establishment of Anti-piracy
our brands, content Committee
and technology Ø Legal department provides
or to prevent ongoing monitoring and enforcement
unauthorised of print and digital copyright
printing and piracy
distribution
of books and Outcome of 2017 activities:
digital piracy Overall risk has reduced due
may prevent us to careful litigation management,
from enforcing the continued negotiation of
our rights which preferred vendor agreements,
will reduce our as well as the ongoing work
sales and/or to implement a new rights and
erode our revenues. royalties system which will
further mitigate this risk.
Failure to obtain We started our phased implementation
permissions, of this system in the UK in
or to comply 2017.
with the terms
of We established an Anti-piracy
permissions, Committee to manage piracy
for copyrighted related risk in a coordinated
or otherwise manner. We conduct internet
protected materials monitoring, takedown and internet
such as photos 'search result' scrubbing to
resulting in reduce digital piracy. We have
potential litigation; also worked with our larger
risk of authors North America channel partners
alleging improper to adopt best-practice anti-counterfeit
calculations measures.
or payments of
royalties. In 2017, we launched patent
management technology to further
(Decrease in improve our asset tracking,
probability) as well as implementing a global
trademark monitoring platform
to improve visibility of
potential infringement threats.
2018 outlook and plans: We
will continue to streamline
our portfolios; procure and
register expanded rights in
our high value IP globally,
including aggressively expanding
our patent portfolio; monitor
activities and regulations;
and proactively enforce our
rights, taking necessary legal
action.
We will continue to implement
the newly developed royalty
and business practices, along
with the new rights management
system across the US and Canada
during 2018.
A new author agreement is being
rolled out in the first half
of 2018.
-------------------------- -----------------------------------------------------
Compliance: Existing controls
Failure to effectively Ø Audit Committee oversight
manage risks Ø ABC policy certification
associated with Ø Internal procedures
compliance (global and controls
and local legislation), Ø Risk-based third-party
including failure due diligence
to vet third-parties, Ø Employee and business
resulting in partner codes of conduct
reputational Ø (see also 'Respect for
harm, anti-bribery human rights' under
and corruption Ø Sustainability on p28)
(ABC) Ø Local Compliance Officers
liability, or (LCOs)
sanctions violations.
Outcome of 2017 activities:
Expanded from Internal procedures, controls
the previously and training continue to mature,
reported anti-bribery which are designed to prevent
and corruption corruption. Pearson's Code
risk. of Conduct was refreshed and
rolled out for all employee
certification in September
2017, including references
to ABC policy and requirements
(also discussed under 'Sustainability
on p28). Pearson's ABC policy
reflects our zero tolerance
towards bribery and corruption
of any kind by establishing
a consistent set of expectations
and requirements regarding
ABC for all our personnel and
business partners to adhere
to.
Pearson's 2016 ABC programme
self-assessment served as a
roadmap for work for 2017-2018.
Progress was made on ABC risk
assessments of the various
regional and local business
units.
We conducted due diligence
on our highest risk third-parties
and developed roll-out plans
for further phases.
Pearson's ABC infrastructure
includes a network of LCOs
based in country, mainly members
of the legal team. This programme
continues to be successful
with greater knowledge and
competencies of the LCOs and
better leadership, guidance
and helpful tools and resources
provided by the global compliance
office.
2018 outlook and plans: In
2018, we will:
Ø Implement a comprehensive
plan for risk-based roll-out
of further ABC third-party
due diligence, including new
tools and resources
Ø Roll out a comprehensive
refresh of the training programme
on ABC and Code of Conduct
globally
Ø Continue risk assessments
in 2018 to ensure that the
ABC programme reflects local
market and business model risks,
as well as plan actions to
remediate issues revealed during
those assessments
Ø Employ a more robust
analytic framework to our investigative
data to spot trends and root
causes.
-------------------------- -----------------------------------------------------
Competition law: Existing controls
Failure to comply Ø Global policy published
with anti-trust Ø Training and guidance
and competition Ø Regular internal communications
legislation could Ø Lawyer network
result in costly
legal proceedings Outcome of 2017 activities:
and/or adversely This risk increased during
impact our reputation. 2017, reflecting our participation
in industry associations, including
(Increase in Board membership, as well as
probability) the recent activity of associations
being challenged by anti-trust
authorities such as in Spain.
A global policy, general training
and guidance were launched
in 2017 and contain all the
measures, indicators and actions
required to ensure anti-trust
and competition compliance.
A lawyer network was launched
in 2017 and training has taken
place to improve their expertise
around competition/anti-trust
laws. An increasing number
of employees have also been
trained. All employees will
need to be certified.
2018 outlook and plans: Training,
including e-learning modules,
is being further expanded in
2018 with metrics being developed
to track engagement. The lawyer
network is contributing more
data to feed into training
and risk assessment indicators.
-------------------------- -----------------------------------------------------
LEGAL NOTICE
"This document includes forward-looking statements concerning Pearson's financial condition, business and operations and its strategy, plans and objectives. In particular, all statements that express forecasts, expectations and projections, including trends in results of operations, margins, growth rates, overall market trends, the impact of interest or exchange rates, the availability of financing, anticipated cost savings and synergies and the execution of Pearson's strategy, are forward-looking statements.
By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on circumstances that may occur in the future. They are based on numerous expectations, assumptions and beliefs regarding Pearson's present and future business strategies and the environment in which it will operate in the future. There are various factors which could cause Pearson's actual financial condition, results and development to differ materially from the plans, goals, objectives and expectations expressed or implied by these forward-looking statements, many of which are outside Pearson's control. These include international, national and local conditions, as well as the impact of competition. They also include other risks detailed from time to time in Pearson's publicly-filed documents and, in particular, the risk factors set out in this document, which you are advised to read. Any forward-looking statements speak only as of the date they are made and, except as required by law, Pearson gives no undertaking to update any forward-looking statements in this document whether as a result of new information, future developments, changes in its expectations or otherwise. Readers are cautioned not to place undue reliance on such forward-looking statements."
This information is provided by RNS
The company news service from the London Stock Exchange
END
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