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- Annual Report and Accounts for the year ended 31 December 2014
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- The Notice of Annual General Meeting to be held on 24 April 2015
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- 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 and company
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- The directors' report contained in the Annual report includes a fair review of the development and performance of the business and the position of the company and Group, together with a description of the principal risks and uncertainties that they face.
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- so far as the directors are aware, there is no relevant audit information of which the company's auditors are unaware
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- they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the company's auditors are aware of that information.
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2014
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All figures in £millions
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Short-term employee benefits
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10
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Retirement benefits
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1
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Share-based payment costs
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2
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Total
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13
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Risk
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Mitigation
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STRATEGIC & CHANGE RISKS
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Government regulation and decisions: Changes in funding, policy and/or regulations impact business model and/or content decisions across all markets.
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In the US we actively monitor changes through participation in advisory boards and representation on standard setting committees. Our customer relationship teams have detailed knowledge of each state market. We work through our own corporate affairs team and our industry trade associations including the Association of American Publishers. We are also monitoring municipal funding and the impact on our education receivables.
In the UK we maintain relationships with those government departments and agencies that are responsible for policy and funding. We work proactively with them to ensure our programmes meet existing and new government objectives at the right quality level.
Across all of our other markets, local management monitor and respond to potential and actual changes in regulations, supported by our global
corporate affairs team. This includes Growth markets of China, India, Brazil and South Africa.
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Digital and services evolution and market forces: Failure to successfully invest in and deliver the right products and services.
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Our global education strategy will drive a faster move to digital and services, recognising that this is a significant opportunity for Pearson, as well as a
potential risk. We are transforming our products and services for the digital environment along with managing our print inventories.
Our content is being adapted to new technologies across our businesses and is priced to drive demand. We develop new distribution channels by adapting our product offering and investing in new formats.
As set out on page 38-43, our focus on efficacy is driving our decisions on how and where we invest in products and services.
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Acquisitions, divestments and joint ventures: Failure to generate anticipated revenue growth, synergies and/or cost savings from acquisitions, mergers and other business combinations could lead to goodwill and intangible asset impairments.
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We perform pre-transaction due diligence and closely monitor actual performance to ensure we are meeting operational and financial targets. Any divergence from these plans will result in management action to improve performance and minimise the risk of any impairments. Executive management and the board receive regular reports on the status of acquisitions and mergers, with a formal review once per year.
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Business transformation and change:
The pace and scope of our business
transformation initiatives increase the execution risk that benefits may not be fully realised, costs of these changes may increase, or that our business as usual activities do not
perform in line with expectations.
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As noted in the Chairman's introduction, the most difficult phase of our transformation has now been completed. There remain a number of important change initiatives in progress, such as the Enabling Programme, which will deliver sustainable improvements in finance, human resources and operations. In addition to usual good practices in place for project and change management, there is enhanced governance, monitoring and reporting in place for these most significant change initiatives.
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Talent: Failure to attract, retain and develop staff, including adapting to new skill sets required to run the business.
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Through the changes during 2013 and 2014, we have been successful in promoting our best internal talent and recruiting individuals who are global
leaders in their specific field.
As part of our transformation, we have made and continue to make improvements in a number of areas that are key to mitigating talent risk. These include: clear employee objectives and development plans; an all-employee engagement survey, with action plans as appropriate; succession planning and talent management; and competitive remuneration plans.
See page 65 for details of the board's talent review.
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OPERATIONAL RISKS
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Customer facing systems: Failure to maintain and support customer facing services, systems, and platforms, including quality and timely execution of new products
and enhancements.
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Effective project management disciplines are in place to ensure that enhancements and new products meet the required standards. Real-time monitoring and reporting of operational performance is used to identify any issues and direct appropriate responses.
A Quality Task Force (QTF) is in place to oversee improvements to ensure our customers' experience is one that is expected from a digital business. This initiative has already delivered significant tactical improvements and is driving longer-term, strategic improvements.
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Testing failure: A control breakdown or service failure in our school assessment and qualifications businesses could result in financial loss and reputational damage.
Our professional services and school
assessment businesses involve complex contractual relationships with both government agencies and commercial customers for the provision of various testing services. Our financial results, growth prospects and/or reputation may be adversely affected if these contracts
and relationships are poorly managed.
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We seek to minimise the risk of a breakdown in our student marking with the use of robust quality assurance procedures and controls and oversight of contract performance, combined with our investment in technology, project management and skills development of our people.
In addition to the internal business procedures and controls implemented to
ensure we successfully deliver on our contractual commitments, we also seek
to develop and maintain good relationships with our customers to minimise associated risks.
We also look to diversify our portfolio to minimise reliance on any single contract.
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Safety, safeguarding and protection:
Failure to adequately protect children
and learners, particularly in our direct delivery businesses.
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Recognising the importance of managing evolving risks associated with our direct
delivery business models, we created and filled the role of a head of safeguarding
and protection. See page 49 for further details.
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FINANCIAL RISKS
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Tax: Risk that changes in tax law or
perceptions on tax planning strategies lead to higher effective tax rate or negative reputational impact.
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Our tax strategy reflects our business strategy and the locations and financing
needs of our operations. In common with many companies, we seek to manage
our tax affairs to protect value for our shareholders, in line with our broader
fiduciary duties. We are committed to complying with all statutory obligations, to undertake full disclosure to tax authorities and to follow agreed policies and procedures with regard to tax planning and strategy.
Oversight of tax strategy is within the remit of the audit committee, which
receives a report on this topic at least once a year. All of the audit committee
members are independent non-executive directors. The chief financial officer 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.
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LEGAL RISKS
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Intellectual property: If we do not
adequately protect our intellectual
property and proprietary rights our
competitive position and results may be adversely affected and limit our ability to grow.
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We seek to mitigate this type of risk through general vigilance, co-operation
with other publishers and trade associations, advances in technology, as well as recourse to law as necessary. Digital rights management standards and
monitoring programmes have been developed. We have a piracy task force
to identify weaknesses and remediate breaches. We monitor activities and
regulations in each market for developments in copyright/intellectual property law and enforcement and take legal action where necessary.
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Data privacy and cyber security: Failure to comply with data privacy regulations and standards or weakness in information security, including a failure to prevent or
detect a malicious attack on our systems, could result in a major data privacy breach causing reputational damage to our brands and financial loss.
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Through our global enterprise information security and compliance programme,
we have established a governance model; security and privacy framework and
policies; a global security and privacy organisational model; and standard-based
information security and privacy controls and practices.
We constantly test and re-evaluate our data security procedures and controls
across all our businesses with the aim of ensuring personal data is secured and
we comply with relevant legislation and contractual requirements. We pursue
appropriate privacy accreditations, e.g. TRUSTe Privacy and Safe Harbor Seal.
We regularly monitor regulation changes to assess the impact on existing
processes and programmes. We have established a global security operations
centre that provides ongoing monitoring of potential malicious attacks on our
infrastructure and systems.
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Anti-bribery and corruption: Failure to effectively manage risks associated with compliance to global and local ABC legislation.
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Our ABC compliance programme was rolled out in 2011 to support compliance
with UK Bribery Act, in line with 'adequate procedures' guidance. Our 'zero tolerance' approach is also designed to comply with all other global and local ABC laws and regulations. We have a risk-based programme of training (online and face-to-face). Our ABC policy is communicated to third-parties and forms part of our contractual terms for higher-risk third-parties.
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