PEARSON PLC (ifrs-full:DisclosureOfExpensesExplanatory)

4. Operating expenses


All figures in £ millions	Notes		2017			2016			2015
By function:
Cost of goods sold				2,066			2,093			1,981
Operating expenses
Distribution costs				84			88			80
Selling, marketing and product development costs				896			908			895
Administrative and other expenses				1,207			1,240			1,195
Restructuring costs		3		79			329			35
Other income				(64	)		(85	)		(98	)

Total net operating expenses				2,202			2,480			2,107

Other net gains and losses				(128	)		25			(13	)
Impairment of intangible assets		11		—			2,548			849

Total				4,140			7,146			4,924

Included in other income is service fee income from Penguin Random House of £3m (2016: £4m, 2015: £16m). Included in administrative and other expenses are research and efficacy costs of £14m (2016: £23m, 2015: £33m). In addition to the restructuring costs shown above, there were restructuring costs in Penguin Random House of £nil (2016: £9m, 2015: £12m).


All figures in £ millions	Notes		2017			2016			2015
By nature:
Royalties expensed				246			264			249
Other product costs				564			616			566
Employee benefit expense		5		1,805			1,888			1,742
Contract labour				152			206			182
Employee-related expense				127			122			127
Promotional costs				229			217			163
Depreciation of property, plant and equipment		10		90			95			69
Amortisation of intangible assets – pre-publication		20		338			350			281
Amortisation of intangible assets – software		11		85			84			61
Amortisation of intangible assets – other		11		138			185			199
Impairment of intangible assets		11		—			2,548			849
Property and facilities				202			243			219
Technology and communications				218			188			153
Professional and outsourced services				322			378			262
Other general and administrative costs				140			140			132
Costs capitalised to intangible assets				(324	)		(318	)		(219	)
Other net gains and losses				(128	)		25			(13	)
Other income				(64	)		(85	)		(98	)

Total				4,140			7,146			4,924

During the year the Group obtained the following services from the Group’s auditors:


All figures in £ millions	2017		2016		2015
The audit of parent company and consolidated financial statements		4		5		4
The audit of the company’s subsidiaries		2		2		2

Total audit fees		6		7		6
Other assurance services		1		1		2
Other non-audit services		1		1		1

Total other services		2		2		3
Tax compliance services		—		—		1

Total tax services		—		—		1

Total non-audit services		2		2		4

Total		8		9		10

Reconciliation between audit and non-audit service fees is shown below:


All figures in £ millions	2017		2016		2015
Group audit fees including fees for attestation under section 404 of the Sarbanes-Oxley Act		6		7		6
Non-audit fees		2		2		4

Total		8		9		10

Fees for attestation under section 404 of the Sarbanes-Oxley Act are allocated between fees payable for the audits of consolidated and subsidiary accounts.

Included in non-audit fees are amounts related to carve-out audits for disposals of £1m (2016: £1m, 2015: £1m).

PEARSON PLC | CIK:0000938323 |

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