REG - Pearson PLC - Half-year Report <Origin Href="QuoteRef">PSON.L</Origin> - Part 2
29/07/2016 07:08
- Part 2: For the preceding part double click ID:nRSc5935Fa
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 June 2016
2016 2015 2015
all figures in £ millions note half year half year full year
Property, plant and equipment 339 317 320
Intangible assets 11 5,616 5,936 5,164
Investments in joint ventures and associates 1,192 1,068 1,103
Deferred income tax assets 282 303 276
Financial assets - Derivative financial instruments 200 68 78
Retirement benefit assets 446 160 337
Other financial assets 59 55 143
Trade and other receivables 120 95 115
Non-current assets 8,254 8,002 7,536
945 794 841
Intangible assets - Pre-publication 945 794 841
Inventories 274 251 211
Trade and other receivables 1,343 1,274 1,284
Financial assets - Derivative financial instruments - 52 32
Financial assets - Marketable securities 31 26 28
Cash and cash equivalents (excluding overdrafts) 980 361 1,703
Current assets 3,573 2,758 4,099
Assets classified as held for sale - 142 -
11
Total assets 11,827 10,902 11,635
Financial liabilities - Borrowings (2,324) (1,923) (2,048)
Financial liabilities - Derivative financial instruments (190) (122) (136)
Deferred income tax liabilities (548) (664) (560)
Retirement benefit obligations (144) (137) (139)
Provisions for other liabilities and charges (73) (81) (71)
Other liabilities 12 (370) (330) (356)
Non-current liabilities (3,649) (3,257) (3,310)
(1,463) (1,307)
Trade and other liabilities 12 (1,463) (1,307) (1,390)
Financial liabilities - Borrowings (115) (733) (282)
Financial liabilities - Derivative financial instruments (8) (18) (29)
Current income tax liabilities (102) (106) (164)
Provisions for other liabilities and charges (30) (44) (42)
Current liabilities (1,718) (2,208) (1,907)
Liabilities classified as held for sale - (33) -
(5,
Total liabilities (5,367) (5,498) (5,217)
Net assets 6,460 5,404 6,418
Share capital 205 205 205
Share premium 2,594 2,583 2,590
Treasury shares (69) (72) (72)
Reserves 3,727 2,682 3,691
Total equity attributable to equity holders of the company 6,457 5,398 6,414
Non-controlling interest 3 6 4
Total equity 6,460 5,404 6,418
The condensed consolidated financial statements were approved by the Board on 28 July 2016.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period ended 30 June 2016
Equity attributable to the equity holders of the company Non-controlling interest Total equity
all figures in £ millions Share capital Share premium Treasury shares Translation reserve Retained earnings Total
2016 half year
At 1 January 2016 205 2,590 (72) (7) 3,698 6,414 4 6,418
Loss for the period - - - - (221) (221) 1 (220)
Other comprehensive income - - - 523 (2) 521 1 522
Total comprehensive income - - - 523 (223) 300 2 302
Equity-settled transactions - - - - 16 16 - 16
Tax on equity-settled transactions - - - - - - - -
Issue of ordinary shares under share option schemes - 4 - - - 4 - 4
Purchase of treasury shares - - - - - - - -
Release of treasury shares - - 3 - (3) - - -
Changes in non-controlling interest - - - - - - (3) (3)
Dividends - - - - (277) (277) - (277)
At 30 June 2016 205 2,594 (69) 516 3,211 6,457 3 6,460
2015 half year
At 1 January 2015 205 2,579 (75) 70 3,200 5,979 6 5,985
Loss for the period - - - - (79) (79) - (79)
Other comprehensive expense - - - (220) (30) (250) - (250)
Total comprehensive expense - - - (220) (109) (329) - (329)
Equity-settled transactions - - - - 21 21 - 21
Tax on equity-settled transactions - - - - - - - -
Issue of ordinary shares under share option schemes - 4 - - - 4 - 4
Purchase of treasury shares - - - - - - - -
Release of treasury shares - - 3 - (3) - - -
Changes in non-controlling interest - - - - - - - -
Dividends - - - - (277) (277) - (277)
At 30 June 2015 205 2,583 (72) (150) 2,832 5,398 6 5,404
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY continued
for the period ended 30 June 2016
Equity attributable to the equity holders of the company Non-controlling interest Total equity
all figures in £ millions Share capital Share premium Treasury shares Translation reserve Retained earnings Total
2015 full year
At 1 January 2015 205 2,579 (75) 70 3,200 5,979 6 5,985
Profit for the period - - - - 823 823 - 823
Other comprehensive income - - - (77) 99 22 (2) 20
Total comprehensive income - - - (77) 922 845 (2) 843
Equity-settled transactions - - - - 26 26 - 26
Tax on equity-settled transactions - - - - (1) (1) - (1)
Issue of ordinary shares under share option schemes - 11 - - - 11 11
Purchase of treasury shares - - (23) - - (23) - (23)
Release of treasury shares - - 26 - (26) - - -
Changes in non-controlling interest - - - - - - - -
Dividends - - - - (423) (423) - (423)
At 31 December 2015 205 2,590 (72) (7) 3,698 6,414 4 6,418
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the period ended 30 June 2016
2016 2015 2015
all figures in £ millions note half year half year full year
Cash flows from operating activities
Net cash (used in) / generated from operations 16 (266) (275) 518
Interest paid (22) (25) (75)
Tax paid (35) (74) (232)
Net cash (used in) / generated from operating activities (323) (374) 211
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired 13 (12) (7) (9)
Acquisition of joint ventures and associates - (2) (11)
Purchase of investments (3) (1) (7)
Purchase of property, plant and equipment (45) (36) (86)
Purchase of intangible assets (67) (59) (161)
Disposal of subsidiaries, net of cash disposed (37) 3 1,030
Proceeds from sale of joint ventures and associates - - 379
Proceeds from sale of investments 8 92 - 13
Proceeds from sale of property, plant and equipment - - 2
Proceeds from sale of intangible assets - - 1
Proceeds from sale of liquid resources 14 5 17
Loans repaid by related parties 27 54 7
Investment in liquid resources (18) (16) (29)
Interest received 4 8 24
Dividends received from joint ventures and associates 24 39 162
Net cash (used in) / generated from investing activities (21) (12) 1,332
Cash flows from financing activities
Proceeds from issue of ordinary shares 4 4 11
Purchase of treasury shares - - (23)
Proceeds from issue of commercial paper - 175 -
Proceeds from borrowings - 372 372
Repayment of borrowings (245) (14) (300)
Finance lease principal payments (1) (2) (1)
Dividends paid to company's shareholders (277) (277) (423)
Net cash (used in) / generated from financing activities (519) 258 (364)
Effects of exchange rate changes on cash and cash equivalents 69 (32) (19)
Net (decrease) / increase in cash and cash equivalents (794) (160) 1,160
Cash and cash equivalents at beginning of period 1,671 511 511
Cash and cash equivalents at end of period 877 351 1,671
1,671
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 period ended 30 June 2016
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 IAS 34 'Interim Financial Reporting' as adopted by the European
Union (EU). The condensed consolidated financial statements should be read in conjunction with the annual financial
statements for the year ended 31 December 2015 which have been prepared in accordance with International Financial
Reporting Standards (IFRS) and IFRS Interpretations Committee interpretations as adopted by the EU. In respect of
accounting standards applicable to the group in the current period there is no difference between EU-adopted IFRS and
International Accounting Standards Board (IASB)-adopted IFRS.
The condensed consolidated financial statements have also been prepared in accordance with the accounting policies set out
in the 2015 Annual Report 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.
In April 2016 the IFRS Interpretations Committee (IFRS IC) rejected a request to add to its agenda an item concerning cash
pooling arrangements, specifically addressing when and whether particular cash pooling arrangements would meet the
requirements for offsetting in accordance with IAS 32 'Financial Instruments: Presentation'. After consideration of the
IFRS IC rejection notice, Pearson has settled many of the balances within its cash pooling arrangements during the first
half of 2016 and has chosen to show any residual balances within these arrangements gross in the balance sheet at 30 June
2016. Pearson has considered the prior year comparatives in light of this guidance, and has concluded that those balances
at 30 June and 31 December 2015 that would not meet these requirements for net treatment are immaterial for restatement in
the context of the overall presentation of the Group's balance sheet at these dates. The 2015 Annual Report refers to new
standards that the Group will adopt in future periods but that are not yet effective in 2016. The Group is currently in the
process of assessing the impact of these new standards and will provide more information on their impact in due course.
The group's forecasts and projections, taking account of reasonably possible changes in trading performance, seasonal
working capital requirements and potential acquisition activity, show that the group should be able to operate within the
level of its current committed borrowing facilities. The directors have confirmed that they have a reasonable expectation
that the group has adequate resources to continue in operational existence. 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 2015 Annual Report.
The financial information for the year ended 31 December 2015 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 2015 was
unqualified and did not contain an emphasis of matter paragraph or any statement under section 498 of the Companies Act
2006.
The condensed consolidated financial statements and related notes for the six months to 30 June 2016 have been reviewed by
the auditors and their review opinion is included at the end of these statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
2. Segment information
The primary segments for management and reporting are Geographies (North America, Core and Growth). In addition, the Group
separately discloses the results from the Penguin Random House associate (PRH). The results of the FT Group (to 30 November
2015) are shown as discontinued in the relevant periods. In addition to restatements to reflect the FT Group in
discontinued operations, we have also restated 2015 to reflect changes in management responsibilities between the
Geographies which were effective from 1 January 2016.
2016 2015 2015
all figures in £ millions half year half year full year
restated restated
Sales by Geography
North America 1,164 1,263 2,940
Core 370 391 815
Growth 332 343 713
Sales - continuing operations 1,866 1,997 4,468
Sales - discontinued operations - 160 312
Total sales 1,866 2,157 4,780
Adjusted operating profit by Geography
North America 2 19 480
Core (7) 33 105
Growth (12) (22) (3)
PRH 32 24 90
Adjusted operating profit - continuing operations 15 54 672
Adjusted operating profit - discontinued operations - 18 51
Total adjusted operating profit 15 72 723
There were no material inter-segment sales.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
2. Segment information continued
The following table reconciles adjusted operating profit to operating profit for each of our primary segments.
North America Core Growth PRH Continuing Discontinued Total
all figures in £ millions
2016 half year
Adjusted operating profit / (loss) 2 (7) (12) 32 15 - 15
Costs of major restructuring (109) (20) (40) (2) (171) - (171)
Other net gains and losses - (18) - - (18) - (18)
Intangible charges (75) (6) (14) (17) (112) - (112)
Operating (loss) / profit (182) (51) (66) 13 (286) - (286)
2015 half year (restated)
Adjusted operating profit 19 33 (22) 24 54 18 72
Costs of major restructuring - - - - - - -
Other net gains and losses (70) - - - (70) - (70)
Intangible charges (53) (16) (23) (21) (113) (1) (114)
Operating (loss) / profit (104) 17 (45) 3 (129) 17 (112)
2015 full year (restated)
Adjusted operating profit / (loss) 480 105 (3) 90 672 51 723
Costs of major restructuring - - - - - - -
Other net gains and losses 19 (5) - (1) 13 1,184 1,197
Intangible charges (386) (79) (583) (41) (1,089) (3) (1,092)
Operating profit / (loss) 113 21 (586) 48 (404) 1,232 828
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
2. Segment information continued
Adjusted operating profit is one of Pearson's key business performance measures; it includes the operating profit from the
total business including the results of discontinued operations when relevant.
In 2016 the definition of adjusted operating profit has been amended to exclude the costs of major restructuring activity.
In January 2016, Pearson announced that it was embarking on a restructuring programme to simplify the business, reduce
costs and position the company for growth in its major markets. The costs of this programme in 2016 are significant enough
to exclude in our adjusted operating profit measure so as to better highlight the underlying performance. There was no
major restructuring in 2015 and accordingly the change has no effect on the comparative adjusted operating profit.
Other net gains and losses that represent profits and losses on the sale of subsidiaries, joint ventures, associates and
other financial assets are excluded from adjusted operating profit as they distort the performance of the Group. In 2016,
the losses in the Core segment mainly relate to the closure of our English language schools in Germany. In 2015, other
gains and losses included in discontinued operations relate to the sale of the FT Group including the 50% share of the
Economist. Included in other net gains and losses within continuing operations in 2015 in the North America segment is the
profit on disposal of PowerSchool net of small losses on other investments. At the half year in 2015 we booked impairment
losses of £70m relating to the sale of PowerSchool which subsequently completed in the second half of 2015.
Charges relating to intangibles, acquisition costs and movements in contingent acquisition consideration are also excluded
from adjusted operating profit when relevant as these items reflect past acquisition activity and don't necessarily reflect
the current year performance of the Group. In the second half of 2015, intangible charges included an impairment of
goodwill and intangibles in our North American business of £282m, our core business of £37m and our Growth business of
£530m.
Corporate costs are allocated to business segments including discontinued operations on an appropriate basis depending on
the nature of the cost and therefore the total segment result is equal to the Group operating profit.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
3. Net finance costs
2016 2015 2015
all figures in £ millions half year half year full year
Net interest payable (27) (29) (46)
Finance income in respect of retirement benefits 5 2 4
Net foreign exchange gains / (losses) (9) 28 7
Derivatives not in a hedging relationship 11 (4) 6
Net finance costs (20) (3) (29)
Analysed as:
Finance costs (51) (41) (100)
Finance income 31 38 71
Net finance costs (20) (3) (29)
Analysed as:
Net interest payable (27) (29) (46)
Other net finance income 7 26 17
Net finance costs (20) (3) (29)
Net finance costs classified as other net finance income / costs are excluded in the calculation of our adjusted earnings.
We have excluded finance costs relating to retirement benefits as we believe the presentation does not reflect the economic
substance of the underlying assets and liabilities.
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 2016 and 2015 the foreign exchange gains and losses largely
relate to foreign exchange differences on unhedged US dollar and Euro loans, cash and cash equivalents.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
4. Profit before tax
2016 2015 2015
all figures in £ millions note half year half year full year
Loss before tax - continuing operations (306) (132) (433)
Costs of major restructuring 2 171 - -
Intangible charges 2 112 113 1,089
Other gains and losses 2 18 70 (13)
Other net finance income 3 (7) (26) (17)
Adjusted (loss) / profit before tax - continuing operations (12) 25 626
Adjusted profit before tax - discontinued operations - 18 51
Total adjusted (loss) / profit before tax (12) 43 677
5. Income tax
2016 2015 2015
all figures in £ millions half year half year full year
Income tax benefit - continuing operations 86 40 81
Tax benefit on costs of major restructuring (54) - -
Tax benefit on intangible charges (32) (30) (257)
Tax (benefit) / charge on other gains and losses - (23) 40
Tax charge on other net finance costs 1 5 7
Tax amortisation benefit on goodwill and intangibles 1 5 33
Adjusted income tax benefit / (charge) - continuing operations 2 (3) (96)
Adjusted income tax charge - discontinued operations - (4) (9)
Total adjusted income tax benefit / (charge) 2 (7) (105)
Tax rate reflected in adjusted earnings 19.0% 17.0% 15.5%
17.0%
15.5%
The adjusted income tax charge excludes the tax benefit or charge on items that are excluded from the profit or loss 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.
A further reduction in the UK corporation tax rate to 17% from 1 April 2020 was announced in the 2016 Finance Bill. As the
proposals had not been substantively enacted at 30 June 2016 they have not been reflected in these financial statements. We
do not believe that these changes in rates will have a material effect on our deferred tax balances.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
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 period, 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. A
dilution is not calculated for a loss.
2016 2015 2015
all figures in £ millions half year half year full year
Loss for the period from continuing operations (220) (92) (352)
Non-controlling interest (1) - -
Loss from continuing operations (221) (92) (352)
Profit for the period from discontinued operations - 13 1,175
Non-controlling interest - - -
(Loss) / earnings (221) (79) 823
Weighted average number of shares (millions) 815.0 813.2 813.3
Effect of dilutive share options (millions) - - -
Weighted average number of shares (millions) for diluted earnings 815.0 813.2 813.3
(Loss) / earnings per share from continuing and discontinued operations
Basic (27.1)p (9.7)p 101.2 p
Diluted (27.1)p (9.7)p 101.2 p
Loss per share from continuing operations
Basic (27.1)p (11.3)p (43.3)p
Diluted (27.1)p (11.3)p (43.3)p
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.
The adjusted earnings per share includes both continuing and discontinued businesses on an undiluted basis. The Company's
definition of adjusted earnings per share may not be comparable to other similarly titled measures reported by other
companies.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
7. Adjusted earnings per share continued
Statutory income Re-analyse discontinued ops Costs of major restructuring Other net gains and losses Acquisition costs Intangible charges Other net finance costs Tax amortisation benefit Adjusted income
all figures in £ millions note
2016 half year
Operating profit 2 (286) - 171 18 - 112 - - 15
Net finance costs 3 (20) - - - - - (7) - (27)
Loss before tax 4 (306) - 171 18 - 112 (7) - (12)
Income tax 5 86 - (54) - - (32) 1 1 2
Loss for the period - continuing (220) - 117 18 - 80 (6) 1 (10)
Profit for the period - discontinued 8 - - - - - - - - -
Loss for the period (220) - 117 18 - 80 (6) 1 (10)
Non - controlling interest (1) - - - - - - - (1)
Loss (221) - 117 18 - 80 (6) 1 (11)
Weighted average number of shares (millions) 815.0
Weighted average number of shares (millions) for diluted earnings 815.0
Adjusted loss per share (basic) (1.3)p
Adjusted loss per share (diluted) (1.3)p
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
7. Adjusted earnings per share continued
Statutory income Re-analyse discontinued ops Costs of major restructuring Other net gains and losses Acquisition costs Intangible charges Other net finance costs Tax amortisation benefit Adjusted income
all figures in £ millions note
2015 half year
Operating profit 2 (129) 18 - 70 - 113 - - 72
Net finance costs 3 (3) - - - - - (26) - (29)
Profit before tax 4 (132) 18 - 70 - 113 (26) - 43
Income tax 5 40 (4) - (23) - (30) 5 5 (7)
Profit for the period - continuing (92) 14 - 47 - 83 (21) 5 36
Profit for the period - discontinued 8 13 (14) - - - 1 - - -
Profit for the period (79) - - 47 - 84 (21) 5 36
Non - controlling interest - - - - - - - - -
Earnings (79) - - 47 - 84 (21) 5 36
Weighted average number of shares (millions) 813.2
Weighted average number of shares (millions) for diluted earnings 813.2
Adjusted earnings per share (basic) 4.4p
Adjusted earnings per share (diluted) 4.4p
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
7. Adjusted earnings per share continued
Statutory income Re-analyse discontinued ops Costs of major restructuring Other net gains and losses Acquisition costs Intangible charges Other net finance costs Tax amortisation benefit Adjusted income
all figures in £ millions note
2015 full year
Operating profit 2 (404) 51 - (13) - 1,089 - - 723
Net finance costs 3 (29) - - - - - (17) - (46)
Profit before tax 4 (433) 51 - (13) - 1,089 (17) - 677
Income tax 5 81 (9) - 40 - (257) 7 33 (105)
Profit for the period - continuing (352) 42 - 27 - 832 (10) 33 572
Profit for the period - discontinued 8 1,175 (42) - (1,135) - 2 - - -
Profit for the period 823 - - (1,108) - 834 (10) 33 572
Non - controlling interest - - - - - - - - -
Earnings 823 - - (1,108) - 834 (10) 33 572
Weighted average number of shares (millions) 813.3
Weighted average number of shares (millions) for diluted earnings 813.3
Adjusted earnings per share (basic) 70.3p
Adjusted earnings per share (diluted) 70.3p
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
8. Discontinued operations
On 16 October 2015, Pearson substantially completed the sale of its 50% interest in the Economist and on 30 November 2015
Pearson completed the sale of the Financial Times. The results of the Economist and the Financial Times are included in
discontinued operations to the date of
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