REG - Pearson PLC - Half-year Report <Origin Href="QuoteRef">PSON.L</Origin> - Part 3
29/07/2016 07:08
- Part 3: For the preceding part double click ID:nRSc5935Fb
sale in 2015.
The sales and profit for the period for discontinued operations are analysed below.
2016 2015 2015
all figures in £ millions half year half year full year
Sales by discontinued operations - 160 312
-
Operating profit included in adjusted earnings - 18 51
Intangible amortisation - (1) (3)
Gain on disposal of the Financial Times - 711
Gain on disposal of the Economist - 473
Profit before tax - 17 1,232
Attributable tax charge - (4) (57)
Profit for the period - discontinued operations - 13 1,175
-
Operating profit included in adjusted earnings - 18 51
Attributable tax charge - (4) (9)
Profit for the period included in adjusted earnings - 14 42
Intangible amortisation - (1) (3)
Attributable tax benefit - - 1
Gain on disposal of the Financial Times - - 711
Attributable tax charge - - (49)
Gain on disposal of the Economist - - 473
Attributable tax charge - - -
Profit for the period - discontinued operations - 13 1,175
-
Profit for the period - discontinued operations
-
13
1,175
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
8. Discontinued operations continued
The gains on disposal of the Financial Times and Economist in 2015 are shown in the tables below.
2016 2015 2015
all figures in £ millions half year half year full year
Gain on sale of the Financial Times
Proceeds - - 858
Net assets disposed - - (100)
Cost of disposal - - (47)
Gain on disposal before tax - - 711
Attributable tax charge - - (49)
Gain on disposal after tax - - 662
Gain on sale of the Economist
Proceeds 92 - 377
Re-measurement of retained asset at fair value - - 92
Net (assets) / liabilities disposed (92) - 4
Cost of disposal - - -
Gain on disposal before tax - - 473
Attributable tax charge - - -
Gain on disposal after tax - - 473
Gain on disposal after tax
-
-
473
The amount included as re-measurement of retained assets related to an 11% stake in the Economist which was held at fair
value within other financial assets on the balance sheet at 31 December 2015 but has subsequently been disposed in the
first half of 2016 with no further gain or loss.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
9. Dividends
2016 2015 2015
all figures in £ millions half year half year full year
Amounts recognised as distributions to equity shareholders in the period 277 277 423
The directors are proposing an interim dividend of 18.0p per equity share, payable on 16 September 2016 to shareholders on
the register at the close of business on 19 August 2016. This interim dividend, which will absorb an estimated £147m of
shareholders' funds, has not been included as a liability as at 30 June 2016.
10. 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:
2016 2015 2015
half year half year full year
Average rate for profits 1.41 1.53 1.53
Period end rate 1.34 1.57 1.47
1.47
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
11. Non-current intangible assets
2016 2015 2015
all figures in £ millions half year half year full year
Goodwill 4,534 4,800 4,134
Other intangibles 1,082 1,136 1,030
Non-current intangible assets 5,616 5,936 5,164
5,164
There were no impairments to goodwill or intangibles in the period to June 2016, In the second half of 2015, following
significant economic and market deterioration in the Group's operations in emerging markets and ongoing cyclical and policy
related pressures in the Group's mature market operations, management's expectations of future returns were revised
downwards. It was determined during the goodwill impairment review in 2015 that the fair value less costs of disposal of
the Growth, North America and Core CGUs no longer supported the carrying value of the goodwill. An impairment of £507m was
booked in respect of the Group's Growth operations, representing impairments of £269m in the Brazil CGU, £181m in the China
CGU, £48m in the South Africa CGU and £9m in the Other Growth CGU, thereby bringing the carrying value of goodwill in those
CGUs down to £nil. Impairments of £10m and £13m were also booked in respect of other acquired intangibles in the South
Africa and Other Growth CGUs respectively, bringing their carrying value down to £nil. Impairments of £282m and £37m were
also booked in respect of the North America and Core CGUs respectively, bringing the carrying value of the goodwill in
those CGUs down to fair value less costs of disposal.
12. Trade and other liabilities
2016 2015 2015
all figures in £ millions half year half year full year
Trade payables (224) (179) (319)
Accruals (542) (452) (393)
Deferred income (797) (733) (766)
Other liabilities (270) (273) (268)
Trade and other liabilities (1,833) (1,637) (1,746)
Analysed as:
Trade and other liabilities - current (1,463) (1,307) (1,390)
Other liabilities - non-current (370) (330) (356)
Total trade and other liabilities (1,833) (1,637) (1,746)
Total trade and other liabilities
(1,833)
(1,637)
(1,746)
The deferred income balance comprises principally multi-year obligations to deliver workbooks to adoption customers in
school businesses; advance payments in assessment, testing and training businesses; subscription income in school and
college businesses; and obligations to deliver digital content in future periods.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
13. Business combinations
There were no significant acquisitions completed in the period and there were no material adjustments to prior year
acquisitions.
The net cash outflow relating to acquisitions in the period is shown in the table below:
Total
all figures in £ millions
Cash - Current period acquisitions (6)
Deferred payments for prior period acquisitions and other items (6)
Net cash outflow on acquisitions (12)
(12)
14. Net debt
2016 2015 2015
all figures in £ millions half year half year full year
Non-current assets
Derivative financial instruments 200 68 78
Current assets
Derivative financial instruments - 52 32
Marketable securities 31 26 28
Cash and cash equivalents (excluding overdrafts) 980 361 1,703
Non-current liabilities
Borrowings (2,324) (1,923) (2,048)
Derivative financial instruments (190) (122) (136)
Current liabilities
Borrowings (115) (733) (282)
Derivative financial instruments (8) (18) (29)
Total net debt (1,426) (2,289) (654)
Total net debt
(1,426)
(2,289)
(654)
In May 2016, Pearson repaid its $350m 4.0% US Dollar Notes on maturity.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
15. Classification of assets and liabilities measured at fair value
---------Level 2--------- -----Level 3------
Available for sale assets Derivatives Other assets Available for sale assets Other liabilities Total fair value
all figures in £ millions
2016 half year
Investment in listed securities - - - - - -
Investment in unlisted securities - - - 59 - 59
Marketable securities 31 - - - - 31
Derivative financial instruments - 200 - - - 200
Total financial assets held at fair value 31 200 - 59 - 290
Derivative financial instruments - (198) - - - (198)
Total financial liabilities held at fair value - (198) - - - (198)
2015 half year
Investment in listed securities 9 - - - - 9
Investment in unlisted securities - - - 46 - 46
Marketable securities 26 - - - - 26
Derivative financial instruments - 120 - - - 120
Total financial assets held at fair value 35 120 - 46 - 201
Derivative financial instruments - (140) - - - (140)
Total financial liabilities held at fair value - (140) - - - (140)
2015 full year
Investment in listed securities - - - - - -
Investment in unlisted securities - - - 143 - 143
Marketable securities 28 - - - - 28
Derivative financial instruments - 110 - - - 110
Total financial assets held at fair value 28 110 - 143 - 281
Derivative financial instruments - (165) - - - (165)
Total financial liabilities held at fair value - (165) - - - (165)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
15. Classification of assets and liabilities measured at fair value continued
The fair values of level 2 assets and liabilities are determined by reference to market data and established estimation
techniques such as discounted cash flow and option valuation models. Within level 3 assets and liabilities, the fair value
of available for sale assets is determined by reference to the financial performance of the underlying asset and amounts
realised on the sale of similar assets, while the fair value of other liabilities represents the present value of the
estimated future liability. There have been no transfers in classification during the period.
The market value of Pearson's bonds is £2,268m (2015 half year: £2,450m, 2015 full year: £2,245m) compared to their
carrying value of £2,322m (2015 half year: £2,453m, 2015 full year:: £2,284m). For all other financial assets and
liabilities, fair value is not materially different to carrying value.
Movements in fair values of level 3 assets and liabilities are shown in the table below:
2016 2015 2015
all figures in £ millions half year half year full year
Investments in unlisted securities
At beginning of period 143 45 45
Exchange differences 4 - 3
Additions 4 1 101
Fair value movements - - -
Disposals (92) - (6)
At end of period 59 46 143
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
16. Cash flows
2016 2015 2015
all figures in £ millions half year half year full year
Reconciliation of (loss) / profit for the period to net cash (used in) / generated from operations
(Loss) / profit for the period (220) (79) 823
Income tax (86) (36) (24)
Depreciation, amortisation and impairment charges 184 167 1,200
Net loss / (profit) on disposal of businesses and fixed assets 24 74 (1,194)
Net finance costs 20 3 29
Share of results of joint ventures and associates (21) (10) (68)
Share-based payment costs 16 21 26
Net foreign exchange adjustment 2 (6) 22
Pre-publication (22) (43) (57)
Inventories (39) (34) 10
Trade and other receivables 36 (70) (99)
Trade and other liabilities (52) (221) (80)
Retirement benefit obligations (99) (37) (57)
Provisions (9) (4) (13)
Net cash (used in) / generated from operations (266) (275) 518
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2016
16. Cash flows continued
2016 2015 2015
all figures in £ millions note half year half year full year
Reconciliation of net cash (used in) / generated from operations to closing net debt
Net cash (used in) / generated from operations (266) (275) 518
Dividends from joint ventures and associates 24 39 162
Net purchase of PPE including finance lease principal payments (46) (38) (85)
Net purchase of intangible assets (67) (59) (160)
Add back: costs of major restructuring paid 55 - -
Add back: special pension contribution 90 - -
Operating cash flow (210) (333) 435
Operating tax paid (53) (74) (129)
Net operating finance costs paid (18) (17) (51)
Operating free cash flow (281) (424) 255
Costs of major restructuring paid (55) - -
Special pension contribution (net of tax) (72) - -
Non-operating tax paid - - (103)
Free cash flow (408) (424) 152
Dividends paid (including to non-controlling interests) (277) (277) (423)
Net movement of funds from operations (685) (701) (271)
Acquisitions and disposals 40 (7) 1,395
Purchase of treasury shares - - (23)
Loans repaid 27 54 7
New equity 4 4 11
Other movements on financial instruments (3) (9) (1)
Net movement of funds (617) (659) 1,118
Exchange movements on net debt (155) 9 (133)
Total movement in net debt (772) (650) 985
Opening net debt (654) (1,639) (1,639)
Closing net debt 14 (1,426) (2,289) (654)
Operating cash flow and free cash flow are non-GAAP measures and have been disclosed as they are part of Pearson's
corporate and operating measures. These measures are presented in order to align the cash flows with corresponding adjusted
profit measures.
Special pension contributions of £90m (£72m net of tax) in the first half of 2016 relate to the sale of the FT Group.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTScontinued
for the period ended 30 June 2016
17. 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 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.
18. Related parties
At 30 June 2016 the Group had loans to Penguin Random House (PRH) of £19m (2015 half year: £nil, 2015 full year: £47m)
which were unsecured with interest calculated based on market rates. The loans are provided under a working capital
facility and fluctuate during the year. At 30 June 2016, the Group also had a current asset receivable from PRH of £6m
(2015 half year: £12m, 2015 full year: £27m) arising from the provision of services. Service fee income from PRH for the
first 6 months of 2015 was £2m (2015 half year: £12m, 2015 full year: £16m)
Apart from transactions with the Group's associates and joint ventures noted above, there were no other material related
party transactions and no guarantees have been provided to related parties in the period.
19. Events after the balance sheet date
There were no significant post balance sheet events.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that these condensed consolidated financial statements have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim
management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 namely:
· An indication of important events that have occurred during the first six months and their impact on the condensed
consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six months
of the financial year; and
· Material related party transactions in the first six months and any material changes in related party transactions
described in the 2015 Annual Report.
The directors of Pearson plc are listed in the 2015 Annual Report. There have been no changes to the Board since the
publication of the Annual Report:
A list of current directors is maintained on the Pearson plc website: www.pearson.com.
By order of the Board
John Fallon
Chief Executive
28 July 2016
Coram Williams
Chief Financial Officer
28 July 2016
INDEPENDENT REVIEW REPORT TO PEARSON PLC
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Pearson plc's condensed consolidated interim financial statements (the 'interim financial statements') in
the interim results of Pearson plc for the 6 month period ended 30 June 2016. Based on our review, nothing has come to our
attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and
the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
· the condensed consolidated balance sheet as at 30 June 2016;
· the condensed consolidated income statement and condensed consolidated statement of comprehensive income for the period
then ended;
· the condensed consolidated cash flow statement for the period then ended;
· the condensed consolidated statement of changes in equity for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the interim results have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The interim results, including the interim financial statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the interim results in accordance with the Disclosure Rules and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the interim results based on our
review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying
with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person
to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
INDEPENDENT REVIEW REPORT TO PEARSON PLC continued
What a review of condensed consolidated financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board
for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK
and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
28 July 2016
London
a) The maintenance and integrity of the Pearson plc website is the responsibility of the directors; the work carried out
by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the interim financial statements since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions
This information is provided by RNS
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