REG - Pearson PLC - Half-year Report <Origin Href="QuoteRef">PSON.L</Origin> - Part 3
04/08/2017 07:08
- Part 3: For the preceding part double click ID:nRSD0925Nb
Total net debt (1,633) (1,426) (1,092)
-
Total net debt
(1,633)
(1,426)
(1,092)
In March 2017, Pearson redeemed its $550m 6.25% Global dollar bonds originally due in 2018.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2017
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
2017 half year
Investment in unlisted securities - - - 86 - 86
Marketable securities 11 - - - - 11
Derivative financial instruments - 131 - - - 131
Total financial assets held at fair value 11 131 - 86 - 228
Derivative financial instruments - (176) - - - (176)
Total financial liabilities held at fair value - (176) - - - (176)
2016 half year
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)
2016 full year
Investment in unlisted securities - - - 65 - 65
Marketable securities 10 - - - - 10
Derivative financial instruments - 171 - - - 171
Total financial assets held at fair value 10 171 - 65 - 246
Derivative financial instruments - (264) - - - (264)
Total financial liabilities held at fair value - (264) - - - (264)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2017
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 £1,886m (2016 half year: £2,268m, 2016 full year: £2,381m) compared to their
carrying value of £1,899m (2016 half year: £2,322m, 2016 full year: £2,420m). 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:
2017 2016 2016
all figures in £ millions half year half year full year
Investments in unlisted securities
At beginning of period 65 143 143
Exchange differences (3) 4 8
Additions 3 4 6
Fair value movements 21 - -
Disposals - (92) (92)
At end of period 86 59 65
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2017
16. Cash flows
2017 2016 2016
all figures in £ millions half year half year full year
Reconciliation of loss for the period to net cash (used in) / generated from operations
Loss for the period (16) (220) (2,335)
Income tax 6 (86) (222)
Depreciation, amortisation and impairment charges 155 184 2,912
Net loss on disposal of businesses and fixed assets 6 24 40
Net finance costs 26 20 60
Share of results of joint ventures and associates (43) (21) (97)
Share-based payment costs 19 16 22
Net foreign exchange adjustment (6) 2 43
Pre-publication (8) (22) (19)
Inventories (13) (39) 17
Trade and other receivables 54 36 156
Trade and other liabilities (231) (52) 61
Retirement benefit obligations (169) (99) (106)
Provisions 1 (9) (10)
Net cash (used in) / generated from operations (219) (266) 522
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the period ended 30 June 2017
16. Cash flows continued
2017 2016 2016
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 (219) (266) 522
Dividends from joint ventures and associates 60 24 131
Net purchase of PPE including finance lease principal payments (32) (46) (90)
Net purchase of intangible assets (79) (67) (157)
Add back: costs of major restructuring paid 24 55 167
Add back: special pension contribution 174 90 90
Operating cash flow (72) (210) 663
Operating tax paid (33) (53) (63)
Net operating finance costs paid (39) (18) (51)
Operating free cash flow (144) (281) 549
Costs of major restructuring paid (24) (55) (167)
Special pension contribution (174) (72) (72)
Non-operating tax received / (paid) - - -
Free cash flow (342) (408) 310
Dividends paid (including to non-controlling interests) (277) (277) (424)
Net movement of funds from operations (619) (685) (114)
Acquisitions and disposals (21) 40 19
Purchase of treasury shares - - (27)
Loans (advanced) / repaid (5) 27 14
New equity 4 4 7
Other movements on financial instruments 3 (3) 4
Net movement of funds (638) (617) (97)
Exchange movements on net debt 97 (155) (341)
Total movement in net debt (541) (772) (438)
Opening net debt (1,092) (654) (654)
Closing net debt 14 (1,633) (1,426) (1,092)
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 £174m in 2017 were made as part of the agreements relating to the PRH merger in 2013
(£162m) and the sale of the FT Group in 2015 (£12m). In 2016 special pension contributions of £72m (net of tax) relate to
the sale of the FT Group.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTScontinued
for the period ended 30 June 2017
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 2017 the Group had loans to Penguin Random House (PRH) of £38m (2016 half year: £19m, 2016 full year: £33m)
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 2017, the Group also had a current asset receivable from PRH of £2m
(2016 half year: £6m, 2016 full year: £21m) arising from the provision of services. Service fee income from PRH for the
first 6 months of 2017 was £1m (2016 half year: £2m, 2016 full year: £4m)
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
On 11 July 2017, Pearson announced its agreement to sell a 22% stake in PRH to Bertelsmann and recapitalise the business.
The transactions are expected to complete in the second half of 2017.
At the time of publishing these financial statements, it was announced that Pearson would launch a market tender to
repurchase its $500m 3.75% US Dollar Notes 2022 and $500m 3.25% US Dollar Notes 2023 and also planned to redeem the $300m
4.625% June 2018 bond following the completion of the PRH transaction.
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 2016 Annual Report.
The directors of Pearson plc are listed in the 2016 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
3 August 2017
Coram Williams
Chief Financial Officer
3 August 2017
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 2017. 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 Guidance 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 2017;
· 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 Guidance 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 Guidance 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 Guidance 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
3 August 2017
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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