REG - Pearson PLC - Interim Management Statement <Origin Href="QuoteRef">PSON.L</Origin> - Part 3
06/09/2014 20:35
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41 - 3 85 (9) - 104
Income tax 5 11 (14) - (1) (28) 2 5 (25)
Profit for the year -continuing (5) 27 - 2 57 (7) 5 79
Profit for the year - discontinued 8 (4) (27) 31 - 1 (1) - -
Profit for the year (9) - 31 2 58 (8) 5 79
Non-controlling interest 1 - - - - - - 1
Earnings (8) - 31 2 58 (8) 5 80
Weighted average number of shares (millions) 807.0
Weighted average number of shares (millions) for diluted earnings 808.0
Adjusted earnings per share (basic) 9.9p
Adjusted earnings per share (diluted) 9.9p
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTScontinued
for the period ended 30 June 2014
7. Adjusted earnings per sharecontinued
Statutory income statement Re-analyse discontinued operations Other net gains and losses Acquisition costs Intangible charges Other net finance costs Tax amortisation benefit Adjusted income statement
all figures in £ millions note
2013 full year
Operating profit 2 458 54 16 12 196 - - 736
Net finance costs 3 (76) - - - - 4 - (72)
Profit before tax 4 382 54 16 12 196 4 - 664
Income tax 5 (87) (18) 32 (2) (51) (1) 30 (97)
Profit for the year -continuing 295 36 48 10 145 3 30 567
Profit for the year - discontinued 8 244 (36) (209) - 2 (1) - -
Profit for the year 539 - (161) 10 147 2 30 567
Non-controlling interest (1) - - - - - - (1)
Earnings 538 - (161) 10 147 2 30 566
Weighted average number of shares (millions) 807.8
Weighted average number of shares (millions) for diluted earnings 808.9
Adjusted earnings per share (basic) 70.1p
Adjusted earnings per share (diluted) 70.0p
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTScontinued
for the period ended 30 June 2014
8. Discontinued operations
In October 2012, Pearson and Bertelsmann announced an agreement to create a new consumer publishing business by combining
Penguin and Random House (PRH). The transaction completed on 1 July 2013 and the loss of control resulted in the Penguin
business being classified as held for sale on the Pearson balance sheet at 30 June 2013 and the results for the first 6
months of 2013 being included in discontinued operations.
Additionally on 29 November 2013 we announced the sale of the Mergermarket Group to BC Partners. The sale was completed on
4 February 2014 and the Mergermarket business was classified as held for sale in the balance sheet at 31 December 2013. The
results for 2013 and 2014 to the date of disposal have been included in discontinued operations.
The sales and profit for the year for discontinued operations are analysed below.
2014 2013 2013
all figures in £ millions half year half year full year
Sales by discontinued operations 9 566 621
Operating profit included in adjusted earnings 2 41 54
Intangible amortisation - (1) (2)
Acquisition costs - - -
Gain on disposal of Penguin 56 (46) 202
Gain on disposal of Mergermarket 245 - (8)
Finance income - 1 1
Profit / (loss) before tax 303 (5) 247
Attributable tax (expense) / benefit (50) 1 (3)
Profit / (loss) for the year - discontinued operations 253 (4) 244
Operating profit included in adjusted earnings 2 41 54
Finance income - - -
Attributable tax expense (1) (14) (18)
Profit for the year included in adjusted earnings 1 27 36
Intangible amortisation - (1) (2)
Attributable tax benefit - - -
Gain on disposal of Penguin 56 (46) 202
Attributable tax benefit - 15 15
Gain on disposal of Mergermarket 245 - (8)
Attributable tax charge (49) - -
Other net finance income - 1 1
Attributable tax benefit - - -
Profit / (loss) for the year - discontinued operations 253 (4) 244
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTScontinued
for the period ended 30 June 2014
8. Discontinued operationscontinued
The gains on disposal of Penguin and Mergermarket are shown in the tables below.
2014 2013 2013
all figures in £ millions half year half year full year
Gain on sale of Penguin
Fair value of associate interest acquired in PRH - - 1,160
Net assets disposed - - (837)
Cost of disposal 56 (46) (121)
Gain on disposal before tax 56 (46) 202
Attributable tax benefit - 15 15
Gain on disposal after tax 56 (31) 217
Gain on sale of Mergermarket
Proceeds received 375 - -
Net assets disposed (130) - -
Cost of disposal - - (8)
Gain on disposal before tax 245 - (8)
Attributable tax expense (49) - -
Gain on disposal after tax 196 - (8)
Included within the cost of disposal of Penguin in 2013 are amounts in respect of the settlement of litigation related to
the agency arrangements for eBooks. Also included in cost of disposal for Penguin in 2013 was a provision for amounts
payable to Bertelsmann upon settlement of the transfer of Penguin's UK past service pension liabilities to the new PRH
venture. During 2014, it was decided that this transfer would not go ahead as planned and the costs have been credited back
against the disposal in 2014.
9. Dividends
2014 2013 2013
all figures in £ millions half year half year full year
Amounts recognised as distributions to equity shareholders in the period 259 242 372
The directors are proposing an interim dividend of 17.0p per equity share, payable on 12 September 2014 to shareholders on
the register at the close of business on 15 August 2014. This interim dividend, which will absorb an estimated £138m of
shareholders' funds, has not been included as a liability as at 30 June 2014.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTScontinued
for the period ended 30 June 2014
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:
2014 2013 2013
half year half year full year
Average rate for profits 1.68 1.53 1.57
Period end rate 1.71 1.52 1.66
11. Intangible assets
2014 2013 2013
all figures in £ millions half year half year full year
Goodwill 5,022 5,244 4,666
Other intangibles 1,058 1,320 1,135
Total intangibles 6,080 6,564 5,801
12. Trade and other liabilities
2014 2013 2013
all figures in £ millions half year half year full year
Trade payables (205) (210) (316)
Accruals (476) (448) (501)
Deferred income (693) (692) (698)
Other liabilities (254) (281) (247)
Trade and other liabilities (1,628) (1,631) (1,762)
Analysed as:
Trade and other liabilities - current (1,367) (1,390) (1,505)
Other liabilities - non-current (261) (241) (257)
Total trade and other liabilities (1,628) (1,631) (1,762)
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, college,
and newspaper businesses; and obligations to deliver digital content in future periods.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTScontinued
for the period ended 30 June 2014
13. Held for sale
Assets classified as held for sale at the half year 2013 relate to Penguin and at the full year 2013 relate to Mergermarket
(see also note 8).
2014 2013 2013
all figures in £ millions half year half year full year
Property, plant and equipment - 47 2
Intangible assets - 423 158
Investments in joint ventures and associates - 27 -
Deferred income tax assets - 45 1
Other financial assets - 1 -
Trade and other receivables - 443 26
Intangible assets - Pre-publication - 20 -
Inventories - 94 -
Cash and cash equivalents (excluding overdrafts) - 146 36
Assets classified as held for sale - 1,246 223
Financial liabilities - Borrowings - (11) -
Deferred income tax liabilities - (20) (2)
Retirement benefit obligations - (28) -
Provisions for liabilities and charges - (67) (4)
Trade and other liabilities - (227) (71)
Current income tax liabilities - - (5)
Liabilities classified as held for sale - (353) (82)
Net assets classified as held for sale - 893 141
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTScontinued
for the period ended 30 June 2014
14. Business combinations
On 11 February 2014, the Group acquired 100% of Grupo Multi, the leading adult English language training company in
Brazil.
Provisional values for the assets and liabilities arising from the Grupo Multi acquisition and other smaller acquisitions
completed in the period are set out below. Intangible assets for Grupo Multi have yet to be valued. There were no material
adjustments to prior period acquisitions.
Grupo Multi Other Total
all figures in £ millions
Property, plant and equipment 2 - 2
Intangible assets - 5 5
Intangible assets - pre-publication 1 - 1
Inventories 4 - 4
Trade and other receivables 31 - 31
Current income tax assets 3 - 3
Cash and cash equivalents (excluding overdrafts) 3 - 3
Financial liabilities - Borrowings (49) - (49)
Trade and other liabilities (22) (2) (24)
Net deferred income tax assets / (liabilities) 2 (1) 1
(25) 2 (23)
Goodwill 462 (2) 460
Total 437 - 437
Satisfied by:
Cash (437) - (437)
Deferred consideration - - -
Net prior year adjustments - - -
Total consideration (437) - (437)
The net cash outflow on acquisitions in the period is shown in the table below:
Total
all figures in £ millions
Cash - Current period acquisitions (437)
Deferred payments for prior year acquisitions and other items (4)
Cash and cash equivalents acquired 3
Acquisition costs paid (7)
Net cash outflow on acquisitions (445)
In total, acquisitions completed in the period contributed an additional £32m of sales and £14m of adjusted operating
profit. If the acquisitions had completed on 1 January 2014 then we estimate that sales for the period would have been
£2,053m and the loss before tax would have been £39m.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTScontinued
for the period ended 30 June 2014
15. Net debt
2014 2013 2013
all figures in £ millions half year half year full year
Non-current assets
Derivative financial instruments 129 125 111
Current assets
Derivative financial instruments 13 13 13
Marketable securities 14 6 6
Cash and cash equivalents (excluding overdrafts) 460 596 729
Non-current liabilities
Borrowings (2,075) (2,259) (1,693)
Derivative financial instruments (38) (39) (48)
Current liabilities
Borrowings (531) (414) (533)
Net debt - continuing operations (2,028) (1,972) (1,415)
Net cash classified as held for sale - 135 36
Total net debt (2,028) (1,837) (1,379)
In May 2014, Pearson issued E500m 1.875% Notes due in 2021 and applied the proceeds to repay its $400m 5.7% Notes due in
2014 at their maturity. The additional proceeds will be used for general corporate purposes and towards repayment of the
£250m bond maturing in October 2014.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTScontinued
for the period ended 30 June 2014
16. 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
2014 half year
Investment in unlisted securities - - - 92 - 92
Marketable securities 14 - - - - 14
Derivative financial instruments - 142 - - - 142
Total financial assets held at fair value 14 142 - 92 - 248
Derivative financial instruments - (38) - - - (38)
Put options over non-controlling interest - - - - - -
Total financial liabilities held at fair value - (38) - - - (38)
2013 half year
Investment in unlisted securities - - - 100 - 100
Marketable securities 6 - - - - 6
Derivative financial instruments - 138 - - - 138
Total financial assets held at fair value - continuing 6 138 - 100 - 244
Classified as held for sale:
Investments in unlisted securities - - - 1 - 1
Total financial assets held at fair value 6 138 - 101 - 245
Derivative financial instruments - (39) - - - (39)
Put options over non-controlling interest - - - - (38) (38)
Total financial liabilities held at fair value - (39) - - (38) (77)
2013 full year
Investment in unlisted securities - - - 94 - 94
Marketable securities 6 - - - - 6
Derivative financial instruments - 124 - - - 124
Total financial assets held at fair value - continuing 6 124 - 94 - 224
Derivative financial instruments - (48) - - - (48)
Put options over non-controlling interest - - - - - -
Total financial liabilities held at fair value - (48) - - - (48)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTScontinued
for the period ended 30 June 2014
16. Classification of assets and liabilities measured at fair valuecontinued
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 £2,324m (2013 half year: £2,382m, 2013 full year: £2,186m) compared to their
carrying value of £2,311m (2013 half year: £2,359m, 2013 full year: £2,168m). 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 in the first half of 2014 are shown in the table below:
Investments in Put options over
all figures in £ millions unlisted securities non-controlling interest
2014 half year
At 1 January 2014 94 -
Exchange differences (3) -
Additions 1 -
Fair value movements - -
Settlements - -
At 30 June 2014 92 -
2013 half year
At 1 January 2013 32 (68)
Exchange differences 2 6
Additions 67 -
Fair value movements - -
Settlements - 24
At 30 June 2013 101 (38)
2013 full year
At 1 January 2013 32 (68)
Exchange differences - 9
Additions 63 -
Fair value movements - (8)
Disposals (1) 67
At 31 December 2013 94 -
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTScontinued
for the period ended 30 June 2014
17. Cash flows
2014 2013 2013
all figures in £ millions note half year half year full year
Reconciliation of profit for the period to net cash (used in) / generated from operations
Profit / (loss) for the period 227 (9) 539
Income tax 40 (12) 90
Depreciation, amortisation and impairment charges 143 159 309
(Profit) / loss on sale of property, plant and equipment (1) 2 -
(Profit) / loss on sale of subsidiaries (301) 46 (187)
Acquisition costs 3 3 12
Net finance (income) / costs (1) 23 75
Share of results of joint ventures and associates (8) (9) (54)
Share-based payment costs 21 21 37
Net foreign exchange adjustment (1) - (40)
Pre-publication (44) (73) (77)
Inventories (33) (33) 18
Trade and other receivables (85) 19 (50)
Trade and other liabilities (125) (255) 72
Retirement benefit obligations (40) (45) (57)
Provisions (7) 2 (3)
Net cash (used in) / generated from operations (212) (161) 684
Dividends from joint ventures and associates 19 1 64
Net purchase of PPE including finance lease principal payments (23) (54) (98)
Purchase of intangible assets (38) (33) (62)
Operating cash flow (254) (247) 588
Operating tax paid (58) (102) (191)
Net operating finance costs paid (16) (28) (73)
Operating free cash flow (328) (377) 324
Non-operating tax paid - - (55)
Free cash flow (328) (377) 269
Dividends paid (including to non-controlling interests) (260) (243) (372)
Net movement of funds from operations (588) (620) (103)
Acquisitions and disposals (net of tax) (139) (168) (326)
Purchase of treasury shares (9) (46) (47)
Loans repaid / (advanced) 42 - (49)
New equity 4 4 14
Other movements on financial instruments (11) (18) (9)
Net movement of funds (701) (848) (520)
Exchange movements on net debt 52 (71) 59
Total movement in net debt (649) (919) (461)
Opening net debt (1,379) (918) (918)
Closing net debt 15 (2,028) (1,837) (1,379)
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.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTScontinued
for the period ended 30 June 2014
18. 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.
19. Related parties
At 31 December 2013 the Group had loans to Penguin Random House (PRH) of £44m which were unsecured with interest calculated
based on market rates. These loans were repaid during the first half of 2014. At 30 June 2014, the Group has a current
asset receivable from PRH of £11m arising from the provision of services. Service fee income from PRH was £25m in the first
half of 2014.
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.
20. Events after the balance sheet date
There were no material 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 2013 Annual Report.
The directors of Pearson plc are listed in the 2013 Annual Report. There have been the following changes to the Board since
the publication of the Annual Report:
Elizabeth Corley - appointed 1 May 2014
A list of current directors is maintained on the Pearson plc website: www.pearson.com.
By order of the Board
John Fallon
Chief Executive
24 July 2014
Robin Freestone
Chief Financial Officer
24 July 2014
INDEPENDENT REVIEW REPORT TO PEARSON PLC
Report on the condensed consolidated financial statements
Our conclusion
We have reviewed the condensed consolidated financial statements, defined below, in the Interim Results of Pearson Plc for
the six months ended 30 June 2014. Based on our review, nothing has come to our attention that causes us to believe that
the condensed consolidated financial statements are not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority. This conclusion is to be read in the context of what we say in the remainder
of this report.
What we have reviewed
The condensed consolidated financial statements, which are prepared by Pearson Plc, comprise:
· the condensed consolidated balance sheet as at 30 June 2014;
· the condensed consolidated income statement and 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 notes to the condensed consolidated financial statements.
As disclosed in note 1, 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.
The condensed consolidated 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
and Transparency Rules of the United Kingdom's Financial Conduct Authority.
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 condensed consolidated financial statements.
INDEPENDENT REVIEW REPORT TO PEARSON PLCcontinued
Responsibilities for the condensed consolidated financial statements and the review
Our responsibilities and those of the directors
The Interim Results, including the condensed consolidated financial statements, are the responsibility of, and have been
approved by, the directors. The directors are responsible for preparing the Interim Results in accordance with the
Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express to the company a conclusion on the condensed consolidated 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 and Transparency Rules of the 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.
PricewaterhouseCoopers LLP
Chartered Accountants
24 July 2014
London
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 financial statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
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