REG - Pearson PLC - Pearson 2023 Interim Results
31/07/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230731:nRSe6430Ha&default-theme=true
RNS Number : 6430H Pearson PLC 31 July 2023
Pearson Interim Results for the six months to 30(th) June 2023 (Unaudited)
31(st) July 2023 Excellent H1 financial performance; full year Group financial expectations
reaffirmed
Highlights
· Underlying Group sales growth(1) of 6%, excluding OPM(2) and the Strategic
Review(3) businesses with particularly strong performances in English Language
Learning and Assessment & Qualifications.
· Underlying adjusted operating profit growth of 44% and strong operating cash
flow performance of £79m, reflecting strong trading and benefits of the cost
efficiency programme in H1, with the remainder to be realised in H2.
· Further portfolio reshaping with completion of the acquisition of Personnel
Decisions Research Institutes (PDRI) within our Assessment &
Qualifications division and the completion of the disposal of Pearson Online
Learning Services (POLS).
· Good strategic progress, including ongoing execution of Artificial
Intelligence (AI) strategy.
Statutory results
· Sales increased 5% to £1,879m (H1 2022: £1,788m) reflecting underlying
performance, portfolio changes and currency movements.
· Statutory operating profit of £219m (H1 2022: £148m) reflecting underlying
performance, portfolio changes and currency movements.
· Net cash generated from operations was £106m (H1 2022: £53m).
· Statutory earnings per share of 26.1p (H1 2022: 18.1p(5)).
Underlying sales growth(1) of 6%, excluding OPM(2) and Strategic Review(3)
businesses; 4% in aggregate
· Assessment & Qualifications sales were up 7% largely driven by a strong
performance in Pearson VUE underpinned by good growth in the IT and healthcare
segments, alongside the commencement of a number of new contracts.
· Virtual Learning sales decreased 15%, primarily due to an expected 69%
decrease in the OPM business given the previously announced ASU contract loss.
Virtual Schools declined 2%, driven by enrolment declines for the 2022/23
academic year and lower district partnership renewals, which was offset by
good retention rates and the return of a school that had previously left.
· Higher Education sales were down 2%, in line with expectations, driven by a
decline in enrolments and loss of adoptions to non-mainstream publishers.
Pearson+ momentum continued, increasing c.200% in cumulative paid
subscriptions to 938k for the full academic year (2022: 329k).
· English Language Learning sales increased 44% due to increased Pearson Test of
English (PTE) volumes, which were up 76%.
· Workforce Skills sales grew 9%, with good growth in both Vocational
Qualifications and Workforce Solutions.
· Sales in businesses under Strategic Review(3) decreased 50% as expected.
Adjusted operating profit(1) up 44% on an underlying basis to £250m including
realisation of just under half of the £120m cost efficiency programme
· Performance driven by operating leverage on revenue growth and implementation
of the £120m cost efficiency programme for 2023, partially offset by
inflation. First half profit margin grew to 13% (H1 2022: 9%).
· Headline growth was 56% reflecting underlying performance, portfolio changes
and currency movements.
· Adjusted earnings per share grew to 25.6p (H1 2022: 22.5p) reflecting adjusted
operating profit
growth, tax and interest returning to more normalised levels and the reduction
in issued shares given the 2022 share buyback.
Strong operating cash flow with robust balance sheet enabling continued
investment and driving increased shareholder returns
· Operating cash flow was £79m (H1 2022: £9m) with the significant growth
driven by the drop through of increased trading profits, and in particular the
cost efficiency programme, as well as strong collections and portfolio
changes.
· Net debt of £0.9bn (H1 2022: £0.8bn) increased due to dividend payments, tax
payments and the 2022 share buyback, more than offsetting operating cash
flows.
· Proposed interim dividend of 7.0p (H1 2022: 6.6p) represents an increase of
6%.
· Previously announced buyback to repurchase £300m of shares on track to
commence in Q3.
Andy Bird, Pearson's Chief Executive, said:
"Our excellent performance in the first half of 2023 means we are confident of
achieving our full year expectations. We have continued to execute well
operationally and maintained a sharp focus on delivering efficiencies whilst
positioning our portfolio for long-term growth. The progress we are making to
accelerate our digital journey, increase interconnectivity and leverage our
long-standing AI capabilities will enable us to serve an ever-greater number
of individuals and enterprises with our trusted, proprietary learning
content."
Continued operational and strategic progress
Advancing future growth drivers across the business
· In Assessment & Qualifications, Pearson VUE has launched the delivery of
the Next Generation NCLEX Nurse licensure exam in the US and PDRI has launched
a full suite of hiring assessment programmes for the Transportation Security
Administration (TSA). We also continued to progress in our offering of
onscreen exams within our UK & International Qualifications business, with
the roll out of GCSE Computer Science and International GCSEs in English
Language and Literature.
· In Virtual Learning, we are launching a new Connections Academy Career
Pathways programme for middle and high school students from the second half of
the year, where we will be offering a tri-credit approach to career-readiness
courses in partnership with Coursera and Acadeum, amongst others.
· In Higher Education, the re-organisation of our sales force has helped to
increase adoption retention rates and generate new wins. Our work to converge
our platforms, to enhance stability and to deliver upgraded, best-in-class
features to improve our customer experience is progressing well. These
initiatives make the division much more commercial and competitive on a
day-to-day basis and we continue to develop new AI features, some of which we
will launch as early as this Fall back-to-school. Uptake of our iLab products
was also encouraging in the Spring semester, where more than 1,900 virtual
labs were assigned across more than 600 courses through Mastering Biology.
Momentum continued for Pearson+ with a c.200% increase in cumulative paid
subscriptions to 938k for the full academic year.
· In Workforce Skills, our Vocational Qualifications business won three T level
contracts in the UK. We also signed a contract with the Jordanian Ministry of
Education to partner on the reform of Jordan's technical and vocational
education and training provision in schools with over 50,000 learners expected
to take these courses over the next three years. Within our Workforce
Solutions business we have built a powerful technology stack that has enabled
us to break down core Faethm capabilities into modular application programming
interfaces, enabling use across Workforce Skills and other Pearson products.
Feedback from our customers has resulted in us making the decision to focus
our efforts on delivering a modular, personalisable approach versus a fully
integrated platform.
· In English Language Learning, we recently won recognition for the Pearson Test
of English for Canadian Student Direct Stream and economic migration visa
applications. This grants access to the full potential of the Canadian market
at an opportune time, as Immigration, Refugees and Citizenship Canada has
recently announced that it plans to welcome a record number of permanent
residents in the years ahead. The Canadian market is the largest of the three
key markets which Pearson has recognition to operate in.
Leveraging our AI capabilities alongside trusted, proprietary learning content
to drive success for our learners and broader stakeholders
· AI has been embedded into how Pearson operates, reflecting the deployment of
the technology across our product portfolio for many years. For instance,
there are AI-based open response assessments within English Language Learning
and large language models within Workforce Skills which develop proprietary
predictive algorithms designed to assess trends in demand for skills and
occupations globally and recommend career and learning pathways for consumers,
enterprises and governments.
· We have recently brought to market a generative AI tool within our Pearson+
service which enables users to automatically summarise the content of Channels
videos into simple bullet points.
· Additional generative AI study tools designed to help students better learn
and understand challenging subjects will launch in Pearson+ and Mastering for
this Fall back-to-school. These study tools combine Pearson's trusted content
and structured pedagogy with conversational AI capabilities to provide
personalised real time support for students in a secure Pearson product
environment, which is free from the noise and corruption of web-based AI
models. Further features are in development for the 2024 Fall back-to-school
period and our products will continue to evolve and grow over time to meet the
needs of students.
· We are also exploring opportunities to consider how we can continue to
leverage innovative AI technology to drive further efficiency and generate
additional cost savings.
Maintaining focus on efficiencies
· We remain on track to achieve £120m of cost efficiencies in 2023, having
delivered a little under half in the first half of this year.
· We continue to expect margin improvement for the year from 12% in 2022 to
mid-teens for 2023.
Reshaping the portfolio
· The disposal of our POLS business is now complete, further focusing Pearson's
portfolio towards future growth opportunities.
· We completed the acquisition of PDRI, significantly expanding Pearson's
services to the U.S. federal government.
· The integration of Mondly continues to enhance our credentials in the online
language learning self-study space with paid subscriptions standing at 473k at
the end of the period, up 41%, with particularly strong growth in our
MondlyWorks offering.
Outlook reaffirmed(4)
Group revenue, adjusted operating profit and profit margin outlook remain in
line with expectations for 2023.
We also re-iterate our guidance of mid-single digit Group revenue growth over
2022 to 2025 and for margins to rise to the upper end of mid-teens in 2025.
In terms of divisional guidance and phasing:
· We are raising our revenue growth expectations in English Language Learning
from high single digit to c.20% for 2023 following strong growth in the first
half which we expect to normalise in H2. We are investing a portion of the
operating leverage on this improvement to support future growth opportunities.
· In Workforce Skills, given our focus on delivering modular solutions, our 2023
and 2022 to 2025 growth expectations for this division are likely to be more
stretching.
· Continued growth in Pearson+ subscriptions will lead to a shift in Higher
Education revenue recognition from Q3 to Q4.
· Contract timing in Assessment & Qualifications will see delivery in
earlier quarters meaning Q4 growth will be lower than average. We are
confident in achieving our full year revenue growth expectations.
· In Virtual Learning the termination of the ASU contract will continue to
impact growth in H2.
· Revenue growth expectations for Virtual Schools remain unchanged with H2
enrolments impacted by the loss of a previously cited large school contract.
Financial summary
£m H1 2023 H1 2022 Headline growth CER Underlying growth(1)
growth(1)
Business performance
Sales 1,879 1,788 5% 2% 4%
Adjusted operating profit 250 160 56% 48% 44%
Operating cash flow 79 9
Adjusted earnings per share 25.6p 22.5p
Statutory results
Sales 1,879 1,788
Operating profit 219 148
Net cash generated from operations 106 53
Basic earnings per share 26.1p 18.1p(5)
Dividend per share 7.0p 6.6p
Net debt (911) (810)
Contacts
Investor Relations Jo Russell +44 (0) 7785 451 266
James Caddy +44 (0) 7825 948 218
Gemma Terry +44 (0) 7841 363 216
Brennan Matthews +1 (332) 238-8785
Teneo Charles Armitstead +44 (0) 7703 330 269
Results event Pearson's interim results presentation today at 09:30 (BST). Register to
receive log in details: https://pearson.connectid.cloud/register
(https://pearson.connectid.cloud/register)
Notes
Forward looking statements: Except for the historical information contained
herein, the matters discussed in this statement include forward-looking
statements. In particular, all statements that express forecasts, expectations
and projections with respect to future matters, including trends in results of
operations, margins, growth rates, overall market trends, the impact of
interest or exchange rates, the availability of financing, anticipated cost
savings and synergies and the execution of Pearson's strategy, are
forward-looking statements. By their nature, forward-looking statements
involve risks and uncertainties because they relate to events and depend on
circumstances that will occur in future. They are based on numerous
assumptions regarding Pearson's present and future business strategies and the
environment in which it will operate in the future. There are a number of
factors which could cause actual results and developments to differ materially
from those expressed or implied by these forward-looking statements, including
a number of factors outside Pearson's control. These include international,
national and local conditions, as well as competition. They also include other
risks detailed from time to time in Pearson's publicly-filed documents and you
are advised to read, in particular, the risk factors set out in Pearson's
latest annual report and accounts, which can be found on its website
(www.pearsonplc.com). Any forward-looking statements speak only as of the date
they are made, and Pearson gives no undertaking to update forward-looking
statements to reflect any changes in its expectations with regard thereto or
any changes to events, conditions or circumstances on which any such statement
is based. Readers are cautioned not to place undue reliance on such
forward-looking statements.
KPIs
KPI Objective KPI Measure H1 2023 H1 2022
Digital Growth Drive digital revenue growth OnVUE volumes 1.7m 1.4m
Higher Education US digital registrations 4.5m 4.6m*
PTE volume 606k 344k
Consumer Engagement Create engaging and personalised consumer experiences NPS for Connections Academy +67 +67
NPS for PTE +56 +51
Pearson+ registered users 4.7m 4.5m
Mondly paid subscriptions 473k 336k
Workforce Skills registered users 5.3m 4.1m
Product Effectiveness Improve the effectiveness of our products to deliver better outcomes PTE speed of score return 1.1 days 1.3 days
VUE test volumes 12.2m 10.0m
Workforce Skills number of enterprise customers 1,556 1,387
Higher Education product usage - text units 2.0m 2.1m
*H1 2022 US digital registrations restated from 4.8m to 4.6m due to
recategorizing 0.2m of registrations from US to International.
The above table is a subset of our full list of strategic KPIs, which will be
reported on alongside full year results.
For a full list of KPI measure definitions, please refer to:
https://plc.pearson.com/en-GB/purpose/our-targets-kpis
(https://plc.pearson.com/en-GB/purpose/our-targets-kpis)
Operational review
£m H1 2023 H1 2022 Headline CER Underlying
growth Growth(1) growth(1)
Sales
Assessment & Qualifications 796 710(6) 12% 8% 7%
Virtual Learning 373 390 (4)% (9)% (15)%
Higher Education 379 373 2% (2)% (2)%
English Language Learning 184 122 51% 50% 44%
Workforce Skills 140 127 10% 9% 9%
Strategic review(3) 7 66(6) (89)% (89)% (50)%
Total 1,879 1,788 5% 2% 4%
Total, excluding OPM(2) and Strategic Review(3) 6%
Adjusted operating profit/loss
Assessment & Qualifications 174 136(6) 28% 21% 20%
Virtual Learning 47 14 236% 207% 72%
Higher Education (1) (4) 75% 25% 25%
English Language Learning 8 (4) 300% 300% 275%
Workforce Skills 21 28 (25)% (21)% (20)%
Strategic review(3) 1 (10)(6) 110% 110% 100%
Total 250 160 56% 48% 44%
(1)Throughout this announcement: a) Growth rates are stated on an underlying
basis unless otherwise stated. Underlying growth rates exclude currency
movements, and portfolio changes. b) The 'business performance' measures are
non-GAAP measures and reconciliations to the equivalent statutory heading
under IFRS are included in notes to the attached condensed consolidated
financial statements 2, 3, 4, 5, 7, 14 and 16. Constant exchange rates are
calculated by assuming the average FX in the prior period prevailed through
the current period.
(2)We have completed the sale of the Pearson Online Learning Services (POLS)
business and as such have removed from underlying measures throughout. Within
this specific measure we exclude our entire OPM business (POLS and ASU) to aid
comparison to guidance.
(3)Strategic Review is revenues in international courseware local publishing
businesses being wound down, which will continue to be reported separately
until dissipated.
(4)2023 consensus on the Pearson website as at 19th April 2023; median
adjusted operating profit of £568m at £:$ 1.20, interest charge £34m, tax
rate 24%. Our Group revenue growth expectation for 2023 is low to mid-single
digit, excluding OPM(2) and the Strategic Review(3) businesses.
(5)Comparative amounts have been revised, see note 1 of the condensed
consolidated financial statements for further details.
(6)Comparative amounts have been restated to reflect the move between
operating segments.
Assessment & Qualifications
In Assessment & Qualifications, sales increased 7% on an underlying basis
and 12% on a headline basis. Adjusted operating profit increased 20% in
underlying terms due to operating leverage on revenue growth and cost
efficiencies partially offset by inflation and 28% in headline terms due to
this, currency movements and portfolio changes.
Pearson VUE sales were up 12% in underlying terms as test volumes grew 22%
versus the same period last year to 12.2m. Volume growth was driven by
particularly good performance in the IT and healthcare segments, alongside the
commencement of a number of new contracts.
In US Student Assessment, sales increased 4% in underlying terms driven by
commencement of new contracts following new business wins.
In Clinical Assessment, sales increased 2% in underlying terms supported by
good government funding and continued focus on health and wellbeing.
In UK and International Qualifications, sales increased 6% in underlying terms
driven by price increases and good International growth.
Virtual Learning
In Virtual Learning, sales decreased 15% on an underlying basis and 4% on a
headline basis due to currency movements and portfolio changes. Adjusted
operating profit grew 72% in underlying terms due to efficiency improvements
and phasing relating to contract closures in OPM and increased 236% in
headline terms due to this, currency movements and portfolio changes.
Virtual Schools sales were down 2%, driven by enrolment declines for the
2022/23 academic year and lower district partnership renewals, offset by good
retention rates and the return of a school that had previously left. New
applications for the 2023/24 academic year are tracking well, but performance
will be lower in the second half due to the previously cited loss of a larger
partner school. Pearson will operate 45 schools in 29 states for the 2023/24
academic year.
We will be launching a new Connections Academy Career Pathways programme for
middle and high school students which will deliver curated learning
experiences in the fields of IT, Business, and Healthcare. These initiatives
will launch in select Connections Academy schools in the 2023/24 school year,
rolling out nationwide in following years. We have seen encouraging
application trends in this programme to date.
In OPM, sales were down 69% on an underlying basis as expected.
Higher Education
In Higher Education, sales declined 2% on an underlying basis and increased 2%
on a headline basis due to currency movements. Adjusted operating profit
increased 25% in underlying terms driven primarily by cost efficiencies
partially offset by trading and phasing related to amortisation and increased
75% in headline terms due to this and currency movements.
In the US, as expected, we saw a continuation of the trends observed in the
Fall semester of the 2022/23 academic year, with a decline in enrolments and a
loss of adoptions to non-mainstream publishers. Pearson+ performed well with
4.7m cumulative registered users and 938k paid subscriptions for the full
academic year, the latter representing a c.200% increase compared to the prior
year.
English Language Learning
In English Language Learning, sales were up 44% on an underlying basis and 51%
on a headline basis due to currency movements and portfolio changes. Adjusted
operating profit increased by 275% in underlying terms due to increased
revenue partially offset by increased investment and increased 300% in
headline terms due to this, currency movements and portfolio changes.
PTE volumes were up 76%. The strength of growth was heightened by comparison
to a prior period in which global mobility had not fully resumed and supported
by favourable migration policy in Australia. We also saw market share gains in
India.
Within Institutional, performance was strong, with particularly good growth in
LATAM and Middle East markets.
Our Online Self-Study business, Mondly, performed well, bringing new users to
the Pearson ecosystem and demonstrating interconnectivity with other
divisions. Paid subscriptions increased 41% versus the prior period driven by
particularly strong growth in our MondlyWorks offering.
Workforce Skills
In Workforce Skills, sales were up 9% on an underlying basis and 10% on a
headline basis. Adjusted operating profit decreased by 20% in underlying terms
due to trading offset by investment in the business and decreased 25% in
headline terms due to this and currency movements.
The Vocational Qualifications business grew by 7% in underlying terms. The
Workforce Solutions business grew by 14% in underlying terms. Pearson has a
broad reach of 1,556 enterprise clients in its Workforce Skills portfolio, up
12% on last year.
Strategic Review
Sales in businesses under strategic review declined 50% on an underlying
basis, in line with expectations and were down 89% on a headline basis due to
currency movements and portfolio changes.
FINANCIAL REVIEW
Operating result
Sales for the six months to 30 June 2023 increased on a headline basis by
£91m or 5% from £1,788m for the six months to 30 June 2022 to £1,879m for
the same period in 2023 and adjusted operating profit increased by £90m or
56% from £160m in the first half of 2022 to a profit of £250m in the first
half of 2023 (for a reconciliation of this measure see note 2 to the condensed
consolidated financial statements).
The headline basis simply compares the reported results for the six months to
30 June 2023 with those for the equivalent period in the prior year. We also
present sales and profits on an underlying basis which excludes the effects of
exchange, the effect of portfolio changes arising from acquisitions and
disposals and the impact of adopting new accounting standards that are not
retrospectively applied, when relevant. Our portfolio change is calculated by
excluding sales and profits made by businesses disposed in either 2022 or 2023
and by ensuring the contribution from acquisitions is comparable year on year.
Portfolio changes mainly relate to the disposals of the Group's interest in
POLS, Pearson College and our international courseware local publishing
business in India in 2023, the disposal of our international courseware local
publishing businesses in Europe, French-speaking Canada, South Africa and Hong
Kong in 2022, the acquisition of PDRI in 2023 and the acquisitions of Credly
and Mondly in 2022.
On an underlying basis, sales increased by 4% in the first six months of 2023
compared to the equivalent period in 2022 and adjusted operating profit
increased by 44%. Currency movements increased sales by £62m and adjusted
operating profit by £14m, and portfolio changes decreased sales by £29m and
increased adjusted operating profit by £4m. There were no new accounting
standards adopted in the first half of 2023 that impacted sales or profits.
Adjusted operating profit includes the results from discontinued operations
when relevant but excludes charges for acquired intangible amortisation and
impairment, acquisition related costs, gains and losses arising from
disposals, the cost of major restructuring and one off-costs related to the UK
pension scheme. A summary of these adjustments is included below and in more
detail in note 2 to the condensed consolidated financial statements.
all figures in £ millions 2023 2022 2022
half year half year full year
Operating profit 219 148 271
Add back: Cost of major restructuring - - 150
Add back: Intangible charges 24 26 56
Add back: UK pension discretionary increase - - 3
Add back: Other net gains and losses 7 (14) (24)
Adjusted operating profit 250 160 456
There is no cost of major restructuring in the first half of 2023. In H1 2022,
there were no costs of major restructuring. In H2 2022, restructuring costs of
£150m mainly related to staff redundancies and impairment of right of use
property assets including the impact of updated assumptions related to the
recoverability of right-of-use assets made in 2021.
Intangible amortisation charges to the end of June 2023 were £24m compared to
a charge of £26m in the equivalent period in 2022. This is due to increased
amortisation from recent acquisitions which is more than offset by a reduction
in amortisation from intangible assets at the end of their useful life and
recent disposals.
Other net gains and losses in 2023 relate largely to the gain on disposal of
the POLS business and a gain resulting from the release of a provision related
to a historical disposal, offset by losses on the disposal of Pearson College
and costs related to current and prior year disposals and acquisitions. Other
net gains and losses in the first half of 2022 largely related to the gain on
disposal of the international courseware local publishing business in
French-speaking Canada and a gain arising on a decrease in the deferred
consideration payable on prior year acquisitions, offset by costs related to
disposals and acquisitions.
The reported operating profit of £219m in the first half of 2023 compares to
a profit of £148m in the first half of 2022. The increase in 2023 is mainly
due to improved trading profits, partially offset by a net loss related to
acquisitions and disposals compared to a net gain in the first half of 2022.
Due to seasonal bias in some of the Group's businesses, Pearson typically
makes a higher proportion of its profits and operating cash flows in the
second half of the year.
Revision of prior year comparative figures
In H2 2022, the Group corrected an error related to the accounting treatment
for certain investments in unlisted securities. The related accounting was
corrected in the second half of 2022 and the impact of the correction and the
prior year restatements are reflected in the 2022 Annual Report and Accounts.
In these 2023 interim condensed consolidated financial statements, comparative
2022 half year line items have been corrected to reflect the change in
accounting treatment. For the period to half year 2022, the restatement has
resulted in an increase in statutory profit of £5m, comprising finance income
of £6m and a tax charge of £1m. Other comprehensive income has decreased by
£5m but total comprehensive income is unchanged. The impact on statutory
earnings per share is an increase of 0.6p and the impact on diluted earnings
per share is an increase 0.7p for the period to 30 June 2022. There is no
impact to any adjusted measures, net assets, cash flows nor total equity. See
note 1 to the Condensed Consolidated Financial Statements for further details.
Net finance costs
Net finance income decreased on a headline basis from £37m in the first half
of 2022 to £17m in the same period in 2023. The decrease is primarily due to
the release, in 2022, of £35m of interest recorded in respect of provisions
for uncertain tax positions, partially offset by additional finance income in
respect of retirement benefits.
Net interest payable reflected in adjusted earnings to 30 June 2023 was £12m,
compared to a receivable of £18m in the first half of 2022. The difference is
primarily due to the release, in 2022, of £35m of interest recorded in
respect of provisions for uncertain tax positions.
Net finance income relating to retirement benefits has been excluded from our
adjusted earnings as we believe the income statement presentation does not
reflect the economic substance of the underlying assets and liabilities. Also
included in the net finance costs (but not in our adjusted measure) are
interest costs relating to acquisition or disposal transactions, fair value
movements on investments classified as fair value through profit and loss,
foreign exchange and other gains and losses on derivatives. Interest relating
to acquisition or disposal transactions is excluded from adjusted earnings as
it is considered part of the acquisition cost or disposal proceeds rather than
being reflective of the underlying financing costs of the Group. Foreign
exchange, fair value movements and other gains and losses are excluded from
adjusted earnings 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. Interest on certain tax provisions is excluded from
our adjusted measure in order to mirror the treatment of the underlying tax
item.
In the period to 30 June 2023, the total of these items excluded from adjusted
earnings was net income of £29m compared to net income of £19m in the first
half of 2022. Net finance income relating to retirement benefits increased
from £4m in the first half of 2022 to £13m in 2023 reflecting the
comparative funding position of the plans at the beginning of each year and
higher prevailing discount rates. Fair value gains on investments in unlisted
securities are £5m in the first half of 2023 compared to £6m in 2022. In
addition, there were similar gains on long-term interest rate hedges and an
interest charge on tax provisions of £5m was recognised in 2022 in relation
to the State Aid matter. For a reconciliation of the adjusted measure see note
3 to the condensed consolidated financial statements.
Taxation
The reported tax on statutory earnings for the six months to 30 June 2023 was
a charge of £49m compared to a charge of £49m in the period to 30 June 2022.
This equates to an effective tax rate of 20.8% (2022: 26.5%). The lower
effective tax rate compared to the prior year is primarily due to a tax credit
being recognised on the disposal of the POLS business.
The total adjusted tax charge for the period was £54m (2022: £9m),
corresponding to an effective tax rate on adjusted profit before tax of 22.7%
(2022: 5.1%). The higher effective rate compared to 2022 is primarily due to
the 2022 release of tax risk provisions following the expiry of the statute of
limitations in the US not recurring. For a reconciliation of the adjusted
measure see notes 4 and 5 to the condensed consolidated financial statements.
In the first half of 2023, there was a net tax payment of £59m, principally
relating to the US. In the six months to 30 June 2022 there was a net tax
payment of £51m, also principally relating to the US.
UK legislation in relation to Pillar 2 was substantively enacted on 20 June
2023 and will be effective from 1 January 2024. An initial assessment on the
impact of this legislation has been completed and this legislation is not
expected to materially impact Pearson's effective tax rate in future periods.
Other comprehensive income
Included in other comprehensive income are the net exchange differences on
translation of foreign operations. The loss on translation of £166m at 30
June 2023 compares to a gain at 30 June 2022 of £334m. The loss in 2023
arises from an overall weakening of the currencies to which the Group is
exposed and in particular the relative movement in the US dollar. A
significant proportion of the Group's operations are based in the US and the
US dollar closing rate at 30 June 2023 was £1:$1.27 compared to the opening
rate of £1:$1.21. At the end of June 2022, the US dollar rate was £1:$1.21
compared to the opening rate of £1:$1.35.
Also included in other comprehensive income at 30 June 2023 is an actuarial
loss of £27m in relation to retirement benefit obligations. The loss arises
largely from losses on assets and experience losses, partially offset by a
decrease in liabilities driven by higher discount rates. The loss in 2023
compares to an actuarial gain at 30 June 2022 of £121m.
Fair value gains of £2m (2022: £19m) have been recognised in other
comprehensive income and relate to movements in the value of investments in
unlisted securities held at FVOCI.
In 2023, a gain of £122m was recycled from the currency translation reserve
to the income statement in relation to the disposal of the POLS business. In
2022, a gain of £7m was recycled from the currency translation reserve to the
income statement in relation to businesses disposed.
Cash flow and working capital
Our operating cash flow measure is used to align cash flows with our adjusted
profit measures (see note 16 to the condensed consolidated financial
statements). Operating cash flow increased on a headline basis by £70m from
an inflow of £9m in the first half of 2022 to an inflow of £79m in the first
half of 2023. The increase is largely explained by the drop-through of
increased trading profits, and in particular the cost efficiency programme, as
well as strong collections and portfolio changes.
The equivalent statutory measure, net cash generated from operations, was an
inflow of £106m in 2023 compared to an inflow of £53m in 2022. Compared to
operating cash flow, this measure includes restructuring costs but does not
include regular dividends from associates. It also excludes capital
expenditure on property, plant, equipment and software, and additions to right
of use assets as well as disposal proceeds from the sale of property, plant,
equipment and right of use assets (including the impacts of transfers to/from
investment in finance lease receivable). In the first half of 2023,
restructuring cash outflow was £46m compared to £13m in the same period in
2022.
In the first half of 2023, there was an overall decrease of £195m in cash and
cash equivalents from £543m at the end of 2022 to £348m at 30 June 2023. The
decrease in 2023 is primarily due to payments for the acquisition of
subsidiaries of £173m, a net cash outflow on disposal of subsidiaries of
£19m, dividends paid of £106m, own share purchases of £25m, tax paid of
£59m, interest payments of £34m, capital expenditure on property, plant,
equipment and software of £63m and payments of lease liabilities of £42m.
These were offset by the cash inflow from operations of £106m and proceeds
from borrowings of £220m.
Liquidity and capital resources
The Group's net debt increased from £557m at the end of 2022 to £911m at the
end of June 2023. The increase is largely due to cash outflows on acquisitions
and disposals of subsidiaries, tax payments, dividend payments and capital
expenditure, partially offset by positive operating cash flow.
At 30 June 2023, the Group had drawn £220m on its Revolving Credit Facility.
At 30 June 2023, the Group had approximately £0.8bn in total liquidity
immediately available from cash and its Revolving Credit Facility maturing
February 2026. In assessing the Group's ability to continue as a going concern
for the period until 31 December 2024, the Board analysed a variety of
downside scenarios, including a severe but plausible scenario, where the Group
is impacted by a combination of all principal risks from H2 2023, as well as
reverse stress testing to identify what would be required to either breach
covenants or run out of liquidity. The severe but plausible scenario modelled
a severe reduction in revenue, profit and operating cash flow from risks
continuing throughout 2024.
Post-retirement benefits
Pearson operates a variety of pension and post-retirement plans. Our UK Group
pension plan has by far the largest defined benefit section. This plan has a
strong funding position and a surplus with a very substantially de-risked
investment portfolio including approximately 50% of the assets in buy-in
contracts and no exposure to quoted equities. We have some smaller defined
benefit sections in the US and Canada but, outside the UK, most of our
companies operate defined contribution plans.
The charge to profit in respect of worldwide pensions and retirement benefits
amounted to £23m in the period to 30 June 2023 (30 June 2022: £30m) of which
a charge of £36m (30 June 2022: £34m) was reported in adjusted operating
profit and income of £13m (30 June 2022: £4m) was reported against other net
finance costs.
The overall surplus on UK Group pension plans of £574m at the end of 2022 has
decreased to a surplus of £548m at the end of June 2023. The decrease has
arisen principally due to the actuarial loss noted above in the other
comprehensive income section. In total, our worldwide net position in respect
of pensions and other post-retirement benefits decreased from a net asset of
£520m at the end of 2022 to a net asset of £500m at the end of June 2023.
Businesses acquired
In March 2023, the Group completed the acquisition of 100% of the share
capital of Personnel Decisions Research Institutes, LLC ('PDRI') for cash
consideration of £152m ($187m). There is no contingent or deferred
consideration. Net assets acquired of £91m were recognised on the Group's
balance sheet including £117m of acquired intangible assets. Goodwill of
£61m was also recognised in relation to the acquisition.
The cash outflow in 2023 relating to acquisitions of subsidiaries was £173m.
In addition, there was a cash outflow relating to the acquisition of
associates of £5m and investments of £6m.
The cash outflow in 2022 relating to acquisitions of subsidiaries was £221m
arising primarily from the acquisitions of Credly and Mondly. In addition,
there was a cash outflow relating to the acquisition of associates of £4m and
investments of £4m.
Businesses disposed
In June 2023, the Group disposed of its interests in its POLS businesses in
the US, UK, Australia and India. The business disposed excludes Pearson's
contract with ASU. The consideration to be received is deferred and comprises
a 27.5% share of positive adjusted EBITDA in each calendar year for 6 years
and 27.5% of the proceeds received by the purchaser in relation to any future
monetization event. The consideration has been valued at £12m and a pre-tax
gain on disposal of £17m has been recognised. In addition, a gain of £9m has
been recognised which arises from the release of a provision related to a
historical disposal and £24m of losses arose from other immaterial disposals
and costs related to previous disposals.
The cash outflow in the first half of 2023 relating to the disposal of
businesses was £19m mainly relating to the disposal of POLS and Pearson
College. In 2022, the cash inflow from disposals of £108m mainly related to
the disposal of ERPI and the receipt of deferred proceeds from the US K12
Courseware sale in 2019.
In addition, proceeds of £3m (2022 FY: £17m) were received in relation to
the disposal of investments.
Dividends
The dividend accounted for in the six months to 30 June 2023 is the final
dividend in respect of 2022 of 14.9p. An interim dividend for 2023 of 7p was
declared by the Board in July 2023 and will be accounted for in the second
half of 2023.
Share buyback
On 28 April 2023, the Group announced its intention to commence a £300m share
buyback programme in Q3 of 2023 in order to return capital to shareholders. In
the period to 30 June 2023, no shares have been bought back, and no formal
commitments have been made.
Principal risks and uncertainties
In the 2022 Annual Report and Accounts (and the US Form 20-F for 2022), we set
out our assessment of the principal risk issues that face the business under
the categories: accreditation risk, capability risk, competitive marketplace,
content and channel risk, customer expectations, portfolio change, and
reputation and responsibility.
We also noted in our 2022 Annual Report and Accounts that the Group continues
to closely monitor significant near-term and emerging risks which have been
identified as climate transition, COVID-19, inflation, recession, supply
chain, tax and the war in Ukraine.
The principal risks and uncertainties are summarised below. The selection of
principal risks will be reviewed in the second half of the year alongside the
Group's long-term strategic planning process. However, these risks have not
changed materially from those detailed in the 2022 Annual Report (and the US
Form 20-F for 2022).
Accreditation Risk
Termination of accreditation due to policy changes or failure to maintain the
accreditation of our courses and assessments by states, countries, and
professional associations, reducing their eligibility for funding or
attractiveness to learners.
Capability Risk
Inability to meet our contractual obligations or to transform as required by
our strategy due to infrastructure or organisational challenges.
Competitive Marketplace
Significant changes in our target markets could make those markets less
attractive. This could be due to significant changes in demand or in supply
which impact the addressable market, market share and margins (e.g. changes in
enrolments, insourcing of learning and assessment by customers, open
educational resources, a shift from in person to virtual or vice versa or
innovations in areas such as generative AI).
Content and Channel Risk
Inability to demonstrate differentiated content compared to freely available
alternatives (such as generative AI) and/or failure to select appropriate
content and delivery channels to conveniently deliver anticipated learning,
resulting in loss of sales.
Customer Expectations
Rising end-user expectations increase the need to offer differentiated value
propositions, risking margin pressure to meet these expectations and potential
loss of sales if not successful.
Portfolio Change
Failure to effectively execute desired or required portfolio changes to
promote scale or capability and increase focus on key divisional and
geographic markets, due to either execution failures or inability to secure
transactions at appropriate valuations.
Reputation and Responsibility
The risk of serious reputational harm through failure to meet obligations to
key stakeholders. These include legal and regulatory requirements, the
possibility of serious unethical behaviour and serious breaches of customer
trust.
CONDENSED CONSOLIDATED INCOME STATEMENT
for the period ended 30 June 2023
all figures in £ millions note 2023 2022 2022
half year half year(1) full year
Continuing operations
Sales 2 1,879 1,788 3,841
Cost of goods sold (960) (963) (2,046)
Gross profit 919 825 1,795
Operating expenses (688) (690) (1,549)
Other net gains and losses 2 (7) 14 24
Share of results of joint ventures and associates (5) (1) 1
Operating profit 2 219 148 271
Finance costs 3 (36) (8) (71)
Finance income 3 53 45 123
Profit before tax 4 236 185 323
Income tax 5 (49) (49) (79)
Profit for the period 187 136 244
Attributable to:
Equity holders of the company 186 136 242
Non-controlling interest 1 - 2
Earnings per share from continuing operations (in pence per share)
Basic 6 26.1p 18.1p 32.8p
Diluted 6 25.9p 18.1p 32.6p
1. Comparative balances have been restated - see note 1 for further details.
The accompanying notes to the condensed consolidated financial statements form
an integral part of the financial information.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the period ended 30 June 2023
all figures in £ millions 2023 2022 2022
half year half year(1) full year
Profit for the period 187 136 244
Items that may be reclassified to the income statement
Net exchange differences on translation of foreign operations (166) 334 330
Currency translation adjustment on disposals (122) (7) (5)
Attributable tax 1 - 4
Items that are not reclassified to the income statement
Fair value gain on other financial assets 2 19 18
Attributable tax - - 1
Remeasurement of retirement benefit obligations (27) 121 54
Attributable tax 7 (30) (12)
Other comprehensive (expense) / income (305) 437 390
Total comprehensive (expense) / income (118) 573 634
Attributable to:
Equity holders of the company (118) 572 630
Non-controlling interest - 1 4
1. Comparative balances have been restated - see note 1 for further details.
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 June 2023
all figures in £ millions note 2023 2022 2022
half year half year full year
Property, plant and equipment 226 292 250
Investment property 60 72 60
Intangible assets 10 3,126 3,214 3,177
Investments in joint ventures and associates 17 24 25
Deferred income tax assets 27 41 57
Financial assets - derivative financial instruments 41 33 43
Retirement benefit assets 554 652 581
Other financial assets 138 120 133
Income tax assets 41 41 41
Trade and other receivables 138 143 139
Non-current assets 4,368 4,632 4,506
Intangible assets - product development 947 932 975
Inventories 110 103 105
Trade and other receivables 1,060 1,207 1,139
Financial assets - derivative financial instruments 17 1 16
Current income tax assets 10 2 9
Cash and cash equivalents (excluding overdrafts) 355 392 558
Current assets 2,499 2,637 2,802
Assets classified as held for sale 13 15 201 16
Total assets 6,882 7,470 7,324
Financial liabilities - borrowings (1,308) (1,151) (1,144)
Financial liabilities - derivative financial instruments (43) (44) (54)
Deferred income tax liabilities (31) (96) (37)
Retirement benefit obligations (54) (61) (61)
Provisions for other liabilities and charges (14) (9) (14)
Other liabilities (80) (123) (120)
Non-current liabilities (1,530) (1,484) (1,430)
Trade and other liabilities (1,020) (1,234) (1,254)
Financial liabilities - borrowings (75) (150) (86)
Financial liabilities - derivative financial instruments (5) (10) (11)
Current income tax liabilities (27) (30) (43)
Provisions for other liabilities and charges (37) (28) (85)
Current liabilities (1,164) (1,452) (1,479)
Liabilities classified as held for sale 13 - (42) -
Total liabilities (2,694) (2,978) (2,909)
Net assets 4,188 4,492 4,415
Share capital 179 185 179
Share premium 2,635 2,628 2,633
Treasury shares (20) (22) (15)
Reserves 1,381 1,690 1,605
Total equity attributable to equity holders of the company 4,175 4,481 4,402
Non-controlling interest 13 11 13
Total equity 4,188 4,492 4,415
The condensed consolidated financial statements were approved by the Board on
30 July 2023.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period ended 30 June 2023
Equity attributable to equity holders of the company
all figures in £ millions Share capital Share premium Treasury shares Capital redemption reserve Fair value reserve Translation reserve Retained earnings Total Non-controlling interest Total equity
2023 half year
At 1 January 2023 179 2,633 (15) 28 (13) 709 881 4,402 13 4,415
Profit for the period - - - - - - 186 186 1 187
Other comprehensive income / (expense) - - - - 2 (287) (19) (304) (1) (305)
Total comprehensive income / (expense) - - - - 2 (287) 167 (118) - (118)
Equity-settled transactions - - - - - - 20 20 - 20
Issue of ordinary shares - 2 - - - - - 2 - 2
Buyback of equity - - - - - - - - - -
Purchase of treasury shares - - (25) - - - - (25) - (25)
Release of treasury shares - - 20 - - - (20) - - -
Transfer of gain on disposal of FVOCI investment - - - - - - - - - -
Dividends - - - - - - (106) (106) - (106)
At 30 June 2023 179 2,635 (20) 28 (11) 422 942 4,175 13 4,188
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period ended 30 June 2023
Equity attributable to equity holders of the company
all figures in £ millions Share capital Share premium Treasury shares Capital redemption reserve Fair value reserve(1) Translation reserve Retained earnings(1) Total Non-controlling interest Total equity
2022 half year
At 1 January 2022 189 2,626 (12) 18 (4) 386 1,067 4,270 10 4,280
Profit for the period - - - - - - 136 136 - 136
Other comprehensive income / (expense) - - - - 19 326 91 436 1 437
Total comprehensive income / (expense) - - - - 19 326 227 572 1 573
Equity-settled transactions - - - - - - 18 18 - 18
Issue of ordinary shares - 2 - - - - - 2 - 2
Buyback of equity (4) - - 4 - - (250) (250) - (250)
Purchase of treasury shares - - (24) - - - - (24) - (24)
Release of treasury shares - - 14 - - - (14) - - -
Transfer of gain on disposal of FVOCI investment - - - - (27) - 27 - - -
Dividends - - - - - - (107) (107) - (107)
At 30 June 2022 185 2,628 (22) 22 (12) 712 968 4,481 11 4,492
1. Comparative balances have been restated - see note 1 for further
details.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period ended 30 June 2023
Equity attributable to equity holders of the company
all figures in £ millions Share capital Share premium Treasury shares Capital redemption reserve Fair value reserve Translation reserve Retained earnings Total Non-controlling interest Total equity
2022 full year
At 1 January 2022 189 2,626 (12) 18 (4) 386 1,067 4,270 10 4,280
Profit for the period - - - - - - 242 242 2 244
Other comprehensive income / (expense) - - - - 18 323 47 388 2 390
Total comprehensive income / (expense) - - - - 18 323 289 630 4 634
Equity-settled transactions - - - - - - 38 38 - 38
Tax on equity-settled transactions - - - - - - 3 3 - 3
Issue of ordinary shares - 7 - - - - - 7 - 7
Buyback of equity (10) - - 10 - - (353) (353) - (353)
Purchase of treasury shares - - (37) - - - - (37) - (37)
Release of treasury shares - - 34 - - - (34) - - -
Transfer of gain on disposal of FVOCI investment - - - - (27) - 27 - - -
Dividends - - - - - - (156) (156) (1) (157)
At 31 December 2022 179 2,633 (15) 28 (13) 709 881 4,402 13 4,415
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the period ended 30 June 2023
all figures in £ millions note 2023 2022 2022
half year half year full year
Cash flows from operating activities
Profit before tax(1) 236 185 323
Net finance costs(1) (17) (37) (52)
Depreciation and impairment - PPE & investment property 38 42 136
Amortisation and impairment - software 64 60 125
Amortisation and impairment - acquired intangible assets 24 26 54
Other net gains and losses 7 (14) (24)
Product development capital expenditure (144) (151) (357)
Product development amortisation 137 136 303
Share-based payment costs 19 18 35
Change in inventories (9) (34) (34)
Change in trade and other receivables (20) 14 33
Change in trade and other liabilities (187) (197) (84)
Change in provisions for other liabilities and charges (45) (11) 50
Other movements 3 16 19
Net cash generated from operations 106 53 527
Interest paid (34) (35) (57)
Tax paid (59) (51) (109)
Net cash generated from / (used in) operating activities 13 (33) 361
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired 11 (173) (221) (228)
Acquisition of joint ventures and associates (5) (4) (5)
Purchase of investments (6) (4) (12)
Purchase of property, plant and equipment (16) (21) (57)
Purchase of intangible assets (47) (46) (90)
Disposal of subsidiaries, net of cash disposed 12 (19) 108 333
Proceeds from sale of investments 3 - 17
Proceeds from sale of property, plant and equipment 1 14 14
Lease receivables repaid including disposals 8 9 18
Interest received 10 11 22
Dividends received from joint ventures and associates - 2 1
Net cash (used in) / generated from investing activities (244) (152) 13
Cash flows from financing activities
Proceeds from issue of ordinary shares 2 2 7
Buyback of equity - (141) (353)
Purchase of treasury shares (25) (24) (37)
Repayment of borrowings - (95) (171)
Proceeds from borrowings 220 - -
Repayment of lease liabilities (42) (48) (93)
Dividends paid to company's shareholders (106) (107) (156)
Dividends paid to non-controlling interest - - (1)
Net cash generated from / (used in) financing activities 49 (413) (804)
Effects of exchange rate changes on cash and cash equivalents (13) 53 36
Net decrease in cash and cash equivalents (195) (545) (394)
Cash and cash equivalents at beginning of period 543 937 937
Cash and cash equivalents at end of period 348 392 543
1. Comparative balances have been restated - see note 1 for further
details.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
1. Basis of preparation
The condensed consolidated financial statements have been prepared in
accordance with the Disclosure Guidance and Transparency Rules sourcebook of
the UK's Financial Conduct Authority and in accordance with UK-adopted IAS 34
'Interim Financial Reporting'. The condensed consolidated financial statements
should be read in conjunction with the annual financial statements for the
year ended 31 December 2022, which were prepared in accordance with UK-adopted
International Accounting Standards and with the requirements of the Companies
Act 2006 and in accordance with IFRSs as issued by the International
Accounting Standards Board (IASB). In respect of accounting standards
applicable to the Group, there is no difference between UK-adopted IASs and
IFRSs as issued by the IASB.
The condensed consolidated financial statements have also been prepared in
accordance with the accounting policies set out in the 2022 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.
No new standards and interpretations that apply to annual reporting periods
beginning on or after 1 January 2023 have had a material impact on the
financial position of the Group.
In assessing the Group's ability to continue as a going concern for the period
until 31 December 2024, the Board analysed a variety of downside scenarios,
including a severe but plausible scenario, where the Group is impacted by a
combination of all principal risks from H2 2023, as well as reverse stress
testing to identify what would be required to either breach covenants or run
out of liquidity. The severe but plausible scenario modelled a severe
reduction in revenue, profit and operating cash flow from risks continuing
throughout 2024.
At 30 June 2023, the Group had available liquidity of c£0.8bn, comprising
central cash balances and the undrawn element of its $1bn Revolving Credit
Facility (RCF) maturing February 2026. Even under a severe downside case, the
Group would maintain comfortable liquidity headroom and sufficient headroom
against covenant requirements during the period under assessment even before
modelling the mitigating effect of actions that management would take in the
event that these downside risks were to crystallise.
The directors have confirmed that they have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the
assessment period to 31 December 2024. 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 2022 Annual
Report.
In 2023, the Group disposed of its interests in its POLS business. Whether the
associated results and cash flows of the POLS businesses should be classified
and presented as discontinued operations is a significant judgement. The
Group's judgement is that the results and cash flows of the POLS business
should not be classified and presented as discontinued operations on the basis
that the business disposed of does not constitute a separate major line of
business or geographical area of operations, and the cashflows related to one
of the large contracts within the business are being retained. The POLS
business is within the Virtual Learning segment and represent £93m of sales
for the period ended 30 June 2023 out of the total sales in the Virtual
Learning segment of £373m. If the Group had concluded that this business
represented discontinued operations, its results and the related gain on
disposal would not have been included within each of the continuing operations
income statement lines. Profit for the period from continuing operations would
have been £14m lower and this amount would have been separately presented as
profit for the period from discontinued operations as a single line item.
Adjusted operating profit would be unchanged.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
1. Basis of preparation continued
The financial information for the year ended 31 December 2022 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 2022 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 2023 are unaudited but have been
reviewed by the auditors and their review opinion is included at the end of
these interim financial statements.
Comparative period revisions
Investments in unlisted securities
In 2022, the Group identified an error related to the classification of
certain investments in unlisted securities as fair value through other
comprehensive income rather than fair value through profit and loss. The
investments are held within other financial assets on the balance sheet. The
related accounting was corrected in the second half of 2022 and the impact of
the correction and the prior year restatements are reflected in the 2022
Annual Report and Accounts. In these 2023 interim condensed consolidated
financial statements, comparative 2022 half year line items have been
corrected to reflect the change in accounting treatment. The fair value
movements are now recorded within finance income in the income statement,
rather than within other comprehensive income. All impacted primary statements
and related notes have been restated.
For the period to half year 2022, the restatement has resulted in an increase
in statutory profit of £5m, comprising finance income of £6m and a tax
charge of £1m. Other comprehensive income has decreased by £5m but total
comprehensive income is unchanged. The impact on statutory earnings per share
is an increase of 0.6p and the impact on diluted earnings per share is an
increase 0.7p for the period to 30 June 2022. Opening retained earnings at 1
January 2022 have increased by £37m and closing retained earnings have
increased by £43m and equivalent decreases have been recorded to the opening
and closing fair value reserve.
The restatement has no impact on the carrying amount of other financial assets
on the balance sheet and has no impact on reported net assets, cash flows or
total equity. The fair value movements in the income statement are excluded
from adjusted earnings, as described in note 3. There is no impact to any
adjusted measures.
Operating segments
In the second half of 2022, some of the businesses from the Strategic Review
division were disposed of (see note 12) and the decision was made to retain
the English-speaking Canadian and Australian K12 courseware businesses. Both
of these businesses have been transferred from the Strategic Review division
to Assessment & Qualifications. Comparative figures for half year 2022
have been restated to reflect this move between segments.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
2. Segment information
The Group has five main global business divisions, which are each considered
separate operating segments for management and reporting purposes. These five
divisions are Assessment & Qualifications, Virtual Learning, English
Language Learning, Higher Education and Workforce Skills. In addition, the
International Courseware local publishing businesses, most of which were
disposed in 2022 with the remainder being wound down, are being managed as a
separate division, known as Strategic Review.
In the second half of 2022, some of the businesses from the Strategic Review
division were disposed of and the decision was made to retain the
English-speaking Canadian and Australian K12 courseware businesses. Both of
these businesses were transferred from the Strategic Review division to the
Assessment & Qualifications division to reflect a change in reporting
lines. Comparative figures for half year 2022 have been restated to reflect
the move between segments, resulting in £13m of sales and £1m of adjusted
operating losses being transferred from the Strategic Review division to the
Assessment & Qualifications division at the 2022 half year.
all figures in £ millions 2023 2022 2022
half year half year full year
Sales
Assessment & Qualifications 796 710 1,444
Virtual Learning 373 390 820
English Language Learning 184 122 321
Workforce Skills 140 127 204
Higher Education 379 373 898
Strategic Review 7 66 154
Total sales 1,879 1,788 3,841
Adjusted operating profit
Assessment & Qualifications 174 136 258
Virtual Learning 47 14 70
English Language Learning 8 (4) 25
Workforce Skills 21 28 (3)
Higher Education (1) (4) 91
Strategic Review 1 (10) 15
Total adjusted operating profit 250 160 456
There were no material inter-segment sales.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
2. Segment information continued
The Group derived revenue from the transfer of goods and services over time
and at a point in time in the following major product lines:
all figures in £ millions Assessment & Qualifications Virtual Learning English Language Learning Workforce Skills Higher Education Strategic Review Total
2023 half year
Courseware
Products transferred at a point in time 30 - 51 1 108 7 197
Products and services transferred over time 10 - 5 - 268 - 283
40 - 56 1 376 7 480
Assessments
Products transferred at a point in time 96 - 3 11 - - 110
Products and services transferred over time 660 - 103 105 - - 868
756 - 106 116 - - 978
Services
Products transferred at a point in time - - 11 - - - 11
Products and services transferred over time - 373 11 23 3 - 410
- 373 22 23 3 - 421
Total sales 796 373 184 140 379 7 1,879
2022 half year
Courseware
Products transferred at a point in time 27 - 41 1 92 60 221
Products and services transferred over time 14 - 8 - 278 3 303
41 - 49 1 370 63 524
Assessments
Products transferred at a point in time 80 - 4 10 - - 94
Products and services transferred over time 589 - 55 94 - - 738
669 - 59 104 - - 832
Services
Products transferred at a point in time - - 10 - - - 10
Products and services transferred over time - 390 4 22 3 3 422
- 390 14 22 3 3 432
Total sales 710 390 122 127 373 66 1,788
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
2. Segment information continued
all figures in £ millions Assessment & Qualifications Virtual Learning English Language Learning Workforce Skills Higher Education Strategic Review Total
2022 full year
Courseware
Products transferred at a point in time 64 - 110 2 302 148 626
Products and services transferred over time 21 - 25 - 588 6 640
85 - 135 2 890 154 1,266
Assessments
Products transferred at a point in time 169 - 5 14 - - 188
Products and services transferred over time 1,190 - 138 142 - - 1,470
1,359 - 143 156 - - 1,658
Services
Products transferred at a point in time - - 29 - - - 29
Products and services transferred over time - 820 14 46 8 - 888
- 820 43 46 8 - 917
Total sales 1,444 820 321 204 898 154 3,841
Adjusted operating profit is one of the Group's key business performance
measures. The measure includes the operating profit from the total business
but excludes charges for acquired intangibles amortisation and impairment,
acquisition related costs, gains and losses arising from disposals, the cost
of major restructuring and one-off costs related to the UK pension scheme.
Cost of major restructuring - In August 2022, the Group announced a major
restructuring programme to run in 2022. Restructuring costs of £150m in 2022
mainly related to staff redundancies and impairment of right of use property
assets including the impact of updated assumptions related to the
recoverability of right-of-use assets made in 2021. There is no cost of major
restructuring in the first half of 2023.
Intangible charges - These represent charges relating to intangibles acquired
through business combinations. These charges are excluded as they reflect past
acquisition activity and do not necessarily reflect the current year
performance of the Group. Intangible amortisation charges in the first half of
2023 were £24m compared to a charge of £26m in the equivalent period in
2022.
UK pension discretionary increases - Charges in 2022 relate to one-off pension
increases awarded to certain cohorts of pensioners in response to the cost of
living crisis.
Other net gains and losses - These represent profits and losses on the sale of
subsidiaries, joint ventures, associates and other financial assets and are
excluded from adjusted operating profit as they distort the performance of the
Group as reported on a statutory basis. Other net gains and losses also
includes costs related to business closures and acquisitions. Other net gains
and losses in 2023 relate largely to the gain on disposal of the POLS business
and a gain related to the release of a provision related to a historical
acquisition, offset by losses on the disposal of Pearson College and costs
related to current and prior year disposals and acquisitions. Other net gains
and losses in the first half of 2022 largely related to the gain on disposal
of the international courseware local publishing business in French-speaking
Canada and a gain arising on a decrease in the deferred consideration payable
on prior year acquisitions, offset by costs related to disposals and
acquisitions.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
2. Segment information continued
Adjusted operating profit should not be regarded as a complete picture of the
Group's financial performance. For example, adjusted operating profit includes
the benefits of major restructuring programmes but excludes the significant
associated costs, and adjusted operating profit excludes costs related to
acquisitions, and the amortisation of intangibles acquired in business
combinations, but does not exclude the associated revenues. The Group's
definition of adjusted operating profit may not be comparable to other
similarly titled measures reported by other companies.
The following table reconciles adjusted operating profit to operating profit
for each of our operating segments:
all figures in £ millions Assessment & Qualifications Virtual Learning English Language Learning Workforce Skills Higher Education Strategic Review Total
2023 half year
Adjusted operating profit / (loss) 174 47 8 21 (1) 1 250
Cost of major restructuring - - - - - - -
Intangible charges (6) (6) (5) (5) (2) - (24)
UK Pension discretionary increases - - - - - - -
Other net gains and losses (1) 17 5 (17) - (11) (7)
Operating profit / (loss) 167 58 8 (1) (3) (10) 219
2022 half year
Adjusted operating profit / (loss) 136 14 (4) 28 (4) (10) 160
Cost of major restructuring - - - - - - -
Intangible charges (7) (10) (2) (5) (2) - (26)
UK Pension discretionary increases - - - - - - -
Other net gains and losses - - (3) 4 - 13 14
Operating profit / (loss) 129 4 (9) 27 (6) 3 148
2022 full year
Adjusted operating profit / (loss) 258 70 25 (3) 91 15 456
Cost of major restructuring (39) (29) (11) (7) (63) (1) (150)
Intangible charges (14) (21) (6) (12) (3) - (56)
UK Pension discretionary increases (1) (1) - - (1) - (3)
Other net gains and losses (2) (2) (11) - - 39 24
Operating profit / (loss) 202 17 (3) (22) 24 53 271
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
3. Net finance costs
all figures in £ millions 2023 2022 2022
half year half year(1) full year
Net finance income 17 37 52
Net finance income in respect of retirement benefits (13) (4) (9)
Interest on deferred and contingent consideration 2 1 5
Fair value movements on investments held at FVTPL (5) (6) (28)
Net foreign exchange gains (4) (1) (1)
Derivatives not in a hedge relationship (9) (14) (25)
Interest on tax provisions - 5 5
Net interest (payable) / receivable reflected in adjusted earnings (12) 18 (1)
Analysed as:
Finance costs (36) (8) (71)
Finance income 53 45 123
Net finance income 17 37 52
1. Comparative balances have been restated - see note 1 for further
details.
Net interest payable is the finance cost measure used in calculating adjusted
earnings. The above table reconciles net finance income to net interest
payable.
Net finance income relating to retirement benefits has been excluded from our
adjusted earnings as we believe the income statement presentation does not
reflect the economic substance of the underlying assets and liabilities. Also
excluded are interest costs relating to acquisition or disposal transactions,
fair value movements on investments classified as FVTPL, foreign exchange and
other gains and losses on derivatives. Interest relating to acquisition or
disposal transactions is excluded from adjusted earnings as it is considered
part of the acquisition cost or disposal proceeds rather than being reflective
of the underlying financing costs of the Group.
Foreign exchange, fair value movements and other gains and losses are excluded
from adjusted earnings 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. Interest on certain tax provisions is
excluded from our adjusted measure in order to mirror the treatment of the
underlying tax item.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
4. Profit before tax
all figures in £ millions note 2023 2022 2022
half year half year(1) full year
Profit before tax 236 185 323
Cost of major restructuring 2 - - 150
Other net gains and losses 2 7 (14) (24)
Intangible charges 2 24 26 56
UK Pensions discretionary increases 2 - - 3
Other net finance income 3 (29) (19) (53)
Adjusted profit before tax 238 178 455
1. Comparative balances have been restated - see note 1 for further
details.
5. Income tax
all figures in £ millions 2023 2022 2022
half year half year(1) full year
Income tax charge (49) (49) (79)
Tax benefit on cost of major restructuring - - (37)
Tax charge / (benefit) on other net gains and losses (8) 34 10
Tax benefit on intangible charges (6) (6) (11)
Tax benefit on UK Pensions discretionary increases - - (1)
Tax charge on other net finance income 7 4 13
Tax amortisation benefit on goodwill and intangibles 2 7 16
Tax charge / (benefit) on UK tax rate change - 1 (1)
Other tax items - - 19
Adjusted income tax charge (54) (9) (71)
Tax rate reflected in statutory earnings 20.8% 26.5% 24.5%
Tax rate reflected in adjusted earnings 22.7% 5.1% 15.6%
1. Comparative balances have been restated - see note 1 for further
details.
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
credit on other net gains and losses of £8m is primarily due to tax credit
being recognised on the disposal of the POLS business. 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.
In the first half of 2022, the tax charge on other net gains and losses of
£34m is primarily the impact of the release of tax risk provisions of £35m
offset with the recognition of a provision of £63m related to the potential
State Aid exposure. The 2022 adjusted tax charge includes the impact of the
release of tax risk provisions of £37m following the expiry of the statute of
limitations for certain periods in the US.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
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.
all figures in £ millions 2023 2022 2022
half year half year(1) full year
Earnings for the period 187 136 244
Non-controlling interest (1) - (2)
Earnings attributable to equity shareholders 186 136 242
Weighted average number of shares (millions) 714.0 750.3 738.1
Effect of dilutive share options (millions) 5.0 2.6 3.9
Weighted average number of shares (millions) for diluted earnings 719.0 752.9 742.0
Earnings per share
Basic 26.1p 18.1p 32.8p
Diluted 25.9p 18.1p 32.6p
1. Comparative balances have been restated - see note 1 for further
details.
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.
Adjusted earnings is a non-GAAP financial measure and is included as it is a
key financial measure used by management to evaluate performance and allocate
resources to business segments. The measure also enables users of the accounts
to more easily, and consistently, track the underlying operational performance
of the Group and its business segments over time by separating out those items
of income and expenditure relating to acquisition and disposal transactions,
major restructuring programmes and certain other items that are also not
representative of underlying performance (see notes 2, 3, 4 and 5 for further
information and reconciliation to equivalent statutory measures).
The adjusted earnings per share includes both continuing and discontinued
businesses on an undiluted basis when relevant. The company's definition of
adjusted earnings per share may not be comparable to other similarly titled
measures reported by other companies. A reconciliation of the adjusted
measures to their corresponding statutory measures is shown in the tables
below and in notes 2, 3, 4 and 5.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
7. Adjusted earnings per share continued
all figures in £ millions note Statutory income statement Cost of major restructuring Other net gains and losses Intangible charges UK Pension discretionary increases Other net finance costs Other tax items Adjusted income statement
2023 half year
Operating profit / (loss) 2 219 - 7 24 - - - 250
Net finance income / (costs) 3 17 - - - - (29) - (12)
Profit / (loss) before tax 4 236 - 7 24 - (29) - 238
Income tax 5 (49) - (8) (6) - 7 2 (54)
Profit / (loss) for the year 187 - (1) 18 - (22) 2 184
Non-controlling interest (1) - - - - - - (1)
Earnings / (loss) 186 - (1) 18 - (22) 2 183
Weighted average number of shares (millions) 714.0
Weighted average number of shares (millions) for diluted earnings 719.0
Adjusted earnings per share (basic) 25.6p
Adjusted earnings per share (diluted) 25.5p
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
7. Adjusted earnings per share continued
all figures in £ millions note Statutory income statement(1) Cost of major restructuring Other net gains and losses Intangible charges UK Pension discretionary increases Other net finance costs(1) Other tax items Adjusted income statement
2022 half year
Operating profit / (loss) 2 148 - (14) 26 - - - 160
Net finance costs 4 37 - - - - (19) - 18
Profit / (loss) before tax 5 185 - (14) 26 - (19) - 178
Income tax 6 (49) - 34 (6) - 4 8 (9)
Profit / (loss) for the year 136 - 20 20 - (15) 8 169
Non-controlling interest - - - - - - - -
Earnings / (loss) 136 - 20 20 - (15) 8 169
Weighted average number of shares (millions) 750.3
Weighted average number of shares (millions) for diluted earnings 752.9
Adjusted earnings per share (basic) 22.5p
Adjusted earnings per share (diluted) 22.4p
1. Comparative balances have been restated - see note 1 for further
details.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
7. Adjusted earnings per share continued
all figures in £ millions note Statutory income statement Cost of major restructuring Other net gains and losses Intangible charges UK Pension discretionary increases Other net finance costs Other tax items Adjusted income statement
2022 full year
Operating profit / (loss) 2 271 150 (24) 56 3 - - 456
Net finance costs 4 52 - - - - (53) - (1)
Profit / (loss) before tax 5 323 150 (24) 56 3 (53) - 455
Income tax 6 (79) (37) 10 (11) (1) 13 34 (71)
Profit / (loss) for the year 244 113 (14) 45 2 (40) 34 384
Non-controlling interest (2) - - - - - - (2)
Earnings / (loss) 242 113 (14) 45 2 (40) 34 382
Weighted average number of shares (millions) 738.1
Weighted average number of shares (millions) for diluted earnings 742.0
Adjusted earnings per share (basic) 51.8p
Adjusted earnings per share (diluted) 51.5p
8. Dividends
all figures in £ millions 2023 2022 2022
half year half year full year
Amounts recognised as distributions to equity shareholders in the period 106 107 156
The directors are declaring an interim dividend of 7p per equity share,
payable on 18 September 2023 to shareholders on the register at the close of
business on 11 August 2023. This interim dividend, which will absorb an
estimated £50m of shareholders' funds, has not been included as a liability
as at 30 June 2023.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
9. 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:
2023 2022 2022
half year half year full year
Average rate for profits 1.24 1.30 1.24
Period end rate 1.27 1.21 1.21
10. Non-current intangible assets
all figures in £ millions 2023 2022 2022
half year half year full year
Goodwill 2,441 2,470 2,480
Other intangibles 685 744 697
Non-current intangible assets 3,126 3,214 3,177
In 2023, business combinations resulted in the recognition of additional
goodwill of £61m and intangible assets of £117m (see note 11 for further
details).
In 2023, business disposals resulted in the disposal of £53m of intangible
assets (see note 12 for further details). A relative value method was used to
allocate goodwill to the disposed business in the Virtual Learning CGU
aggregation, the result of this was that no goodwill was allocated to the
disposed business.
Other movements in the goodwill balance relate to foreign exchange differences
and in the intangibles balance relate to amortisation and foreign exchange
differences.
At half year 2022, the table above excludes goodwill and intangible assets of
£75m which were classified as held for sale, and subsequently disposed in H2
2022.
The Group has assessed its remaining goodwill and intangibles for impairment
triggers and concluded that a full goodwill impairment review is not required
at 30 June 2023.
The 2022 Annual Report sets out the key assumptions by segment. The discount
rate, perpetuity growth rate and other assumptions used in the impairment
review, and the sensitivity to changes in those assumptions remain broadly the
same as the position outlined in the 2022 Annual Report.
There were no significant impairments to acquisition related or other
intangibles in the first half of 2023 or 2022.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
11. Business Combinations
On 22 March 2023, the Group acquired 100% of the share capital of Personnel
Decisions Research Institutes, LLC ('PDRI') for cash consideration of £152m
($187m). PDRI is a provider of workforce assessment services and has
significant expertise in providing assessment solutions to the U.S. federal
government. It will form part of the Assessment & Qualifications division.
There is no contingent or deferred consideration. Net assets acquired of £91m
were recognised on the Group's balance sheet including £117m of acquired
intangible assets mainly relating to customer relationships and contracts, and
technology that will be amortised over periods up to 15 years.
This transaction has resulted in the recognition of £61m of goodwill, which
represents the expected growth, the workforce and know-how acquired and the
anticipated synergies, none of which can be recognised as separate intangible
assets. The goodwill is not deductible for tax purposes.
On 28 January 2022, the Group acquired 100% of the share capital in Credly Inc
(Credly), having previously held a 19.9% interest in the company. Total
consideration was £149m comprising upfront cash consideration of £107m,
Pearson's existing interest valued at £31m and £11m of deferred
consideration. The deferred consideration is payable in two years, with
additional amounts being payable if certain revenue and non-financial targets
are met, and dependent on continuing employment, and therefore these
additional amounts will be expensed over the period and are not treated as
consideration.
On 28 April 2022, the Group acquired 100% of the share capital of ATI STUDIOS
A.P.P.S S.R.L (Mondly). Total consideration was £135m comprising upfront cash
consideration of £105m, and deferred consideration of £30m. The deferred
consideration is payable over the next two years with no performance
conditions attached. In addition, a further $29.6m (c£24m) of cash and $10m
(c£8m) in shares will be paid over the next four years, dependent on
continuing employment, and therefore these additional amounts will be expensed
over the period and are not treated as consideration.
In 2022, the Group also made two smaller acquisitions in the period for total
consideration of £11m.
Details of the fair values of the assets acquired and the consideration are
shown in the table below. Amounts for 2023 are provisional as management
finalise reviews of the asset valuations, which have been carried out by a
third party specialist.
all figures in £ millions 2023 2022 2022
half year half year full year
Intangible assets 117 109 110
Deferred tax assets - 8 8
Trade and other receivables 8 9 8
Cash and cash equivalents 4 13 13
Trade and other liabilities (7) (26) (26)
Deferred tax liabilities (31) (22) (22)
Net assets acquired 91 91 91
Goodwill 61 204 204
Total 152 295 295
Satisfied by:
Cash consideration 152 223 223
Deferred and contingent consideration - 41 41
Fair value of existing investment - 31 31
Total consideration 152 295 295
PDRI generated revenues of £8m and a profit after tax of £1m for the period
from acquisition date to 30 June 2023. If the acquisitions had occurred on 1
January 2023, the Group's revenue would have been £7m higher and the profit
after tax would have been £2m higher. In 2023, total acquisition costs
incurred in respect of current year and prior year acquisitions were £9m
(2022: £8m). In 2022, there was also a gain arising on a decrease in the
deferred consideration payable on a prior year acquisition.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
11. Business Combinations continued
The net cash outflow relating to acquisitions in the period is shown in the
table below including £21m (2022: £7m) relating to deferred payments for
prior year acquisitions.
all figures in £ millions 2023 2022 2022
half year half year full year
Cash - current year acquisitions (152) (223) (223)
Cash and cash equivalents acquired 4 13 13
Deferred payments for prior year acquisitions (21) (7) (10)
Acquisition costs paid (4) (4) (8)
Net cash outflow on acquisitions (173) (221) (228)
In addition, the Group paid £5m (2022: £4m) in respect of its associate
Academy of Pop. The payment related to the Group's initial capital
contribution that had not yet been paid as at 31 December 2022.
12. Disposals and business closures
On 30 June 2023, the Group disposed of its interests in its POLS businesses in
the US, UK, Australia and India. The business disposed excludes Pearson's
contract with ASU. The consideration to be received is deferred and comprises
a 27.5% share of positive adjusted EBITDA in each calendar year for 6 years
and 27.5% of the proceeds received by the purchaser in relation to any future
monetisation event. The consideration has been valued at £12m and a pre-tax
gain on disposal of £17m has been recognised. In addition, a gain of £9m has
been recognised which arises from the release of a provision related to a
historical disposal and £24m of losses arose from other immaterial disposals
and costs related to previous disposals.
In 2022, the Group disposed of its interests in the Canadian educational
publisher (ERPI), Pearson Italia S.p.A, Stark Verlag GmbH, Austin Education
(Hong Kong) Limited, Pearson South Africa (Pty) Ltd and various other South
African companies. Total cash consideration received was £287m resulting in a
pre-tax gain on disposal of £42m. £5m of losses arose from other immaterial
disposals and costs related to the wind-down of certain businesses. Deferred
proceeds relating to the K12 sale were received in 2022.
all figures in £ millions 2023 2022 2022
half year half year full year
Intangible assets (53) (1) (77)
Property, plant and equipment (5) - (11)
Intangible assets - product development (15) (9) (39)
Inventories (1) (7) (33)
Trade and other receivables (63) (5) (106)
Deferred tax 8 - (12)
Current tax (receivable) / payable (2) - 7
Cash and cash equivalents (excluding overdrafts) (12) (3) (21)
Provisions for other liabilities and charges - - 1
Retirement benefit obligations - - 2
Trade and other liabilities 26 6 45
Financial liabilities - borrowings - - 8
Net assets disposed (117) (19) (236)
Cumulative translation adjustment 122 7 5
Cash proceeds 1 38 291
Deferred proceeds 12 - 2
Costs of disposal (16) (13) (25)
Gains on disposal 2 13 37
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
12. Disposals and business closures continued
The net cash outflow relating to disposals in the period is shown in the table
below.
all figures in £ millions 2023 2022 2022
half year half year full year
Proceeds - current year disposals 1 38 291
Proceeds - prior year disposals - 87 86
Cash and cash equivalents disposed (12) (3) (21)
Costs and other disposal liabilities paid (8) (14) (23)
Net cash (outflow) / inflow from disposals (19) 108 333
13. Assets and liabilities held for sale
Assets and businesses are classified as held for sale when their carrying
amounts are recovered through sale rather than through continuing use. They
only meet the held for sale condition when the assets are ready for immediate
sale in their present condition, management is committed to the sale and it is
highly probable that the sale will complete within one year. Depreciation
ceases on assets and businesses when they are classified as held for sale and
the assets and businesses are impaired if their carrying value exceeds their
fair value less expected costs to sell.
The held for sale assets at 30 June 2023 and 31 December 2022 relate to
properties which are in the process of being sold, and are level 3 assets. The
held for sale assets and liabilities at 30 June 2022 related to the Group's
interests in its international courseware local publishing businesses which
were subsequently sold in the second half of 2022.
all figures in £ millions 2023 2022 2022
half year half year full year
Property, plant and equipment 15 9 16
Intangible assets - 75 -
Deferred income tax assets - 14 -
Intangible assets - pre-publication - 26 -
Inventories - 28 -
Trade and other receivables - 49 -
Provisions for liabilities and charges - (2) -
Trade and other liabilities - (33) -
Financial liabilities - borrowings - (7) -
Net assets classified as held for sale 15 159 16
13. Assets and liabilities held for sale
Assets and businesses are classified as held for sale when their carrying
amounts are recovered through sale rather than through continuing use. They
only meet the held for sale condition when the assets are ready for immediate
sale in their present condition, management is committed to the sale and it is
highly probable that the sale will complete within one year. Depreciation
ceases on assets and businesses when they are classified as held for sale and
the assets and businesses are impaired if their carrying value exceeds their
fair value less expected costs to sell.
The held for sale assets at 30 June 2023 and 31 December 2022 relate to
properties which are in the process of being sold, and are level 3 assets. The
held for sale assets and liabilities at 30 June 2022 related to the Group's
interests in its international courseware local publishing businesses which
were subsequently sold in the second half of 2022.
all figures in £ millions 2023 2022 2022
half year half year full year
Property, plant and equipment 15 9 16
Intangible assets - 75 -
Deferred income tax assets - 14 -
Intangible assets - pre-publication - 26 -
Inventories - 28 -
Trade and other receivables - 49 -
Provisions for liabilities and charges - (2) -
Trade and other liabilities - (33) -
Financial liabilities - borrowings - (7) -
Net assets classified as held for sale 15 159 16
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
14. Net debt
all figures in £ millions 2023 2022 2022
half year half year full year
Non-current assets
Derivative financial instruments 41 33 43
Trade and other receivables - investment in finance lease 90 109 104
Current assets
Derivative financial instruments 17 1 16
Trade and other receivables - investment in finance lease 17 17 17
Cash and cash equivalents (excluding overdrafts) 355 392 558
Non-current liabilities
Borrowings (1,308) (1,158) (1,144)
Derivative financial instruments (43) (44) (54)
Current liabilities
Borrowings (75) (150) (86)
Derivative financial instruments (5) (10) (11)
Net debt (911) (810) (557)
Included in borrowings at 30 June 2023 are lease liabilities of £561m
(non-current £492m, current £69m). This compares to lease liabilities of
£630m (non-current £557m, current £73m) at 30 June 2022 and £605m
(non-current £534m, current £71m) at 31 December 2022. The net lease
liability at 30 June 2023 after including the investment in finance leases
noted above was £454m (2022 half year: £504m, 2022 full year: £484m). Net
debt excluding net lease liabilities is £457m (2022 half year: £306m, 2022
full year: £73m).
In May 2022, the Group repaid its $117m (£95m) USD 3.75% notes upon maturity.
In December 2022, the Group repaid its $94m (£76m) USD 3.25% notes.
In 2023, the movement on borrowings primarily reflects the drawdown on the
revolving credit facility of £220m and the repayment of lease liabilities of
£42m.
At 30 June 2022, net debt presented above includes non-current borrowings of
£7m which were included in assets and liabilities held for sale.
For the purposes of the cash flow statement, cash and cash equivalents are
presented net of overdrafts of £7m (HY 2022: £nil; FY 2022: £15m) which are
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 2023
15. Classification of assets and liabilities measured at fair value
Level 1 Level 2 ---Level 3---
Total fair value
all figures in £ millions FVTPL - Cash and cash equivalents Derivatives FVOCI FVTPL - Investments and Other
Investments
2023 half year
Investments in unlisted securities - - 24 114 138
Cash and cash equivalents 39 - - - 39
Derivative financial instruments - 58 - - 58
Deferred and contingent consideration - - - 12 12
Total financial assets held at fair value 39 58 24 126 247
Derivative financial instruments - (48) - - (48)
Deferred and contingent consideration - - - (56) (56)
Total financial liabilities held at fair value - (48) - (56) (104)
2022 half year(1)
Investments in unlisted securities - - 22 98 120
Cash and cash equivalents 23 - - - 23
Derivative financial instruments - 34 - - 34
Deferred and contingent consideration - - - - -
Total financial assets held at fair value 23 34 22 98 177
Derivative financial instruments - (54) - - (54)
Deferred and contingent consideration - - - (79) (79)
Total financial liabilities held at fair value - (54) - (79) (133)
2022 full year
Investments in unlisted securities - - 24 109 133
Cash and cash equivalents 40 - - - 40
Derivative financial instruments - 59 - - 59
Deferred and contingent consideration - - - - -
Total financial assets held at fair value 40 59 24 109 232
Derivative financial instruments - (65) - - (65)
Deferred and contingent consideration - - - (79) (79)
Total financial liabilities held at fair value - (65) - (79) (144)
1. Comparative balances have been restated - see note 1 for further
details.
There have been no transfers in classification during the year.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
15. Classification of assets and liabilities measured at fair value
continued
Level 1 valuations are based on unadjusted quoted prices in active markets for
identical financial instruments. Cash and cash equivalents include money
market funds which are treated as fair value through profit and loss (FVTPL)
under IFRS 9 with the fair value movements recognised as finance income or
cost.
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, the fair value of our
investments in unlisted securities are determined by reference to the
financial performance of the underlying asset and amounts realised on the sale
of similar assets. Individually these assets are immaterial and therefore no
sensitivities have been disclosed. Level 3 assets also include the contingent
consideration receivable in respect of the sale of the POLS business, which
has been determined on the basis of a discounted cash flow model, and valued
by a third party specialist, and deferred and contingent consideration payable
in respect of prior year acquisitions, which is measured as the net present
value of the expected cashflows. Reasonably possible changes in assumptions
for the inputs into the model would not have a material impact on the carrying
value of the contingent consideration, and therefore sensitivities have not
been disclosed.
The movements in fair values of level 3 financial assets measured at fair
value, being the investments in unlisted securities and contingent
consideration receivable, are shown in the table below:
all figures in £ millions 2023 2022 2022
half year half year(1) full year
At beginning of period 133 200 200
Exchange differences - OCI (5) 9 11
Additions 18 4 12
Repayments - (87) (88)
Disposals (3) (31) (48)
Fair value movements - Income Statement 5 6 28
Fair value movements - OCI 2 19 18
At end of period 150 120 133
1. Comparative balances have been restated - see note 1 for further
details.
The movement in the fair value of the deferred and contingent consideration is
shown in the table below:
all figures in £ millions 2023 2022 2022
half year half year full year
At beginning of period (79) (44) (44)
Exchange differences 4 (7) (7)
Acquisitions - (41) (42)
Fair value movements - Income Statement (2) 6 4
Repayments 21 7 10
At end of period (56) (79) (79)
In 2022, disposals of investments in unlisted securities include the impact of
acquiring the remaining shares in Credly Inc. The fair value movements on
financial assets and liabilities measured at fair value and held at the end of
the reporting period are unrealised.
The market value of the Group's bonds is £540m (2022 half year: £658m; 2022
full year: £562m) compared to their carrying value of £596m (2022 half year:
£678m; 2022 full year: £610m). For all other financial assets and
liabilities, fair value is not materially different to carrying value.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
16. Cash flows
Operating cash flow and free cash flow are non-GAAP measures and have been
disclosed as they are part of the Group's corporate and operating measures.
These measures are presented in order to align the cash flows with
corresponding adjusted profit measures. The table below reconciles the
statutory profit and cash flow measures to the corresponding adjusted
measures. The table on the next page reconciles operating cash flow to net
debt.
all figures in £ millions Statutory measure Cost of major restructuring Other net gains and losses Intangible charges UK Pension discretionary increases Purchase / disposal of PPE and software Net addition of right of use assets Dividends from joint ventures and associates Adjusted measure
2023 half year
Operating profit 219 - 7 24 - - - - 250 Adjusted operating profit
Net cash generated from operations 106 46 - - - (62) (11) - 79 Operating cash flow
2022 half year
Operating profit 148 - (14) 26 - - - - 160 Adjusted operating profit
Net cash generated from operations 53 13 - - - (53) (6) 2 9 Operating cash flow
2022 full year
Operating profit 271 150 (24) 56 3 - - - 456 Adjusted operating profit
Net cash generated from operations 527 35 - - - (133) (29) 1 401 Operating cash flow
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
16. Cash flows continued
all figures in £ millions note 2023 2022 2022
half year half year full year
Reconciliation of operating cash flow to closing net debt
Operating cash flow 79 9 401
Tax paid (59) (51) (109)
Net finance costs paid (24) (24) (35)
Cost paid for major restructuring (46) (13) (35)
Free cash flow (50) (79) 222
Dividends paid (including to non-controlling interest) (106) (107) (157)
Net movement of funds from operations (156) (186) 65
Acquisitions and disposals (200) (121) 105
Disposal of lease liabilities - - 8
Net equity transactions (23) (163) (383)
Other movements on financial instruments 25 10 (2)
Movement in net debt (354) (460) (207)
Opening net debt (557) (350) (350)
Closing net debt 14 (911) (810) (557)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2023
17. Contingencies and other liabilities
There are Group contingent 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 unsettled or disputed tax liabilities, 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.
On 25 April 2019, the European Commission published the full decision that the
United Kingdom controlled foreign company group financing partial exemption
('FCPE') partially constitutes State Aid. This decision was appealed by the UK
Government and other parties. On 8 June 2022 the EU General Court dismissed
the appeal, however, this decision has been further appealed by the UK
Government and other parties. The total exposure is calculated to be £105m
(excluding interest) with a provision of £63m held in relation to this issue.
The provision is calculated considering a range of possible outcomes and
applying a probability to each, resulting in a weighted average outcome. The
possible outcomes considered range from no liability through to the full
exposure (£105m). This issue is specific to periods up to 2018 and is not a
continuing exposure.
The Group is under assessment from the tax authorities in Brazil challenging
the deduction for tax purposes of goodwill amortisation for the years 2012 to
2017. Similar assessments may be raised for other years. Potential total
exposure (including possible interest and penalties) could be up to BRL 1,253m
(£205m) up to 30 June 2023, with additional potential exposure of BRL 48m
(£8m) in relation to deductions expected to be taken in future periods. Such
assessments are common in Brazil. The Group believes that the likelihood that
the tax authorities will ultimately prevail is low and that the Group's
position is strong. At present, the Group believes no provision is required.
The Group is also under assessment from the UK tax authorities in relation to
an issue related to the UK's FCPE legislation with the relevant years being
2019 to 2021. The maximum exposure is calculated to be £44m with a provision
of £13m currently held in relation to this issue. The provision is calculated
considering a range of possible outcomes and applying a probability to each,
resulting in a weighted average outcome. The possible outcomes considered
range from no liability through to the full exposure (£44m). This issue is
specific to 2019 to 2021 and is not a continuing exposure.
18. Related parties
Related party transactions in the six months ended 30 June 2023 were
substantially the same in nature to
those disclosed in note 36 of the Annual Report and Accounts for the year
ended 31 December 2022. All related party transactions are on an arm's length
basis. There were no other material related party transactions in the period
that have materially affected the financial position or performance of the
Group and no guarantees have been provided to related parties in the year.
19. Events after the balance sheet date
There have been no post balance sheet events.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that these condensed consolidated financial statements
have been prepared in accordance with UK-adopted International Accounting
Standard 34 'Interim Financial Reporting' 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 2022
Annual Report.
The directors of Pearson plc are listed in the 2022 Annual Report. There have
been the following changes to the Board since the publication of the Annual
Report.
Linda Lorimer - resigned April 2023
Alison Dolan and Alex Hardiman - appointed 1 June 2023
A list of current directors is maintained on the Pearson plc website:
www.pearsonplc.com.
By order of the Board
Andy Bird
Chief Executive
30 July 2023
Sally Johnson
Chief Financial Officer
30 July 2023
INDEPENDENT REVIEW REPORT TO PEARSON PLC
Independent Review Report on the condensed consolidated interim financial
statements
Conclusion
We have been engaged by Pearson plc (the Company) to review the condensed set
of financial statements in the half-yearly financial report for the six months
ended 30 June 2023 which comprises the condensed consolidated income
statement, the condensed consolidated statement of comprehensive income, the
condensed consolidated balance sheet, the condensed consolidated statement of
changes in equity, the condensed consolidate cash flow statement and the
explanatory notes. We have read the other information contained in the half
yearly financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the
condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2023 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. 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 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.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
30 July 2023
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR EANXEDSKDEFARecent news on Pearson
See all newsREG - Pearson PLC - Transaction in Own Shares
AnnouncementREG - Pearson PLC - Total Voting Rights
AnnouncementREG - Pearson PLC - Transaction in Own Shares
AnnouncementREG - Pearson PLC - Director Declaration
AnnouncementREG - Pearson PLC - Transaction in Own Shares
Announcement