REG - Pearson PLC - Pearson Interim Results 2024
29/07/2024 07:00
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RNS Number : 1116Y Pearson PLC 29 July 2024
Pearson Interim Results for the six months to 30(th) June 2024 (Unaudited)
29(th) July 2024 Solid H1 financial performance; No change to 2024 and 2025 guidance; Beyond
2025, expect to grow at mid-single digits with expanding adjusted operating
margins
Financial Highlights
£m H1 2024 H1 2023 H1 2024 H1 2023
£m
Business performance Statutory results
Sales 1,754 1,879 Sales 1,754 1,879
Adjusted operating profit 250 250 Operating profit 219 219
Operating cash flow 129 79 Profit for the period 158 187
Free cash flow 27 (50) Net cash generated from operations 185 106
Adjusted earnings per share 25.6p 25.6p Basic earnings per share 23.1p 26.1p
Highlights
· Underlying Group sales growth(1) of 2%, excluding OPM(2) and the Strategic
Review(3) businesses with each segment performing broadly in line with our
expectations.
· Underlying adjusted operating profit growth(1) of 4% to £250m.
· Strong free cash flow performance up £77m to £27m.
· £500m share buyback substantially complete and raised interim dividend by 6%,
while balance sheet remains robust.
· Remain on track to deliver on FY24 expectations and reiterate guidance out to
2025.
· Beyond 2025, Pearson is positioned to deliver mid-single digit underlying
sales CAGR and sustained margin improvement that will equate to an average
increase of 40 basis points per annum by continuing to drive performance in
the core business, executing synergies and expanding into adjacent markets.
Omar Abbosh, Pearson's Chief Executive, said:
"Since joining Pearson at the start of the year, I have led a comprehensive
review of our business and the markets in which we operate. This process has
only reinforced my conviction in the potential of Pearson and the vital role
we play in helping people realise the life they imagine through learning.
Significant demographic shifts and rapid advances in AI will be important
drivers of growth in education and work over the coming years, and this plays
to Pearson's strengths as a trusted provider of learning and assessment
services.
We are implementing plans across all of our businesses that will see us
deliver better products & services with greater efficiency. We're also
focusing on opportunities to progressively build our presence in materially
larger and higher growth markets in which we are well positioned to succeed,
with a particular focus on early careers and enterprise skilling.
"Our good strategic and financial performance in the first half of the year
sets us up to achieve our guidance for the current year and for 2025, and we
expect thereafter to continue to deliver attractive growth with progressive
improvements in our margins alongside consistently strong cash generation."
Underlying sales growth(1) of 2%, excluding OPM(2) and Strategic Review(3)
businesses; 1% in aggregate
· Assessment & Qualifications sales grew 2%, with growth across Pearson VUE,
Clinical, and UK & International Qualifications partially offset by an
expected, small decline in US Student Assessments.
· Virtual Schools sales declined 1%, reflecting the previously announced
contract losses for the current academic year. Virtual Learning sales declined
8% mostly attributable to the final portion of the OPM ASU contract in the
first half of 2023.
· Higher Education sales were down 2%, in line with our phasing guidance. We are
seeing encouraging signs of progress in the business with Spring adoption data
indicating small market share gains.
· English Language Learning sales increased 11% due to strong growth in
Institutional as well as growth in Mondly, partially offset by a sales decline
in PTE given market dynamics. The Argentina FX impact discussed at Q1 has
reduced as expected, and will be immaterial in a full year context.
· Workforce Skills sales grew 6%, with strong performances in Vocational
Qualifications, GED and Credly.
Adjusted operating profit(1) up 4% on an underlying basis to £250m
· Performance driven by trading alongside net cost phasing and savings,
partially offset by inflation and restructuring charges in Higher Education,
which were weighted to the first half. First half adjusted profit margin grew
to 14% (H1 2023: 13%).
· Headline growth was flat reflecting underlying performance, portfolio changes
and currency movements.
· Adjusted earnings per share was flat at 25.6p (H1 2023: 25.6p) with higher net
interest costs offset by the reduction in issued shares, both due to the share
buyback.
Strong free cash flow with robust balance sheet enabling continued investment
and driving increased shareholder returns
· Operating cash flow was again strong, up £50m to £129m (H1 2023: £79m) with
good underlying fundamentals, as well as some phasing and FX benefits.
· Free cash flow was also strong, up £77m to £27m (H1 2023: (£50)m) given the
operating cash performance and no reorganisation costs this year.
· Our balance sheet remains robust with net debt of £1.2bn (H1 2023: £0.9bn),
the year on year increase being due to the £500m share buyback and dividends,
partially offset by free cash flow.
· Proposed interim dividend of 7.4p (H1 2023: 7.0p) represents an increase of
6%.
· The previously announced buyback extension to repurchase £200m of shares
continued. As at 30(th) June 2024 £163m of shares had been repurchased at an
average price of 994p per share, representing 81% of the total programme.
Continued operational progress
Operational progress continued across each of our businesses
· In Assessment & Qualifications, Pearson VUE renewed and won a number of
key contracts, which will support future growth. Pearson VUE wins included
university entrance tests in the UK and the teacher licence contract in
Georgia, and it renewed key contracts with the National Council of State
Boards of Nursing, the Project Management Institute, and the American Registry
of Radiologic Technologists. PDRI also saw good growth, with strong volumes
across both the TSA and United States Airforce contracts.
· In Virtual Schools, we have already announced the opening of 3 new schools
this year and a further 19 career programmes. This brings our total number of
schools to 40, with 24 career programmes, across 30 states for the 2024/25
academic year.
· In Higher Education, recent Spring semester market data indicates a small gain
in adoption share, while we also saw 3% growth in core text units, 2% growth
in US digital subscriptions and Inclusive Access growth of 25%. Pearson+
continued to perform well with 5.0m cumulative registered users and paid
subscriptions for the full academic year increasing 18% to 1.1m. We are seeing
good engagement with our AI study tools, and are on track to extend to a
further c.80 titles for Fall back to school. Pearson will also be launching AI
tools for instructors for the Fall 2024 semester in 25 of our best-selling
titles across business, math, science, and nursing in the US.
· In English Language Learning, PTE continued to gain market share, despite a
market which has declined given tightening of policies around international
study and migration across Australia, Canada and the UK. Given these market
dynamics, we expect PTE sales to be flat to down for the year. Our market
share gains in PTE, and the ramp up for Canada, mean we are well placed for
English high stakes testing market growth, which we expect in the medium term
given demographic projections.
· In Workforce Skills, Vishaal Gupta joined Pearson on April 15(th) to lead the
division, and play a critical role in executing our enterprise skills
strategy.
· Dave Treat joined Pearson as Chief Technology Officer on 2(nd) July 2024. Dave
will report to CEO, Omar Abbosh, and work in close partnership with Pearson's
Chief Product and Chief Information Officers. He will lead technology
innovation and architecture across the company.
· Ginny Cartwright Ziegler joined Pearson, today, 29 July 2024 as Chief
Marketing Officer. Ginny will report to CEO Omar Abbosh and will lead the next
generation of our work in marketing, brand and communications. Ginny is
succeeding Lynne Frank, who has stepped down from her dual role as Chief
Marketing Officer and Co-President, Direct to Consumer.
Positioning Pearson for sustained growth with continued higher margins
Through an extensive examination of the business and the markets in which we
operate, we have identified a targeted market expansion opportunity for
Pearson and have updated our strategy to drive higher performance in the core
business and unlock new synergies
· Pearson is in a strong position today. We are the world's lifelong learning
company, where we are trusted to help individuals realise the life they
imagine through learning. Our five businesses have clear lines of
accountability and improving financial performance, with particular strength
in assessments and verification.
· We are leaders today in a c.$15bn subsegment of the U.S. learning market, and
are well positioned to play in a larger, and faster growing c.$80bn
addressable market.
· The opportunity for Pearson will be supported by two key secular trends
foreseen over the coming years: shifts in demographic trends and the rapid
growth in the power of AI. The demographic shift will see the baby boomer
generation leave the workforce, resulting in heightened pressure on talent
sourcing, and the rapid development of increasingly powerful AI models will
significantly change the world of work and skills requirements. Employers will
need to find new pools of talent and continuously develop and verify the
skills of their workforces to keep pace with and benefit from technology and
AI advancements.
· To realise the growth opportunity for Pearson we will:
· Drive further performance from our existing five core businesses to deliver an
improved customer proposition, growth and efficiencies. We have identified a
number of technology enabled initiatives, which we expect to unlock tens of
millions of savings over the medium term. Initially these savings will be
offset by restructuring costs, but as these pay back they will enable us to
further invest in growth opportunities.
· Unlock execution-based synergies across the business units from product &
service bundling, a modern approach to software and product development, and a
focus on strategic partnerships.
· We will allocate our investment where we see the best opportunities for growth
and returns: firstly assessments and verifications; then enterprise skills and
early careers.
· We will maintain net debt to EBITDA of around 2x, on average over time, though
in the short term we intend to remain below this level to maintain some
investment optionality. Our dividend policy is progressive and sustainable. At
present, we do not plan to extend our share buyback programme, but are
committed to regularly reviewing this.
Outlook
2024 Outlook reaffirmed(4)
Group underlying sales growth, adjusted operating profit and tax outlook for
2024 remain in line with market expectations. As guided, interest will be
c.£45m and free cash flow conversion 95-100%.
In terms of divisional guidance and phasing:
· Expect improved growth momentum in the second half of 2024 with the growth of
Higher Education and normalised comparators for the assessments businesses.
· In Assessment & Qualifications, we continue to expect low to mid-single
digit sales growth for the year, with sales growth weighted to H2.
· In Virtual Schools, we continue to expect sales to decline at a similar rate
to 2023, given the previously cited loss of a larger partner school for the
2024/25 academic year. We expect Virtual Schools to return to growth in 2025
and beyond.
· In Higher Education, we remain confident we will return to growth in the
second half and for the full year. Growth in digital sales will continue to
shift revenue recognition from Q3 to Q4.
· In English Language Learning, we continue to expect high single digit sales
growth and growth weighted to the second half given the outstanding
performance in the first half of 2023. The growth will be driven mainly by
Institutional, with PTE being flat to down.
· In Workforce Skills, we expect to achieve high single digit sales growth.
· Every 1c movement in £:$ rate equates to approximately £5m adjusted
operating profit impact.
2025 Outlook
We continue to expect the Group to achieve mid-single digit underlying sales
3-year CAGR from 2022 to 2025, excluding OPM and Strategic Review businesses,
and remain on track to achieve our 16-17% adjusted operating profit margin
guidance.
Medium Term Outlook
Our future growth and investment focus will lead to mid-single digit
underlying sales CAGR. Through continued operational improvements, we also
expect to deliver sustained margin improvement that will equate to an average
increase of 40 basis points per annum beyond 2025. We will maintain free cash
flow conversion in the region of 90-100% on average across the period.
Contacts
Investor Relations Jo Russell +44 (0) 7785 451 266
Alex Shore +44 (0) 7720 947 853
Gemma Terry +44 (0) 7841 363 216
Brennan Matthews +1 (332) 238-8785
Media
Teneo Ed Cropley +44 (0) 7492 949 346
Pearson Laura Ewart +44 (0) 7798 846 805
Results event Pearson's Interim Results presentation will be held today at both 09:30 and
14:00 (BST). If you would like to attend the in-person session at 09:30,
please email amy.plavecky@pearson.com (mailto:amy.plavecky@pearson.com) .
Register to join either session virtually here
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 2024 H1 2023
Digital Growth Drive digital sales growth OnVUE volumes 1.2m 1.5m*
Higher Education US digital subscriptions 4.5m 4.4m(+)
PTE volume 546k 606k
Consumer Engagement Create engaging and personalised consumer experiences NPS for Connections Academy +67 +67
NPS for PTE +57 +56
Pearson+ registered users 5.0m 4.7m
Mondly paid subscriptions 532k 473k
Workforce Skills registered users 5.4m 5.3m
Product Effectiveness Improve the effectiveness of our products to deliver better outcomes PTE speed of score return 1.1 days 1.1 days
VUE test volumes 10.9m 10.8m*
VUE partner retention 99.7% 98.0%
Workforce Skills number of enterprise customers 1,487 1,556
Higher Education product usage - text units 2.1m 2.0m
*H1 2023 figures have been restated for adjustments made in H2 2023.
(+)H1 2023 US digital subscriptions restated from 4.5m to 4.4m due to removal
of non-paying subscribers.
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 2024 H1 2023 Headline CER Underlying
growth growth(1) growth(1)
Sales
Assessment & Qualifications 811 796 2% 4% 2%
Virtual Learning 254 373 (32%) (31%) (8%)
Higher Education 358 379 (6%) (4%) (2%)
English Language Learning 188 184 2% 11% 11%
Workforce Skills 143 140 2% 3% 6%
Strategic review(3) - 7 (100%) (100%) (100%)
Total 1,754 1,879 (7%) (4%) 1%
Total, excluding OPM(2) and Strategic Review(3) 2%
Adjusted operating profit/loss
Assessment & Qualifications 187 174 7% 10% 7%
Virtual Learning 31 47 (34%) (32%) (32%)
Higher Education (1) (1) 0% 100% 100%
English Language Learning 4 8 (50%) 38% 38%
Workforce Skills 29 21 38% 33% 27%
Strategic review(3) - 1 (100%) (100%) (100%)
Total 250 250 0% 5% 4%
(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, 6, 7 and 14. c) Constant exchange rates are
calculated by assuming the average FX in the prior period prevailed through
the current period.
(2)In 2023, we completed the sale of the 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.
As expected, there are no sales in the OPM business in 2024.
(3)Strategic Review is sales in international courseware local publishing
businesses which have been wound down. As expected, there are no sales in
these businesses in 2024.
(4)2024 consensus on the Pearson website as at 22nd November 2023; organic CER
sales growth of 3.7%, median adjusted operating profit of £621m at £:$ 1.22,
tax rate 24%.
Assessment & Qualifications
In Assessment & Qualifications, sales increased 2% on an underlying basis
and 2% on a headline basis. Adjusted operating profit increased 7% in
underlying terms due to operating leverage on sales growth, and cost phasing
and savings partially offset by inflation and 7% in headline terms due to
this, PDRI profit and currency movements.
Pearson VUE sales were up 4% in underlying terms driven by favorable mix and
value-added services. Test volumes increased versus the same period last year
to 10.9m. PDRI also saw good growth with strong volumes.
In US Student Assessment, sales decreased 3% in underlying terms due to
reduced scope and phasing of some contracts which will normalise in the second
half.
In Clinical Assessment, sales increased 1% in underlying terms supported by
pricing, digital product growth and a new product release.
In UK and International Qualifications, sales increased 7% in underlying terms
driven by volume, pricing and strong International growth.
Virtual Learning
Virtual Schools sales were down 1% on an underlying basis, given the
previously cited loss of a larger partner school in the 2023/24 academic year.
In Virtual Learning, sales decreased 8% on an underlying basis mostly
attributable to the final portion of the OPM ASU contract in the first half of
2023 and 32% on a headline basis due to currency movements and the disposal of
the OPM business. Adjusted operating profit declined 32% in underlying terms,
as the prior year comparator benefited from the ASU contract, and decreased
34% in headline terms due to this and currency movements.
Higher Education
In Higher Education, sales declined 2% on an underlying basis, in line with
our phasing guidance, and decreased 6% on a headline basis due to this,
currency movements and portfolio changes. Adjusted operating profit increased
in underlying terms driven by cost savings partially offset by restructuring
costs and trading and was flat in headline terms due to this offset by
currency movements and portfolio changes.
We also saw a strong performance in K-12 with sales growth of 12%, given
strong adoption cycle fundamentals in this market this year.
English Language Learning
In English Language Learning, sales were up 11% on an underlying basis due to
strong growth in Institutional (including hyperinflationary pricing in
Argentina) as well as growth in Mondly, and 2% on a headline basis due to this
offset by currency movements. Adjusted operating profit increased by 38% in
underlying terms due to increased operating leverage on sales partially offset
by increased investment and decreased 50% in headline terms due to this and
currency movements.
PTE volumes were down 10%, due to declines in the English High Stakes testing
market due to tightening of policies around international study and migration.
PTE has continued to see market share gains, particularly in India and China,
while it also continues to benefit in the ramp up for Canada.
Within Institutional, performance was strong, with particularly good growth in
Latin America and the Middle East.
Our Online Self-Study business, Mondly, performed well with paid subscriptions
increasing 12% versus the prior period driven by new enterprise contracts and
DTC users.
Workforce Skills
In Workforce Skills, sales were up 6% on an underlying basis and 2% on a
headline basis. Adjusted operating profit increased by 27% in underlying terms
due to trading and cost savings and increased 38% in headline terms due to
this, currency movements and portfolio changes.
Both the Vocational Qualifications and the Workforce Solutions businesses grew
by 6% in underlying terms.
FINANCIAL REVIEW
Operating result
Sales for the six months to 30 June 2024 decreased on a headline basis by
£125m or 7% from £1,879m for the six months to 30 June 2023 to £1,754m for
the same period in 2024 and adjusted operating profit remained at £250m in
the first half of 2024 compared to £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 2024 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 2023 or 2024 and by
ensuring the contribution from acquisitions is comparable year on year. For
prior year acquisitions, the corresponding pre-acquisition period is excluded
from the current 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 and businesses within Higher Education in
2023, and the acquisition of PDRI in 2023.
On an underlying basis, sales increased by 1% in the first six months of 2024
compared to the equivalent period in 2023 and adjusted operating profit
increased by 4%. Currency movements decreased sales by £45m and adjusted
operating profit by £12m, and portfolio changes decreased sales by £93m and
increased adjusted operating profit by £1m. There were no new accounting
standards adopted in the first half of 2024 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 reorganisation, when relevant, property charges
and one off-costs related to the UK pension scheme. A summary of these
adjustments is included below and in note 2 to the condensed consolidated
financial statements.
all figures in £ millions 2024 2023 2023
half year half year full year
Operating profit 219 219 498
Add back: Intangible charges 20 24 48
Add back: UK pension discretionary increase 5 - -
Add back: Other net gains and losses 6 7 16
Add back: Property charges - - 11
Adjusted operating profit 250 250 573
Intangible amortisation charges to the end of June 2024 were £20m compared to
a charge of £24m in the equivalent period in 2023. 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.
UK pension discretionary increases in 2024 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 in 2024 relate to costs related to prior year
acquisitions and disposals, partially offset by a gain on the partial disposal
of our investment in an associate. 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 previous disposal, offset by losses on
the disposal of Pearson College and costs related to disposals and
acquisitions.
Property charges of £11m in the second half of 2023 relate to impairments of
property assets arising from the impact of updates in 2023 to assumptions
initially made during the 2022 and 2021 reorganisation programmes. There are
no such charges in the first half of 2024.
The reported operating profit of £219m in the first half of 2024 compares to
a profit of £219m in the first half of 2023, with the disposal of POLS and
other businesses in 2023 reducing sales but having minimal impact on profit,
and unfavourable FX movements and inflation costs being offset by operating
leverage on sales and cost phasing and savings.
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.
Net finance costs
Net finance income decreased on a headline basis from income of £17m in the
first half of 2023 to an expense of £7m in the same period in 2024. The
decrease is primarily due to losses on investments held at fair value through
profit and loss (FVTPL) compared to gains in 2023, a reduction in foreign
exchange gains, increased borrowings and a reduction in returns on cash
deposits.
Net interest payable reflected in adjusted earnings to 30 June 2024 was £21m,
compared to a payable of £12m in the first half of 2023. The increase is
primarily due to increased borrowings and a reduction in returns on cash
deposits.
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 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.
In the period to 30 June 2024, the total of these items excluded from adjusted
earnings was net income of £14m compared to net income of £29m in the first
half of 2023. Net finance income relating to retirement benefits decreased
from £13m in the first half of 2023 to £11m in 2024 reflecting the
comparative funding position of the plans at the beginning of each year offset
by higher prevailing discount rates. Fair value movements on investments in
unlisted securities are a loss of £8m in the first half of 2024 compared to a
gain of £5m in 2023. 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 2024 was
a charge of £54m compared to a charge of £49m in the period to 30 June 2023.
This equates to an effective tax rate of 25.5% (2023: 20.8%). The higher
effective tax rate compared to the prior period is primarily due to a tax
credit being recognised on the disposal of the POLS business in 2023 which is
not recurring in 2024.
The total adjusted tax charge for the period was £54m (2023: £54m),
corresponding to an effective tax rate on adjusted profit before tax of 23.6%
(2023: 22.7%). For a reconciliation of the adjusted measure see note 4 to the
condensed consolidated financial statements.
In the first half of 2024, there was a net tax payment of £69m (2023: £59m),
principally relating to the US and the UK.
Other comprehensive income
Included in other comprehensive income are the net exchange differences on
translation of foreign operations. The loss on translation of £9m at 30 June
2024 compares to a loss at 30 June 2023 of £166m. The loss in 2024 arises
from an overall weakening of the majority of currencies to which the Group is
exposed, partially offset by a slight strengthening of 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 2024 was £1:$1.26 compared to the opening
rate of £1:$1.27. At the end of June 2023, the US dollar rate was £1:$1.27
compared to the opening rate of £1:$1.21.
Also included in other comprehensive income at 30 June 2024 is an actuarial
gain of £1m in relation to retirement benefit obligations. The gain arises
largely from losses on assets and experience losses, offset by a decrease in
liabilities driven by higher discount rates. The gain in 2024 compares to an
actuarial loss at 30 June 2023 of £27m.
Fair value losses of £4m (2023: gains of £2m) have been recognised in other
comprehensive income and relate to movements in the value of investments in
unlisted securities held at fair value through other comprehensive income
(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.
Cash flow and working capital
Our operating cash flow measure is used to align cash flows with our adjusted
profit measures (see note 14 to the condensed consolidated financial
statements). Operating cash flow increased on a headline basis by £50m from
an inflow of £79m in the first half of 2023 to an inflow of £129m in the
first half of 2024. The increase is largely explained by reduced capital
expenditure on product development, property, plant, equipment and software
and FX as well as favourable working capital movements, some of which arise
from portfolio changes.
The equivalent statutory measure, net cash generated from operations, was an
inflow of £185m in 2024 compared to an inflow of £106m in 2023. Compared to
operating cash flow, this measure includes reorganisation 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 2024,
reorganisation cash outflow was £5m compared to £46m in the same period in
2023.
In the first half of 2024, there was an overall increase of £23m in cash and
cash equivalents from £309m at the end of 2023 to £332m at 30 June 2024. The
increase in 2024 is primarily due to the cash inflow from operations of £185m
and proceeds from borrowings of £495m offset by payments for the acquisition
of subsidiaries of £38m, share buyback programme of £278m, dividends paid of
£107m, own share purchases of £37m, tax paid of £69m, net interest payments
of £28m, capital expenditure on property, plant, equipment and software of
£58m and payments of lease liabilities of £39m.
The movement on trade and other liabilities is driven by the payment of
deferred consideration relating to previous acquisitions, the net movement on
the accrual for share buyback programmes as well as movements in working
capital balances.
Liquidity and capital resources
The Group's net debt increased from £744m at the end of 2023 to £1,177m at
the end of June 2024. The increase is largely due to free cash flow which is
more than offset by the share buyback programme and dividend payments.
At 30 June 2024, the Group had drawn £495m on its Revolving Credit Facility.
At 30 June 2024, the Group had approximately £0.5bn in total liquidity
immediately available from cash and its Revolving Credit Facility maturing
February 2027. In assessing the Group's ability to continue as a going concern
for the period until 31 December 2025, 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 2024, 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 2025. During the period under evaluation, the Group has
a €300m bond (converted to c£260m) due for repayment in May 2025 and the
model assumes that this is refinanced with a similar sized bond in 2024. In
all scenarios, 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.
Post-retirement benefits
Pearson operates a variety of pension and post-retirement plans. The 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. We have some smaller defined benefit sections in the US and Canada
but, outside the UK, most of the companies operate defined contribution plans.
The charge to profit in respect of worldwide pensions and retirement benefits
amounted to £30m in the period to 30 June 2024 (30 June 2023: £23m) of which
a charge of £41m (30 June 2023: £36m) was reported in operating profit and
income of £11m (30 June 2023: £13m) was reported against other net finance
costs. In the period to 30 June 2024, a charge of £5m (30 June 2023: nil)
related to one-off discretionary pension increases has been excluded from
adjusted operating profit.
The overall surplus on UK Group pension plans of £491m at the end of 2023 has
decreased to a surplus of £485m at the end of June 2024. The decrease has
arisen principally due to asset returns being lower than expected, an increase
in long-term inflation expectations, and inflation over the period being
slightly higher than was expected at the beginning of the year. In total, our
worldwide net position in respect of pensions and other post-retirement
benefits decreased from a net asset of £455m at the end of 2023 to a net
asset of £449m at the end of June 2024.
Businesses acquired
The Group made no acquisitions of subsidiaries in H1 2024. The cash outflow in
H1 2024 relating to acquisitions of subsidiaries was £38m, arising from the
payment of deferred consideration in respect of prior year acquisitions,
mainly Credly and Mondly, which were acquired in 2022. In addition, there was
a cash outflow relating to investments of £7m.
The cash outflow in the first half of 2023 relating to acquisitions of
subsidiaries was £173m arising primarily from the acquisition of PDRI. In
addition, there was a cash outflow relating to the acquisition of associates
of £5m and investments of £6m.
Businesses disposed
The Group made no disposals of subsidiaries in H1 2024. In 2024, the cash
outflow relating to costs paid in relation to the disposal of businesses in
prior years was £6m. 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 addition, the Group sold part of its investment in its associate, Academy
of Pop, for £4m (which has not yet been paid), resulting in a gain of £2m.
The remaining stake is now classified as a financial investment.
Dividends
The dividend accounted for in the six months to 30 June 2024 is the final
dividend in respect of 2023 of 15.7p. An interim dividend for 2024 of 7.4p was
declared by the Board in July 2024 and will be accounted for in the second
half of 2024.
The interim dividend will be paid on 16 September 2024 to shareholders who are
on the register of members at close of business on 9 August 2024 (the Record
Date). Shareholders may elect to reinvest their dividend in the Dividend
Reinvestment Plan (DRIP). The last date for receipt of DRIP elections and
revocations will be 23 August 2024. A Dividend Reinvestment Plan (DRIP) is
provided by our Registrar, Computershare Investor Services. The DRIP enables
the Company's shareholders to elect to have their cash dividend payments used
to purchase the Company's shares. More information can be found at
www.computershare.com/Investor
Share buyback
On 20 September 2023, the Board approved a £300m share buyback programme in
order to return capital to shareholders, with a further £200m extension being
announced by the Group on 1 March 2024. In the first half of 2024, c28m shares
have been bought back at a cash cost of £278m. The £300m programme completed
in March 2024 and as at 30 June 2024 the £200m programme was c80% complete. A
£40m liability for the remainder of the £200m programme plus related costs
has been accrued as at 30 June 2024. At 31 December 2023, a liability of
£118m was accrued in relation to the £300m share buyback programme. The
nominal value of the cancelled shares of £7m has been transferred to the
capital redemption reserve. In the period from 1 to 26 July 2024, an
additional c2m of shares have been repurchased.
Principal risks and uncertainties
In the 2023 Annual Report and Accounts, we set out our assessment of the
principal risk issues that face the business under the categories:
accreditation risk, artificial intelligence, content and channel risks,
capability risk, competitive marketplace, customer expectations, portfolio
change, and reputation and responsibility.
We also noted in our 2023 Annual Report and Accounts that the Group continues
to closely monitor significant near-term and emerging risks which have been
identified as climate transition, inflation and interest rates, recession,
supply chain, tax and sanctions and geopolitics.
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 2023 Annual Report.
Accreditation Risk
Termination or modification 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.
Artificial Intelligence, Content and Channel Risk
The risk that Pearson's intellectual property is harder to protect as a result
of increased content generation through artificial intelligence and that
Pearson's content and method of delivery (channel) is, or is perceived to be,
insufficiently differentiated in terms of outcomes or learner experience.
Capability Risk
Inability to meet our contractual obligations or to transform as required by
our strategy due to infrastructure, system 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, in-sourcing 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).
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 2024
all figures in £ millions note 2024 2023 2023
half year half year full year
Continuing operations
Sales 2 1,754 1,879 3,674
Cost of goods sold (875) (960) (1,839)
Gross profit 879 919 1,835
Operating expenses (654) (688) (1,322)
Other net gains and losses 2 (6) (7) (16)
Share of results of joint ventures and associates - (5) 1
Operating profit 2 219 219 498
Finance costs 3 (57) (36) (81)
Finance income 3 50 53 76
Profit before tax 212 236 493
Income tax 4 (54) (49) (113)
Profit for the period 158 187 380
Attributable to:
Equity holders of the company 157 186 378
Non-controlling interest 1 1 2
Earnings per share from continuing operations (in pence per share)
Basic 5 23.1p 26.1p 53.1p
Diluted 5 22.8p 25.9p 52.7p
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 2024
all figures in £ millions 2024 2023 2023
half year half year full year
Profit for the period 158 187 380
Items that may be reclassified to the income statement
Net exchange differences on translation of foreign operations (9) (166) (177)
Currency translation adjustment on disposals - (122) (122)
Attributable tax - 1 -
Items that are not reclassified to the income statement
Fair value gain on other financial assets (4) 2 1
Attributable tax - - -
Remeasurement of retirement benefit obligations 1 (27) (85)
Attributable tax - 7 20
Other comprehensive expense (12) (305) (363)
Total comprehensive income / (expense) 146 (118) 17
Attributable to:
Equity holders of the company 145 (118) 16
Non-controlling interest 1 - 1
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 June 2024
all figures in £ millions note 2024 2023 2023
half year half year full year
Property, plant and equipment 207 226 217
Investment property 75 60 79
Intangible assets 9 3,050 3,126 3,091
Investments in joint ventures and associates 11 17 22
Deferred income tax assets 34 27 35
Financial assets - derivative financial instruments 4 41 32
Retirement benefit assets 491 554 499
Other financial assets 141 138 143
Income tax assets 41 41 41
Trade and other receivables 134 138 135
Non-current assets 4,188 4,368 4,294
Intangible assets - product development 941 947 947
Inventories 89 110 91
Trade and other receivables 1,081 1,060 1,050
Financial assets - derivative financial instruments 55 17 16
Current income tax assets 23 10 15
Cash and cash equivalents (excluding overdrafts) 332 355 312
Current assets 2,521 2,499 2,431
Assets classified as held for sale - 15 2
Total assets 6,709 6,882 6,727
Financial liabilities - borrowings (1,300) (1,308) (1,094)
Financial liabilities - derivative financial instruments (3) (43) (38)
Deferred income tax liabilities (56) (31) (46)
Retirement benefit obligations (42) (54) (44)
Provisions for other liabilities and charges (14) (14) (15)
Other liabilities (65) (80) (98)
Non-current liabilities (1,480) (1,530) (1,335)
Trade and other liabilities (1,036) (1,020) (1,275)
Financial liabilities - borrowings (313) (75) (67)
Financial liabilities - derivative financial instruments (44) (5) (5)
Current income tax liabilities (15) (27) (32)
Provisions for other liabilities and charges (10) (37) (25)
Current liabilities (1,418) (1,164) (1,404)
Liabilities classified as held for sale - - -
Total liabilities (2,898) (2,694) (2,739)
Net assets 3,811 4,188 3,988
Share capital 167 179 174
Share premium 2,644 2,635 2,642
Treasury shares (15) (20) (19)
Reserves 1,000 1,381 1,177
Total equity attributable to equity holders of the company 3,796 4,175 3,974
Non-controlling interest 15 13 14
Total equity 3,811 4,188 3,988
The condensed consolidated financial statements were approved by the Board on
28 July 2024.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period ended 30 June 2024
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
2024 half year
At 1 January 2024 174 2,642 (19) 33 (12) 411 745 3,974 14 3,988
Profit for the period - - - - - - 157 157 1 158
Other comprehensive income / (expense) - - - - (4) (9) 1 (12) - (12)
Total comprehensive income / (expense) - - - - (4) (9) 158 145 1 146
Equity-settled transactions(1) - - - - - - 16 16 - 16
Issue of ordinary shares - 2 - - - - - 2 - 2
Buyback of equity (7) - - 7 - - (204) (204) - (204)
Purchase of treasury shares - - (30) - - - - (30) - (30)
Release of treasury shares - - 34 - - - (34) - - -
Dividends - - - - - - (107) (107) - (107)
At 30 June 2024 167 2,644 (15) 40 (16) 402 574 3,796 15 3,811
1. Equity-settled transactions are presented net of withholding taxes that
the Group is obligated to pay on behalf of employees. The payments to the tax
authorities are accounted for as a deduction from equity for the shares
withheld.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period ended 30 June 2024
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) - - -
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 2024
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 full year
At 1 January 2023 179 2,633 (15) 28 (13) 709 881 4,402 13 4,415
Profit for the period - - - - - - 378 378 2 380
Other comprehensive income / (expense) - - - - 1 (298) (65) (362) (1) (363)
Total comprehensive income / (expense) - - - - 1 (298) 313 16 1 17
Equity-settled transactions - - - - - - 40 40 - 40
Tax on equity-settled transactions - - - - - - 1 1 - 1
Issue of ordinary shares - 9 - - - - - 9 - 9
Buyback of equity (5) - - 5 - - (304) (304) - (304)
Purchase of treasury shares - - (35) - - - - (35) - (35)
Release of treasury shares - - 31 - - - (31) - - -
Dividends - - - - - - (155) (155) - (155)
At 31 December 2023 174 2,642 (19) 33 (12) 411 745 3,974 14 3,988
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the period ended 30 June 2024
all figures in £ millions note 2024 2023 2023
half year half year full year
Cash flows from operating activities
Profit before tax 212 236 493
Net finance costs / (income) 7 (17) 5
Depreciation and impairment - PPE, investment property and assets held for 40 38 90
sale
Amortisation and impairment - software 61 64 123
Amortisation and impairment - acquired intangible assets 20 24 46
Other net gains and losses 5 7 13
Product development capital expenditure (130) (144) (300)
Product development amortisation 144 137 284
Share-based payment costs 23 19 40
Change in inventories 1 (9) 9
Change in trade and other receivables (34) (20) (24)
Change in trade and other liabilities (164) (187) (20)
Change in provisions for other liabilities and charges (12) (45) (61)
Other movements 12 3 (16)
Net cash generated from operations 185 106 682
Interest paid (41) (34) (60)
Tax paid (69) (59) (97)
Net cash generated from operating activities 75 13 525
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired 10 (38) (173) (171)
Acquisition of joint ventures and associates - (5) (5)
Purchase of investments (7) (6) (8)
Purchase of property, plant and equipment (18) (16) (30)
Purchase of intangible assets (40) (47) (96)
Disposal of subsidiaries, net of cash disposed 11 (6) (19) (38)
Proceeds from sale of investments - 3 7
Proceeds from sale of property, plant and equipment 6 1 5
Lease receivables repaid including disposals 9 8 15
Interest received 13 10 20
Net cash used in investing activities (81) (244) (301)
Cash flows from financing activities
Proceeds from issue of ordinary shares 2 2 9
Buyback of equity (278) - (186)
Settlement of share based payments (37) (25) (35)
Repayment of borrowings - - (285)
Proceeds from borrowings 495 220 285
Repayment of lease liabilities (39) (42) (84)
Dividends paid to company's shareholders (107) (106) (154)
Net cash generated from / (used in) financing activities 36 49 (450)
Effects of exchange rate changes on cash and cash equivalents (7) (13) (8)
Net increase / (decrease) in cash and cash equivalents 23 (195) (234)
Cash and cash equivalents at beginning of period 309 543 543
Cash and cash equivalents at end of period 332 348 309
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
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 2023, which were prepared in accordance with UK-adopted
International Accounting Standards and with the requirements of the Companies
Act 2006 and in accordance with IFRS accounting standards 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 IFRS accounting standards as issued by the IASB.
The condensed consolidated financial statements have also been prepared in
accordance with the accounting policies set out in the 2023 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 2024 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 2025, 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 2024, 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 2025. At 30 June 2024, the Group had available liquidity of
c£0.5bn, comprising central cash balances and the undrawn element of its $1bn
Revolving Credit Facility (RCF) maturing February 2027. During the period
under evaluation, the Group has a €300m bond (converted to c£260m) due for
repayment in May 2025 and the model assumes that this is refinanced with a
similar sized bond in 2024. 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 and to meet
its liabilities as they fall due for the assessment period to 31 December
2025. 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 2023 Annual
Report.
The financial information for the year ended 31 December 2023 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 2023 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 2024 are unaudited but have been
reviewed by the auditors and their review opinion is included at the end of
these condensed consolidated financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
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 in 2023, were being
managed as a separate division, known as Strategic Review. There are no longer
any reported results for the Strategic Review division.
all figures in £ millions 2024 2023 2023
half year half year full year
Sales
Assessment & Qualifications 811 796 1,559
Virtual Learning 254 373 616
English Language Learning 188 184 415
Workforce Skills 143 140 220
Higher Education 358 379 855
Strategic Review - 7 9
Total sales 1,754 1,879 3,674
Adjusted operating profit
Assessment & Qualifications 187 174 350
Virtual Learning 31 47 76
English Language Learning 4 8 47
Workforce Skills 29 21 (8)
Higher Education (1) (1) 110
Strategic Review - 1 (2)
Total adjusted operating profit 250 250 573
There were no material inter-segment sales.
The following table reconciles the Group's measure of segmental performance,
adjusted operating profit, to statutory operating profit:
all figures in £ millions 2024 2023 2023
half year half year full year
Adjusted operating profit 250 250 573
Intangible charges (20) (24) (48)
UK pension discretionary increases (5) - -
Other net gains and losses (6) (7) (16)
Property charges - - (11)
Operating profit 219 219 498
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
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
2024 half year
Courseware
Products transferred at a point in time 28 - 60 - 91 - 179
Products and services transferred over time 9 - 6 - 267 - 282
37 - 66 - 358 - 461
Assessments
Products transferred at a point in time 93 - 3 3 - - 99
Products and services transferred over time 681 - 97 120 - - 898
774 - 100 123 - - 997
Services
Products transferred at a point in time - - 12 - - - 12
Products and services transferred over time - 254 10 20 - - 284
- 254 22 20 - - 296
Total sales 811 254 188 143 358 - 1,754
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
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
2. Segment information continued
all figures in £ millions Assessment & Qualifications Virtual Learning English Language Learning Workforce Skills Higher Education Strategic Review Total
2023 full year
Courseware
Products transferred at a point in time 57 - 135 2 254 9 457
Products and services transferred over time 20 - 15 - 595 - 630
77 - 150 2 849 9 1,087
Assessments
Products transferred at a point in time 198 - 5 5 - - 208
Products and services transferred over time 1,284 - 204 170 - - 1,658
1,482 - 209 175 - - 1,866
Services
Products transferred at a point in time - - 35 - - - 35
Products and services transferred over time - 616 21 43 6 - 686
- 616 56 43 6 - 721
Total sales 1,559 616 415 220 855 9 3,674
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 reorganisation where relevant, property charges and one-off costs
related to the UK pension scheme.
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
2024 were £20m compared to a charge of £24m in the equivalent period in
2023.
UK pension discretionary increases - Charges in 2024 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 in order to show the performance of
the Group on a more comparable basis year on year. Other net gains and losses
also includes costs related to business closures and acquisitions. Other net
gains and losses in 2024 relate to costs related to prior year acquisitions
and disposals, partially offset by a gain on the partial disposal of our
investment in an associate. Other net gains and losses in the first half of
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.
Property charges - In the second half of 2023, charges of £11m relate to
impairments of property assets arising from the impact of updates in 2023 to
assumptions initially made during the 2022 and 2021 reorganisation programmes.
There are no such charges in the first half of 2024.
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 reorganisation 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.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
3. Net finance income / costs
all figures in £ millions 2024 2023 2023
half year half year full year
Net finance (costs) / income (7) 17 (5)
Net finance income in respect of retirement benefits (11) (13) (26)
Interest on deferred and contingent consideration 1 2 4
Fair value movements on investments held at FVTPL 8 (5) (13)
Net foreign exchange gains - (4) (3)
Fair value movements on derivatives (12) (9) 10
Net interest payable reflected in adjusted earnings (21) (12) (33)
Analysed as:
Finance costs (57) (36) (81)
Finance income 50 53 76
Net finance (costs) / income (7) 17 (5)
Net interest payable is the finance cost measure used in calculating adjusted
earnings. Net interest payable primarily consists of interest costs related to
bonds, the RCF and lease liabilities, partially offset by interest income on
cash deposits and lease receivables. Net interest payable at 30 June 2024 has
increased when compared to 30 June 2023 due to increased borrowings and a
reduction in returns on cash deposits.
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 2024
4. Income tax
all figures in £ millions 2024 2023 2023
half year half year full year
Income tax charge (54) (49) (113)
Tax on property charges - - (3)
Tax on other net gains and losses - (8) (10)
Tax on intangible charges (5) (6) (11)
Tax on UK pension discretionary increases (1) - -
Tax on other net finance income 4 7 7
Tax amortisation benefit on goodwill and intangibles 2 2 4
Tax benefit on UK tax rate change - - 1
Other tax items - - 1
Adjusted income tax charge (54) (54) (124)
Adjusted profit before tax 229 238 540
Tax rate reflected in statutory earnings 25.5% 20.8% 24.5%
Tax rate reflected in adjusted earnings 23.6% 22.7% 23.0%
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 2). The
adjusted tax charged in the period ended 30 June 2024 has been calculated by
applying management's best estimate of the weighted average annual effective
rate of tax which is expected to apply to the Group for the year ended 31
December 2024 to the adjusted profit before tax for the period ended 30 June
2024. Adjusting items have been tax effected on an item by item basis based on
the applicable statutory tax rate in the country to which the item relates.
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.
The statutory tax charge in the period ended 30 June 2024 is higher than the
period ended 30 June 2023 due to a tax credit being recognised on the disposal
of the POLS business in 2023 which is not recurring in 2024.
The Group is within the scope of the UK legislation in relation to Pillar Two
which was effective from 1 January 2024. Based on the most recent forecast
financial information available for the constituent entities in the Group, the
Pillar Two effective tax rates in most of the jurisdictions in which the Group
operates are above 15%. However, there are a limited number of jurisdictions
where the transitional safe harbour relief does not apply and the Pillar Two
effective tax rate is close to 15%. There is no material impact of the Pillar
Two legislation for the Group.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
5. 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 2024 2023 2023
half year half year full year
Earnings for the period 158 187 380
Non-controlling interest (1) (1) (2)
Earnings attributable to equity shareholders 157 186 378
Weighted average number of shares (millions) 680.5 714.0 711.5
Effect of dilutive share options (millions) 6.9 5.0 5.8
Weighted average number of shares (millions) for diluted earnings 687.4 719.0 717.3
Earnings per share
Basic 23.1p 26.1p 53.1p
Diluted 22.8p 25.9p 52.7p
6. 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 reorganisation programmes and certain other items that are also not
representative of underlying performance (see notes 2, 3 and 4 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 and 4.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
6. Adjusted earnings per share continued
all figures in £ millions note Statutory income statement Property charges UK pension discretionary increases Other net gains and losses Intangible charges Other net finance costs Other tax items Adjusted income statement
2024 half year
Operating profit 2 219 - 5 6 20 - - 250
Net finance income / (costs) 3 (7) - - - - (14) - (21)
Profit / (loss) before tax 212 - 5 6 20 (14) - 229
Income tax 4 (54) - (1) - (5) 4 2 (54)
Profit / (loss) for the year 158 - 4 6 15 (10) 2 175
Non-controlling interest (1) - - - - - - (1)
Earnings / (loss) 157 - 4 6 15 (10) 2 174
Weighted average number of shares (millions) 680.5
Weighted average number of shares (millions) for diluted earnings 687.4
Adjusted earnings per share (basic) 25.6p
Adjusted earnings per share (diluted) 25.3p
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
6. Adjusted earnings per share continued
all figures in £ millions note Statutory income statement Property charges UK pension discretionary increases Other net gains and losses Intangible charges Other net finance costs Other tax items Adjusted income statement
2023 half year
Operating profit 2 219 - - 7 24 - - 250
Net finance income / (costs) 3 17 - - - - (29) - (12)
Profit / (loss) before tax 236 - - 7 24 (29) - 238
Income tax 4 (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 2024
6. Adjusted earnings per share continued
all figures in £ millions note Statutory income statement Property charges UK pension discretionary increases Other net gains and losses Intangible charges Other net finance costs Other tax items Adjusted income statement
2023 full year
Operating profit 2 498 11 - 16 48 - - 573
Net finance income / (costs) 3 (5) - - - - (28) - (33)
Profit / (loss) before tax 493 11 - 16 48 (28) - 540
Income tax 4 (113) (3) - (10) (11) 7 6 (124)
Profit / (loss) for the year 380 8 - 6 37 (21) 6 416
Non-controlling interest (2) - - - - - - (2)
Earnings / (loss) 378 8 - 6 37 (21) 6 414
Weighted average number of shares (millions) 711.5
Weighted average number of shares (millions) for diluted earnings 717.3
Adjusted earnings per share (basic) 58.2p
Adjusted earnings per share (diluted) 57.7p
7. Dividends
all figures in £ millions 2024 2023 2023
half year half year full year
Amounts recognised as distributions to equity shareholders in the period 107 106 155
The directors are declaring an interim dividend of 7.4p per equity share,
payable on 16 September 2024 to shareholders on the register at the close of
business on 9 August 2024. This interim dividend, which will absorb an
estimated £49m of shareholders' funds, has not been included as a liability
as at 30 June 2024.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
8. 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:
2024 2023 2023
half year half year full year
Average rate for profits 1.26 1.24 1.25
Period end rate 1.26 1.27 1.27
9. Non-current intangible assets
all figures in £ millions 2024 2023 2023
half year half year full year
Goodwill 2,436 2,441 2,434
Other intangibles 614 685 657
Non-current intangible assets 3,050 3,126 3,091
There were no significant acquisitions or disposals in 2024.
In 2023, business combinations resulted in the recognition of additional
goodwill of £61m and intangible assets of £117m (see note 10 for further
details).
In 2023, business disposals resulted in the disposal of £53m of intangible
assets (see note 11 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. Other movements in the intangibles balance relate to additions,
amortisation and foreign exchange differences.
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 2024.
The 2023 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 2023 Annual Report.
There were no impairments to acquisition related or other intangibles in the
first half of 2024 or 2023.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
10. Business combinations
There have been no significant acquisitions of subsidiaries in H1 2024.
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). There was 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, and were valued by a third party specialist. The transaction resulted
in the recognition of £61m of goodwill. Details of the fair values of the
assets that were acquired and the consideration were set out in the 2023
Annual Report.
The net cash outflow relating to acquisitions in the period is shown in the
table below and relates to deferred payments for prior year acquisitions,
mainly arising from the acquisitions of Credly and Mondly in 2022.
all figures in £ millions 2024 2023 2023
half year half year full year
Cash - current year acquisitions - (152) (152)
Cash and cash equivalents acquired - 4 4
Deferred payments for prior year acquisitions and other items (38) (25) (23)
Net cash outflow on acquisitions (38) (173) (171)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
11. Disposals and business closures
There have been no disposals of subsidiaries in H1 2024.
On 30 June 2023, the Group disposed of its interests in its POLS businesses in
the US, UK, Australia and India. The business disposed excluded 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
from the disposal date and 27.5% of the proceeds received by the purchaser in
relation to any future monetisation event. The consideration was valued at
£12m and a pre-tax gain on disposal of £13m was recognised for the year
ended 31 December 2023.
The net cash outflow relating to disposals in the period is shown in the table
below.
all figures in £ millions 2024 2023 2023
half year half year full year
Proceeds - current year disposals - 1 1
Cash and cash equivalents disposed - (12) (12)
Costs and other disposal liabilities paid (6) (8) (27)
Net cash outflow from disposals (6) (19) (38)
In addition, the Group sold part of its investment in its associate, Academy
of Pop, for £4m (which has not yet been paid), resulting in a gain of £2m.
The remaining stake is now classified as a financial investment. In 2023, the
Group paid £5m relating to the Group's initial capital contribution.
In addition, the Group sold part of its investment in its associate, Academy
of Pop, for £4m (which has not yet been paid), resulting in a gain of £2m.
The remaining stake is now classified as a financial investment. In 2023, the
Group paid £5m relating to the Group's initial capital contribution.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
12. Net debt
all figures in £ millions 2024 2023 2023
half year half year full year
Non-current assets
Derivative financial instruments 4 41 32
Trade and other receivables - investment in finance lease 73 90 82
Current assets
Derivative financial instruments 55 17 16
Trade and other receivables - investment in finance lease 19 17 18
Cash and cash equivalents (excluding overdrafts) 332 355 312
Non-current liabilities
Borrowings (1,300) (1,308) (1,094)
Derivative financial instruments (3) (43) (38)
Current liabilities
Borrowings (313) (75) (67)
Derivative financial instruments (44) (5) (5)
Net debt (1,177) (911) (744)
Included in borrowings at 30 June 2024 are lease liabilities of £521m
(non-current £458m, current £63m). This compares to lease liabilities of
£561m (non-current £492m, current £69m) at 30 June 2023 and £547m
(non-current £483m, current £64m) at 31 December 2023. The net lease
liability at 30 June 2024 after including the investment in finance leases
noted above was £429m (2023 half year: £454m, 2023 full year: £447m). Net
debt excluding net lease liabilities is £748m (2023 half year: £457m, 2023
full year: £297m).
In 2024, the increase in borrowings primarily reflects the additional drawdown
on the revolving credit facility of £495m, partially offset by the repayment
of lease liabilities of £39m. 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.
For the purposes of the cash flow statement, cash and cash equivalents are
presented net of overdrafts of £nil (at 30 June 2023: £7m; 31 December:
£3m) 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 2024
13. 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
2024 half year
Investments in unlisted securities - - 26 115 141
Cash and cash equivalents 42 - - - 42
Derivative financial instruments - 59 - - 59
Deferred and contingent consideration - - - 12 12
Total financial assets held at fair value 42 59 26 127 254
Derivative financial instruments - (47) - - (47)
Deferred and contingent consideration - - - (21) (21)
Total financial liabilities held at fair value - (47) - (21) (68)
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)
2023 full year
Investments in unlisted securities - - 23 120 143
Cash and cash equivalents 31 - - - 31
Derivative financial instruments - 48 - - 48
Deferred and contingent consideration - - - 12 12
Total financial assets held at fair value 31 48 23 132 234
Derivative financial instruments - (43) - - (43)
Deferred and contingent consideration - - - (57) (57)
Total financial liabilities held at fair value - (43) - (57) (100)
There have been no transfers in classification during the year.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
13. 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 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 comprises a 27.5% share of positive
adjusted EBITDA in each calendar year for 6 years from the disposal date and
27.5% of the proceeds received by the purchaser in relation to any future
monetisation event. The valuation of the deferred consideration has been
determined on the basis of a discounted cash flow model, and valued by a
third-party specialist. The key inputs into the discounted cash flow model are
the estimates of adjusted EBITDA for the 6 year period and the estimate of the
valuation of the business thereafter. 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 deferred and contingent
consideration payable in respect of prior year acquisitions is measured as the
net present value of the expected cashflows.
The movements in fair values of level 3 financial assets measured at fair
value, being principally the investments in unlisted securities and contingent
consideration receivable, are shown in the table below:
all figures in £ millions 2024 2023 2023
half year half year full year
At beginning of period 155 136 136
Exchange differences - OCI 1 (5) (5)
Additions 9 18 20
Disposals and repayments - (6) (10)
Fair value movements - Income Statement (8) 5 13
Fair value movements - OCI (4) 2 1
At end of period 153 150 155
The movement in the fair value of the deferred and contingent consideration
payable is shown in the table below:
all figures in £ millions 2024 2023 2023
half year half year full year
At beginning of period (57) (79) (79)
Exchange differences (1) 4 3
Fair value movements - Income Statement (1) (2) (4)
Repayments 38 21 23
At end of period (21) (56) (57)
The market value of the Group's bonds is £570m (30 June 2023: £540m; 31
December 2023: £579m) compared to their carrying value of £597m (30 June
2023: £596m; 31 December 2023: £611m). 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 2024
14. 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 free
cash flow to net debt.
all figures in £ millions Statutory measure Cost of major reorganisation Property charges Other net gains and losses UK pension discretionary increases Intangible charges Purchase/ disposal of PPE and software Net addition of right of use assets Dividends from joint ventures and associates Adjusted measure
2024 half year
Operating profit 219 - - 6 5 20 - - - 250 Adjusted operating profit
Net cash generated from operations 185 5 - 3 - - (52) (12) - 129 Operating cash flow
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
2023 full year
Operating profit 498 - 11 16 - 48 - - - 573 Adjusted operating profit
Net cash generated from operations 682 63 - 4 - - (121) (41) - 587 Operating cash flow
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
14. Cash flows continued
all figures in £ millions note 2024 2023 2023
half year half year full year
Reconciliation of operating cash flow to closing net debt
Operating cash flow 129 79 587
Tax paid (69) (59) (97)
Net finance costs paid (28) (24) (40)
Cost paid for major reorganisation (5) (46) (63)
Free cash flow 27 (50) 387
Dividends paid (including to non-controlling interest) (107) (106) (154)
Net movement of funds from operations (80) (156) 233
Acquisitions and disposals (54) (200) (219)
Net equity transactions (313) (23) (212)
Other movements on financial instruments 14 25 11
Movement in net debt (433) (354) (187)
Opening net debt (744) (557) (557)
Closing net debt 12 (1,177) (911) (744)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the period ended 30 June 2024
15. Contingencies, tax uncertainties 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. An appeal by the UK Government and
other parties was dismissed by the EU General Court on 8 June 2022. Following
a further appeal heard in January 2024, on 11 April 2024 the Advocate General
released their (non-binding) expert opinion finding in favour of the UK
Government and other parties. We now await the final binding judgement. The
total exposure is calculated to be £105m (excluding interest) with a
provision of £63m held in relation to this issue. The remaining tax
receivable is disclosed as a non-current asset on the balance sheet. 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
2020. Similar assessments may be raised for other years. Potential total
exposure (including possible interest and penalties) could be up to BRL 1,345m
(£192m) for periods up to 30 June 2024, with additional potential exposure of
BRL 24m (£3m) 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 for the years
2019 to 2021. The maximum exposure is calculated to be £43m with a provision
of £21m currently held. 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 (£43m). The points being assessed are specific
to 2019 to 2021 and do not represent continuing exposures.
16. Related parties
Related party transactions in the six months ended 30 June 2024 were
substantially the same in nature to
those disclosed in note 36 of the Annual Report and Accounts for the year
ended 31 December 2023. 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.
17. 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 2023
Annual Report.
The directors of Pearson plc are listed in the 2023 Annual Report. There have
been the following changes to the Board since the publication of the Annual
Report.
Tim Score - resigned 26 April 2024
A list of current directors is maintained on the Pearson plc website:
www.pearsonplc.com.
By order of the Board
Omar Abbosh
Chief Executive
28 July 2024
Sally Johnson
Chief Financial Officer
28 July 2024
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 2024 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 2024 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 for 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
28 July 2024
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