REG - Pearson PLC - Annual Financial Report <Origin Href="QuoteRef">PSON.L</Origin> - Part 3
26/02/2016 07:11
- Part 3: For the preceding part double click ID:nRSZ2321Qb
thereby bringing the carrying value of goodwill in the India
CGU down to £nil. An impairment of £10m was also booked in respect of other
acquired intangibles in that CGU, bringing their carrying value to £nil.
12. Trade and other liabilities
2015 2014
all figures in £ millions
Trade payables (319) (329)
Accruals (393) (522)
Deferred income (766) (801)
Other liabilities (268) (259)
Trade and other liabilities (1,746) (1,911)
Analysed as:
Trade and other liabilities - current (1,390) (1,601)
Other liabilities - non-current (356) (310)
Total trade and other liabilities (1,746) (1,911)
Total trade and other liabilities
(1,746)
(1,911)
The deferred income balance comprises principally multi-year obligations to
deliver workbooks to adoption customers in school businesses; advance payments
in assessment, testing and training businesses; subscription income in school
and college businesses; and obligations to deliver digital content in future
periods.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 31 December 2015
13. Business combinations
There were no significant acquisitions completed in the year and there were no
material adjustments to prior year acquisitions.
The net cash outflow relating to acquisitions in the year is shown in the
table below:
Total
all figures in £ millions
Cash - Current year acquisitions (1)
Deferred payments for prior year acquisitions and other items (6)
Cash and cash equivalents acquired -
Acquisition costs paid (2)
Net cash outflow on acquisitions (9)
(9)
14. Net debt
2015 2014
all figures in £ millions
Non-current assets
Derivative financial instruments 78 90
Current assets
Derivative financial instruments 32 24
Marketable securities 28 16
Cash and cash equivalents (excluding overdrafts) 1,703 530
Non-current liabilities
Borrowings (2,048) (1,883)
Derivative financial instruments (136) (73)
Current liabilities
Borrowings (282) (342)
Derivative financial instruments (29) (1)
Total net debt (654) (1,639)
(1)
Total net debt
(654)
(1,639)
In May 2015, Pearson issued E500m 1.375% Notes due in 2025. The proceeds were
used to pay down outstanding US dollar commercial paper and were also used in
the repayment of the £300m Notes that matured in December 2015.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 31 December 2015
15. Classification of assets and liabilities measured at fair value
----Level 2---- -Level 3-
Available for sale assets Derivatives Other assets Available for sale assets Other liabilities Total fair value
all figures in £ millions
2015
Investment in listed securities - - - - - -
Investment in unlisted securities - - - 143 - 143
Marketable securities 28 - - - - 28
Derivative financial instruments - 110 - - - 110
Total financial assets held at fair value 28 110 - 143 - 281
Derivative financial instruments - (165) - - - (165)
Total financial liabilities held at fair value - (165) - - - (165)
2014
Investment in listed securities 9 - - - - 9
Investment in unlisted securities - - - 45 - 45
Marketable securities 16 - - - - 16
Derivative financial instruments - 114 - - - 114
Total financial assets held at fair value 25 114 - 45 - 184
Derivative financial instruments - (74) - - - (74)
Total financial liabilities held at fair value - (74) - - - (74)
The fair values of level 2 assets and liabilities are determined by reference
to market data and established estimation techniques such as discounted cash
flow and option valuation models. Within level 3 assets and liabilities, the
fair value of available for sale assets is determined by reference to the
financial performance of the underlying asset and amounts realised on the sale
of similar assets, while the fair value of other liabilities represents the
present value of the estimated future liability. There have been no transfers
in classification during the year.
The market value of Pearson's bonds is £2,245m (2014: £2,197m) compared to
their carrying value of £2,284m (2014: £2,173m). For all other financial
assets and liabilities, fair value is not materially different to carrying
value.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 31 December 2015
15. Classification of assets and liabilities measured at fair value
continued
Movements in fair values of level 3 assets and liabilities are shown in the
table below:
Investments in
all figures in £ millions unlisted securities
2015
At 1 January 2015 45
Exchange differences 3
Additions 101
Fair value movements -
Disposals (6)
At 31 December 2015 143
143
2014
At 1 January 2014 94
Exchange differences 6
Additions 3
Fair value movements -
Disposals (58)
At 31 December 2014 45
45
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 31 December 2015
16. Cash flows
2015 2014
all figures in £ millions note
Reconciliation of profit for the year to net cash generated from operations
Profit for the year 823 470
Income tax (24) 110
Depreciation, amortisation and impairment charges 1,200 401
Net profit on disposals (1,194) (272)
Acquisition costs - 6
Net finance costs 29 93
Share of results of joint ventures and associates (68) (51)
Share-based payment costs 26 32
Net foreign exchange adjustment 22 27
Pre-publication (57) (52)
Inventories 10 6
Trade and other receivables (99) (69)
Trade and other liabilities (80) 72
Retirement benefit obligations (57) (58)
Provisions (13) (11)
Net cash generated from operations 518 704
Dividends from joint ventures and associates 162 120
Net purchase of PPE including finance lease principal payments (85) (70)
Net purchase of intangible assets (160) (105)
Operating cash flow 435 649
Operating tax paid (129) (163)
Net operating finance costs paid (51) (73)
Operating free cash flow 255 413
Non-operating tax paid (103) -
Free cash flow 152 413
Dividends paid (including to non-controlling interests) (423) (398)
Net movement of funds from operations (271) 15
Acquisitions and disposals 1,395 (137)
Purchase of treasury shares (23) (9)
Loans repaid / (advanced) 7 (12)
New equity 11 11
Other movements on financial instruments (1) 15
Net movement of funds 1,118 (117)
Exchange movements on net debt (133) (143)
Total movement in net debt 985 (260)
Opening net debt (1,639) (1,379)
Closing net debt 14 (654) (1,639)
Operating cash flow and free cash flow are non-GAAP measures and have been
disclosed as they are part of Pearson's corporate and operating measures.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 31 December 2015
17. Return on invested capital (ROIC)
2015 2014
all figures in £ millions
Adjusted operating profit 723 722
Less: operating tax paid (129) (163)
Return 594 559
Average: Goodwill 6,419 6,487
Average: Other non-current intangibles 2,296 2,070
Average: Intangible assets - Pre-publication 821 757
Average: Tangible fixed assets and working capital 781 586
Average: Total invested capital 10,317 9,900
ROIC 5.8% 5.6%
5.8%
5.6%
ROIC is a non-GAAP measure and has been disclosed as it is part of Pearson's
key business performance measures. Average values for total invested capital
are calculated as the average monthly balance for the year.
18. Contingencies
There are contingent Group liabilities that arise in the normal course of
business in respect of indemnities, warranties and guarantees in relation to
former subsidiaries and in respect of guarantees in relation to subsidiaries,
joint ventures and associates. In addition there are contingent liabilities of
the Group in respect of legal claims, contract disputes, royalties, copyright
fees, permissions and other rights. None of these claims are expected to
result in a material gain or loss to the Group.
19. Related parties
At 31 December 2015 the Group had loans to Penguin Random House (PRH) of £47m
(2014: £54m) which were unsecured with interest calculated based on market
rates. The loans are provided under a working capital facility and fluctuate
during the year. The loans outstanding at 31 December 2015 were repaid in
their entirety in January 2016. At 31 December 2015, the Group also had a
current asset receivable from PRH of £27m (2014: £41m) arising from the
provision of services. Service fee income from PRH was £16m in 2015 (2014:
£41m).
Apart from transactions with the Group's associates and joint ventures noted
above, there were no other material related party transactions and no
guarantees have been provided to related parties in the year.
20. Events after the balance sheet date
In January 2016, Pearson announced that it was embarking on a restructuring
programme to simplify the business, reduce costs and position the company for
growth in its major markets. The majority of the programme is expected to be
complete by mid-year 2016 and will involve implementation costs in 2016 of
approximately £320m.
This information is provided by RNS
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