Form 6-K PEARSON PLC For: Feb 21
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the
month of February
2020
PEARSON plc
(Exact
name of registrant as specified in its charter)
N/A
(Translation
of registrant's name into English)
80 Strand
London, England WC2R 0RL
44-20-7010-2000
(Address
of principal executive office)
Indicate
by check mark whether the Registrant files or will file annual
reports
under
cover of Form 20-F or Form 40-F:
Form
20-F
X
Form 40-F
Indicate
by check mark whether the Registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934
Yes
No X
Pearson 2019 Preliminary Results (Unaudited)
|
21 February 2020
|
Underlying revenue flat, adjusted operating profit growth achieved,
simplification programme on track, foundations for growth in
place.
|
|
Highlights
|
Underlying revenue flat year on year
● Core
grew 5% and Growth 4%, offset by 3% decline in North
America.
● Growth
of 4% in the businesses excluding US Higher Education Courseware
offset by declines in US Higher Education Courseware of
12%.
Adjusted operating profit up 6%
● Adjusted
operating profit of £581m for 2019 (2018:
£546m).
● Adjusted
earnings per share of 57.8p (2018: 70.3p) reflecting an effective
tax rate charge of 16.5% in 2019 compared to a credit of 5.2% in
2018.
Strong balance sheet
● Closing
net debt at 31 December 2019 of £1,016m (2018: £809m on
post-IFRS 16 basis) resulting in net debt to adjusted EBITDA of
1.3x (post-IFRS 16).
● Operating
cash flow decreased by £95m with a conversion rate of 72%
largely due to timing of disposals, incentive payments and working
capital movements.
● The
Board proposes a final dividend of 13.5p (2018: 13p), an increase
of 4%, which equates to a full year dividend of 19.5p (2018:
18.5p).
Statutory results
● Sales
decreased by 6%, or £260m, in headline terms. This was
primarily due to portfolio changes reducing sales by £347m
partially offset by currency movements increasing revenue by
£97m.
● Statutory
operating profit was £275m (2018: £553m). The decrease is
largely due to the reduced gains on disposals together with
increased intangible and restructuring charges which more than
offset the increase in adjusted operating profit.
● Statutory
EPS of 34.0p (2018: 75.6p) with the decrease due to a lower
statutory operating profit, a lower tax benefit following one-off
benefits in 2018 and higher net interest payable following the
adoption of IFRS 16.
Digital transformation and simplification programme
● Further
progress on Pearson’s digital transformation with revenue
split 36% digital (2018: 34%), 30% digitally-enabled (2018: 28%)
and 34% non-digital (2018: 38%).
● Efficiency
programme delivered incremental cost savings of £130m in 2019.
Annualised savings of £335m at the end of 2019.
Pearson’s simplification programme enables ongoing
efficiencies over time.
● Sale
of remaining 25% stake in Penguin Random House announced on 18th
December 2019. Transaction expected to close in H1
2020.
2020 outlook
● Expect
to deliver 2020 adjusted operating profit of between £410m to
£490m (based on December 2019 exchange rates) after excluding
the 25% stake in Penguin Random House.
● Expect
the businesses excluding US Higher Education Courseware to sustain
low single digit sales growth in aggregate.
● Expect
2019 US Higher Education Courseware trends to continue with heavy
declines in print partially offset by modest growth in digital as
more products are added to the Pearson Learning Platform (PLP),
previously known as the Global Learning Platform.
● PLP
product road map accelerating: 60% of all Revel fall subscriptions
on PLP by the end of the year; over 100 MyLab and Mastering titles
on PLP in 2021; new “Pearson eText” to be launched in
2020 to enhance text and platform offerings. As product releases
accelerate, digital growth is expected to increase.
● Incremental
restructuring benefits of £60m, as the restructuring plan was
delivered in 2019.
● New
reporting structure disclosed on page 6 including a longer term
outlook for growth.
|
|
John Fallon, Chief Executive said:
"With
76% of the company already growing strongly, and all parts of
Pearson profitable, we are a simpler and more efficient
company, completely focused on empowering people to progress
through a lifetime of learning. The future of learning will be
increasingly digital and we have built, by revenue, by far the
world's leading digital learning company. We've also built the
platform by which we can lead the next generation of digital
learning, with an exciting pipeline of new products and services
all built around the things that learners care most about -
experience, outcomes and affordability. As we benefit from further
efficiencies from the investments we have made and deploy our
strong balance sheet, Pearson is now well placed, in time, to grow
in a profitable and sustainable way.”
|
|
Financial
Summary
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|||||||
|
£m
|
2019
|
2018
|
Headline
growth
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CER
growth
|
Underlying
growth
|
|
|
|
Business performance
|
|
|
|
|
|
|
|
|
Sales
|
3,869
|
4,129
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(6)%
|
(9)%
|
0%
|
|
|
|
Adjusted
operating profit
|
581
|
546
|
6%
|
4%
|
6%
|
|
|
|
Operating
cash flow
|
418
|
513
|
|
|
|
|
|
|
Adjusted
earnings per share
|
57.8p
|
70.3p
|
|
|
|
|
|
|
Dividend
per share
|
19.5p
|
18.5p
|
|
|
|
|
|
|
Net
debt
|
(1,016)
|
(143*)
|
|
|
|
|
|
|
Statutory results
|
|
|
|
|
|
|
|
|
Sales
|
3,869
|
4,129
|
|
|
|
|
|
|
Operating
profit
|
275
|
553
|
|
|
|
|
|
|
Profit
for the year
|
266
|
590
|
|
|
|
|
|
|
Cash
generated from operations
|
480
|
547
|
|
|
|
|
|
|
Basic
earnings per share
|
34.0p
|
75.6p
|
|
|
|
|
|
Throughout
this announcement: a) Growth rates are stated on an underlying
basis unless otherwise stated. Underlying growth rates exclude
currency movements, portfolio changes and changes related to the
adoption of IFRS 16. b) The ‘business performance’
measures are non-GAAP measures and reconciliations to the
equivalent statutory heading under IFRS are included in notes to
the attached condensed consolidated financial statements 2, 3, 4,
5, 7, and 17.
*Net
debt pre-IFRS 16
Board Changes
Following
our announcement on the 16th January 2020, we confirm that Coram
Williams will step down as Chief Financial Officer at the Annual
General Meeting on the 24th April 2020 and Sally Johnson, currently
Deputy Chief Financial Officer, will be appointed to the Board as
his successor.
Pearson
announces that Josh Lewis, a Non-Executive Director of Pearson
since 2011, is retiring from the Board at the Annual General
Meeting in April, and will not be seeking re-election.
Pearson’s chairman Sidney Taurel said:
“The
Board joins me in thanking Josh for his commitment and invaluable
contribution to Pearson. He has brought considerable experience and
practical know-how to our Board, particularly in relation to
finance, by way of his background in private equity investment
focused on technology enabled education businesses; and in
education more broadly, where he has for many years been involved
with several pioneering enterprises and is also active in the
non-profit education sector. We wish Josh all the best in his
future endeavours."
Contacts
|
Investor Relations
|
Jo
Russell, Anjali Kotak
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+44
(0) 207 010 2310
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|
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Media
|
Tom
Steiner, Gemma Terry
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+44
(0) 207 010 2310
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|
|
Brunswick
|
Charles
Pretzlik, Nick Cosgrove, Simone Selzer
|
+44
(0) 207 404 5959
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|
Webcast details
|
Pearson’s
results presentation for investors and analysts will be
webcast live today from 0900
(GMT).
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Notes
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||
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 this website (www.pearson.com/corporate/investors.html).
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.
|
Financial Overview
Profit & loss statement. In 2019, sales decreased by
£260m in headline terms to £3,869m (2018: £4,129m)
with portfolio changes reducing sales by £347m and currency
movements increasing revenue by £97m. Stripping out the impact
of portfolio and currency movements, revenue was flat in underlying
terms. Underlying revenue in North America declined 3%, Core was up
5% and Growth was up 4%.
The
2019 adjusted operating profit of £581m (2018: £546m)
reflects a £130m year-on-year benefit from restructuring,
£19m benefit from other operational factors, and a benefit of
£15m from FX, and a £25m benefit from the adoption of
IFRS 16 offset by £37m of portfolio changes, £50m of
inflation and a £67m decrease from trading. Excluding the
impact of FX and portfolio changes, underlying adjusted operating
profit grew 6%.
Net
interest payable was £41m, compared to £24m in 2018. The
increase is due to the adoption of IFRS 16 which resulted in an
additional £34m of net interest payable in 2019. After
excluding the impact of IFRS 16 there was a reduction in net
interest payable due to lower levels of net debt together with
favourable movements in interest on tax and the absence of one-off
costs from the redemption of bonds.
The
effective tax rate on adjusted earnings in 2019 was a charge of
16.5% compared to a credit of 5.2% in 2018. The increase in tax
rate reflects the absence of several one-off benefits in 2018,
including provision releases due to the expiry of relevant statutes
of limitation and the reassessment of historical
positions.
Adjusted
earnings per share of 57.8p (2018: 70.3p) reflects all the elements
above.
Cash generation. Operating cash flow of £418m in 2019
(2018: £513m) with cash conversion at 72% (2018: 94%). This
was impacted by the timing of the disposal of our US K12 courseware
business, a mismatch between cash and accrued incentive
compensation and challenging trading in US Higher Education. These
factors more than offset a modest benefit from the adoption of IFRS
16.
The
equivalent statutory measure, net cash generated from operations,
was £480m in 2019 compared to £547m in 2018 for the same
reasons noted above, as well as higher net restructuring payments
of £111m. 2018 had £25m restructuring cash inflow due to
proceeds from the rationalisation of our property
portfolio.
Statutory results. Our statutory operating profit was
£275m in 2019 compared to a profit of £553m in 2018. The
decrease in 2019 is largely due to the decrease in gains on
disposals together with increased intangible and restructuring
charges which more than offset the increase in adjusted operating
profit.
Capital allocation. Our capital allocation policy is to
maintain a strong balance sheet and a solid investment grade
rating, to continue to invest in the business, to have a
sustainable and progressive dividend policy, and to return surplus
cash to our shareholders. Given the strength of the balance sheet
and, with the simplification of our back office largely complete,
this gives us more scope for inorganic investment.
Balance sheet. Net debt to adjusted EBITDA was 1.3x on a
post-IFRS 16 basis). On a post-IFRS 16 basis net debt rose from
£809m in 2018 to £1,016m in 2019 reflecting lower
operating free cash flow, dividends, additional capital invested in
Penguin Random House, the acquisitions of Smart Sparrow and Lumerit
and outflows from the US K12 courseware.
In
March 2019, the Group repurchased €55m of its remaining
€500m Euro 1.875% notes due May 2021, to leave €195m
outstanding. The Group also refinanced its revolving credit
facility (RCF) in February 2019, extending the maturity to February
2024 and reducing the size to $1.19bn. Borrowings at 31 December
2019 included drawings on the Group’s RCF of £230m
(2018: £nil).
Pension plan. The overall surplus on UK pension plans
of £571m at the end of 2018 has decreased to a surplus of
£429m at the end of 2019. The decrease has arisen principally
due to the unfavourable impact from changes in discount rate
assumptions.
Dividend. In line with our policy, the Board is proposing a
final dividend of 13.5p (2018: 13p), an increase of 4%, which
results in an overall dividend of 19.5p (2018: 18.5p) subject to
shareholder approval. This will be payable on 7th May
2020.
Share buyback. In
January 2020, the Group commenced a £350m share buyback
programme in connection with the announcement in December 2019 of
the sale of its remaining 25% interest in Penguin Random House. We
have completed £79m of the share buyback so far.
Businesses held for sale. In
December 2019, the Group announced the agreement to sell its
remaining 25% interest in Penguin Random House to Bertelsmann,
generating net proceeds of approximately $675m. At the end of
December, our share of the assets of Penguin Random House has been
classified as held for sale on the balance
sheet.
Businesses disposed of. Following the decision to sell the US K12
courseware business, the assets and liabilities of that business
were classified as held for sale on the balance sheet at the end of
2018. In March 2019, the Group completed the sale resulting in a
pre-tax profit on sale of £13m.
|
|
2020 Outlook
In
2019, we delivered flat underlying revenue, achieved adjusted
operating profit growth, made good progress on our simplification
programme and laid the foundations for growth. Our guidance for
2020 is for adjusted operating profit between £410m and
£490m and adjusted earnings per share of 38.0p to 47.0p. This
reflects our portfolio excluding Penguin Random House, exchange
rates as at 31 December 2019 and the following
factors:
Inflation and other operational factors. Our 2020 guidance
incorporates cost inflation of c.£30m which reflects a lower
cost base and the benefits of our simplification drive, other
operational factors of £45m predominantly due to the
reinstatement of staff incentives, as well as continued investment
in our strategic growth areas.
Trading. Trading is expected to impact profit between flat
and £(80)m with the decline in US Higher Education Courseware
offset by growth in the rest of the business.
Restructuring benefits. We expect incremental in-year
benefits from the 2017-2019 restructuring programme of £60m in
2020.
Disposals. We expect an impact of £55m on adjusted
operating profit from portfolio changes including £65m from
the sale of Penguin Random House.
Interest & tax. We expect a 2020 net interest charge of
c.£50m and a tax rate of c.21% excluding Penguin Random
House.
Currency. In 2019, Pearson generated approximately 62%
of its sales in the US, 3% in Greater China, 5% in the Eurozone, 3%
in Brazil, 3% in Canada, 4% in Australia, 2% in South Africa and 2%
in India and our guidance is based on exchange rates at 31 December
2019.
We
calculate that a 5c move in the US Dollar exchange rate to Sterling
would impact adjusted EPS by around 2p to 2.5p.
2020 reporting structure
We
enclose details of our new reporting structure for 2020, which
reflects changes in the way we manage the business. We will report
under the following divisions from Q1 2020. We also provide a more
detailed longer-term outlook.
|
|
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Segment
|
Business units
|
2020 revenue drivers
|
Longer term revenue outlook
|
|
Global Online Learning
|
OPM, Virtual Schools
|
● Growth
driven by enrolments
● Mid-single
digit growth
|
● Mid
to high-single digit
|
|
|
Global Assessment
|
Pearson VUE, US Student Assessment, US Clinical
Assessment
|
● Growth
in Pearson VUE, stabilisation in US Student Assessment
● Low
to mid-single digit growth
|
● Low
to mid-single digit
|
|
|
International
|
English, Core and Growth excluding online learning. Includes UK
Student Assessment & Qualifications
|
● Growth
driven by English, UK Student Assessment & Qualifications
partially offset
by loss of NCT
● Low
to mid-single digit growth
|
● Low
to mid-single digit
|
|
|
North American Courseware
|
US Higher Education Courseware, Canadian Courseware
|
● Similar
trends to 2019 with continued declines in print and modest growth
in digital
|
● Stabilisation,
then growth
|
Operational review – Geography
|
£ millions
|
2019
|
2018
|
Headline
growth
|
CER
growth
|
Underlying
growth
|
|
Sales
|
|
|
|
|
|
|
North
America
|
2,534
|
2,784
|
(9)%
|
(13)%
|
(3)%
|
|
Core
|
838
|
806
|
4%
|
4%
|
5%
|
|
Growth
|
497
|
539
|
(8)%
|
(7)%
|
4%
|
|
Total sales
|
3,869
|
4,129
|
(6)%
|
(9)%
|
0%
|
|
|
|
|
|
|
|
|
Adjusted operating profit
|
|
|
|
|
|
|
North
America
|
361
|
362
|
0%
|
(6)%
|
(3)%
|
|
Core
|
92
|
57
|
61%
|
67%
|
58%
|
|
Growth
|
63
|
59
|
7%
|
7%
|
24%
|
|
Penguin
Random House
|
65
|
68
|
(4)%
|
(1)%
|
(1)%
|
|
Total adjusted operating profit
|
581
|
546
|
6%
|
4%
|
6%
|
See
note 2 in the condensed consolidated financial statements for the
reconciliation to the equivalent statutory measures.
|
North America
|
|
|
Revenue
declined 3% in underlying terms, primarily due to US Higher
Education Courseware declining 12%, and Student Assessment, which
declined slightly. Offsetting that, we saw good growth in Virtual
Schools, Online Program Management (OPM) and Professional
Certification (VUE) revenue. Headline revenue decreased due to
disposals, partly offset by FX gains.
Adjusted
operating profit declined 3% in underlying terms, due to the impact
of lower sales, inflation and other operating factors partially
offset by restructuring savings. Headline profit was flat on last
year, with the impacts on adjusted operating profit offset by the
benefits of FX and IFRS 16 adoption.
|
|
|
Courseware
|
In US
Higher Education Courseware,
a revenue decline of 12% with print declining close to 30% was
partially offset by modest growth in digital. In 2019 the weaker performance was
driven by a number of factors:
● Unbundling of
premium-priced print and digital products for digital only formats.
Sales of bundle units declined 45% during 2019.
● Campus bookstores
buying less physical inventory due to changing student behavior,
with over 50% of learners now preferring an eBook to a physical
text. This trend led to eBook growth of 18% during
2019.
● Modest adoption
share loss caused by the delivery issues due to the implementation
of the new ERP system in H2 2018 as well as the re-organisation of
our sales force.
We are
focused on regaining share over time as we build traction from the rollout of our next
wave of digital products on the Pearson Learning Platform, which
launched in September. 60% of all Revel fall
subscriptions will migrate onto the PLP by the end of the year
enhancing the faculty and student experience.
We are
also launching a direct-to-learner version of the Pearson eBook in
2020, with enhanced features.
US
Higher Education Courseware digital registrations, including
eBooks, declined 2%. Good registration growth in Revel, up 9%, was
offset by continued market pressure in Developmental Mathematics
and the planned retirement and deprioritisation of long-tail
products.
We
continue to make good progress with Inclusive Access signing 162
new institutions in 2019, taking the total not-for-profit and
public institutions served to 779. Including 80 longer-standing
contracts with for-profit colleges, we now have direct
relationships with over 850 institutions.
In
2019, we served 1.8m Inclusive Access enrolments up from 1.4m in
2018, making up 9% of 2019 US Higher Education Courseware revenue,
up 19% on 2018 on a like-for-like basis, excluding the 80
for-profit colleges.
|
|
Assessment
|
In
Student Assessment,
underlying revenue declined slightly in 2019 with continued
contraction in revenue associated with PARCC and ACT-Aspire
multi-state contracts and contract losses which were partially
offset by new contract wins.
During
2019, Pearson won new contracts or signed renewals in several key
incumbent states including Kentucky, Maryland, Colorado and New
Jersey, as well as the federal NCES contract for delivering the
National Assessment of Educational Progress (NAEP). Pearson also
won back the testing contract in the state of
Tennessee.
Automated
scoring continues to be a competitive strength for Pearson. In
2019, we scored 39m responses with AI, up 8% from
2018.
In
Professional Certification
(VUE), global test volume rose 8% to c.16.5m. Revenue in
North America was up a high single-digit percentage, mostly driven
by the IT sector with increased demand for cloud technology
certifications through Microsoft and Amazon, and volume growth in
an education contract launched at the end of 2018 which is now
operating at its full run-rate.
We
signed over 40 new contracts in 2019, including the Project
Management Institute (PMI) and our renewal rate on existing
contracts continues to be over 95%.
Clinical Assessment underlying revenue declined as demand
for new product only partially offset normal declines in products
in the later stages of their lifecycle.
|
|
Services
|
School Services (Virtual Schools) grew revenue 6% and served
76,000 Full Time Equivalent (FTE) students through 42 continuing
full-time virtual partner schools in 28 states, up 5% on last
year.
Six new full-time online, state-wide partner schools opened in the
2019-20 school year in the states of Oregon, Washington, Tennessee,
Minnesota and California, while a contract was exited in North
Carolina.
Higher Education Services (including OPM and Learning
Studio) grew revenue 4%, due to growth in OPM, partially offset by
a small drag from Learning Studio revenue, a learning management
system, which was fully retired in 2019.
In
OPM, revenue grew 9%, with
growth in course registrations of 5% and new programs launched more
than offsetting programs terminated. Our overall active program
count grew to 347 from 325 in 2018.
During
2019, we continued to optimise our portfolio and reduce the number
of partners to 25 from 35. This will allow us to shift towards
enterprise models where we have a number of programs with a single
partner and can benefit from economies of scale in marketing and
recruitment. We are also working to integrate more content and
assessment services into our partnerships.
|
|
Core
|
|
|
Revenue
was up 5% in underlying terms and 4% in headline terms with growth
in Student Assessment and Qualifications including the delivery of a new digital
assessment contract in Egypt, Pearson Test of English
Academic (PTE Academic), OPM and Professional Certification (VUE)
all partially offset by declines in Courseware.
Adjusted
operating profit increased 58% in underlying terms and 61% in
headline terms due to trading growth and restructuring
savings.
|
|
|
Courseware
|
Courseware
revenue declined moderately. Declines in School Courseware in the UK and
Australia offset growth in Italy. In Higher Education Courseware, revenue
declines in the UK and Europe more than offset growth in
Australia.
|
|
Assessment
|
In
Student Assessment and
Qualifications, revenue grew strongly, due to price and
volume increases for A levels and GCSEs and the delivery of a new
digital assessment contract in Egypt. This was partially offset by
continued market declines in Apprenticeships.
We
successfully delivered the National Curriculum Test (NCT) for 2019,
marking 3.8m scripts, up slightly from 2018. The NCT will be
delivered by another provider in 2020.
In
Professional Certification
(VUE), revenue was up due to good growth in the DVSA test in
the UK, additional exam series added to the ICAEW contract and good
growth in the MOI (French driving test) which launched in late
2017.
Clinical Assessment sales declined primarily in France and
the Netherlands due to an absence of new major product
introductions.
PTE Academic saw continued strong growth in test volumes in
Australia and New Zealand up 14% from 2018. This was driven by its
use to support visa applications to the Australian Department of
Home Affairs as well as good growth in New Zealand. We recently
announced the win of the UK Secure English Language Test (SELT)
contract with the UK Home Office which we expect to drive future
growth.
|
|
Services
|
In
Higher Education Services
(OPM), revenue growth was driven by course enrolment growth
in the UK. During the year, we also announced new OPM partnerships
in Australia with the University of Adelaide and University of
Wollongong.
|
|
Growth
|
|
|
Revenue
grew 4% in underlying terms due to strong growth in China and good
growth in Brazil and the Middle East, partially offset by declines
in South Africa. Headline revenue declined due to
disposals.
Adjusted
operating profit increased 24% in underlying terms, reflecting
higher revenue together with the benefits of restructuring. In
headline terms, adjusted operating profit increased 7% with the
impact of disposals more than offset by trading and restructuring
savings.
|
|
|
Courseware
|
Courseware
revenue was flat in underlying terms, with growth in English Language Courseware in China and
School Courseware in the
Middle East and Hispano America, offset by declines in Higher Education Courseware in South
Africa following a change in government funding.
|
|
Assessment
|
Professional Certification revenue grew well due to a
large ICT
infrastructure certification contract, and a number of new smaller
contract launches in China.
PTE Academic saw strong growth in revenue with test volumes
up 25% in India and China.
|
|
Services
|
In
English Services, underlying revenue grew
slightly in our English Language School franchise in Brazil due to
new product launches.
In
School Services, underlying
revenue grew slightly due to price increases and new product
launches in our sistemas in Brazil.
In
Higher Education Services,
enrolments grew 3% at the Pearson Institute of Higher Education
(formerly CTI), however revenue declined modestly due to changes in
mix.
|
|
Penguin
Random House
|
|
|
Pearson
owns 25% of Penguin Random
House, the first truly global consumer book publishing
company.
Penguin Random House performed solidly with underlying
revenue growth from a rise in audio sales, stable print sales, and
the industry’s top bestsellers, including Where the Crawdads Sing by Delia Owen,
Becoming by Michelle Obama,
and bestselling books by Margaret Atwood, Tara Westover, Lee Child,
Jamie Oliver, Jeff Kinney, and Dr. Seuss.
|
|
Financial Review
Operating
result
Sales
decreased on a headline basis by £260m or 6% from £4,129m
in 2018 to £3,869m in 2019 and adjusted operating profit
increased by £35m or 6% from £546m in 2018 to £581m
in 2019 (for a reconciliation of this measure see note 2 to the
condensed consolidated financial statements).
The
headline basis simply compares the reported results for 2019 with
those for 2018. We also present sales and profits on an underlying
basis which exclude 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. Our portfolio change is calculated by
taking account of the contribution from acquisitions and by
excluding sales and profits made by businesses disposed in either
2018 or 2019. Portfolio changes mainly relate to the sale of our US
K12 school courseware business in 2019 and the sale of our Wall
Street English language teaching business in the first half of
2018. Acquisition contribution was not significant in either 2018
or 2019.
In
2019, our underlying basis excludes the impact on adjusted
operating profit of IFRS 16 ‘Leases’. This new standard
was adopted on 1 January 2019 but the comparative figures for 2018
have not been restated. The impact in 2019 was to increase adjusted
operating profit by £25m (see also note 1b to the condensed
consolidated financial statements).
On an
underlying basis, sales were flat in 2019 compared to 2018 and
adjusted operating profit increased by 6%. Currency movements
increased sales by £97m and adjusted operating profit by
£15m. Portfolio changes decreased sales by £347m and
together with the impact of IFRS 16 (as noted above) decreased
adjusted operating profit by £12m.
Adjusted operating
profit includes the results from discontinued operations when
relevant but excludes intangible charges for amortisation and
impairment, acquisition related costs, gains and losses arising
from acquisitions and disposals and the cost of major
restructuring. In 2018, we also excluded the impact of adjustments
arising from clarification of guaranteed minimum pension (GMP)
equalisation legislation in the UK which impacted the
post-retirement benefit charge in 2018 but does not recur in 2019.
A summary of these adjustments is included below and in more detail
in note 2 to the condensed consolidated financial
statements.
|
|
|
|
|
|
all figures in £ millions
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
275
|
553
|
|
Add
back: Cost of major restructuring
|
|
159
|
102
|
|
Add
back: Intangible charges
|
|
163
|
113
|
|
Add
back: Other net gains and losses
|
|
(16)
|
(230)
|
|
Add
back: UK pension GMP equalisation
|
|
-
|
8
|
|
Adjusted
operating profit
|
|
581
|
546
|
In May
2017, we announced a restructuring programme, to run between 2017
and 2019, to drive significant cost savings. This programme began
in the second half of 2017 and costs incurred relate to delivery of
cost efficiencies in our enabling functions and US higher education
courseware business together with further rationalisation of the
property and supplier portfolio. The restructuring costs in 2019
relate predominantly to staff redundancies whilst the restructuring
costs in 2018 relate predominantly to staff redundancies and the
net cost of property rationalisation including the net impact of
the consolidation of our property footprint in London.
Intangible amortisation charges in 2019 were
£163m compared to a charge of £113m in 2018, as although
acquisition activity has reduced in recent years, there was an
additional £65m impairment charge in 2019 relating to acquired
intangibles in the Brazil business following a reassessment of the
relative risk in that market. Other net gains included in operating
profit of £16m in 2019 mainly relate to the profit on sale of
the K12 business. Other net gains of £230m in 2018 relate to
the sale of the Wall Street English language teaching business
(WSE), a gain of £207m, the disposal of our equity interest
in UTEL, the online University partnership in Mexico, a gain
of £19m, and various other smaller disposal
items.
The
statutory operating profit of £275m in 2019 compares to a
profit of £553m in 2018. The decrease in 2019 is largely due
to the decrease in gains on disposal, together with increased
intangible and restructuring charges which offset the increase in
adjusted operating profit.
Net finance costs
Net
interest payable in 2019 was £41m, compared to £24m in
2018. The increase is due to the adoption of IFRS 16 which resulted
in an additional £34m of net interest payable in 2019. After
excluding the impact of IFRS 16 there was a reduction in net
interest payable due to lower levels of average net debt together
with favourable movements in interest on tax and the absence of
one-off costs relating to the redemption of bonds.
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 statutory definition of net
finance costs (but not in our adjusted measure) are interest costs
relating to acquisition consideration, foreign exchange and other
gains and losses on derivatives. Interest relating to acquisition
consideration is excluded from adjusted earnings as it is
considered to be part of the acquisition cost rather than being
reflective of the underlying financing costs of the Group. Foreign
exchange 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 (for more information
see note 3 to the condensed consolidated financial
statements).
In
2019, the total of these items excluded from adjusted earnings was
a charge of £2m compared to a charge of £31m in 2018.
Finance income relating to retirement benefits increased from
£11m in 2018 to £13m in 2019 reflecting the comparative
funding position of the plans at the beginning of each year. The
remainder of the decrease was largely driven by a reduction in
foreign exchange losses on unhedged cash and cash equivalents in
2019 compared to 2018. For a reconciliation of the adjusted measure
see note 3 to the condensed consolidated financial
statements.
Taxation
The
effective tax rate on adjusted earnings in 2019 was a charge of
16.5% compared to an effective rate credit of 5.2% in 2018.
The increase is mainly due to the absence of several one-off
benefits present in 2018 including the release of provisions due to
the expiry of relevant statutes of limitation, the reassessment of
historical positions as well as a one-off benefit from a
reassessment of the tax treatment of certain items of income and
expenses.
The
reported tax charge on a statutory basis in 2019 was a credit of
£34m (14.7%) compared to a credit of £92m (18.5%) in
2018. The statutory tax credit in 2019 was primarily due to US tax
losses generated on the disposal of the US K12
business.
Operating
tax paid in 2019 was £9m. This was impacted by
a refund received in the US relating to historical periods together
with no US tax being paid in relation to 2019 as a result of the
tax loss on the sale of our US K12 business. Non-operating tax
paid of £21m in 2019 relates to tax paid to the Chinese tax
authorities following the disposal of WSE during 2018 and New York
state and city taxes paid in the US as a result of a settlement
with the tax authorities relating to past disposals. Deferred
tax liabilities reduced from £136m in 2018 to £48m in
2019 mainly due to the generation of tax losses in the US as noted
above. Deferred tax assets and current tax liabilities remained
relatively consistent year on year. There are contingent
liabilities in relation to tax as outlined in note 18 to the
condensed consolidated financial statements.
The
Group adopted IFRIC 23 ‘Uncertainty over Income Tax
Treatments’ on 1 January 2019 resulting in a reduction of
£5m in provisions for uncertain tax positions. The cumulative
effect of applying this adjustment has been applied to retained
earnings at 1 January 2019 (see also note 1c to the condensed
consolidated financial statements). The impact of adopting IFRIC 23
on the income statement for 2019 was not material.
Other
comprehensive income
Included in other
comprehensive income are the net exchange differences on
translation of foreign operations. The loss on translation of
£115m in 2019 compares to a gain in 2018 of £90m. The
loss in 2019 mainly arises from the weakness of the US dollar
compared to sterling. A significant proportion of the Group’s
operations are based in the US and the US dollar weakened in 2019
from an opening rate of £1:$1.27 to a closing rate at the end
of 2019 of £1:$1.32. At the end of 2018 the US dollar had
strengthened from an opening rate of £1:$1.35 to a closing
rate of £1:$1.27 and this movement was the main reason for the
gain in 2018.
Also
included in other comprehensive income in 2019 is an actuarial loss
of £149m in relation to retirement benefit obligations of the
Group and our share of the retirement benefit obligations of PRH.
The loss arises from the unfavourable impact of changes in the
assumptions used to value the liabilities in the plans and in
particular movements in the discount rate. The value of assets was
also impacted following the UK plan’s purchase of insurance
buy-in policies in the first half of 2019. The loss in 2019
compares to an actuarial gain in 2018 of £25m.
Cash
flows
Our
operating cash flow measure is used to align cash flows with our
adjusted profit measures (see note 17 to the condensed consolidated
financial statements). Operating cash outflow decreased on a
headline basis by £95m from £513m in 2018 to £418m
in 2019. The decrease results from increased investment in
pre-publication and other increases in net working capital
including the impact of reduced staff incentives and the absence of
a contribution from the K12 business following its disposal in the
first half of the year. These factors more than offset a positive
impact from the adoption of IFRS 16.
The
equivalent statutory measure, net cash used in operations, was
£480m in 2019 compared to £547m in 2018. Compared to
operating cash flow, this measure includes restructuring costs but
does not include regular dividends from associates or capital
expenditure on property, plant, equipment and software.
Restructuring cash flow inflow of £25m in 2018 included
proceeds from the sale of property primarily associated with the
rationalisation of the property footprint in London and in 2019
restructuring cash outflow was £111m. The restructuring
payments made in 2019 together with the impact of the adoption of
IFRS 16 (see section below) largely explain the reduction in
provisions and other liabilities on the balance sheet when
comparing 2019 and 2018. The adoption of IFRS 16 has resulted in a
change in the classification of lease related cash flows in the
cash flow statement although there is no impact on the total
movement in cash and cash equivalents.
The
Group’s net debt increased from £143m at the end of 2018
to £1,016m at the end of 2019. The adoption of IFRS 16 added
£666m of debt on transition with the remainder of the increase
principally due to treasury share purchases, additional capital
invested in PRH and outflows from the K12 disposal transaction
which outweighed the normal cash inflow from operations after
taking account of interest, tax and dividend payments.
Post-retirement
benefits
Pearson
operates a variety of pension and post-retirement plans. Our UK
Group pension plan has by far the largest defined benefit section.
We have some smaller defined benefit sections in the US and Canada
but, outside the UK, most of our companies operate defined
contribution plans.
The
charge to profit in respect of worldwide pensions and retirement
benefits amounted to £56m in 2019 (2018: £56m) of which a
charge of £69m (2018: £67m) was reported in adjusted
operating profit and income of £13m (2018: £11m) was
reported against other net finance costs. The small increase in the
operating charge in 2019 is largely explained by the absence of
material past service items which in 2018 included a credit of
£11m relating to changes in the US post-retirement medical
plan and a charge of £8m relating to guaranteed minimum
pension (GMP) equalisation.
The
overall surplus on UK Group pension plans of £571m at the end
of 2018 has decreased to a surplus of £429m at the end of
2019. The decrease has arisen principally due to the actuarial loss
noted above in the other comprehensive income section. In total,
our worldwide net position in respect of pensions and other
post-retirement benefits decreased from a net asset of £471m
at the end of 2018 to a net asset of £337m at the end of
2019.
Adoption of new accounting standards and interpretations in
2019
The
adoption of IFRS 16 ‘Leases’ has impacted both the
income statement as described above and has had an impact on
certain lines in the balance sheet. The lease liability (classified
as financial liabilities - borrowings) brought onto the balance
sheet at transition was £881m with the corresponding
right-of-use asset (classified within property, plant and
equipment) valued at £424m. In addition, certain
subleases have been reclassified as finance leases resulting in an
additional lease receivable (classified as other receivables) of
£215m being brought on balance sheet. The net
impact on the balance sheet is a reduction of net assets of
£83m after taking into account existing liabilities relating
to onerous lease
provisions (reducing
provisions for other liabilities and charges by £101m), lease
incentives, prepayments, adjustments to tax and the net impact on
associates. The full impact of the adoption of this standard is
outlined in note 1b to the condensed consolidated financial
statements.
The
impact of adopting IFRIC 23 ‘Uncertainty over Income Tax
Treatments’ had a small impact on the current tax balance but
has not materially impacted the income statement (see note 1c to
the condensed consolidated financial statements).
Dividends
The
dividend accounted for in our 2019 financial statements totalling
£147m represents the final dividend in respect of 2018 (13.0p)
and the interim dividend for 2019 (6.0p). We are proposing a final
dividend for 2019 of 13.5p bringing the total paid and payable in
respect of 2019 to 19.5p. This final 2019 dividend which was
approved by the Board in February 2020, is subject to approval at
the forthcoming AGM and will be charged against 2020 profits. For
2019, the dividend is covered 3.0 times by adjusted
earnings.
Businesses
held for sale and businesses disposed
Following the
decision to sell the K12 school courseware business in the US, the
assets and liabilities of that business were classified as held for
sale on the balance sheet at the end of 2018. In March 2019, the
Group completed the sale of its K12 business resulting in a pre-tax
profit on sale of £13m. Total gross proceeds were £200m
including £180m of deferred proceeds which include the fair
value of an unconditional vendor note for $225m and an entitlement
to 20% of future cash flows to equity holders and 20% of net
proceeds in the event of a subsequent sale.
The
cash outflow in the year relating to the disposal of subsidiaries
was £101m mainly reflecting the deferral of proceeds for K12
and the level of working capital held in this business at the
disposal date.
Tax on
the disposal of K12 is estimated to be a benefit of £51m. The
benefit arises as the transaction gives rise to a loss for tax
purposes mainly due to the differing treatment of deferred revenue
disposed in the tax computation. In addition to the tax on K12
there were £17m of tax credits relating to adjustments
following settlement of tax relating to prior year
disposals.
Further
details relating to this transaction can be found in notes 10, 14
and 16 to the condensed consolidated financial
statements.
In December 2019, the Group
announced the sale of its remaining 25% interest in PRH. At the end
of December our share of the assets of PRH has been classified as
held for sale on the balance sheet.
CONDENSED
CONSOLIDATED INCOME STATEMENT
for
the year ended 31 December 2019
|
|
|
|
|
|
all figures in £ millions
|
note
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
|
|
|
Sales
|
2
|
3,869
|
4,129
|
|
Cost of
goods sold
|
|
(1,858)
|
(1,943)
|
|
Gross
profit
|
|
2,011
|
2,186
|
|
|
|
|
|
|
Operating
expenses
|
|
(1,806)
|
(1,907)
|
|
Other
net gains and losses
|
2
|
16
|
230
|
|
Share
of results of joint ventures and associates
|
|
54
|
44
|
|
Operating
profit
|
2
|
275
|
553
|
|
|
|
|
|
|
Finance
costs
|
3
|
(84)
|
(91)
|
|
Finance
income
|
3
|
41
|
36
|
|
Profit
before tax
|
4
|
232
|
498
|
|
Income
tax
|
5
|
34
|
92
|
|
Profit
for the year
|
|
266
|
590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
Equity
holders of the company
|
|
264
|
588
|
|
Non-controlling
interest
|
|
2
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (in pence per
share)
|
|
|
|
|
Basic
|
6
|
34.0p
|
75.6p
|
|
Diluted
|
6
|
34.0p
|
75.5p
|
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 year ended 31 December 2019
|
|
|
|
|
|
all figures in £ millions
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
266
|
590
|
|
|
|
|
|
|
Items
that may be reclassified to the income statement
|
|
|
|
|
Net
exchange differences on translation of foreign operations –
Group
|
|
(113)
|
91
|
|
Net
exchange differences on translation of foreign operations –
associates
|
(2)
|
(1)
|
|
|
Currency
translation adjustment on disposals
|
|
4
|
(4)
|
|
Attributable
tax
|
|
5
|
(4)
|
|
|
|
|
|
|
Items
that are not reclassified to the income statement
|
|
|
|
|
Fair
value gain on other financial assets
|
|
20
|
8
|
|
Attributable
tax
|
|
(4)
|
-
|
|
|
|
|
|
|
Remeasurement of
retirement benefit obligations – Group
|
|
(145)
|
22
|
|
Remeasurement of
retirement benefit obligations – associates
|
|
(4)
|
3
|
|
Attributable
tax
|
|
22
|
9
|
|
Other
comprehensive (expense) / income for the year
|
|
(217)
|
124
|
|
|
|
|
|
|
Total
comprehensive income for the year
|
|
49
|
714
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
Equity
holders of the company
|
|
47
|
712
|
|
Non-controlling
interest
|
|
2
|
2
|
CONDENSED
CONSOLIDATED BALANCE SHEET
as
at 31 December 2019
|
|
|
|
|
|
all figures in £ millions
|
note
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
618
|
237
|
|
Intangible
assets
|
11
|
2,900
|
3,009
|
|
Investments in
joint ventures and associates
|
|
7
|
392
|
|
Deferred income tax
assets
|
|
59
|
60
|
|
Financial assets
– derivative financial instruments
|
|
29
|
67
|
|
Retirement benefit
assets
|
|
429
|
571
|
|
Other financial
assets
|
|
122
|
93
|
|
Trade and other
receivables
|
|
313
|
100
|
|
Non-current
assets
|
|
4,477
|
4,529
|
|
|
|
|
|
|
Intangible assets
– pre-publication
|
|
870
|
817
|
|
Inventories
|
|
169
|
164
|
|
Trade and other
receivables
|
|
1,275
|
1,178
|
|
Financial assets
– derivative financial instruments
|
|
25
|
1
|
|
Cash and cash
equivalents (excluding overdrafts)
|
|
437
|
568
|
|
Current
assets
|
|
2,776
|
2,728
|
|
|
|
|
|
|
Assets classified
as held for sale
|
10
|
397
|
648
|
|
Total
assets
|
|
7,650
|
7,905
|
|
|
|
|
|
|
Financial
liabilities – borrowings
|
|
(1,572)
|
(674)
|
|
Financial
liabilities – derivative financial instruments
|
|
(24)
|
(36)
|
|
Deferred income tax
liabilities
|
|
(48)
|
(136)
|
|
Retirement benefit
obligations
|
|
(92)
|
(100)
|
|
Provisions for
other liabilities and charges
|
|
(13)
|
(145)
|
|
Other
liabilities
|
12
|
(86)
|
(155)
|
|
Non-current
liabilities
|
|
(1,835)
|
(1,246)
|
|
|
|
|
|
|
Trade and other
liabilities
|
12
|
(1,278)
|
(1,400)
|
|
Financial
liabilities – borrowings
|
|
(92)
|
(46)
|
|
Financial
liabilities – derivative financial instruments
|
|
(15)
|
(23)
|
|
Current income tax
liabilities
|
|
(55)
|
(72)
|
|
Provisions for
other liabilities and charges
|
|
(52)
|
(20)
|
|
Current
liabilities
|
|
(1,492)
|
(1,561)
|
|
|
|
|
|
|
Liabilities
classified as held for sale
|
10
|
-
|
(573)
|
|
Total
liabilities
|
|
(3,327)
|
(3,380)
|
|
|
|
|
|
|
Net
assets
|
|
4,323
|
4,525
|
|
|
|
|
|
|
Share
capital
|
|
195
|
195
|
|
Share
premium
|
|
2,614
|
2,607
|
|
Treasury
shares
|
|
(24)
|
(33)
|
|
Reserves
|
|
1,528
|
1,747
|
|
Total equity
attributable to equity holders of the company
|
|
4,313
|
4,516
|
|
Non-controlling
interest
|
|
10
|
9
|
|
Total
equity
|
|
4,323
|
4,525
|
The
condensed consolidated financial statements were approved by the
Board on 20 February 2020.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for
the year ended 31 December 2019
|
|
|
|
|
|||||||
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
||||||||||
|
At
1 January 2019
|
195
|
2,607
|
(33)
|
11
|
19
|
678
|
1,039
|
4,516
|
9
|
4,525
|
|
Adjustment on
initial application of IFRS 16 net of tax (see note
1b)
|
-
|
-
|
-
|
-
|
-
|
-
|
(83)
|
(83)
|
-
|
(83)
|
|
Adjustment on
initial application of IFRIC 23 (see note 1c)
|
-
|
-
|
-
|
-
|
-
|
-
|
5
|
5
|
-
|
5
|
|
At
1 January 2019 (restated)
|
195
|
2,607
|
(33)
|
11
|
19
|
678
|
961
|
4,438
|
9
|
4,447
|
|
Profit
for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
264
|
264
|
2
|
266
|
|
Other
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
20
|
(111)
|
(126)
|
(217)
|
-
|
(217)
|
|
Total
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
20
|
(111)
|
138
|
47
|
2
|
49
|
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
25
|
25
|
-
|
25
|
|
Tax on
equity settled transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
(5)
|
(5)
|
-
|
(5)
|
|
Issue
of ordinary shares under share option schemes
|
-
|
7
|
-
|
-
|
-
|
-
|
-
|
7
|
-
|
7
|
|
Buyback
of equity
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Purchase of
treasury shares
|
-
|
-
|
(52)
|
-
|
-
|
-
|
-
|
(52)
|
-
|
(52)
|
|
Release
of treasury shares
|
-
|
-
|
61
|
-
|
-
|
-
|
(61)
|
-
|
-
|
-
|
|
Transfer of gain on
disposal of FVOCI investment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(147)
|
(147)
|
(1)
|
(148)
|
|
At
31 December 2019
|
195
|
2,614
|
(24)
|
11
|
39
|
567
|
911
|
4,313
|
10
|
4,323
|
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for
the year ended 31 December 2019
|
|
|
|
|
|||||||
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
||||||||||
|
At 1
January 2018
|
200
|
2,602
|
(61)
|
5
|
13
|
592
|
544
|
3,895
|
8
|
3,903
|
|
Profit
for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
588
|
588
|
2
|
590
|
|
Other
comprehensive income
|
-
|
-
|
-
|
-
|
8
|
86
|
30
|
124
|
-
|
124
|
|
Total
comprehensive income
|
-
|
-
|
-
|
-
|
8
|
86
|
618
|
712
|
2
|
714
|
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
37
|
37
|
-
|
37
|
|
Tax on
equity settled transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
4
|
4
|
-
|
4
|
|
Issue
of ordinary shares under share option schemes
|
1
|
5
|
-
|
-
|
-
|
-
|
-
|
6
|
-
|
6
|
|
Buyback
of equity
|
(6)
|
-
|
-
|
6
|
-
|
-
|
(2)
|
(2)
|
-
|
(2)
|
|
Purchase of
treasury shares
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Release
of treasury shares
|
-
|
-
|
28
|
-
|
-
|
-
|
(28)
|
-
|
-
|
-
|
|
Transfer of gain on
disposal of FVOCI investment
|
-
|
-
|
-
|
-
|
(2)
|
-
|
2
|
-
|
-
|
-
|
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(136)
|
(136)
|
(1)
|
(137)
|
|
At 31
December 2018
|
195
|
2,607
|
(33)
|
11
|
19
|
678
|
1,039
|
4,516
|
9
|
4,525
|
CONDENSED
CONSOLIDATED CASH FLOW STATEMENT
for
the year ended 31 December 2019
|
|
|
|
|
|
all figures in £ millions
|
note
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
Net
cash generated from operations
|
17
|
480
|
547
|
|
Interest
paid
|
|
(81)
|
(42)
|
|
Tax
paid
|
|
(30)
|
(43)
|
|
Net
cash generated from operating activities
|
|
369
|
462
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
Acquisition of
subsidiaries, net of cash acquired
|
13
|
(45)
|
(5)
|
|
Additional capital
invested in associates
|
13
|
(40)
|
-
|
|
Purchase of
investments
|
|
(12)
|
(10)
|
|
Purchase of
property, plant and equipment
|
|
(55)
|
(70)
|
|
Purchase of
intangible assets
|
|
(138)
|
(130)
|
|
Disposal of
subsidiaries, net of cash disposed
|
14
|
(101)
|
83
|
|
Proceeds from sale
of joint ventures and associates
|
|
-
|
18
|
|
Proceeds from sale
of investments
|
|
5
|
6
|
|
Proceeds from sale
of property, plant and equipment
|
|
1
|
128
|
|
Proceeds from sale
of liquid resources
|
|
-
|
10
|
|
Lease
receivables repaid
|
|
26
|
-
|
|
Loans
(advanced to) / repaid by related parties
|
|
(49)
|
46
|
|
Investment in
liquid resources
|
|
-
|
(2)
|
|
Interest
received
|
|
17
|
20
|
|
Investment
income
|
|
2
|
-
|
|
Dividends received
from joint ventures and associates
|
|
64
|
117
|
|
Net
cash (used in) / generated from investing activities
|
|
(325)
|
211
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
Proceeds from issue
of ordinary shares
|
|
7
|
6
|
|
Buyback
of equity
|
|
-
|
(153)
|
|
Purchase of
treasury shares
|
|
(52)
|
-
|
|
Proceeds from
borrowings
|
|
230
|
-
|
|
Repayment of
borrowings
|
|
(48)
|
(441)
|
|
Repayment of lease
liabilities
|
|
(91)
|
(4)
|
|
Dividends paid to
company’s shareholders
|
|
(147)
|
(136)
|
|
Dividends paid to
non-controlling interest
|
|
(1)
|
(1)
|
|
Net
cash used in financing activities
|
|
(102)
|
(729)
|
|
|
|
|
|
|
Effects
of exchange rate changes on cash and cash equivalents
|
|
(33)
|
(49)
|
|
Net
decrease in cash and cash equivalents
|
|
(91)
|
(105)
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
525
|
630
|
|
Cash
and cash equivalents at end of year
|
|
434
|
525
|
For the
purposes of the cash flow statement, cash and cash equivalents are
presented net of overdrafts 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 year ended 31 December 2019
1a. Basis of preparation
The
condensed consolidated financial statements have been prepared in
accordance with the Disclosure and Transparency Rules of the
Financial Conduct Authority and in accordance with International
Financial Reporting Standards (IFRS) and IFRS Interpretations
Committee interpretations as adopted by the European Union (EU). In
respect of accounting standards applicable to the Group, there is
no difference between EU-adopted IFRS and International Accounting
Standards Board (IASB)-adopted IFRS.
The
condensed consolidated financial statements have also been prepared
in accordance with the accounting policies set out in the 2018
Annual Report, except as outlined in notes 1b, 1c and 1d below, 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.
The
2018 Annual Report refers to new standards that the Group will
adopt in future years but that are not yet effective in 2019. The
Group does not expect these to have a material impact.
The
Group's forecasts and projections, taking account of reasonably
possible changes in trading performance, seasonal working capital
requirements and potential acquisition activity, show that the
Group should be able to operate within the level of its current
committed borrowing facilities. The directors have confirmed
that they have a reasonable expectation that the Group has adequate
resources to continue in operational existence. 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 2018
Annual Report. In 2019, both the IFRS 16 transition and the
valuation of receivables relating to the sale of the K12 business
require the use of assumptions and estimates as set out in notes 1b
and 16 respectively to the condensed consolidated financial
statements.
The
financial information for the year ended 31 December 2018 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 2018 was unqualified and did not contain an
emphasis of matter paragraph or any statement under section 498 of
the Companies Act 2006.
This
preliminary announcement does not constitute the Group’s full
financial statements for the year ended 31 December 2019. The
Group’s full financial statements will be approved by the
Board of Directors and reported on by the auditors in March 2020.
Accordingly, the financial information for 2019 is presented
unaudited in the preliminary announcement.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
1b. Change of accounting policy: IFRS 16
The
Group has adopted IFRS 16 ’Leases’ at 1 January 2019
and applied the modified retrospective approach. Comparatives for
2018 have not been restated and the cumulative impact of adoption
has been recognised as a decrease to net assets with a
corresponding decrease in retained earnings at 1 January 2019 as
follows:
|
|
|
|
|
|
all figures in £ millions
|
|
|
2019
|
|
|
|
|
1
January
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
Property, plant and
equipment (right-of-use assets)
|
|
|
424
|
|
Investment in joint
ventures and associates
|
|
|
(2)
|
|
Deferred income tax
assets
|
|
|
1
|
|
Trade
and other receivables
|
|
|
185
|
|
Current
assets
|
|
|
|
|
Trade
and other receivables
|
|
|
7
|
|
Non-current
liabilities
|
|
|
|
|
Financial
liabilities – borrowings
|
|
|
(792)
|
|
Deferred income tax
liabilities
|
|
|
14
|
|
Provisions for
other liabilities and charges
|
|
|
101
|
|
Other
liabilities
|
|
|
58
|
|
Current
liabilities
|
|
|
|
|
Financial
liabilities – borrowings
|
|
|
(89)
|
|
Trade
and other liabilities
|
|
|
10
|
|
Total
decrease in retained earnings at 1 January 2019
|
|
|
(83)
|
The
Group’s lease portfolio consists of approximately 750
property leases together with a number of vehicle and equipment
leases. The lease liability has been measured at the present value
of the remaining lease payments, discounted using the incremental
borrowing rate at transition. The right-of-use asset has been
measured at the carrying amount as if the standard had been applied
since the commencement of the lease, discounted using the
incremental borrowing rate at transition. Where data was not
available to enable this measurement to be made, the right-of-use
asset has been measured at an amount equal to the lease
liability.
On
transition the Group elected not to reassess whether a contract is,
or contains, a lease, instead relying on the assessment already
made applying IAS 17 ‘Leases’ and IFRIC 4
‘Determining whether an Arrangement contains a Lease’.
In addition, the Group applied the available practical expedients
as follows:
●
Relied on its
assessment of whether leases are onerous immediately prior to the
date of initial application.
●
Applied the
short-term leases exemptions to leases with a lease term ending
within 12 months at the date of the initial
application.
●
Excluded the
initial direct costs from the measurement of the right-of-use asset
at the date of initial application.
●
Used hindsight in
determining the lease term where the contract contains options to
extend or terminate the lease.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
1b. Change of accounting policy: IFRS 16 continued
Adoption
of the new standard has a material impact on the Group. The
lease liability brought onto the balance sheet at transition was
£881m with the corresponding right-of-use asset valued at
£424m. In addition, certain subleases have been
reclassified as finance leases resulting in an additional
lease
receivable
of £215m being brought on balance sheet. The net
impact on the balance sheet is a reduction of net assets of
£83m after taking into account existing liabilities relating
to onerous lease provisions, lease incentives, prepayments,
adjustments to tax and the net impact on associates. There
were no leases relating to held for sale assets at 1 January
2019.
The
impact on the income statement for 2019 was to reduce profit before
tax by £9m (increasing both adjusted and statutory operating
profit by £25m and increasing net finance costs by £34m).
The operating lease expense recognised under the previous
accounting standard is now replaced by depreciation and net finance
costs. The impact on the Group’s share of joint venture
and associate profit is not material.
There
is no overall impact on the Group’s cash and cash equivalents
although there is a change to the classification of cash flows in
the cash flow statement with lease payments and finance lease
receipts previously categorised as net cash used in operations now
being split between the principal element (categorised in financing
activities for payments and investing activities for receipts) and
the interest element (categorised as interest paid in operating
activities or interest received in investing activities). In 2019
there were £91m of lease payments classified as financing cash
flows, £26m of lease receipts classified as investing cash
flows, £45m of lease interest payments and £11m of lease
interest receipts.
The
Group has also included the lease liability and investment in
finance lease as part of its net debt which impacts the calculation
of the Group’s non-GAAP measures for operating cash flow and
free cash flow (see also notes 15 and 17).
The
lease liabilities at 1 January 2019 can be reconciled to the
operating lease commitments at 31 December 2018 as
follows:
|
|
|
|
|
|
all figures in £ millions
|
|
|
2019
|
|
|
|
|
1
January
|
|
|
|
|
|
|
Operating lease
commitments disclosed at 31 December 2018
|
|
|
1,175
|
|
Discounted using
the lessee’s incremental borrowing rate at the date of
initial application
|
|
|
(290)
|
|
(Less):
commitments relating to short-term leases
|
|
|
(7)
|
|
Add:
adjustments relating to the different treatment of extension and
termination options
|
|
|
3
|
|
Additional
lease liability recognised at 1 January 2019
|
|
|
881
|
|
Analysed
as:
|
|
|
|
|
Current
lease liabilities
|
|
|
89
|
|
Non-current lease
liabilities
|
|
|
792
|
In
addition to the lease liabilities transitioned above, the Group had
£5m of lease liabilities that were accounted for as finance
leases at 31 December 2018. The weighted average incremental
borrowing rate applied to the lease liabilities on 1 January 2019
was 5.0%.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
1b. Change of accounting policy: IFRS 16 continued
From 1
January 2019, the Group’s lease policy is summarised as
follows:
The
Group recognises a right-of-use asset and a lease liability at the
lease commencement date. The right-of-use asset is initially
measured at cost, comprising the initial amount of the lease
liability plus any initial direct costs incurred and an estimate of
costs to restore the underlying asset, less any lease incentives
received. The right-of-use asset is subsequently depreciated using
the straight-line method from the commencement date to the earlier
of the end of the useful life of the asset or the end of the lease
term. The lease liability is initially measured at the present
value of the lease payments that are not paid at the commencement
date, discounted using the incremental borrowing rate. The lease
liability is measured at amortised cost using the effective
interest method. It is remeasured when there is a change in future
lease payments arising from a change in an index or a rate or a
change in the Group’s assessment of whether it will exercise
an extension or termination option. When the lease liability is
remeasured, a corresponding adjustment is made to the right-of-use
asset.
1c. Change of accounting policy: IFRIC 23
The
Group has adopted IFRIC 23 ‘Uncertainty over Income Tax
Treatments’ effective 1 January 2019. The interpretation
clarifies the application of the recognition and measurement
requirements in IAS 12 ‘Income taxes’ where there is
uncertainty over income tax treatments. The interpretation provides
guidance to determine whether uncertain tax positions should be
considered separately or together, and that measurement should be
whether the single most likely outcome or the probability weighted
sum of a range of outcomes, whichever better predicts the
resolution. The reassessment of current tax liabilities resulted in
a decrease in liabilities of £5m but does not have a material
impact on the income statement.
1d. Change of accounting policy: Amendments to IFRS 9 and IFRS
7
The
Group has considered the impact of IBOR reform on its hedge
accounting. The Group has elected to early adopt amendments to IFRS
9, and IFRS 7 ‘Interest Rate Benchmark Reform’ issued
in September 2019. In accordance with the transition provisions,
the amendments have been adopted retrospectively to hedging
relationships that existed at the start of the reporting period or
were designated thereafter. The amendments provide temporary relief
from applying specific hedge accounting requirements to hedging
relationships directly affected by IBOR reform. The adoption of
these amendments has not had a material impact on these financial
statements.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
2. Segment information
The
primary segments for management and reporting are geographies
(North America, Core and Growth). In addition, the Group separately
discloses the results from the Penguin Random House associate
(PRH).
|
|
|
|
|
|
all figures in £ millions
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Sales
by geography
|
|
|
|
|
North
America
|
|
2,534
|
2,784
|
|
Core
|
|
838
|
806
|
|
Growth
|
|
497
|
539
|
|
Total
sales
|
|
3,869
|
4,129
|
|
|
|
|
|
|
Adjusted
operating profit by geography
|
|
|
|
|
North
America
|
|
361
|
362
|
|
Core
|
|
92
|
57
|
|
Growth
|
|
63
|
59
|
|
PRH
|
|
65
|
68
|
|
Total
adjusted operating profit
|
|
581
|
546
|
There
were no material inter-segment sales. 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
|
|
North
|
Core
|
Growth
|
Total
|
|
|
|
America
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|||||
|
Courseware
|
|
|
|
|
|
|
Products
transferred at a point in time (sale or return)
|
|
448
|
291
|
178
|
917
|
|
Products
transferred at a point in time (other)
|
|
-
|
-
|
37
|
37
|
|
Products and
services transferred over time
|
|
627
|
15
|
54
|
696
|
|
|
|
1,075
|
306
|
269
|
1,650
|
|
Assessments
|
|
|
|
|
|
|
Products
transferred at a point in time
|
|
113
|
55
|
6
|
174
|
|
Products and
services transferred over time
|
|
761
|
429
|
100
|
1,290
|
|
|
|
874
|
484
|
106
|
1,464
|
|
Services
|
|
|
|
|
|
|
Products
transferred at a point in time
|
|
-
|
26
|
-
|
26
|
|
Products and
services transferred over time
|
|
585
|
22
|
122
|
729
|
|
|
|
585
|
48
|
122
|
755
|
|
|
|
|
|
|
|
|
Total
sales
|
|
2,534
|
838
|
497
|
3,869
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
2. Segment information continued
|
|
|
|
|
|
|
|
all figures in £ millions
|
|
North
|
Core
|
Growth
|
Total
|
|
|
|
America
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|||||
|
Courseware
|
|
|
|
|
|
|
Products
transferred at a point in time (sale or return)
|
|
718
|
313
|
197
|
1,228
|
|
Products
transferred at a point in time (other)
|
|
-
|
-
|
35
|
35
|
|
Products and
services transferred over time
|
|
718
|
4
|
54
|
776
|
|
|
|
1,436
|
317
|
286
|
2,039
|
|
Assessments*
|
|
|
|
|
|
|
Products
transferred at a point in time
|
|
106
|
52
|
-
|
158
|
|
Products and
services transferred over time
|
|
710
|
390
|
87
|
1,187
|
|
|
|
816
|
442
|
87
|
1,345
|
|
Services
|
|
|
|
|
|
|
Products
transferred at a point in time
|
|
-
|
26
|
38
|
64
|
|
Products and
services transferred over time
|
|
532
|
21
|
128
|
681
|
|
|
|
532
|
47
|
166
|
745
|
|
|
|
|
|
|
|
|
Total
sales
|
|
2,784
|
806
|
539
|
4,129
|
|
|
|
|
|
|
|
|
* The analysis
of Assessment revenues for 2018 has been
re-presented to better reflect the nature of
sales.
|
|||||
Adjusted operating
profit is one of the Group’s key business performance
measures. The measure includes the operating profit from the total
business including the results of discontinued operations when
relevant and excludes intangible charges for amortisation and
impairment, acquisition related costs, gains and losses arising
from acquisitions and disposals and the cost of major
restructuring. In 2018, the Group also excluded the impact of
adjustments arising from clarification of guaranteed minimum
pension (GMP) equalisation legislation in the UK.
In May
2017, the Group announced a restructuring programme, to run between
2017 and 2019, to drive further significant cost savings. This
programme began in the second half of 2017 and costs incurred to
date relate to delivery of cost efficiencies in the US higher
education courseware business and enabling functions together with
further rationalisation of the property and supplier portfolio. The
restructuring costs in 2019 of £159m mainly relate to staff
redundancies whilst the restructuring costs in 2018 relate
predominantly to staff redundancies and the net cost of property
rationalisation including the net impact of the consolidation of
the Group’s property footprint in London.
Charges
relating to acquired intangibles, acquisition costs and movements
in contingent acquisition and disposal consideration are also
excluded from adjusted operating profit when relevant as these
items reflect past acquisition activity and do not necessarily
reflect the current year performance of the Group. Intangible
amortisation charges in 2019 were £163m, including an
impairment charge of £65m relating to acquired intangibles in
Brazil, compared to a charge of £113m in 2018.
Other
net gains of £16m in 2019 mainly relate to the sale of the K12
school courseware business in the US. Other net gains of £230m
in 2018 relate to the sale of the Wall Street English language
teaching business (£207m) and the disposal of the
Group’s associate interest in UTEL, the online University
partnership in Mexico (£19m), together with other small net
gains totalling £4m.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
2. Segment information continued
The GMP
equalisation charge in 2018 arose from the ruling in the Lloyds
Bank High Court case in October 2018 that provided clarity on how
pension plans should equalise GMP between males and females. The
case ruling resulted in an income statement charge, an additional
liability and the potential requirement to make back payments to
pensioners who may have been retired for some years. The Group
excluded this charge from adjusted operating profit as it related
to historic circumstances.
The
following table reconciles adjusted operating profit to operating
profit for each of our primary segments.
|
|
|
|
|
|
|
|
all figures in £ millions
|
North
America
|
Core
|
Growth
|
PRH
|
Total
|
|
|
|
|
|
|
|
|
2019
|
|||||
|
Adjusted operating
profit
|
361
|
92
|
63
|
65
|
581
|
|
Cost of
major restructuring
|
(110)
|
(28)
|
(19)
|
(2)
|
(159)
|
|
Intangible
charges
|
(62)
|
(7)
|
(82)
|
(12)
|
(163)
|
|
Other
net gains and losses
|
13
|
8
|
(5)
|
-
|
16
|
|
UK
pension GMP equalisation
|
-
|
-
|
-
|
-
|
-
|
|
Operating
profit
|
202
|
65
|
(43)
|
51
|
275
|
|
|
|
|
|
|
|
|
2018
|
|||||
|
Adjusted operating
profit
|
362
|
57
|
59
|
68
|
546
|
|
Cost of
major restructuring
|
(78)
|
(16)
|
-
|
(8)
|
(102)
|
|
Intangible
charges
|
(72)
|
(8)
|
(19)
|
(14)
|
(113)
|
|
Other
net gains and losses
|
4
|
-
|
226
|
-
|
230
|
|
UK
pension GMP equalisation
|
-
|
(8)
|
-
|
-
|
(8)
|
|
Operating
profit
|
216
|
25
|
266
|
46
|
553
|
Corporate
costs are allocated to business segments on an appropriate basis
depending on the nature of the cost and therefore the total segment
result is equal to the Group operating profit.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
3. Net finance costs
|
|
|
|
|
|
all figures in £ millions
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest payable
|
|
(41)
|
(24)
|
|
Net
finance income in respect of retirement benefits
|
|
13
|
11
|
|
Finance
costs associated with transactions
|
|
-
|
(1)
|
|
Net
foreign exchange losses
|
|
(5)
|
(36)
|
|
Derivatives in a
hedge relationship
|
|
-
|
(4)
|
|
Derivatives not in
a hedge relationship
|
|
(10)
|
(1)
|
|
Net
finance costs
|
|
(43)
|
(55)
|
|
|
|
|
|
|
Analysed
as:
|
|
|
|
|
Finance
costs
|
|
(84)
|
(91)
|
|
Finance
income
|
|
41
|
36
|
|
Net
finance costs
|
|
(43)
|
(55)
|
|
|
|
|
|
|
Analysed
as:
|
|
|
|
|
Net
interest payable reflected in adjusted earnings
|
|
(41)
|
(24)
|
|
Other
net finance costs
|
|
(2)
|
(31)
|
|
Net
finance costs
|
|
(43)
|
(55)
|
Net
interest payable is the finance cost measure used in calculating
adjusted earnings.
Net
finance costs classified as other net finance costs are excluded in
the calculation of the Group’s adjusted
earnings.
Net
finance income relating to retirement benefits is excluded as it is
considered that the presentation does not reflect the economic
substance of the underlying assets and liabilities. The Group
excludes finance costs relating to acquisition and disposal
transactions as these relate to future earn-outs or acquisition
expenses and are not part of the underlying financing.
Foreign
exchange and other gains and losses are also excluded 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. In 2019 and 2018, the foreign
exchange gains and losses largely relate to foreign exchange
differences on unhedged US dollar and Euro loans and cash and cash
equivalents.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
4.
Profit before tax
|
|
|
|
|
|
all figures in £ millions
|
note
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Profit
before tax
|
|
232
|
498
|
|
Cost of
major restructuring
|
2
|
159
|
102
|
|
Other
net gains and losses
|
2
|
(16)
|
(230)
|
|
Intangible
charges
|
2
|
163
|
113
|
|
Other
net finance costs
|
3
|
2
|
31
|
|
UK
pension GMP equalisation
|
2
|
-
|
8
|
|
Adjusted
profit before tax
|
|
540
|
522
|
5.
Income tax
|
|
|
|
|
|
all figures in £ millions
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
34
|
92
|
|
Tax
benefit on cost of major restructuring
|
|
(35)
|
(37)
|
|
Tax
benefit on other net gains and losses
|
|
(68)
|
(31)
|
|
Tax
benefit on intangible charges
|
|
(48)
|
(18)
|
|
Tax
benefit on other net finance costs
|
|
-
|
(6)
|
|
Tax
benefit on UK pension GMP equalisation
|
|
-
|
(2)
|
|
Tax
amortisation benefit on goodwill and intangibles
|
|
28
|
29
|
|
Adjusted
income tax (charge) / benefit
|
|
(89)
|
27
|
|
|
|
|
|
|
Tax
rate reflected in statutory earnings
|
|
(14.7)%
|
(18.5)%
|
|
Tax
rate reflected in adjusted earnings
|
|
16.5
%
|
(5.2)%
|
The
adjusted income tax charge excludes the tax benefit or charge on
items that are excluded from the profit or loss before tax (see
note 4).
The tax
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.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
6.
Earnings per share
Basic
earnings per share is calculated by dividing the profit or loss
attributable to equity shareholders of the company (earnings) by
the weighted average number of ordinary shares in issue during the
year, 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. A
dilution is not calculated for a loss.
|
|
|
|
|
|
all figures in £ millions
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Earnings for the
year
|
|
266
|
590
|
|
Non-controlling
interest
|
|
(2)
|
(2)
|
|
Earnings
attributable to equity shareholders
|
|
264
|
588
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares (millions)
|
|
777.0
|
778.1
|
|
Effect
of dilutive share options (millions)
|
|
0.5
|
0.6
|
|
Weighted average
number of shares (millions) for diluted earnings
|
|
777.5
|
778.7
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
Basic
|
|
34.0p
|
75.6p
|
|
Diluted
|
|
34.0p
|
75.5p
|
7.
Adjusted earnings per share
In
order to show results from operating activities on a consistent
basis, an adjusted earnings per share is presented which excludes
certain items as set out below.
Adjusted
earnings is a non-GAAP financial measure and is included as it is a
key financial measure used by management to evaluate performance
and allocate resources to business segments. The measure also
enables our investors to more easily, and consistently, track the
underlying operational performance of the Group and its business
segments over time by separating out those items of income and
expenditure relating to acquisition and disposal transactions,
major restructuring programmes and certain other items that are
also not representative of underlying performance (see notes 2, 3,
4 and 5 for further information and reconciliation to equivalent
statutory measures).
The
adjusted earnings per share includes both continuing and
discontinued businesses on an undiluted basis when relevant. The
company’s definition of adjusted earnings per share may not
be comparable to other similarly titled measures reported by other
companies. A reconciliation of the adjusted measures to their
corresponding statutory measures is shown in the tables below and
in notes 2, 3, 4 and 5.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
7. Adjusted earnings per share
continued
|
|
|
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
Statutory
income statement
|
Cost of
major restructuring
|
Other
net gains and losses
|
Intangible
charges
|
Other
net finance costs
|
Impact
of GMP equalisation
|
Tax
amortisation benefit
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|||||||||
|
Operating
profit
|
2
|
275
|
159
|
(16)
|
163
|
-
|
-
|
-
|
581
|
|
Net
finance costs
|
3
|
(43)
|
-
|
-
|
-
|
2
|
-
|
-
|
(41)
|
|
Profit
before tax
|
4
|
232
|
159
|
(16)
|
163
|
2
|
-
|
-
|
540
|
|
Income
tax
|
5
|
34
|
(35)
|
(68)
|
(48)
|
-
|
-
|
28
|
(89)
|
|
Profit
for the year
|
|
266
|
124
|
(84)
|
115
|
2
|
-
|
28
|
451
|
|
Non-controlling
interest
|
|
(2)
|
-
|
-
|
-
|
-
|
-
|
-
|
(2)
|
|
Earnings
|
|
264
|
124
|
(84)
|
115
|
2
|
-
|
28
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares (millions)
|
|
|
|
777.0
|
|||||
|
Weighted
average number of shares (millions) for diluted
earnings
|
|
|
|
777.5
|
|||||
|
|
|
|
|
|
|||||
|
Adjusted earnings per share (basic)
|
|
|
|
57.8p
|
|||||
|
Adjusted
earnings per share (diluted)
|
|
|
|
57.7p
|
|||||
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
7. Adjusted earnings per share
continued
|
|
|
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
Statutory
income statement
|
Cost of
major restructuring
|
Other
net gains and losses
|
Intangible
charges
|
Other
net finance costs
|
Impact
of GMP equalisation
|
Tax
amortisation benefit
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|||||||||
|
Operating
profit
|
2
|
553
|
102
|
(230)
|
113
|
-
|
8
|
-
|
546
|
|
Net
finance costs
|
3
|
(55)
|
-
|
-
|
-
|
31
|
-
|
-
|
(24)
|
|
Profit
before tax
|
4
|
498
|
102
|
(230)
|
113
|
31
|
8
|
-
|
522
|
|
Income
tax
|
5
|
92
|
(37)
|
(31)
|
(18)
|
(6)
|
(2)
|
29
|
27
|
|
Profit
for the year
|
|
590
|
65
|
(261)
|
95
|
25
|
6
|
29
|
549
|
|
Non-controlling
interest
|
|
(2)
|
-
|
-
|
-
|
-
|
-
|
-
|
(2)
|
|
Earnings
|
|
588
|
65
|
(261)
|
95
|
25
|
6
|
29
|
547
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares (millions)
|
|
|
|
778.1
|
|||||
|
Weighted
average number of shares (millions) for diluted
earnings
|
|
|
|
778.7
|
|||||
|
|
|
|
|
|
|||||
|
Adjusted
earnings per share (basic)
|
|
|
|
70.3p
|
|||||
|
Adjusted
earnings per share (diluted)
|
|
|
|
70.2p
|
|||||
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
8.
Dividends
|
|
|
|
|
|
all figures in £ millions
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognised as distributions to equity shareholders in the
year
|
|
147
|
136
|
The
directors are proposing a final dividend of 13.5p per equity share,
payable on 7 May 2020 to shareholders on the register at the close
of business on 27 March 2020. This final dividend, which will
absorb an estimated £106m of shareholders’ funds, has
not been included as a liability as at 31 December
2019.
9.
Exchange rates
Pearson
earns a significant proportion of its sales and profits in overseas
currencies, the most important being the US dollar. The relevant
rates are as follows:
|
|
|
|
|
|
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Average
rate for profits
|
|
1.28
|
1.34
|
|
Year
end rate
|
|
1.32
|
1.27
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
10.
Assets and liabilities classified as held for sale
The held for sale asset in 2019 is the 25% holding
in PRH following announcement of the sale in December 2019. Held
for sale assets and liabilities in 2018 relate to the K12 school
courseware business in the US (K12) prior to its disposal in
2019. The held for sale balances are
analysed as follows:
|
|
|
|
|
|
all figures in £ millions
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
-
|
168
|
|
Investments in
joint ventures and associates
|
|
397
|
-
|
|
Deferred income tax
assets
|
|
-
|
98
|
|
Trade
and other receivables
|
|
-
|
25
|
|
Non-current
assets
|
|
397
|
291
|
|
|
|
|
|
|
Intangible assets
– pre-publication
|
|
-
|
242
|
|
Inventories
|
|
-
|
55
|
|
Trade
and other receivables
|
|
-
|
60
|
|
Current
assets
|
|
-
|
357
|
|
|
|
|
|
|
Total
assets
|
|
397
|
648
|
|
|
|
|
|
|
Other
liabilities
|
|
-
|
(371)
|
|
Non-current
liabilities
|
|
-
|
(371)
|
|
|
|
|
|
|
Trade
and other liabilities
|
|
-
|
(202)
|
|
Current
liabilities
|
|
-
|
(202)
|
|
|
|
|
|
|
Total
liabilities
|
|
-
|
(573)
|
|
|
|
|
|
|
Net
assets
|
|
397
|
75
|
Goodwill
is allocated to the held for sale businesses on a relative fair
value basis where these businesses form part of a larger cash
generating unit (CGU).
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
11.
Non-current intangible assets
|
|
|
|
|
|
all figures in £ millions
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
2,139
|
2,111
|
|
Other
intangibles
|
|
761
|
898
|
|
Non-current
intangible assets
|
|
2,900
|
3,009
|
Following the
annual impairment review for 2019, a £65m impairment charge
relating to acquired intangibles in the Brazil business was made
following a reassessment of the relative risk in that market. As
noted in previous years, and following impairments to goodwill and
other intangibles in 2014, 2015 and 2016, the Group’s
businesses in the North America and Core segments as well as the
Brazil business remain sensitive to a reasonably possible change in
the assumptions which would give rise to further
impairment.
12.
Trade and other liabilities
|
|
|
|
|
|
all figures in £ millions
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Trade
payables
|
|
(358)
|
(311)
|
|
Sales
return liability
|
|
(122)
|
(173)
|
|
Accruals
|
|
(295)
|
(397)
|
|
Deferred
income
|
|
(360)
|
(387)
|
|
Other
liabilities
|
|
(229)
|
(287)
|
|
Trade
and other liabilities
|
|
(1,364)
|
(1,555)
|
|
|
|
|
|
|
Analysed
as:
|
|
|
|
|
Trade
and other liabilities – current
|
|
(1,278)
|
(1,400)
|
|
Other
liabilities – non-current
|
|
(86)
|
(155)
|
|
Total
trade and other liabilities
|
|
(1,364)
|
(1,555)
|
The
deferred income balance comprises contract liabilities in respect
of advance payments in assessment, testing and training businesses;
subscription income in school and college businesses; and
obligations to deliver digital content in future
years.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
13.
Business combinations
During
the year the Group made some small acquisitions for total
consideration of £40m. Details of the assets acquired, and the
associated consideration are shown in the table below. The net cash
outflow on acquisition of subsidiaries also includes £5m
relating to deferred payments on prior year
acquisitions.
|
|
|
|
|
|
all figures in £ millions
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
|
23
|
|
Trade and other
receivables
|
|
|
1
|
|
Trade
and other liabilities
|
|
|
(2)
|
|
Net
assets acquired
|
|
|
22
|
|
Goodwill
|
|
|
18
|
|
Total
|
|
|
40
|
|
|
|
|
|
|
Satisfied
by:
|
|
|
|
|
Cash
|
|
|
40
|
|
Total
consideration
|
|
|
40
|
The net
cash outflow relating to acquisitions in the year is shown in the
table below:
|
|
|
|
|
|
all figures in £ millions
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Cash –
current year acquisitions
|
|
|
(40)
|
|
Deferred payments
for prior year acquisitions
|
|
|
(5)
|
|
Net
cash outflow on acquisitions
|
|
|
(45)
|
During
2019, the Group’s associate, Penguin Random House raised
additional capital from its owners in proportion to their equity
interests with the Group’s share being
£40m.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
14.
Disposals
In
March 2019, the Group completed the sale of its US K12 business
(K12) resulting in a pre-tax profit on sale of £13m. Total
gross proceeds were £200m including £180m of deferred
proceeds which include the fair value of an unconditional vendor
note for $225m and an entitlement to 20% of future cash flows to
equity holders and 20% of net proceeds in the event of a subsequent
sale (see also note 16 for further details). Tax on the disposal is
a benefit of £51m. Other disposal items relate to investment
sales and adjustments to prior year transactions. An analysis of
disposals is shown below.
|
|
|
|
|
|
|
all figures in £ millions
|
|
K12
|
Other
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
(101)
|
-
|
(101)
|
|
Intangible assets
– pre-publication
|
|
(238)
|
-
|
(238)
|
|
Inventories
|
|
(64)
|
-
|
(64)
|
|
Trade and other
receivables
|
|
(70)
|
-
|
(70)
|
|
Cash and cash
equivalents (excluding overdrafts)
|
|
(104)
|
-
|
(104)
|
|
Net deferred income
tax liabilities
|
|
(100)
|
-
|
(100)
|
|
Trade
and other liabilities
|
|
520
|
-
|
520
|
|
Cumulative
translation adjustment
|
|
(4)
|
-
|
(4)
|
|
Net
assets disposed
|
|
(161)
|
-
|
(161)
|
|
|
|
|
|
|
|
Cash
proceeds
|
|
20
|
-
|
20
|
|
Deferred
proceeds
|
|
180
|
-
|
180
|
|
Costs of
disposal
|
|
(26)
|
3
|
(23)
|
|
Gain
on disposal
|
|
13
|
3
|
16
|
|
|
|
|
|
|
|
Cash
flow from disposals
|
|
|
|
|
|
Proceeds –
current year disposals
|
|
|
|
20
|
|
Cash and cash
equivalents disposed
|
|
|
|
(104)
|
|
Costs and other
disposal liabilities paid
|
|
|
|
(17)
|
|
Net
cash outflow from disposals
|
|
|
|
(101)
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
15.
Net debt
|
|
|
|
|
|
all figures in £ millions
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
Derivative
financial instruments
|
|
29
|
67
|
|
Trade
and other receivables – investment in finance
lease
|
|
171
|
-
|
|
Current
assets
|
|
|
|
|
Derivative
financial instruments
|
|
25
|
1
|
|
Trade
and other receivables – investment in finance
lease
|
|
25
|
-
|
|
Cash
and cash equivalents (excluding overdrafts)
|
|
437
|
568
|
|
Non-current
liabilities
|
|
|
|
|
Borrowings
|
|
(1,572)
|
(674)
|
|
Derivative
financial instruments
|
|
(24)
|
(36)
|
|
Current
liabilities
|
|
|
|
|
Borrowings
|
|
(92)
|
(46)
|
|
Derivative
financial instruments
|
|
(15)
|
(23)
|
|
Net
debt
|
|
(1,016)
|
(143)
|
Included within
borrowings at 31 December 2019 is £838m (non-current
£749m, current £89m) relating to lease liabilities that
were brought on balance sheet at 1 January 2019 following the
transition to IFRS 16. Also, under IFRS 16, the Group has
recognised investments in finance leases in relation to some of its
sub-let properties as separately disclosed above (see also note
1b). After excluding lease liabilities (including those previously
recognised as finance leases) and the investment in finance leases,
the Group’s net debt was £374m.
In
March 2019, the Group executed market tenders to repurchase
€55m of its €500m 1.875% notes due 2021 of which
€250m were outstanding at 31 December 2018. In addition, the
Group also announced the refinancing of its bank facility, reducing
its size to $1.19bn and extending its maturity date to February
2024.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
16.
Classification of assets and liabilities measured at fair
value
|
|
Level
2
|
---Level
3---
|
Total
fair value
|
|
|
all figures in £ millions
|
Derivatives
|
FVOCI
investments
|
FVTPL -
Other
receivables
|
|
|
2019
|
||||
|
|
|
|
|
|
|
Investments in
unlisted securities
|
-
|
122
|
-
|
122
|
|
Other
receivables
|
-
|
-
|
182
|
182
|
|
Derivative
financial instruments
|
54
|
-
|
-
|
54
|
|
Total
financial assets held at fair value
|
54
|
122
|
182
|
358
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
(39)
|
-
|
-
|
(39)
|
|
Total
financial liabilities held at fair value
|
(39)
|
-
|
-
|
(39)
|
|
|
|
|
|
|
|
2018
|
||||
|
|
|
|
|
|
|
Investments in
unlisted securities
|
-
|
93
|
-
|
93
|
|
Other
receivables
|
-
|
-
|
-
|
-
|
|
Derivative
financial instruments
|
68
|
-
|
-
|
68
|
|
Total
financial assets held at fair value
|
68
|
93
|
-
|
161
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
(59)
|
-
|
-
|
(59)
|
|
Total
financial liabilities held at fair value
|
(59)
|
-
|
-
|
(59)
|
|
|
|
|
|
|
FVTPL -
Other receivables relate to amounts due following the sale of the
K12 business comprising an unconditional vendor note for $225m
(repayable after 7 years or earlier based on the performance of the
K12 business) and an entitlement to 20% of future cash flows to
equity holders and 20% of net proceeds in the event of a subsequent
sale within the next 15 years.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
16. Classification of assets and liabilities measured at fair
value continued
The
fair values of level 2 assets and liabilities are determined by
reference to market data and established estimation techniques such
as discounted cash flow and option valuation models.
Within
level 3 assets, the fair value of FVOCI investments is determined
by reference to the financial performance of the underlying asset
and amounts realised on the sale of similar assets.
The
fair value of FVTPL - Other receivables is determined using present
value techniques whereby the expected value of future cash flows is
discounted using a rate which is representative of the
creditworthiness of the K12 business. The key inputs used in the
present value calculations are forecast sales, discount rate and
the expected date of a subsequent sale of the K12 business. If the
forecast sales used in the calculations were increased / decreased
by 5%, the value of the receivable would increase / decrease by
approximately £20m. If the discount rate used in the
calculations was increased / decreased by 1%, the value of the
receivable would decrease / increase by approximately £5m. The
calculations are not materially sensitive to reasonable changes in
the expected date of a subsequent sale of the K12
business.
There
have been no transfers in classification during the
year.
The
market value of the Group’s bonds is £595m (2018:
£661m) compared to their carrying value of £593m (2018:
£672m). For all other financial assets and liabilities, fair
value is not materially different to carrying value.
Movements in fair
values of level 3 assets and liabilities for investments in
unlisted securities are shown in the table below:
|
|
|
|
|
|
all figures in £ millions
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in unlisted securities
|
|
|
|
|
At
beginning of year 2020
revenue drivers
|
|
93
|
77
|
|
Exchange
differences - OCI
|
|
(3)
|
3
|
|
Additions
|
|
12
|
13
|
|
Fair
value movements - OCI
|
|
20
|
8
|
|
Disposals
|
|
-
|
(8)
|
|
At
end of year
|
|
122
|
93
|
Since
inception, the only movements in FVTPL – Other receivables
relate to foreign exchange movements which arise on
consolidation.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
17. Cash flows
|
|
|
|
|
|
all figures in £ millions
|
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of profit for the year to net cash generated from
operations
|
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
266
|
590
|
|
Income
tax
|
|
(34)
|
(92)
|
|
Depreciation,
amortisation and impairment charges
|
|
389
|
253
|
|
Net
profit on disposal of businesses
|
|
(16)
|
(230)
|
|
Charges
relating to GMP equalisation
|
|
-
|
8
|
|
Net
loss / (profit) on disposal of fixed assets
|
|
7
|
(85)
|
|
Net
profit on disposal of right of use assets held under
leases
|
|
(4)
|
-
|
|
Net
finance costs
|
|
43
|
55
|
|
Share
of results of joint ventures and associates
|
|
(54)
|
(44)
|
|
Net
foreign exchange adjustment
|
|
(21)
|
28
|
|
Investment
income
|
|
(2)
|
-
|
|
Share-based payment
costs
|
|
25
|
37
|
|
Pre-publication
|
|
(55)
|
(37)
|
|
Inventories
|
|
(20)
|
(10)
|
|
Trade
and other receivables
|
|
59
|
(15)
|
|
Trade
and other liabilities
|
|
(157)
|
35
|
|
Retirement benefit
obligations
|
|
5
|
(9)
|
|
Provisions for
other liabilities and charges
|
|
49
|
63
|
|
Net
cash generated from operations
|
|
480
|
547
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
17. Cash flows continued
|
|
|
|
|
|
all figures in £ millions
|
note
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of net cash generated from operations to closing net
debt
|
|
|
|
|
|
|
|
|
|
Net
cash generated from operations
|
|
480
|
547
|
|
Dividends from
joint ventures and associates
|
|
64
|
117
|
|
Less:
re-capitalisation dividends from PRH
|
|
-
|
(50)
|
|
Purchase of
PPE
|
|
(55)
|
(74)
|
|
Acquisition of new
right-of-use lease assets
|
|
(64)
|
-
|
|
Proceeds from sale
of PPE
|
|
1
|
128
|
|
Disposal of
right-of-use lease assets
|
|
17
|
-
|
|
Purchase of
intangible assets
|
|
(138)
|
(130)
|
|
Investment
income
|
|
2
|
-
|
|
Add
back: net costs paid for / (proceeds from) major
restructuring
|
|
111
|
(25)
|
|
Operating
cash flow
|
|
418
|
513
|
|
Operating tax
paid
|
|
(9)
|
(43)
|
|
Net
operating finance costs paid
|
|
(64)
|
(22)
|
|
Operating
free cash flow
|
|
345
|
448
|
|
Non-operating tax
paid
|
|
(21)
|
-
|
|
Net
(cost paid for) / proceeds from major restructuring
|
|
(111)
|
25
|
|
Free
cash flow
|
|
213
|
473
|
|
Dividends paid
(including to non-controlling interest)
|
|
(148)
|
(137)
|
|
Net
movement of funds from operations
|
|
65
|
336
|
|
Acquisitions and
disposals
|
|
(193)
|
92
|
|
Re-capitalisation
dividends from PRH
|
|
-
|
50
|
|
Loans
(advanced) / repaid
|
|
(49)
|
46
|
|
New
equity
|
|
7
|
6
|
|
Buyback
of equity
|
|
-
|
(153)
|
|
Purchase of
treasury shares
|
|
(52)
|
-
|
|
Other
movements on financial instruments
|
|
(9)
|
(6)
|
|
Net
movement of funds
|
|
(231)
|
371
|
|
Exchange movements
on net debt
|
|
24
|
(82)
|
|
Movement
in net debt
|
|
(207)
|
289
|
|
Opening
net debt
|
|
(143)
|
(432)
|
|
Adjustment on
initial application of IFRS 16
|
|
(666)
|
-
|
|
Closing
net debt
|
15
|
(1,016)
|
(143)
|
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.
Following
transition to IFRS 16, the Group has included the new lease
liabilities and investment in finance lease as part of its net
debt. As a result, the Group’s operating cash flow (and free
cash flow) now includes the acquisition and modification of new
right-of-use lease assets and the disposal of right-of-use lease
assets as these transactions result in a movement in overall net
debt (see also note 1b).
Re-capitalisation dividends from PRH in 2018 were
part of the transaction that included the sale of 22% of the
Group’s equity interest in the venture in
2017.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2019
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 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. The Group has lodged an appeal. The Group has benefited
from the FCPE in 2018 and prior years by approximately £116m.
At present, the Group believes no provision is required in respect
of this issue.
During
2019 the Group received an assessment from the tax authorities in
Brazil challenging the deduction for tax purposes of goodwill
amortisation for the years 2013 to 2016. Similar assessments may be
raised for other years. Potential total exposure could be
up to £124m (BRL 656m) up to 31 December 2019,
with additional exposure of £45m (BRL 239m) 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.
19. Related parties
At 31
December 2019, the Group had loans to Penguin Random House (PRH) of
£49m (2018: £nil) which were unsecured with interest
calculated based on market rates. The loans are provided under a
working capital facility and fluctuate during the
year.
At 31
December 2019, the Group also had a current asset receivable from
PRH of £16m (2018: £17m) mainly arising from PRH’s
management of accounts receivable balances on Pearson’s
behalf. Service fee income from PRH was £4m in 2019 (2018:
£3m).
During
the year, the Group received dividends of £64m (2018:
£117m) from PRH. In 2018, dividends from PRH included amounts
relating to the re-capitalisation of the venture following the
Group’s disposal of part of its share in 2017.
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 2020, the Group commenced a £350m share buyback
programme in connection with the announcement in December 2019 of
the sale of its remaining 25% interest in PRH.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
|
PEARSON
plc
|
|
|
|
|
Date: 21
February 2020
|
|
|
|
By: /s/
NATALIE WHITE
|
|
|
|
|
|
------------------------------------
|
|
|
Natalie
White
|
|
|
Deputy
Company Secretary
|
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