Interim Results
Pearson PLC
29 July 2002
29 July 2002
PEARSON PLC INTERIM RESULTS (unaudited)
Six months ended 30 June 2002
Six months to 30 Six months to 30
June 2002 June 2001 Change
Sales £1,813m £1,876m (3)%
Operating profit* £76m £60m 27%
Pre-tax profit* £26m £(28)m --
Adjusted earnings per share** 0.5p (1.5)p --
Dividend per share 9.1p 8.7p 5%
* Continuing operations before goodwill, integration costs and non-operating
items
** Restated for FRS19
On track for strong earnings rebound in 2002
• Competitive performances in all businesses:
- Education and consumer publishing set for good revenue and
earnings growth
- Cost management across business newspapers to mitigate
advertising downturn
- Sharing assets, process and culture to drive performance.
• Internet losses and interest charges down sharply on last year.
• Improvements in cash and working capital.
Marjorie Scardino, Pearson's chief executive, said:
"We've improved our earnings and cash performance despite the worst downturn in
corporate advertising for 30 years. The strength of our education and consumer
publishing businesses should help us to sustain this momentum both through the
second half, when we make most of our profits, and in 2003."
Notes. Throughout this statement:
1. 2001 numbers have been restated for FRS19, the new accounting standard
for deferred tax.
2. Unless otherwise stated, reference to operating profit excludes
goodwill amortisation and impairment and integration costs.
3. 'underlying growth' excludes the impact of acquisitions, disposals and
currency movements, but all are detailed in this announcement.
Financial review
Performance
Sales in the six months to June 30, 2002 were £1,813 million, 3% lower than in
the first half of 2001, due almost entirely to lower advertising revenues at the
Financial Times Group. Operating profit from continuing operations (before
goodwill and exceptional items) increased by 27% to £76m. Adjusted earnings per
share increased to 0.5p from a loss of 1.5p per share in the same period last
year, with the benefit of lower internet losses and reduced interest charges,
which more than offset a £31 million (55%) fall in the earnings contribution
from advertising-related newspaper operations.
A reported loss for the half-year of £207 million (26.0p per share) reflects the
fact that Pearson makes nearly all its profits in the second half, but goodwill
is amortised evenly through the year. A reported loss of £118 million (14.8p per
share) in the same period last year reflected an exceptional tax gain of £121
million which was not repeated in 2002.
Pearson: outlook
Pearson makes most of its sales and almost all of its profits in the second half
of the year. We are on course to deliver a significant recovery in adjusted
earnings per share in 2002, in line with our previous expectations*.
We expect our education businesses to increase underlying revenues in the 3-5%
range with margins broadly in line with those achieved in 2001. The Penguin
Group looks set to deliver double-digit growth in profits. If advertising
demand continues at the level we saw in the first half of the year, we expect
the FT Group to record operating profits for the full year some 10-15% lower
than in 2001. This is before losses from internet enterprises, which are
expected to be less than £60 million for the full year for Pearson as a whole
(compared to £137 million last year).
For the full year, we expect free cash flow to benefit from actions taken to
improve use of working capital and lower restructuring costs. We also expect a
modest reduction in our interest charge, compared to the first half of this
year**.
* A 5 cent change in the average exchange rate for the full year (which for the
six months to June 30 was £1:$1.45) will have an impact of approximately 1p on
adjusted earnings per share.
** This excludes a one-time cost this year of £37m relating to actions taken
this year to maintain the proportion of debt we pay at fixed and floating rates.
For more information:
John Fallon/ Luke Swanson + 44 (0) 20 7010 2310
Pearson's interim results presentation for investors and analysts will be
webcast live today from 0930 (BST) and available for replay from 12 noon (BST)
via www.pearson.com.
We will also be holding a conference call for US investors at 1500 (BST)/ 1000
(EST). To participate in the conference call or to listen to the audiocast,
please register at www.pearson.com.
Video interviews with Pearson's senior management are also available at
www.pearson.com.
High resolution photographs are available for the media at www.newscast.co.uk
Operating Performance
Pearson Education
£ millions 2002 2001 Underlying growth 2001
half year half year full year
Sales
US School 393 430 (8)% 978
US College 158 139 15% 574
US Professional 232 202 17% 417
International 242 240 (3)% 568
Pearson Education 1,025 1,011 1% 2,537
FT Knowledge 23 31 (35)% 59
Internet enterprises 1 3 (52)% 8
Total 1,049 1,045 0% 2,604
Operating profit/(loss)
Pearson Education 22 28 (34)% 374
FT Knowledge (9) (12) (16)% (23)
Internet enterprises (13) (43) 70% (77)
Total 0 (27) -- 274
Underlying sales at Pearson Education increased 1% on last year's very strong
first half performance.
In our US School business (23% of Pearson's total revenues in 2001), underlying
sales were down 8%, as this year's major textbook adoptions* have reverted to
the normal seasonal pattern. (Last year, underlying revenues were up 23% at the
half year, as an exceptional number of major adoptions fell in the first six
months of 2001). We expect to take a market share of approximately 35% of the
adoptions in which we are competing. Education software sales are down on last
year, with a major contract deferred into the second half of the year. Learning
Network (now renamed Family Education Network), Pearson's online consumer
education portal, has been scaled back to focus on the US K-12 market and fully
integrated into our US School business. As a result, education internet losses
fell sharply, from £43 million in the first half of 2001 to £13 million in 2002.
The testing and assessment business continues to prosper, benefiting from the
sustained growth of a number of long-term contracts.
The US College business (14% of 2001 revenues), with a very strong publishing
schedule and its lead in the use of technology, has made an excellent start to
the year. Underlying sales were up 15%, well ahead of the industry as a whole,
but benefiting in part from the earlier phasing of orders from retailers. Our
custom publishing business, which produces text books in small print runs
custom-made to a college professor's individual course, has made a particularly
good start to the year.
* In the US, 21 'adoption' states buy textbooks and related programmes to a
planned contract schedule, which means the level of spending varies from year to
year according to this schedule. The 'open territory' states are those that buy
textbooks on an as-needed basis rather than on a published adoption schedule.
The US Professional business (11% of 2001 revenues) grew underlying sales by
17%. As expected, technology publishing and corporate training markets remain
difficult, but we are seeing strong growth in our professional certification and
government solutions businesses. In NCS Pearson's professional certification
business, sales were up 20% in the year to date with two major new contracts -
to manage the licensing and certification of clinical pathologists and nurses in
the US - starting in the second half. NCS Pearson's government solutions
business is growing even faster, benefiting from three new federal contracts.
In our International education operations (14% of 2001 revenues), underlying
sales were 3% lower than last year. The school and college publishing businesses
are performing well, particularly in Asia, but the technology recession has
driven down sales in our international IT publishing business. Our Latin
American operations are delivering a sharply improved performance, benefiting
from the actions we took last year to reduce costs.
NCS Pearson is now an integral part of Pearson Education. On a standalone basis,
revenues increased to $489 million (up 10% on an underlying basis) and profits
increased to $56 million (up 13% on an underlying basis)*.
Sales at FT Knowledge, our corporate training business, are down on last year
but losses have also fallen on the back of a substantially lower cost base. FT
Knowledge is working with Accenture to create new training programmes for large
corporations and with our Government Solutions business on a number of
opportunities.
Pearson Education: outlook
For the full year, our education businesses are on track to increase underlying
revenues in the 3-5% range with margins broadly in line with those achieved in
2001. We expect revenues in our US school business to be at a similar level to
last year. Our US college business should outperform an industry expected to
grow by 6%-8%. We expect strong double-digit revenue growth from our US
professional operations. Our operations outside the US should achieve modest
revenue growth. On a standalone basis, NCS Pearson is on track for revenue
growth of more than 15%, topping $1 billion in annual sales. For the full year,
losses from our education internet enterprises are expected to be no more than
£25 million and losses from FT Knowledge are expected to be lower than last
year.
* All reported figures for NCS Pearson include Computer Curriculum Corporation,
which has been fully integrated within NCS Learn, our curriculum software
business.
Financial Times Group
£ millions 2002 2001 % 2001
half year half year Change full year
Sales
Non-internet 347 403 (14)% 750
Internet enterprises 23 26 (12)% 51
Total 370 429 (14)% 801
Operating profit / (loss)
FT Newspaper 7 32 (78)% 31
Les Echos 6 15 (60)% 16
Recoletos 14 13 8% 23
Interactive Data Corporation 37 32 16% 67
Associates and joint ventures (3) (6) 50% (10)
FT Business 1 2 (50)% 4
FT Businesses sold - 1
62 88 (30)% 132
Internet enterprises (24) (38) 37% (60)
Total 38 50 (24)% 72
The Financial Times Group (19% of 2001 revenues) saw revenues fall 14% in the
face of a deep and prolonged advertising recession. The three categories hardest
hit by the downturn - business-to-business, finance and technology - account for
the majority of our advertising revenues. In spite of this downturn, our network
of business newspapers and online services continues to grow its audience and
reach.
Average daily sales of the Financial Times newspaper for the six months to June
were 486,000, with good growth in the US (up 14%) and in Asia (up 18%)
offsetting a decline in the UK (down 7%). In the first half of the year,
advertising revenues fell by 31% against the same period last year (which
included the first quarter when advertising revenues were up 8%). A series of
profit protection measures reduced the FT newspaper's cost base by 12% for the
first half of the year compared with the same period in 2001.
FT.com continued to grow its revenues and reduce its cost base and remains on
track to break even in the fourth quarter of this year. FT.com had 2.8 million
unique monthly users in June, up by more than 50% on a year ago. Though the
market for online advertising remains tough, content syndication sales continue
to grow strongly and FT.com has successfully launched subscription services.
Profits at Les Echos declined sharply as advertising revenues fell by 32%.
Average daily circulation was 153,000, level with last year. Les Echos has taken
a number of actions to reduce costs, which it will benefit from in the second
half of the year.
Recoletos (Bolsa Madrid: REC), our Spanish media group, increased profits by 8%
in spite of a 6% fall in revenues. Marca, its sports newspaper, capitalised on
an exceptional calendar of sporting events and Recoletos as a whole benefited
from a substantially lower cost base. Advertising revenues at its business
newspaper, Expansion, were 22% lower.
Interactive Data Corporation (NASDAQ: IDCO), our 60%-owned asset pricing
business, increased revenues by 9% and profits by 16%. Customer contract renewal
rates are running at 95% in our institutional business, we have launched several
new products and the integration of the Merrill Lynch Securities Pricing Service
is going to plan.
Stripping out the contribution of FT Energy, which was sold in 2001, FT
Business, our specialist financial publications company, maintained profits
despite the advertising downturn. Tight control of the cost base and a strong
competitive performance have helped it to perform well in a difficult
environment.
Losses from the FT's internet enterprises (which include the online businesses
of the FT, Les Echos and Expansion as well as our share of FT Deutschland's
FTD.de, economist.com, CBSMarketWatch and Esignal) fell to £24 million, as
revenues across these operations were broadly in line with last year and the
cost base was significantly reduced.
Associates and joint ventures
Losses from the FT's associates and joint ventures were 50% lower than the
previous year, primarily due to progress at FT Deutschland, our joint venture
with Gruner and Jahr. FT Deutschland grew its advertising revenues slightly and
increased its circulation by 12% to 83,000.
The Economist Group, in which Pearson owns a 50% interest, continued to make
progress despite the advertising environment. The Economist's worldwide weekly
circulation grew by 10% to 838,030; the Economist Intelligence Unit continued
its transition from print to electronic delivery and CFO's international
expansion continued with the successful launch of CFO China.
Business Day & Financial Mail, the South African titles in which we own a 50%
interest, held their circulation steady and reduced their costs.
FT Group: outlook
At this stage, we see no sign of an advertising recovery. If demand for
advertising across our network of business newspapers continues at the levels we
saw in the first half of this year, the FT Group is expected to record operating
profits (before internet enterprises) for the full year some 10-15% lower than
last year. We expect losses from the FT's internet enterprises to be less than
£35 million for the full year.
The Penguin Group
£ millions 2002 2001 % 2001
half year half year Change full year
Sales 394 402 (2)% 820
Operating profit 38 37 3% 80
The Penguin Group (19% of 2001 revenues) held revenues and profits broadly level
with 2001, even though this year's publishing schedule is heavily weighted
towards the second half of the year.
In the US, 57 Penguin Putnam titles reached the New York Times bestseller lists
in the first half of the year, a similar number to the previous year. In the UK,
38 titles reached the Neilsen Bookscan top 15, an increase of 20%. The
integration of Dorling Kindersley into Penguin is now complete. For the first
half of the year, DK broke even on sales of £71 million (up 8% on 2001),
benefiting from a lower cost base, a stronger salesforce and a revitalised
publishing programme. Dorling Kindersley now has a dedicated unit of designers
working with Pearson Education on a range of publishing projects, from a new
programme for the 2003 Texas social studies adoption to an international
elementary reading programme.
Penguin: outlook
The Penguin Group is expected to grow sales ahead of its major markets (which
are forecast to increase by up to 3% this year) and deliver double-digit growth
in profits. Revenue in the second half should benefit from the forthcoming
publishing schedule, which is significantly stronger than in the same period
last year. Dorling Kindersley is expected to be profitable for the year as a
whole.
ENDS
Except for the historical information contained herein, the matters discussed in
this press release include forward-looking statements that involve risk and
uncertainties that could cause actual results to differ materially from those
predicted by such forward-looking statements. These risks and uncertainties
include international, national and local conditions, as well as competition.
They also include other risks detailed from time to time in the company's
publicly-filed documents, including the company's Annual Report on form 20-F for
the period ended December 31, 2001. The company undertakes no obligation to
publicly update any forward looking statement, whether as a result of new
information, future events or otherwise.
Consolidated Profit and Loss Account
for the six months to 30 June 2002
restated restated
2002 2001 2001
all figures in £ millions Note half year half year full year
Sales (including share of joint ventures) 1,819 1,881 4,240
Less: share of joint ventures (6) (5) (15)
Sales (continuing operations) 2a 1,813 1,876 4,225
Group operating (loss) / profit (continuing operations) (79) (102) 20
Share of operating loss of joint ventures
and associates of which 2c (32) (17) (67)
Continuing operations (29) (34) (69)
Discontinued operations (3) 17 2
Total operating loss 2b (111) (119) (47)
Total operating loss analysed between:
Continuing operations
Operating profit before goodwill amortisation and 76 60 426
integration costs
Goodwill amortisation and impairment (179) (168) (401)
Integration costs (5) (28) (74)
(108) (136) (49)
Discontinued operations
Operating profit before goodwill amortisation and - 33 37
integration costs
Goodwill amortisation (3) (16) (35)
(3) 17 2
Total operating loss 2b (111) (119) (47)
Continuing operations
Group loss on sale of fixed assets and investments - (2) (12)
Group loss on sale of subsidiary undertakings and associates 3 (10) (28) (63)
Profit / (loss) on sale of subsidiary undertakings and
associates by an associate 3 - (36)
Discontinued operations
Group profit on sale of subsidiary undertakings and associates 3 17 - -
Profit / (loss) on sale of subsidiary undertakings and
associates by an associate
- 8 (17)
Loss before interest and taxation (101) (141) (175)
Amounts written off investments - - (92)
Net finance costs 4 (87) (88) (169)
Loss before taxation (188) (229) (436)
Taxation 6 (6) 124 33
Loss after taxation (194) (105) (403)
Equity minority interests (13) (13) (20)
Loss for the financial period (207) (118) (423)
Dividends on equity shares 7 (73) (70) (177)
Loss retained (280) (188) (600)
Adjusted earnings / (loss) per equity share 5 0.5p (1.5)p 21.4p
Loss per equity share 5 (26.0)p (14.8)p (53.2)p
Diluted earnings per equity share 5 n/a n/a n/a
Dividend per equity share 7 9.1p 8.7p 22.3p
There is no difference between the loss on ordinary activities before taxation
and the retained loss for the period stated above and their historical cost
equivalents.
The results for the 2001 full year are an abridged version of the full accounts
which have received an unqualified audit report from the auditors and have been
filed with the Registrar of Companies. First half year figures are neither
audited nor reviewed.
Results for the 2001 half year and full year have been restated for FRS 19 (see
note 6). Adjusted pre tax profit from continuing operations for the six months
to June 2002 of £26 million (2001: loss £(28) million) is operating profit
before goodwill amortisation and integration costs less net interest payable
(see note 4).
Consolidated Balance Sheet
as at 30 June 2002
restated restated
2002 2001 2001
all figures in £ millions half year half year full year
Fixed assets
Intangible assets 3,939 4,568 4,193
Tangible assets 528 557 542
Investments: joint ventures
Share of gross assets 4 17 8
Share of gross liabilities - - (1)
4 17 7
Investments: associates 107 955 893
Investments: other 83 147 84
4,661 6,244 5,719
Current assets
Stocks 848 969 849
Debtors 1,073 1,215 1,005
Deferred taxation 280 344 272
Investments 3 4 3
Cash at bank and in hand 542 584 393
2,746 3,116 2,522
Creditors - amounts falling due within one year
Short term borrowing (57) (244) (165)
Other creditors (995) (1,140) (1,203)
(1,052) (1,384) (1,368)
Net current assets 1,694 1,732 1,154
Total assets less current liabilities 6,355 7,976 6,873
Creditors - amounts falling due after more than one year
Medium and long term borrowing (2,442) (3,212) (2,607)
Other creditors (41) (54) (54)
(2,483) (3,266) (2,661)
Provisions for liabilities and charges (174) (238) (239)
Net assets 3,698 4,472 3,973
Capital and reserves
Called up share capital 200 200 200
Share premium account 2,460 2,445 2,459
Profit and loss account 849 1,654 1,138
Equity shareholders' funds 3,509 4,299 3,797
Equity minority interests 189 173 176
3,698 4,472 3,973
Consolidated Statement of Cash Flows
for the six months to 30 June 2002
2002 2001 2001
all figures in £ millions Note half year half year full year
Net cash (outflow) / inflow from operating activities 9 (193) (187) 490
Dividends from joint ventures and associates 1 19 25
Interest received 6 19 31
Interest paid (99) (98) (187)
Debt issue costs - (1) (1)
Dividends paid to minority interests (1) (9) (9)
Returns on investments and servicing of finance (94) (89) (166)
Taxation (35) (39) (71)
Purchase of tangible fixed assets (71) (93) (165)
Sale of tangible fixed assets - 5 36
Purchase of investments (3) (4) (35)
Sale of investments - 19 22
Capital expenditure and financial investment (74) (73) (142)
Purchase of subsidiary undertakings (38) (14) (128)
Net (debt) / cash acquired with subsidiary undertakings - (2) 83
Purchase of joint ventures and associates (9) (15) (26)
Sale of subsidiary undertakings 8 6 41
Net cash disposed with subsidiary undertakings - (1) -
Sale of associates 921 1 1
Acquisitions and disposals 882 (25) (29)
Equity dividends paid (108) (105) (174)
Net cash inflow / (outflow) before management of liquid
resources and financing 379 (499) (67)
Liquid resources acquired (82) - (48)
Collateral deposit (placed) / reclaimed (29) 17 47
Management of liquid resources (111) 17 (1)
Issue of equity share capital 1 6 20
Capital element of finance lease rentals (2) (5) (7)
Loan facility repaid (59) (112) (521)
Bonds (repaid) / advanced (156) 508 507
Net movement in other borrowings 7 40 3
Financing (209) 437 2
Increase / (decrease) in cash in the period 59 (45) (66)
Statement of Total Recognised Gains and Losses
for the six months ended 30 June 2002
restated restated
2002 2001 2001
all figures in £ millions half year half year full year
Loss for the financial period (207) (118) (423)
Other net gains and losses recognised in reserves:
Currency translation differences (153) 192 26
Taxation on currency translation differences - UK - (13) (6)
Total recognised (losses) / gains relating to the period (360) 61 (403)
Prior year adjustment - FRS 19 209
Total recognised (losses) / gains (151)
Reconciliation of Movements in Equity Shareholders' Funds
for the six months ended 30 June 2002
restated restated
2002 2001 2001
all figures in £ millions half year half year full year
Loss for the financial period (207) (118) (423)
Dividends on equity shares (73) (70) (177)
(280) (188) (600)
Currency translation differences (net of taxation) (153) 179 20
Goodwill written back on sale of subsidiary undertakings and associates 144 17 37
Goodwill written back on sale of subsidiary undertakings and associates by an
associate - - 36
Shares issued 1 6 18
Replacement options granted on acquisition of subsidiary - 1 2
Net movement for the period (288) 15 (487)
Equity shareholders' funds at beginning of the period 3,797 4,044 4,044
Prior year adjustment - FRS 19 - 240 240
Equity shareholders' funds at end of the period 3,509 4,299 3,797
Notes to the 2002 Results
for the six months ended 30 June 2002
1. Basis of preparation
The results for the six months ended 30 June 2002 have been prepared in
accordance with the accounting policies set out in the 2001 Annual Report,
except that FRS 19 'Deferred Tax' has been adopted. The effect of this change
in accounting policy is disclosed in note 6.
2a. Sector analysis - sales
2002 2001 2001
all figures in £ millions half year half year full year
Pearson Education 1,049 1,045 2,604
FT Group 370 429 801
The Penguin Group 394 402 820
Continuing operations 1,813 1,876 4,225
Sales in respect of internet enterprises, the Group's discrete internet
operations, are included within Pearson Education £1m (2001 half year: £3m; 2001
full year: £8m) and the FT Group £23m (2001 half year: £26m; 2001 full year:
£51m).
2b. Sector analysis - operating loss
..................................................2002 half year............
Results from Internet Integration Goodwill Goodwill Operating
all figures in £ millions operations enterprises costs amortisation impairment loss
Pearson Education 13 (13) (3) (126) - (129)
FT Group 62 (24) - (33) (10) (5)
The Penguin Group 38 - (2) (10) - 26
Continuing operations 113 (37) (5) (169) (10) (108)
Discontinued operations - - - (3) - (3)
113 (37) (5) (172) (10) (111)
2b. Sector analysis - operating loss (continued)
......................................................2001 half year............
(restated)
Results from Internet Integration Goodwill Goodwill Operating
operations enterprises costs amortisation impairment profit
all figures in £
millions
Pearson Education 16 (43) (12) (126) - (165)
FT Group 88 (38) - (33) - 17
The Penguin Group 37 - (16) (9) - 12
Continuing operations 141 (81) (28) (168) - (136)
Discontinued 33 - - (16) - 17
operations
174 (81) (28) (184) - (119)
........................................................2001 full year............
(restated)
Results from Internet Integration Goodwill Goodwill Operating
operations enterprises costs amortisation impairment profit
all figures in £
millions
Pearson Education 351 (77) (29) (254) (8) (17)
FT Group 132 (60) - (67) (3) 2
The Penguin Group 80 - (45) (19) (50) (34)
Continuing operations 563 (137) (74) (340) (61) (49)
Discontinued 37 - - (35) - 2
operations
600 (137) (74) (375) (61) (47)
2c. Sector analysis - joint ventures and associates
Included in the analysis of operating loss in note 2b are the following amounts
in respect of joint ventures and associates:
----------------------------Joint ventures--------------------
2002 2001 2001
all figures in £ millions half year half year full year
Continuing operations (7) (10) (19)
----------------------------------------------------------------Associates------------------------------
Results before Results before Results before
goodwill goodwill goodwill
amortisation amortisation amortisation
2002 half Total 2002 2001 half Total 2001 2001 full Total 2001
year half year year half year year full year
all figures in
£ millions
Continuing 2 (22) - (24) 1 (50)
operations
Discontinued - (3) 33 17 37 2
operations
2 (25) 33 (7) 38 (48)
3. Loss on sale of subsidiary undertakings and associates
restated
2002 2001 2001
all figures in £ millions half year half year full year
Continuing operations:
Loss on sale of PH Direct (10) - -
Loss on sale of iForum - - (27)
Loss on closure of Dorling Kindersley Family Learning - - (2)
business
Net loss on sale of other businesses and associates - (28) (34)
(10) (28) (63)
Discontinued operations:
Profit on sale of RTL Group 17 - -
17 - -
4. Net finance costs
2002 2001 2001
all figures in £ millions half year half year full year
Net interest payable (50) (88) (169)
Early repayment of debt and termination of swap contracts (37) - -
(87) (88) (169)
5. Earnings / (loss) per share
In order to show results from operating activities on a comparable basis, an
adjusted earnings per share is presented which excludes items of an unusual
nature and goodwill amortisation as shown below. The company's definition of
adjusted earnings per share may not be comparable to other similarly titled
measures reported by other companies.
restated restated
2002 2001 2001
all figures are in £ millions half year half year full year
Loss for the financial period (207) (118) (423)
Adjustments:
Loss on sale of fixed assets and investments: continuing operations - 2 12
Loss on sale of subsidiary undertakings and associates: continuing operations 10 28 63
Profit on sale of subsidiary undertakings and associates: discontinued
Operations (17) - -
(Loss) / profit on sale of subsidiary undertakings and associates by an
associate:
continuing operations (3) - 36
Loss on sale of subsidiary undertakings and associates by an associate:
discontinued operations - (8) 17
Goodwill amortisation 172 184 375
Integration costs 5 28 74
Goodwill impairment 10 - 61
Amounts written off investments - - 92
Other net finance costs 37 - -
Taxation on above items (3) (126) (133)
Minority interest share of above items - (2) (4)
Adjusted earnings / (loss) 4 (12) 170
Loss for the financial period (207) (118) (423)
Taxation on the conversion of ordinary shares - - (1)
Diluted loss (207) (118) (424)
Weighted average number of equity shares (millions)
- for earnings and adjusted earnings 795.9 794.7 795.4
Effect of dilutive share options n/a n/a n/a
Weighted average number of equity shares (millions)
- for diluted earnings n/a n/a n/a
Adjusted earnings / (loss) per equity share 0.5p (1.5)p 21.4p
Loss per equity share (26.0)p (14.8)p (53.2)p
Diluted earnings per equity share n/a n/a n/a
In 2001 and at the 2002 half year the Group made a loss for the financial
period, consequently the effect of share options is anti-dilutive and a diluted
earnings per share has not been shown.
6. Taxation
The tax rate provided in the profit and loss account is analysed as follows:
restated restated
2002 2001 2001
all figures in percentages half half year full
year year
United Kingdom tax rate 30.0 30.0 30.0
Effect of overseas tax rates 4.8 5.5 4.5
Other items (0.8) (1.5) (0.5)
Tax rate reflected in adjusted earnings / (loss) 34.0 34.0 34.0
The taxation benefit / (charge) is analysed as:
restated restated
2002 2001 2001
all figures in £ millions half year half year full year
Parent and subsidiaries (4) 131 48
Joint ventures and associates (2) (7) (15)
(6) 124 33
FRS 19 'Deferred Tax' has been adopted for the first time in these financial
statements. Pearson previously provided deferred tax using the liability method
under SSAP 15 and only recognised deferred tax liabilities to the extent that it
was probable that the liabilities would crystallise. Deferred tax assets were
only recognised to the extent that their recoverability was assured beyond
reasonable doubt. Under FRS 19 the recognition criteria for deferred tax assets
has changed with the result that Pearson has recognised a deferred tax asset in
respect of US tax losses and other timing differences that are regarded as
recoverable against future taxable profits. The adoption of FRS19 has also had
an impact on capitalised goodwill since the restatement of deferred tax balances
acquired has had a corresponding effect upon the goodwill recognised on those
acquisitions. A prior year adjustment has been made in these financial
statements to reflect the adoption of FRS 19 and comparative figures have been
restated. The impact on the profit and loss account for the six months to June
2002 has been to reduce the loss after taxation by £3 million (£nil relating to
the tax charge and £3 million to goodwill amortisation) and to increase opening
shareholders funds by £209 million. The effect on the loss after taxation for
the 2001 half year was to reduce the loss by £19 million and at the 2001 full
year increase the loss by £32 million.
7. Dividends
The directors have declared an interim dividend of 9.1p per equity share,
payable on 25 October 2002 to shareholders on the register at the close of
business on 9 August 2002.
8 Exchange rates
Pearson earns a significant proportion of its sales and profits in overseas
currencies, the most important being the US dollar. The relevant rates are as
follows:
----- £ versus US$---
2002 2001 2001
half year half year full year
Average for operating profits 1.45 1.43 1.44
Period end rate 1.52 1.41 1.46
9. Note to consolidated statement of cash flows
restated restated
2002 2001 2001
all figures in £ millions half year half year full year
Reconciliation of operating loss to net cash (outflow) /
inflow from operating activities
Operating loss - total (111) (119) (47)
Share of loss of joint ventures and associates 32 17 67
Depreciation charges 63 64 125
Goodwill amortisation and impairment 155 144 350
(Increase) in stocks (27) (98) (6)
(Increase) / decrease in debtors (94) (49) 102
(Decrease) in creditors (156) (155) (103)
(Decrease) / increase in operating provisions (51) 3 3
Other and non-cash items (4) 6 (1)
Net cash (outflow) / inflow from operating activities (193) (187) 490
Purchase of fixed assets and finance lease payments (73) (98) (172)
Sale of operating tangible fixed assets - 5 36
Dividends from joint ventures and associates 1 19 25
Other 4 13 (11)
Operating cash flow (261) (248) 368
Analysed between:
Operating cash flow before other items (229) (220) 437
Integration costs :
NCS / Simon & Schuster (14) (5) (26)
Dorling Kindersley (18) (23) (43)
Operating cash flow (261) (248) 368
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