Interim Results - Part 2

Pearson PLC
31 July 2000

Part 2

Consolidated Profit and Loss Account
for the six months to 30 June 2000

                                                      2000      1999     1999
                                                      half      half     full
                                                      year      year     year
                                                               restated
restated
                                               Note     £m        £m       £m
______________________________________________________________________________
Sales                                             2                     
Continuing operations                                1,490     1,306    3,332
Acquisitions                                            55         -        -
______________________________________________________________________________
Total sales                                          1,545     1,306    3,332
                                                                        
Operating profit                                  2                     
Continuing operations - group                          (13)       13      247
Acquisitions - group                                    (6)        -        -
______________________________________________________________________________
Total operating (loss)/profit - group                  (19)       13      247
______________________________________________________________________________
Share of operating profit of associates and                             
joint ventures:
Continuing operations                                    5        12       23
Acquisitions                                            (5)        -        -
______________________________________________________________________________
                                                         -        12       23
Discontinued operations                                  8        21       48
______________________________________________________________________________
Total share of operating profit of                                      
associates and joint ventures                            8        33       71
______________________________________________________________________________
______________________________________________________________________________
                                                                       
Total operating profit analysed between:                                
Operating profit before internet                                        
enterprises, goodwill amortisation and                                  
other items                                            156       133      588
Internet enterprises                                   (84)       (7)     (39)
Goodwill amortisation                                  (72)      (63)    (131)
Other items                                            (11)      (17)    (100)
______________________________________________________________________________
______________________________________________________________________________
Total operating (loss)/profit                          (11)       46      318
______________________________________________________________________________
                                                                        
Continuing operations:                                                  
Profit on sale of fixed assets and                                      
investments                                       3      2        22      349
(Loss) on sale of businesses and associates       4    (15)      (17)     (44)
Discontinued operations:                                                
Profit on sale of businesses and associates       4    231         -        -
______________________________________________________________________________
                                                       218         5      305
Profit on sale of businesses and associates                             
by an associate - continuing operations                  -         -        1
______________________________________________________________________________
Profit before interest                                 207        51      624
                                                                        
Net finance costs                                                       
Net interest payable - group                           (67)      (70)    (145)
Net interest payable - associates and joint                             
ventures                                                (1)       (1)      (2)
Arrangement fee                                   5    (16)        -        -
______________________________________________________________________________
                                                       (84)      (71)    (147)
______________________________________________________________________________
Profit/(loss) before taxation                          123       (20)     477
Taxation                                          7    (32)      (18)    (177)
______________________________________________________________________________
Profit/(loss) after taxation                            91       (38)     300
Equity minority interests                               (3)       (3)      (6)
______________________________________________________________________________
Profit/(loss) for the financial period                  88       (41)     294
Dividends on equity shares                             (58)      (54)    (138)
______________________________________________________________________________
Profit/(deficit) retained                               30       (95)     156
______________________________________________________________________________
Adjusted earnings per equity share before                               
internet enterprises                              6   10.0p      7.1p    53.3p
Adjusted (loss)/earnings per equity share                               
after internet enterprises                        6   (0.6)p     6.3p    48.5p
Earnings/(loss) per equity share                  6   14.2p     (6.6)p   48.2p
Diluted earnings/(loss) per equity share          6   13.8p     (6.5)p   47.5p
Dividends per equity share                        8    9.2p      8.6p    22.5p
______________________________________________________________________________

1999 has been restated to reflect the adoption of FRS16 'Current Tax'.
The results for the 1999 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 figures are
neither audited nor reviewed.


Consolidated Balance Sheet
as at 30 June 2000

_________________________________________________________________________
                                                2000     1999      1999
                                                half     half      full
                                                year     year      year
                                                  £m       £m        £m
_________________________________________________________________________
Fixed assets                                                    
Intangible assets                              3,018    2,340     2,457
Tangible assets                                  453      435       405
Investments:                                                    
Associates                                       289      208       234
Other                                            191      291        99
_________________________________________________________________________
                                               3,951    3,274     3,195
_________________________________________________________________________
Current assets                                                  
Stocks                                           945      724       691
Debtors                                        1,233    1,093     1,132
Investments                                        3        5         4
Cash at bank and in hand                         369      351       328
_________________________________________________________________________
                                               2,550    2,173     2,155
_________________________________________________________________________
                                                                
Creditors - amounts falling due within one                      
year
Short-term borrowing                            (902)    (594)      (47)
_________________________________________________________________________
Other creditors                               (1,356)  (1,162)   (1,441)
_________________________________________________________________________
                                              (2,258)  (1,756)   (1,488)
                                                                
Net current assets                               292      417       667
_________________________________________________________________________
Total assets less current liabilities          4,243    3,691     3,862
Creditors - amounts falling due after more                      
than one year
Medium and long term borrowing                (2,011)  (2,297)   (2,276)
Other creditors                                  (58)     (43)      (32)
_________________________________________________________________________
                                              (2,069)  (2,340)   (2,308)
Provisions for liabilities and charges                          
Deferred taxation                                (17)     (22)      (21)
Other provisions for liabilities and            (213)    (222)     (206)
charges
_________________________________________________________________________
Net assets                                     1,944    1,107     1,327
_________________________________________________________________________
                                                                
Capital and reserves                                            
Called up share capital                          156      153       153
Share premium account                            774      504       517
Profit and loss account                          901      413       651
_________________________________________________________________________
Equity shareholders' funds                     1,831    1,070     1,321
Equity minority interests                        113       37         6
_________________________________________________________________________
                                               1,944    1,107     1,327
_________________________________________________________________________

Statement of Total Recognised Gains and Losses
for the six months to 30 June 2000


__________________________________________________________________________
                                                      2000   1999     1999
                                                      half   half     full
                                                      year   year     year
                                                        £m     £m       £m
__________________________________________________________________________
Profit/(loss) for the financial period                  88    (41)     294
Other net gains and losses recognised in reserves:                  
  Currency translation differences                      97     71       36
__________________________________________________________________________
Total recognised gains relating to the period          185     30      330
__________________________________________________________________________






Reconciliation of Movements in Equity Shareholders' Funds
for the six months to 30 June 2000

__________________________________________________________________________
                                                      2000   1999    1999
                                                      half   half    full
                                                      year   year    year
                                                        £m     £m      £m
__________________________________________________________________________
Profit/(loss) for the financial period                  88    (41)    294
Dividends on equity shares                             (58)   (54)   (138)
__________________________________________________________________________
                                                        30    (95)    156
Currency translation differences                        97     71      36
Goodwill written back                                  126     40      63
Shares issued                                          257      6      18
__________________________________________________________________________
Net movement for the period                            510     22     273
Equity shareholders' funds at beginning of the                      
period                                               1,321  1,048   1,048
__________________________________________________________________________
Equity shareholders' funds at end of the period      1,831  1,070   1,321
__________________________________________________________________________


Consolidated Statement of Cash Flows
for the six months to 30 June 2000

                                                      2000      1999      1999
                                                      half      half      full
                                                      year      year      year
                                               Note     £m        £m        £m
______________________________________________________________________________
Net cash (outflow)/inflow from operating                                
activities                                        9   (200)      (52)      433
______________________________________________________________________________
Dividends from associates and joint                                     
ventures                                                43        31        44
______________________________________________________________________________
Interest received                                       23        30        41
Interest paid                                         (105)      (98)    (182)
Debt issue costs                                         -         -         5
Dividends paid to minority interests                     -         -       (1)
______________________________________________________________________________
Returns on investments and servicing of                                 
finance                                                (82)      (68)    (147)
______________________________________________________________________________
Taxation                                               (30)      (33)    (156)
______________________________________________________________________________
Purchase of tangible fixed assets                      (65)      (41)    (102)
Sale of tangible fixed assets                            8        10        36
Purchase of investments                                (90)      (19)     (24)
Sale of investments                                      3       108       624
______________________________________________________________________________
Capital expenditure and financial                                       
investment                                            (144)       58       534
______________________________________________________________________________
Purchase of subsidiary and undertakings               (482)      (17)    (249)
Net debt acquired with subsidiary                                       
undertakings                                           (19)        -        -
Purchase of associates and joint ventures              (88)      (48)     (54)
Sale of subsidiary undertakings                          3        31        44
Net cash disposed with subsidiary                                       
undertakings                                             -        (3)      (3)
Sale of associates and joint ventures                  394        12        12
______________________________________________________________________________
Acquisitions and disposals                            (192)      (25)    (250)
______________________________________________________________________________
Equity dividends paid                                  (87)      (79)    (132)
______________________________________________________________________________
Net cash (outflow)/inflow before management                             
of liquid financing resources and financing           (692)     (168)      326
_____________________________________________________________________________
Liquid resources acquired                              (49)       (9)      (9)
Liquid resources disposed                               44        10        10
Collateral deposit placed                              (61)        -         -
______________________________________________________________________________
Management of liquid resources                         (66)        1         1
______________________________________________________________________________
Issue of equity share capital                          257         6        18
Capital element of finance lease rentals                (4)       (5)     (11)
Loan facility repaid                                  (676)     (326)  (1,112)
4.625 per cent Euro Bonds 2004 advanced                  -         -       358
7 per cent Sterling Bonds 2014 advanced                  -         -       250
6.125 per cent Euro Bonds 2007 advanced                368         -         -
Loan notes advanced                                    131         -         -
Net movement in other borrowings                       597       525       202
______________________________________________________________________________
Financing                                              673       200     (295)
______________________________________________________________________________
(Decrease)/increase in cash in the period              (85)       33        32
_____________________________________________________________________________

Notes to the Interim Results
for the six months to 30 June 2000


1.  Basis of preparation
______________________________________________________________________________
The interim results for the six months to 30 June 2000 have been prepared in
accordance with the accounting policies set out in the 1999 Annual Report.
FRS15 'Tangible Fixed Assets' has been adopted.  FRS16 'Current Tax' has also
been adopted and comparative figures have been restated to reflect that UK
dividend income is now presented net of UK tax credits.

2.  Sector analysis
______________________________________________________________________________

                                                  -------- Sales --------
                                                    2000     1999     1999
                                                    half     half     full
                                                    year     year     year
                                                     £m       £m       £m
______________________________________________________________________
Pearson Education                                    647      554    1,725
FT Group                                             408      330      687
The Penguin Group                                    326      263      565
Pearson Television                                   164      159      355
______________________________________________________________________
Continuing operations                              1,545    1,306    3,332
______________________________________________________________________

Sales in respect of internet enterprises, the group's discrete internet
operations, are included within the FT Group £16m (1999 half year: £2m; 1999
full year: £7m).

______________________________________________________________________
                     --- Operating profit ---  --- Operating profit ---
                       (before internet           (after internet
                     enterprises, goodwill     enterprises, goodwill
                     amortisation and other    amortisation and other
                               items)                    items)
                       2000     1999      1999     2000     1999      1999
                      half     half      full     half     half      full
                      year     year      year     year     year      year
                       £m       £m        £m       £m       £m        £m
______________________________________________________________________
Pearson Education      (26)     (38)      257     (108)    (116)       36
FT Group               109       86       150       35       77       103
The Penguin Group       33       31        65       25       31        64
Pearson Television      32       33        68       29       33        67
______________________________________________________________________
Continuing                                                          
operations             148      112       540      (19)      25       270
Discontinued                                                        
operations               8       21        48        8       21        48
______________________________________________________________________
                       156      133       588      (11)      46       318
______________________________________________________________________

The results of internet enterprises are included within Pearson Education £19m
(1999 half year: £nil; 1999 full year: £3m), within FT Group £64m (1999 half
year: £7m; 1999 full year: £36m) and within Pearson Television £1m (1999 half
year: £nil; 1999 full year: £nil).

Other items comprises exceptional items of £11m (1999 half year £15m; 1999
full year £95m) and Year 2000 compliance costs of £nil (1999 half year £2m;
1999 full year £5m).  Exceptional items comprise integration costs of £8m
(1999 half year £15m; 1999 full year £95m) following the acquisition of Simon
& Schuster in 1998 which all relate to the Pearson Education business sector
and integration costs of £3m following the acquisition of Dorling Kindersley
in May 2000 which all relate to the Penguin Group business sector.
Discontinued operations relate to the withdrawal of the Group from the banking
business following its disposal of Lazard on 3 March 2000.

Included in the analysis of operating profit above are the following amounts
in respect of associates and joint ventures:

                                                    2000     1999     1999
                                                    half     half     full
                                                    year     year     year
                                                      £m       £m       £m
______________________________________________________________________
Pearson Education                                      4        4        6
FT Group                                              (8)       7       14
Pearson Television                                     4        1        3
______________________________________________________________________
Continuing operations                                  -       12       23
Discontinued operations                                8       21       48
______________________________________________________________________
                                                       8       33       71
______________________________________________________________________

3.  Profit on sale of fixed assets and investments
______________________________________________________________________________
                                                 2000     1999     1999
                                                 half     half     full
                                                 year     year     year
                                                   £m       £m       £m
______________________________________________________________________
Profit on disposal of interest in BSB Holdings                   
Ltd                                                 -       16      345
Loss on sale of fixed assets relating to the                     
Simon & Schuster acquisition                        -        -       (3)
Net profit on sale of other investments and                      
property interests                                  2        6        7
______________________________________________________________________
Continuing operations                               2       22      349
______________________________________________________________________
Taxation                                            -       (3)     (90)
______________________________________________________________________

4.  (Loss)/profit on sale of businesses and associates
______________________________________________________________________________
                                                 2000     1999     1999
                                                 half     half     full
                                                 year     year     year
                                                   £m       £m       £m
______________________________________________________________________
Loss on sale of Extel research products                          
business                                            -      (16)     (19)
Loss on closure of Simon & Schuster businesses      -       (3)     (12)
Net (loss)/profit on sale of other businesses     (15)       2      (13)
______________________________________________________________________
Continuing operations                             (15)     (17)     (44)
______________________________________________________________________
Profit on sale of Lazard - discontinued                          
operations                                        231        -        -
______________________________________________________________________
Taxation                                          (31)      (3)       5
______________________________________________________________________


5.  Arrangement fee
______________________________________________________________________________
The amortisation of an arrangement fee in respect of a borrowing facility has
been accelerated due to the early redemption of the facility.


6.  Earnings and adjusted earnings per equity share
______________________________________________________________________________

In order to show results from operating activities on a comparable basis two
adjusted earnings per equity share are presented.  Firstly, an adjusted
earnings per equity share is presented which excludes profits or losses on the
sale of fixed assets and investments, businesses and associates (see notes 3
and 4), Year 2000 compliance costs, integration costs in respect of the
acquisitions of Simon & Schuster and Dorling Kindersley and the accelerated
amortisation of a financing arrangement fee.  Goodwill amortisation has also
been excluded from the adjusted earnings calculation following the prospective
implementation of FRS10 'Goodwill and Intangible Assets' in 1998.  Due to a
significant level of expenditure on new internet enterprises, a second
adjusted earnings per equity share is presented in which the results of these
are also excluded from earnings.
                                                 2000     1999      1999
                                                 half     half      full
                                                 year     year      year
                                                   £m       £m        £m
_______________________________________________________________________
Profit/(loss) for the financial period             88      (41)      294
Adjustments:                                                      
(Profit) on sale of fixed assets and                              
investments: continuing operations                 (2)     (22)     (349)
Loss on sale of businesses and associates:                        
continuing operations                              15       17        44
(Profit) on sale of businesses and associates:                    
discontinued operations                          (231)      -          -
(Profit) on sale of businesses and associates                     
by an associate: continuing
Operations                                          -        -        (1)
Internet enterprises                               84        7        39
Interest on internet enterprises                    2        -         -
Minority share of internet enterprises             (2)       -         -
Goodwill amortisation                              72       63       131
Simon & Schuster integration costs                  8       15        95
Dorling Kindersley integration costs                3        -         -
Arrangement fee                                    16        -         -
Year 2000 compliance costs                          -        2         5
Taxation on above items                             9        2        67
_______________________________________________________________________
Adjusted earnings before internet enterprises      62       43       325
_______________________________________________________________________
Internet enterprises                              (84)      (7)      (39)
Interest on internet enterprises                   (2)       -         -
Minority share of internet enterprises              2        -         -
Taxation on internet enterprises                   18        2        10
_______________________________________________________________________
Adjusted (loss)/earnings after internet                           
enterprises                                        (4)      38       296
_______________________________________________________________________
                                                                  
Profit/(loss) for the financial period             88      (41)      294
Tax on the conversion of ordinary shares           (1)       -        (1)
_______________________________________________________________________
Diluted earnings                                   87      (41)      293
_______________________________________________________________________
Weighted average number of equity shares                          
(millions)
- for earnings and adjusted earnings            620.4    609.7     610.2
Effect of dilutive share options                  8.2      6.8       7.0
_______________________________________________________________________
Weighted average number of equity shares                          
(millions)
- for diluted earnings                          628.6    616.5     617.2
_______________________________________________________________________
Adjusted earnings per equity share before                         
internet enterprises                             10.0 p    7.1 p    53.3p
Adjusted (loss)/earnings per equity share                         
after internet enterprises                       (0.6)p    6.3 p    48.5p
Earnings/(loss) per equity share                 14.2 p   (6.6)p    48.2p
Diluted earnings/(loss) per equity share         13.8 p   (6.5)p    47.5p
_______________________________________________________________________


7.  Taxation
______________________________________________________________________________
The tax rate provided in the profit and loss account for the half year is
based on the estimated effective rate for the full year and is analysed as
follows:
_______________________________________________________________________
                                                 2000     1999      1999
                                                 half     half      full
                                                 year     year      year
                                                per cent per cent  per cent
_______________________________________________________________________
United Kingdom tax rate                          30.0     30.2      30.2
Effect of utilisation of tax losses in the USA   (4.5)   (10.6)     (7.7)
Other items                                      (0.5)     5.4       2.5
_______________________________________________________________________
Tax rate reflected in adjusted earnings          25.0     25.0      25.0
Effect of profits/(losses) excluded from                          
adjusted earnings                                 1.0      n/a      12.5
_______________________________________________________________________
Tax rate reflected in earnings                   26.0      n/a      37.5
_______________________________________________________________________

Taxation is analysed as:
_______________________________________________________________________
                                                 2000     1999      1999
                                                 half     half      full
                                                 year     year      year
                                                   £m       £m        £m
_______________________________________________________________________
Parent and subsidiaries                            28       10       162
Associates                                          4        8        15
_______________________________________________________________________
                                                   32       18       177
_______________________________________________________________________

The group continues to have substantial tax losses available in the US which
are not recognised in the accounts and hence the tax rate reflected in
adjusted earnings is lower than the UK tax rate.

8.  Dividends
______________________________________________________________________________
The directors have declared an interim dividend of 9.2p per equity share,
payable on 27 October 2000 to shareholders on the register at the close of
business on 11 August 2000.

9.  Note to consolidated statement of cash flows
______________________________________________________________________________
_______________________________________________________________________
                                                 2000     1999      1999
                                                 half     half      full
                                                 year     year      year
                                                   £m       £m        £m
_______________________________________________________________________
Reconciliation of operating (loss)/profit to                      
net cash (outflow)/inflow from operating
activities
Total operating (loss)/profit                     (11)      46        318
Share of profit of associates and joint                           
ventures                                           (8)     (33)      (71)
Depreciation charges                               44       41        82
Goodwill amortisation                              70       63       130
(Increase) in stocks                             (137)     (69)      (57)
Decrease/(increase) in debtors                     37       46       (71)
(Decrease)/increase in creditors                 (199)    (114)      127
(Decrease) in operating provisions                 (6)     (29)      (33)
Other and non-cash items                           10       (3)        8
_______________________________________________________________________
Net cash (outflow)/inflow from operating                          
activities                                       (200)     (52)      433
_______________________________________________________________________
                                                                  
Purchase of fixed assets and finance lease                        
payments                                          (69)     (46)     (113)
Sale of operating tangible fixed assets             5        2        24
Dividends from associates and joint ventures       43       31        44
Other                                               3        4         8
_______________________________________________________________________
Operating cash flow                              (218)     (61)      396
_______________________________________________________________________
                                                                  
Analysed between:                                                 
Operating cash flow before internet                               
enterprises and other items                      (104)      (8)      540
Cash effect of other items                        (26)     (49)     (110)
Cash effect of internet enterprises               (88)      (4)      (34)
_______________________________________________________________________
Operating cash flow                              (218)     (61)      396
_______________________________________________________________________


10. Exchange rates
______________________________________________________________________________
Pearson earns a significant proportion of its sales and profits in overseas
currencies, the most prominent being the US dollar and the Euro.  The relevant
rates are as follows:
_______________________________________________________________________
                        ---- £ versus US$ -----  ---- £ versus Euro ----
                          2000     1999     1999     2000     1999     1999
                         half     half     full     half     half     full
                         year     year     year     year     year     year
_______________________________________________________________________
Average for operating                                                
profits                   1.56     1.61     1.61     1.65     1.50     1.53
Period end rate           1.51     1.58     1.61     1.58     1.53     1.61
_______________________________________________________________________