NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
1. Basis of preparation
The
condensed consolidated financial statements have been prepared in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the UK’s Financial Conduct Authority and in
accordance with UK-adopted IAS 34 ‘Interim Financial
Reporting’. The condensed consolidated financial statements
should be read in conjunction with the annual financial statements
for the year ended 31 December 2021 which were prepared in
accordance with UK-adopted International Accounting Standards and
with the requirements of the Companies Act 2006 and in accordance
with IFRSs as issued by the International Accounting Standards
Board (IASB). In respect of accounting standards applicable to the
Group, there is no
difference
between UK-adopted IASs and IFRSs as issued by the
IASB.
The
condensed consolidated financial statements have also been prepared
in accordance with the accounting policies set out in the 2021
Annual Report and have been prepared under the historical cost
convention as modified by the revaluation of certain financial
assets and liabilities (including derivative financial instruments)
at fair value. In 2022, the Group classified certain assets as
investment property. The accounting policy in relation to
investment property is as follows:
‘Properties
that are no longer occupied by the Group and which are held for
operating lease rental are classified as investment property.
Investment property assets are carried at cost less accumulated
depreciation and any recognised impairment in value. The
depreciation policies for investment property are consistent with
those described for property, plant and
equipment’.
The
2021 Annual Report refers to new standards that the Group will
adopt in future years but that are not yet effective. The Group
does not expect these to have a material impact.
In
assessing the Group’s ability to continue as a going concern
for the period until 31 December 2023, the Board analysed a variety
of downside scenarios including a severe but plausible scenario
where the Group is impacted by a combination of all principal risks
from 2022 as well as reverse stress testing to identify what would
be required to either breach covenants or run out of liquidity. The
severe but plausible scenario modelled a severe reduction in
revenue, profit and operating cash flow from risks continuing
throughout 2022 to 2023.
At 30
June 2022, the Group had available liquidity of c£1.2bn,
comprising central cash balances and its undrawn $1.19bn Revolving
Credit Facility (RCF) maturing February 2026. Even under a severe
downside case, the Group would maintain comfortable liquidity
headroom and sufficient headroom against covenant requirements
during the period under assessment even before modelling the
mitigating effect of actions that management would take in the
event that these downside risks were to crystallise.
The
directors have confirmed that they have a reasonable expectation
that the Group has adequate resources to continue in operational
existence for a minimum of the next 18 months from the date of
these condensed consolidated financial statements. 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 2021
Annual Report.
In
2022, the Group has progressed with the strategic review of its
international courseware local publishing businesses. The Group's
interests in its Canadian educational publisher ERPI (Éditions
du renouveau pédagogique) were disposed in June 2022 and
certain other assets have met the criteria to be classified as held
for sale at 30 June 2022. Whether the associated results and cash
flows of the related businesses should be classified and presented
as discontinued operations is a significant judgement. The Group's
judgement is that the results and cash flows of the related
businesses should not be classified and presented as discontinued
operations. The basis of this judgement is that the businesses
disposed, or classified as held for sale, do not constitute a
separate major line of business or geographical area of operations.
The Group will continue to operate in the international K12
courseware market and in all geographical areas where disposals
have taken place or are expected to take place. All of the
businesses subject to this judgement are within the Strategic
Review segment and represent £53m of sales for the period
ended 30 June 2022 out of the total sales in the Strategic Review
segment of £79m. If the Group
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
1. Basis of preparation continued
had
concluded that these businesses represented discontinued
operations, their results would not have been included within each
of the continuing operations income statement lines. Profit for the
period from continuing operations would have been £7m lower
and this amount would have been separately presented as profit for
the period from discontinued operations as a single line item. The
Group will continue to monitor these areas of significant
judgement, estimation and risk for material changes.
The
financial information for the year ended 31 December 2021 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 2021 was unqualified and did not contain an
emphasis of matter paragraph or any statement under section 498 of
the Companies Act 2006. The condensed consolidated financial
statements and related notes for the six months to 30 June 2022 are
unaudited but have been reviewed by the auditors and their review
opinion is included at the end of these interim financial
statements.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
2. Segment information
On 8
March 2021, the Group announced a new strategy, which included a
new management structure and operating model. As a result, the
primary operating segments reported to the Group’s chief
operating decision-maker, the Pearson Executive Management team
changed from 1 July 2021 to reflect the new Group structure. There
are now five main global business divisions, which are each
considered separate operating segments for management and reporting
purposes. These five divisions are Assessment & Qualifications,
Virtual Learning, English Language Learning, Higher Education and
Workforce Skills. In addition, the International Courseware local
publishing businesses are under strategic review and during this
time are being managed as a separate division, known as Strategic
Review. See note 2 of the 2021 Annual Report and Accounts for
further information about each division. Comparative figures for
half year 2021 have been restated to reflect the new operating
segments.
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
|
half year
|
half
year
|
full
year
|
|
|
|
|
|
Sales
|
|
|
|
|
Assessment &
Qualifications
|
|
697
|
573
|
1,204
|
Virtual
Learning
|
|
390
|
353
|
713
|
English
Language Learning
|
|
122
|
94
|
238
|
Workforce
Skills
|
|
127
|
112
|
172
|
Higher
Education
|
|
373
|
365
|
849
|
Strategic
Review
|
|
79
|
100
|
252
|
Total
sales
|
|
1,788
|
1,597
|
3,428
|
|
|
|
|
|
Adjusted
operating profit
|
|
|
|
|
Assessment &
Qualifications
|
|
137
|
96
|
216
|
Virtual
Learning
|
|
14
|
14
|
32
|
English
Language Learning
|
|
(4)
|
(13)
|
15
|
Workforce
Skills
|
|
28
|
34
|
27
|
Higher
Education
|
|
(4)
|
4
|
73
|
Strategic
Review
|
|
(11)
|
(8)
|
22
|
Total
adjusted operating profit
|
160
|
127
|
385
|
There
were no material inter-segment sales.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
2. Segment information continued
The
Group derived revenue from the transfer of goods and services over
time and at a point in time in the following major product
lines:
all figures in £ millions
|
Assessment
& Qualifications
|
Virtual
Learning
|
English
Language Learning
|
Workforce
Skills
|
Higher
Education
|
Strategic
Review
|
Total
|
|
|
|
|
|
|
|
|
2022
half year
|
Courseware
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
20
|
-
|
41
|
1
|
92
|
67
|
221
|
Products and
services transferred over time
|
8
|
-
|
8
|
-
|
278
|
9
|
303
|
|
28
|
-
|
49
|
1
|
370
|
76
|
524
|
Assessments
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
80
|
-
|
4
|
10
|
-
|
-
|
94
|
Products and
services transferred over time
|
589
|
-
|
55
|
94
|
-
|
-
|
738
|
|
669
|
-
|
59
|
104
|
-
|
-
|
832
|
Services
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
-
|
-
|
10
|
-
|
-
|
-
|
10
|
Products and
services transferred over time
|
-
|
390
|
4
|
22
|
3
|
3
|
422
|
|
-
|
390
|
14
|
22
|
3
|
3
|
432
|
|
|
|
|
|
|
|
|
Total
sales
|
697
|
390
|
122
|
127
|
373
|
79
|
1,788
|
|
|
|
|
|
|
|
|
2021
half year
|
Courseware
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
20
|
-
|
43
|
-
|
84
|
72
|
219
|
Products and
services transferred over time
|
6
|
-
|
8
|
-
|
277
|
15
|
306
|
|
26
|
-
|
51
|
-
|
361
|
87
|
525
|
Assessments
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
73
|
-
|
2
|
9
|
-
|
-
|
84
|
Products and
services transferred over time
|
474
|
-
|
33
|
84
|
-
|
-
|
591
|
|
547
|
-
|
35
|
93
|
-
|
-
|
675
|
Services
|
|
|
|
|
-
|
|
|
Products
transferred at a point in time
|
-
|
-
|
8
|
-
|
-
|
11
|
19
|
Products and
services transferred over time
|
-
|
353
|
-
|
19
|
4
|
2
|
378
|
|
-
|
353
|
8
|
19
|
4
|
13
|
397
|
|
|
|
|
|
|
|
|
Total
sales
|
573
|
353
|
94
|
112
|
365
|
100
|
1,597
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
2. Segment information continued
all figures in £ millions
|
Assessment &
Qualifications
|
Virtual
Learning
|
English
Language Learning
|
Workforce
Skills
|
Higher
Education
|
Strategic
Review
|
Total
|
|
|
|
|
|
|
|
|
2021
full year
|
Courseware
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
44
|
-
|
109
|
-
|
283
|
198
|
634
|
Products and
services transferred over time
|
14
|
-
|
26
|
-
|
558
|
33
|
631
|
|
58
|
-
|
135
|
-
|
841
|
231
|
1,265
|
Assessments
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
173
|
-
|
6
|
16
|
-
|
-
|
195
|
Products and
services transferred over time
|
973
|
-
|
72
|
119
|
-
|
-
|
1,164
|
|
1,146
|
-
|
78
|
135
|
-
|
-
|
1,359
|
Services
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
-
|
-
|
22
|
-
|
-
|
14
|
36
|
Products and
services transferred over time
|
-
|
713
|
3
|
37
|
8
|
7
|
768
|
|
-
|
713
|
25
|
37
|
8
|
21
|
804
|
|
|
|
|
|
|
|
|
Total
sales
|
1,204
|
713
|
238
|
172
|
849
|
252
|
3,428
|
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, but excludes charges for intangible amortisation and
impairment, acquisition related costs, gains and losses arising
from acquisitions and disposals and the cost of major
restructuring.
In
March 2021, the Group announced a major restructuring programme to
run primarily in 2021. The programme included the reorganisation of
the Group into five global business divisions and the
simplification of the Group’s property portfolio. The
restructuring costs in 2021 mainly relate to the impairment of
right of use property assets, the write-down of product development
assets and staff redundancies. There is no cost of major
restructuring in the first half of 2022.
Intangible
amortisation charges to the end of June 2022 were £26m
compared to a charge of £27m in the equivalent period in 2021.
This is due to increased amortisation from recent acquisitions
which is more than offset by a reduction in amortisation from
intangible assets at the end of their useful life and recent
disposals.
Other
net gains and losses of £14m in 2022 relate to the gain on
disposal of the ERPI business and a gain arising on a decrease in
the deferred consideration payable on prior year acquisitions,
offset by costs related to disposals and acquisitions. Costs
related to disposals and acquisitions include amounts payable to
former owners or employees in relation to acquired businesses that
are dependent on future employment and therefore do not meet the
criteria to be included as part of the acquisition consideration,
adjustments to deferred or contingent consideration from
transactions from previous periods, and transaction costs relating
to acquisition and disposal activity in the current period. Other
net gains and losses in the first half of 2021 largely related to
the disposal of PIHE and at the full year also included the
disposal of the K12 Sistemas business in Brazil offset by costs
related to the acquisition of Faethm and the wind down of certain
strategic review businesses.
Adjusted operating
profit should not be regarded as a complete picture of the
Group’s financial performance. For example, adjusted
operating profit includes the benefits of major restructuring
programmes but excludes the significant associated costs, and
adjusted operating profit excludes costs related to acquisitions,
and the amortisation of intangibles acquired in business
combinations, but does not exclude the associated revenues. The
Group’s definition of adjusted operating profit may not be
comparable to other similarly titled measures reported by other
companies.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
2. Segment information continued
The
following table reconciles adjusted operating profit to operating
profit for each of our operating segments:
all figures in £ millions
|
Assessment
& Qualifications
|
Virtual
Learning
|
English
Language Learning
|
Workforce
Skills
|
Higher
Education
|
Strategic
Review
|
Total
|
2022
half year
|
Adjusted operating
profit / (loss)
|
137
|
14
|
(4)
|
28
|
(4)
|
(11)
|
160
|
Cost of
major restructuring
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Intangible
charges
|
(7)
|
(10)
|
(2)
|
(5)
|
(2)
|
-
|
(26)
|
Other
net gains and losses
|
-
|
-
|
(3)
|
4
|
-
|
13
|
14
|
Operating
profit / (loss)
|
130
|
4
|
(9)
|
27
|
(6)
|
2
|
148
|
2021
half year
|
Adjusted operating
profit / (loss)
|
96
|
14
|
(13)
|
34
|
4
|
(8)
|
127
|
Cost of
major restructuring
|
(24)
|
(15)
|
(11)
|
(13)
|
(22)
|
-
|
(85)
|
Intangible
charges
|
(7)
|
(12)
|
(3)
|
(4)
|
(1)
|
-
|
(27)
|
Other
net gains and losses
|
-
|
-
|
-
|
-
|
-
|
(6)
|
(6)
|
Operating
profit / (loss)
|
65
|
(13)
|
(27)
|
17
|
(19)
|
(14)
|
9
|
2021
full year
|
Adjusted operating
profit / (loss)
|
216
|
32
|
15
|
27
|
73
|
22
|
385
|
Cost of
major restructuring
|
(48)
|
(48)
|
(27)
|
(28)
|
(63)
|
-
|
(214)
|
Intangible
charges
|
(13)
|
(25)
|
(3)
|
(7)
|
(2)
|
(1)
|
(51)
|
Other
net gains and losses
|
-
|
-
|
-
|
(2)
|
-
|
65
|
63
|
Operating
profit / (loss)
|
155
|
(41)
|
(15)
|
(10)
|
8
|
86
|
183
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
3. Net finance costs
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
|
half year
|
half
year
|
full
year
|
|
|
|
|
|
Net
interest receivable / (payable)
|
|
18
|
(27)
|
(57)
|
Net
finance income in respect of retirement benefits
|
|
4
|
2
|
4
|
Fair
value re-measurement of disposal proceeds
|
|
-
|
5
|
6
|
Interest on
deferred and contingent consideration
|
|
(1)
|
-
|
-
|
Net
foreign exchange gains
|
|
1
|
1
|
1
|
Derivatives not in
a hedge relationship
|
|
14
|
14
|
20
|
Interest on tax
provisions
|
|
(5)
|
-
|
-
|
Net
finance income / (costs)
|
|
31
|
(5)
|
(26)
|
|
|
|
|
|
Analysed
as:
|
|
|
|
|
Finance
costs
|
|
(8)
|
(31)
|
(68)
|
Finance
income
|
|
39
|
26
|
42
|
Net
finance income / (costs)
|
|
31
|
(5)
|
(26)
|
|
|
|
|
|
Analysed
as:
|
|
|
|
|
Net
interest receivable / (payable) reflected in adjusted
earnings
|
|
18
|
(27)
|
(57)
|
Other
net finance income
|
|
13
|
22
|
31
|
Net
finance income / (costs)
|
|
31
|
(5)
|
(26)
|
Net
interest receivable / (payable) is the finance cost measure used in
calculating adjusted earnings. Net finance income classified as
other net finance income are excluded in the calculation of the
Group’s adjusted earnings.
Net
finance income in respect of retirement benefits is excluded as it
is considered that the income statement 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 arrangements of the Group. In 2021, the fair
value re-measurement of disposal proceeds relates to proceeds from
the US K12 disposal in 2019.
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. Gains on derivatives not in a
hedge relationship represent the unrealised mark to market of
long-term interest rate hedges used to fix the interest rate of
borrowings.
Interest
on certain tax provisions is excluded from our adjusted measure in
order to mirror the treatment of the underlying tax
item.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
4.
Profit before tax
|
|
|
|
|
all figures in £ millions
|
note
|
2022
|
2021
|
2021
|
|
|
half year
|
half
year
|
full
year
|
|
|
|
|
|
Profit
before tax
|
|
179
|
4
|
157
|
Cost of
major restructuring
|
2
|
-
|
85
|
214
|
Other
net gains and losses
|
2
|
(14)
|
6
|
(63)
|
Intangible
charges
|
2
|
26
|
27
|
51
|
Other
net finance income
|
3
|
(13)
|
(22)
|
(31)
|
Adjusted
profit before tax
|
|
178
|
100
|
328
|
5.
Income tax
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
|
half year
|
half
year
|
full
year
|
|
|
|
|
|
Income
tax (charge) / benefit
|
|
(48)
|
14
|
3
|
Tax
benefit on cost of major restructuring
|
|
-
|
(21)
|
(47)
|
Tax
charge / (benefit) on other net gains and losses
|
|
34
|
(10)
|
14
|
Tax
benefit on intangible charges
|
|
(6)
|
(12)
|
(12)
|
Tax
charge on other net finance income
|
|
3
|
5
|
6
|
Tax
amortisation benefit on goodwill and intangibles
|
|
7
|
4
|
8
|
Benefit
from change in tax accounting treatment
|
|
-
|
-
|
(11)
|
Tax
charge / (benefit) on UK tax rate change
|
|
1
|
-
|
(25)
|
Adjusted
income tax charge
|
|
(9)
|
(20)
|
(64)
|
|
|
|
|
|
Tax
rate reflected in statutory earnings
|
|
26.8%
|
(350.0)%
|
(1.8)%
|
Tax
rate reflected in adjusted earnings
|
|
5.1%
|
20.0
%
|
19.5%
|
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
charge on other net gains and losses of £34m is primarily the
impact of the release of tax risk provisions of £35m offset
with the recognition of a provision of £63m related to the
potential State Aid exposure.
The tax
benefit from tax deductible goodwill and intangibles is added to
the adjusted income tax charge as this benefit more accurately
aligns the adjusted tax charge with the expected rate of cash tax
payments.
The
2022 adjusted tax charge includes the impact of the release of tax
risk provisions of £37m following the expiry of the statute of
limitations for certain periods in the US.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
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.
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
|
half year
|
half
year
|
full
year
|
|
|
|
|
|
Earnings for the
period
|
|
131
|
18
|
160
|
Non-controlling
interest
|
|
-
|
(1)
|
(1)
|
Earnings
attributable to equity shareholders
|
|
131
|
17
|
159
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares (millions)
|
|
750.3
|
753.2
|
754.1
|
Effect
of dilutive share options (millions)
|
|
2.6
|
3.4
|
5.0
|
Weighted average
number of shares (millions) for diluted earnings
|
|
752.9
|
756.6
|
759.1
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
Basic
|
|
17.5p
|
2.3p
|
21.1p
|
Diluted
|
|
17.4p
|
2.2p
|
20.9p
|
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 period ended 30 June 2022
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
|
Tax
amortisation benefit
|
Change
in UK tax rate
|
Benefit
from change in tax accounting treatment
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
|
2022 half year
|
Operating
profit / (loss)
|
2
|
148
|
-
|
(14)
|
26
|
-
|
-
|
-
|
-
|
160
|
Net
finance income / (costs)
|
3
|
31
|
-
|
-
|
-
|
(13)
|
-
|
-
|
-
|
18
|
Profit
/ (loss) before tax
|
4
|
179
|
-
|
(14)
|
26
|
(13)
|
-
|
-
|
-
|
178
|
Income
tax
|
5
|
(48)
|
-
|
34
|
(6)
|
3
|
7
|
1
|
-
|
(9)
|
Profit
/ (loss) for the year
|
|
131
|
-
|
20
|
20
|
(10)
|
7
|
1
|
-
|
169
|
Non-controlling
interest
|
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Earnings
/ (loss)
|
|
131
|
-
|
20
|
20
|
(10)
|
7
|
1
|
-
|
169
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares (millions)
|
|
|
|
|
750.3
|
Weighted average number of shares (millions) for diluted
earnings
|
|
|
|
|
752.9
|
|
|
|
|
|
|
Adjusted earnings per share (basic)
|
|
|
|
|
22.5p
|
Adjusted earnings per share (diluted)
|
|
|
|
|
22.4p
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
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
|
Tax
amortisation benefit
|
Change
in UK tax rate
|
Benefit
from change in tax accounting treatment
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
|
2021
half year
|
Operating
profit
|
2
|
9
|
85
|
6
|
27
|
-
|
-
|
-
|
-
|
127
|
Net
finance costs
|
4
|
(5)
|
-
|
-
|
-
|
(22)
|
-
|
-
|
-
|
(27)
|
Profit
/ (loss) before tax
|
5
|
4
|
85
|
6
|
27
|
(22)
|
-
|
-
|
-
|
100
|
Income
tax
|
6
|
14
|
(21)
|
(10)
|
(12)
|
5
|
4
|
-
|
-
|
(20)
|
Profit
/ (loss) for the year
|
|
18
|
64
|
(4)
|
15
|
(17)
|
4
|
-
|
-
|
80
|
Non-controlling
interest
|
|
(1)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1)
|
Earnings
/ (loss)
|
|
17
|
64
|
(4)
|
15
|
(17)
|
4
|
-
|
-
|
79
|
Weighted
average number of shares (millions)
|
|
|
|
753.2
|
Weighted
average number of shares (millions) for diluted
earnings
|
|
|
|
756.6
|
|
|
|
|
|
Adjusted
earnings per share (basic)
|
|
|
|
10.5p
|
Adjusted
earnings per share (diluted)
|
|
|
|
10.4p
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
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
|
Tax
amortisation benefit
|
Change
in UK tax rate
|
Benefit
from change in tax accounting treatment
|
Adjusted
income statement
|
|
2021
full year
|
Operating
profit / (loss)
|
2
|
183
|
214
|
(63)
|
51
|
-
|
-
|
-
|
-
|
385
|
Net
finance costs
|
4
|
(26)
|
-
|
-
|
-
|
(31)
|
-
|
-
|
-
|
(57)
|
Profit
/ (loss) before tax
|
5
|
157
|
214
|
(63)
|
51
|
(31)
|
-
|
-
|
-
|
328
|
Income
tax
|
6
|
3
|
(47)
|
14
|
(12)
|
6
|
8
|
(25)
|
(11)
|
(64)
|
Profit
/ (loss) for the year
|
|
160
|
167
|
(49)
|
39
|
(25)
|
8
|
(25)
|
(11)
|
264
|
Non-controlling
interest
|
|
(1)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1)
|
Earnings
/ (loss)
|
|
159
|
167
|
(49)
|
39
|
(25)
|
8
|
(25)
|
(11)
|
263
|
Weighted
average number of shares (millions)
|
|
|
|
754.1
|
Weighted
average number of shares (millions) for diluted
earnings
|
|
|
|
759.1
|
|
|
|
|
|
Adjusted
earnings per share (basic)
|
|
|
|
34.9p
|
Adjusted
earnings per share (diluted)
|
|
|
|
34.6p
|
8.
Dividends
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
|
half year
|
half
year
|
full
year
|
|
|
|
|
|
Amounts
recognised as distributions to equity shareholders in the
period
|
|
107
|
102
|
149
|
The
directors are declaring an interim dividend of 6.6p per equity
share, payable on 19 September 2022 to shareholders on the register
at the close of business on 12 August 2022. This interim dividend,
which will absorb an estimated £49m of shareholders’
funds, has not been included as a liability as at 30 June
2022.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
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:
|
|
|
|
|
|
|
2022
|
2021
|
2021
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Average
rate for profits
|
|
1.30
|
1.39
|
1.38
|
Period
end rate
|
|
1.21
|
1.38
|
1.35
|
10.
Non-current intangible assets
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Goodwill
|
|
2,470
|
2,073
|
2,145
|
Other
intangibles
|
|
744
|
613
|
624
|
Non-current
intangible assets
|
|
3,214
|
2,686
|
2,769
|
In
2022, business combinations resulted in the recognition of
additional goodwill of £204m and intangible assets of
£109m (see note 11 for further details). In addition, the
table above excludes goodwill and intangible assets of £75m
which are classified as held for sale. Other movements in the
goodwill balance relate to foreign exchange differences and in the
intangibles balance relate to amortisation offset by foreign
exchange differences.
In
2022, in light of the sale of the Canadian educational publisher
ERPI, and the classification of certain assets and liabilities as
held for sale, the CGUs within the Strategic Review segment have
been revised. Goodwill has been reallocated to the new CGUs within
the Strategic Review segment on a relative value basis. The
methodology and assumptions for the relative value allocation are
consistent with those used in 2021.
The
CGUs which hold the assets and liabilities classified as held for
sale have been assessed for impairment using a fair value less
costs to dispose valuation method. No impairment was identified.
The Group has assessed its remaining goodwill and intangibles for
impairment triggers and concluded that a full goodwill impairment
review is not required at 30 June 2022.
The
2021 Annual Report sets out the key assumptions by segment. The
discount rate, perpetuity growth rate and other assumptions used in
the impairment review, and the sensitivity to changes in those
assumptions remain broadly the same as the position outlined in the
2021 Annual Report in that none of the CGUs or groups of CGUs were
sensitive to reasonably possible changes in the key assumptions
used in the impairment review, including those related to climate
change.
There
were no significant impairments to acquisition related or other
intangibles in the first half of 2022 or 2021.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
11.
Business Combinations
On 28
January 2022, the Group acquired 100% of the share capital in
Credly Inc (Credly), having previously held a 19.9% interest in the
company. Credly was founded in 2012 in New York and is a digital
credential service provider whose platform enables customers to
design, create, issue and manage digital credentials. It will form
part of the Workforce Skills division. Total consideration was
£149m comprising upfront cash consideration of £107m,
Pearson’s existing interest valued at £31m and £11m
of deferred consideration. The deferred consideration is payable in
two years, with additional amounts being payable if certain revenue
and non-financial targets are met, and dependent on continuing
employment, and therefore these additional amounts will be expensed
over the period and are not treated as consideration.
On 28
April 2022, the Group acquired 100% of the share capital of ATI
STUDIOS A.P.P.S S.R.L (Mondly), a global online learning platform
offering customers learning in English and 40 other languages via
its app, website, virtual reality and augmented reality products.
It will form part of the English Language Learning division. Total
consideration was £135m comprising upfront cash consideration
of £105m, and deferred consideration of £30m. The
deferred consideration is payable over the next two years with no
performance conditions attached. In addition, a further $29.6m
(c£24m) of cash and $10m (c£8m) in shares will be paid
over the next four years, dependent on continuing employment, and
therefore these additional amounts will be expensed over the period
and are not treated as consideration.
These
transactions have resulted in the recognition of £202m of
goodwill, which represents the expected growth through new products
and customers, the workforce and know-how acquired and the
anticipated synergies, none of which can be recognised as separate
intangible assets. The goodwill is not deductible for tax
purposes.
In
2022, the Group also made two smaller acquisitions in the period
for total consideration of £11m.
In
2021, the Group acquired Faethm for total consideration of
£65m, as well as two smaller acquisitions for total
consideration of £11m. Details of the fair values of the
assets acquired and the consideration are shown in the table below.
Amounts are provisional as management finalise reviews of the asset
valuations.
|
|
|
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2022
|
2022
|
2022
|
2021
|
2021
|
|
|
Credly
|
Mondly
|
Other
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
49
|
50
|
10
|
109
|
2
|
27
|
Deferred tax
assets
|
|
7
|
1
|
-
|
8
|
-
|
11
|
Trade and other
receivables
|
|
6
|
2
|
1
|
9
|
-
|
2
|
Cash and cash
equivalents
|
|
12
|
1
|
-
|
13
|
-
|
4
|
Trade and other
liabilities
|
|
(18)
|
(8)
|
-
|
(26)
|
-
|
(5)
|
Deferred tax
liabilities
|
|
(12)
|
(8)
|
(2)
|
(22)
|
-
|
(6)
|
Net
assets acquired
|
|
44
|
38
|
9
|
91
|
2
|
33
|
Goodwill
|
|
105
|
97
|
2
|
204
|
2
|
43
|
Total
|
|
149
|
135
|
11
|
295
|
4
|
76
|
|
|
|
|
|
|
|
|
Satisfied
by:
|
|
|
|
|
|
|
|
Cash
consideration
|
|
107
|
105
|
11
|
223
|
2
|
54
|
Deferred and
contingent consideration
|
|
11
|
30
|
-
|
41
|
2
|
16
|
Fair value of
existing investment
|
|
31
|
-
|
-
|
31
|
-
|
6
|
Total
consideration
|
|
149
|
135
|
11
|
295
|
4
|
76
|
Credly
generated revenues of £6m and a loss before tax of £1m
for the period from acquisition date to 30 June 2022. Mondly
generated revenues of £3m and a profit before tax of £1m
for the period from acquisition date to 30 June 2022. If the
acquisitions had occurred on 1 January 2022, the Group’s
revenue would have been £7m higher and the profit before tax
would not have been materially different.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
11. Business Combinations continued
The net
cash outflow relating to acquisitions in the period is shown in the
table below including £7m (2021: £4m) relating to
deferred payments for prior year acquisitions.
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Cash –
current year acquisitions
|
|
(223)
|
(2)
|
(54)
|
Cash and cash
equivalents acquired
|
|
13
|
-
|
4
|
Deferred payments
for prior year acquisitions
|
|
(7)
|
(4)
|
(4)
|
Acquisition costs
paid
|
|
(4)
|
-
|
(1)
|
Net
cash outflow on acquisitions
|
|
(221)
|
(6)
|
(55)
|
In
addition to the cash flows relating to subsidiaries above, the
Group also acquired an associate for cash consideration of £2m
(2021: £5m) and paid a further £2m that was payable in
respect of an existing investment in an associate.
12.
Disposals and business closures
In June
2022, the Group disposed of its interest in the Canadian
educational publisher, ERPI for cash consideration of £36m,
resulting in a pre-tax gain on sale of £23m. There have been
no other significant disposals in the first half of 2022.
Additional losses of £10m relate to other disposals including
costs related to the disposal of certain businesses under strategic
review. In February 2021, the Group completed the sale of its
interests in PIHE in South Africa resulting in a pre-tax loss of
£5m. In October 2021, the sale of the Group’s interests
in K12 Sistemas in Brazil was also completed for consideration of
£108m, resulting in a gain on sale of £84m. There were no
other business disposals in 2021 and additional losses of £14m
relate to other disposal costs including costs related to the
wind-down of certain businesses under strategic review. Deferred
proceeds relating to the K12 sale were received in 2022 and
2021.
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
notes
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Intangible
assets
|
|
(1)
|
-
|
(3)
|
Property, plant and
equipment
|
|
-
|
(48)
|
(48)
|
Intangible assets
– product development
|
|
(9)
|
-
|
(6)
|
Inventories
|
|
(7)
|
-
|
(2)
|
Trade
and other receivables
|
|
(5)
|
(2)
|
(6)
|
Cash
and cash equivalents (excluding overdrafts)
|
|
(3)
|
(21)
|
(24)
|
Trade
and other liabilities
|
|
6
|
1
|
4
|
Provisions for
other liabilities and charges
|
|
-
|
3
|
3
|
Financial
liabilities - borrowings
|
|
-
|
67
|
67
|
Net
assets disposed
|
|
(19)
|
-
|
(15)
|
|
|
|
|
|
Cumulative
translation adjustment
|
|
7
|
(4)
|
(4)
|
Cash
proceeds
|
|
38
|
-
|
108
|
Costs
of disposal
|
|
(13)
|
(2)
|
(24)
|
Gain
/ (loss) on disposal
|
|
13
|
(6)
|
65
|
|
|
|
|
|
Cash
flow from disposals
|
|
|
|
|
Proceeds –
current year disposals
|
|
38
|
-
|
108
|
Proceeds –
prior year disposals
|
15
|
87
|
16
|
16
|
Cash
and cash equivalents disposed
|
|
(3)
|
(21)
|
(24)
|
Costs
and other disposal liabilities paid
|
|
(14)
|
(2)
|
(17)
|
Net
cash inflow / (outflow) from disposals
|
|
108
|
(7)
|
83
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the
period ended 30 June 2022
13. Assets and liabilities held for sale
Assets
and businesses are classified as held for sale when their carrying
amounts are recovered through sale rather than through continuing
use. They only meet the held for sale condition when the assets are
ready for immediate sale in their present condition, management is
committed to the sale and it is highly probable that the sale will
complete within one year. Depreciation ceases on assets and
businesses when they are classified as held for sale and the assets
and businesses are impaired if their carrying value exceeds their
fair value less expected costs to sell.
The
held for sale assets and liabilities in 2022 are the Group’s
interests in the parts of the Strategic Review division which are
in the process of being sold or where a disposal agreement has
already been reached but the sale has not yet completed. The assets
and liabilities which leave the group at the point of disposal may
differ from those shown in the table below.
At
31 December 2021, a property that was subsequently sold in 2022 was
classified as held for sale. At 30 June 2021, the assets and
liabilities classified as held for sale were the Group’s
interests in K12 Sistemas in Brazil following announcement of the
sale in March 2021, with the sale completing in October 2021 (see
note 12).
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
|
half year
|
half
year
|
full
year
|
|
|
|
|
|
Property, plant and
equipment
|
|
9
|
-
|
7
|
Intangible
assets
|
|
75
|
3
|
-
|
Deferred income tax
assets
|
|
14
|
1
|
-
|
Intangible assets
– pre-publication
|
|
26
|
6
|
-
|
Inventories
|
|
28
|
3
|
-
|
Trade
and other receivables
|
|
49
|
5
|
-
|
Provisions for
liabilities and charges
|
|
(2)
|
-
|
-
|
Trade
and other liabilities
|
|
(33)
|
(3)
|
-
|
Financial
liabilities – borrowings
|
|
(7)
|
-
|
-
|
Net
assets classified as held for sale
|
|
159
|
15
|
7
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
14.
Net debt
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
|
half year
|
half
year
|
full
year
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
Derivative
financial instruments
|
|
33
|
34
|
30
|
Trade
and other receivables – investment in finance
lease
|
|
109
|
105
|
100
|
Current
assets
|
|
|
|
|
Derivative
financial instruments
|
|
1
|
5
|
2
|
Trade
and other receivables – investment in finance
lease
|
|
17
|
16
|
15
|
Cash
and cash equivalents (excluding overdrafts)
|
|
392
|
648
|
937
|
Non-current
liabilities
|
|
|
|
|
Borrowings
|
|
(1,158)
|
(1,259)
|
(1,245)
|
Derivative
financial instruments
|
|
(44)
|
(31)
|
(30)
|
Current
liabilities
|
|
|
|
|
Borrowings
|
|
(150)
|
(156)
|
(155)
|
Derivative
financial instruments
|
|
(10)
|
(8)
|
(4)
|
Net
debt
|
|
(810)
|
(646)
|
(350)
|
Included in
borrowings at 30 June 2022 are lease liabilities of £630m
(non-current £557m, current £73m). This compares to lease
liabilities of £651m (non-current £581m, current
£70m) at 30 June 2021 and £633m (non-current £565m,
current £68m) at 31 December 2021. The net lease liability at
30 June 2022 after including the investment in finance leases noted
above was £504m (2021 half year: £530m, 2021 full year:
£518m). Net debt excluding net lease liabilities is £306m
(2021 half year: net debt £116m, 2021 full year: net cash
£168m).
In May
2022, the Group repaid its $117m (£95m) USD 3.75% notes upon
maturity. In May 2021, the Group repaid the remaining €195m
(£167m) of its €500m Euro 1.85% notes.
In
2022, the movement on borrowings reflects the repayment of the 2022
USD 3.75% notes. In addition, the 2023 USD 3.25% notes have been
reclassified from non-current to current borrowings. Movements on
derivative liabilities reflect the close out of the remaining 2029
USD interest rate swaps taken out to hedge future USD borrowings
with the proceeds being used to pay down the mark to market on
other derivatives reducing future interest costs and movements in
the mark to market of long-term interest rate hedges used to fix
the interest rate of borrowings.
In
2022, net debt presented above includes non-current borrowings of
£7m which are included in assets and liabilities held for
sale.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
15.
Classification of assets and liabilities measured at fair
value
|
Level
1
|
Level
2
|
---Level
3---
|
Total
fair value
|
all figures in £ millions
|
FVTPL
– Cash and cash equivalents
|
Derivatives
|
FVOCI
Investments
|
FVTPL -
Other
|
|
|
|
|
|
|
2022
half year
|
|
|
|
|
|
|
Investments in
unlisted securities
|
-
|
-
|
120
|
-
|
120
|
Other
receivables
|
-
|
-
|
-
|
-
|
-
|
Cash
and cash equivalents
|
23
|
-
|
-
|
-
|
23
|
Derivative
financial instruments
|
-
|
34
|
-
|
-
|
34
|
Total
financial assets held at fair value
|
23
|
34
|
120
|
-
|
177
|
|
|
|
|
|
|
Derivative
financial instruments
|
-
|
(54)
|
-
|
-
|
(54)
|
Deferred and
contingent consideration
|
-
|
-
|
-
|
(79)
|
(79)
|
Total
financial liabilities held at fair value
|
-
|
(54)
|
-
|
(79)
|
(133)
|
|
|
|
|
|
|
2021
half year
|
|
|
|
|
|
|
Investments in
unlisted securities
|
-
|
-
|
160
|
-
|
160
|
Other
receivables
|
-
|
-
|
-
|
84
|
84
|
Cash
and cash equivalents
|
75
|
-
|
-
|
-
|
75
|
Derivative
financial instruments
|
-
|
39
|
-
|
-
|
39
|
Total
financial assets held at fair value
|
75
|
39
|
160
|
84
|
358
|
|
|
|
|
|
|
Derivative
financial instruments
|
-
|
(39)
|
-
|
-
|
(39)
|
Deferred and
contingent consideration
|
-
|
-
|
-
|
(29)
|
(29)
|
Total
financial liabilities held at fair value
|
-
|
(39)
|
-
|
(29)
|
(68)
|
|
|
|
|
|
|
2021
full year
|
|
|
|
|
|
|
Investments in
unlisted securities
|
-
|
-
|
113
|
-
|
113
|
Other
receivables
|
-
|
-
|
-
|
87
|
87
|
Cash
and cash equivalents
|
84
|
-
|
-
|
-
|
84
|
Derivative
financial instruments
|
-
|
32
|
-
|
-
|
32
|
Total
financial assets held at fair value
|
84
|
32
|
113
|
87
|
316
|
|
|
|
|
|
|
Derivative
financial instruments
|
-
|
(34)
|
-
|
-
|
(34)
|
Deferred and
contingent consideration
|
-
|
-
|
-
|
(44)
|
(44)
|
Total
financial liabilities held at fair value
|
-
|
(34)
|
-
|
(44)
|
(78)
|
There
have been no transfers in classification during the
year.
Level 1
valuations are based on unadjusted quoted prices in active markets
for identical financial instruments. Cash and cash equivalents
include money market funds which are treated as fair value through
profit and loss (FVTPL) under IFRS 9 with the fair value movements
recognised as finance income or cost.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
15. 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. Individually these
assets are immaterial and therefore no sensitivities have been
disclosed.
Other
receivables relate to amounts due following the sale of the US K12
courseware business in March 2019. In the first half of 2021, the
Group received a partial repayment of the vendor note and the
remaining £87m was repaid in January 2022.
The
movements in fair values of level 3 financial assets measured at
fair value, being the other receivable and investments in unlisted
securities, are shown in the table below:
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
At
beginning of period
|
|
200
|
234
|
234
|
Exchange
differences - OCI
|
|
9
|
(2)
|
2
|
Additions
|
|
4
|
1
|
4
|
Repayments
|
|
(87)
|
(16)
|
(16)
|
Disposals
|
|
(31)
|
-
|
(54)
|
Fair
value movements – Income Statement
|
|
-
|
5
|
6
|
Fair
value movements - OCI
|
|
25
|
22
|
24
|
At
end of period
|
|
120
|
244
|
200
|
The
movement in the fair value of the deferred and contingent
consideration is shown in the table below:
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
At
beginning of period
|
|
(44)
|
(30)
|
(30)
|
Exchange
differences
|
|
(7)
|
(1)
|
(1)
|
Acquisitions
|
|
(41)
|
(2)
|
(16)
|
Fair
value movements – Income Statement
|
|
6
|
-
|
(1)
|
Repayments
|
|
7
|
4
|
4
|
At end of period
|
|
(79)
|
(29)
|
(44)
|
In
2022, disposals of investments in unlisted securities include the
impact of acquiring the remaining shares in Credly
Inc.
The
market value of the Group’s bonds is £658m (2021 half
year: £815m, 2021 full year: £798m) compared to their
carrying value of £678m (2021 half year: £763m, 2021 full
year: £767m). For all other financial assets and liabilities,
fair value is not materially different to carrying
value.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
16. Cash flows
Operating cash flow
and free cash flow are non-GAAP measures and have been disclosed as
they are part of the Group’s corporate and operating
measures. These measures are presented in order to align the cash
flows with corresponding adjusted profit measures. The table below
reconciles the statutory profit and cash flow measures to the
corresponding adjusted measures. The table on the next page
reconciles operating cash flow to net debt.
all figures in £ millions
|
Statutory
measure
|
Cost of
major restructuring
|
Other
net gains and losses
|
Intangible
charges
|
Purchase/
disposal of PPE and software
|
Net
addition of right of use assets
|
Dividends
from joint ventures and associates
|
Adjusted
measure
|
|
|
2022
half year
|
Operating
profit
|
148
|
-
|
(14)
|
26
|
-
|
-
|
-
|
160
|
Adjusted operating profit
|
Net
cash generated from operations
|
53
|
13
|
-
|
-
|
(53)
|
(6)
|
2
|
9
|
Operating cash flow
|
2021
half year
|
Operating
profit
|
9
|
85
|
6
|
27
|
-
|
-
|
-
|
127
|
Adjusted operating profit
|
Net
cash generated from operations
|
79
|
10
|
-
|
-
|
(70)
|
(9)
|
-
|
10
|
Operating cash flow
|
2021
full year
|
Operating
profit
|
183
|
214
|
(63)
|
51
|
-
|
-
|
-
|
385
|
Adjusted operating profit
|
Net
cash generated from operations
|
570
|
24
|
-
|
-
|
(176)
|
(30)
|
-
|
388
|
Operating cash flow
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
16. Cash flows continued
|
|
|
|
|
all figures in £ millions
|
note
|
2022
|
2021
|
2021
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Reconciliation
of operating cash flow to closing net debt
|
|
|
|
|
|
|
|
|
Operating
cash flow
|
|
9
|
10
|
388
|
Tax
paid
|
|
(51)
|
(121)
|
(177)
|
Net
finance costs paid
|
|
(24)
|
(30)
|
(54)
|
Cost
paid for major restructuring
|
|
(13)
|
(10)
|
(24)
|
Free
cash flow
|
|
(79)
|
(151)
|
133
|
Dividends paid
(including to non-controlling interest)
|
|
(107)
|
(102)
|
(149)
|
Net
movement of funds from operations
|
|
(186)
|
(253)
|
(16)
|
Acquisitions and
disposals
|
|
(121)
|
(19)
|
62
|
Disposal of lease
liabilities
|
|
-
|
67
|
67
|
Net
equity transactions
|
|
(163)
|
(4)
|
(10)
|
Other
movements on financial instruments
|
|
10
|
26
|
10
|
Movement
in net debt
|
|
(460)
|
(183)
|
113
|
Opening
net debt
|
|
(350)
|
(463)
|
(463)
|
Closing
net debt
|
14
|
(810)
|
(646)
|
(350)
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2022
17. Contingencies and other liabilities
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.
The
Group is under assessment from the tax authorities in Brazil
challenging the deduction for tax purposes of goodwill amortisation
for the years 2012 to 2017. Similar assessments may be raised for
other years. Potential total exposure (including possible interest
and penalties) could be up to BRL 1,126m (£178m) up to 30 June
2022, with additional potential exposure of BRL 88m
(£14m) 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.
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. This decision was appealed by the UK Government and other
parties. On 8 June 2022 the EU General Court dismissed the appeal
following which it has been concluded that a provision is now
required in relation to this issue. The total exposure in relation
to this issue is calculated to be £105m (excluding interest)
with a provision of £63m now included in the results
representing our estimate of the expected value. Further
information is included in the Financial Review – Tax
section.
The
Group is also under assessment from the UK tax authorities in
relation to an issue related to the UK’s FCPE legislation
with the relevant years being 2019 to 2021. The maximum exposure is
calculated to be £44m with a provision of £13m currently
held in relation to this issue. The provision is calculated
considering a range of possible outcomes and applying a probability
to each, resulting in a weighted average outcome. The possible
outcomes considered range from no liability through to the full
exposure (£44m). This issue is specific to 2019 to 2021 and is
not a continuing exposure.
18. Related parties
Related
party transactions in the six months ended 30 June 2022 were
substantially the same in nature to
those
disclosed in note 36 of the Annual Report and Accounts for the year
ended 31 December 2021. All related party transactions are on an
arm’s length basis. There were no other material related
party transactions in the period that have materially affected the
financial position or performance of the Group and no guarantees
have been provided to related parties in the year.
19. Events after the balance sheet date
In July
2022, the Group has continued to execute its share buyback
programme.
STATEMENT
OF DIRECTORS’ RESPONSIBILITIES
The
directors confirm that these condensed consolidated financial
statements have been prepared in accordance with UK-adopted
International Accounting Standard 34 ‘Interim Financial
Reporting’ and that the interim management report includes a
fair review of the information required by DTR 4.2.7 and DTR 4.2.8
namely:
●
An indication of
important events that have occurred during the first six months and
their impact on the condensed consolidated financial statements,
and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
●
Material related
party transactions in the first six months and any material changes
in related party transactions described in the 2021 Annual
Report.
The
directors of Pearson plc are listed in the 2021 Annual Report.
There have been the following changes to the Board since the
publication of the Annual Report.
Sidney
Taurel – resigned April 2022
A list
of current directors is maintained on the Pearson plc website:
www.pearsonplc.com.
By
order of the Board
Andy
Bird
Chief
Executive
31 July
2022
Sally
Johnson
Chief
Financial Officer
31 July
2022
INDEPENDENT
REVIEW REPORT TO PEARSON PLC
Independent Review Report on the condensed consolidated interim
financial statements
Conclusion
We have
been engaged by Pearson plc (the Company) to review the condensed
set of financial statements in the half-yearly financial report for
the six months ended 30 June 2022 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated balance sheet,
the condensed consolidated statement of changes in equity, the
condensed consolidate cash flow statement and the explanatory
notes. We have read the other information contained in the half
yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial
statements.
Based
on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2022
is not prepared, in all material respects, in accordance with UK
adopted International Accounting Standard 34 and the Disclosure
Guidance and Transparency Rules of the United Kingdom’s
Financial Conduct Authority.
Basis for Conclusion
We
conducted our review in accordance with International Standard on
Review Engagements 2410 (UK) "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity"
issued by the Financial Reporting Council. A review of interim
financial information consists of making enquiries, primarily of
persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As
disclosed in note 1, the annual financial statements of the Group
are prepared in accordance with UK adopted international accounting
standards and in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards
Board. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
UK adopted International Accounting Standard 34, “Interim
Financial Reporting”.
Conclusions Relating to Going Concern
Based
on our review procedures, which are less extensive than those
performed in an audit as described in the Basis of Conclusion
section of this report, nothing has come to our attention to
suggest that management have inappropriately adopted the going
concern basis of accounting or that management have identified
material uncertainties relating to going concern that are not
appropriately disclosed.
This
conclusion is based on the review procedures performed in
accordance with this ISRE, however future events or conditions may
cause the entity to cease to continue as a going
concern.
Responsibilities of the directors
The
directors are responsible for preparing the half-yearly financial
report in accordance with the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct
Authority.
In
preparing the half-yearly financial report, the directors are
responsible for assessing the company’s ability to continue
as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the company or to
cease operations, or have no realistic alternative but to do
so.
Auditor’s Responsibilities for the review of the financial
information
In
reviewing the half-yearly report, we are responsible for expressing
to the Company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our conclusion,
including our Conclusions Relating to Going Concern, are based on
procedures that are less extensive than audit procedures, as
described in the Basis for Conclusion paragraph of this
report.
Use of our report
This
report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK)
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst
& Young LLP
London
31 July
2022