2. Segment information

The primary segments for management and reporting are geographies as outlined below. In addition, the Group separately discloses its share of the results from the Penguin Random House associate.

The chief operating decision-maker is the Pearson executive.

North America Courseware, Assessments and Services businesses in the US and Canada.

Core Courseware, Assessments and Services businesses in more mature markets including UK, Australia and Italy.

Growth Courseware, Assessments and Services businesses in emerging markets including Brazil, China, India and South Africa.

For more detail on the services and products included in each business segment refer to Item 4.


			2017
All figures in £ millions	Notes		North America			Core			Growth			Penguin Random House			Corporate		Discontinued operations		Group
Continuing operations
Sales				2,929			815			769			—			—				4,513

Adjusted operating profit				394			50			38			94			—				576
Cost of major restructuring				(60	)		(11	)		(8	)		—			—				(79	)
Intangible charges				(89	)		(12	)		(37	)		(28	)		—				(166	)
Other net gains and losses				(3	)		—			35			96			—				128
Impact of US tax reform				—			—			—			(8	)		—				(8	)

Operating profit				242			27			28			154			—				451
Finance costs		6																		(110	)
Finance income		6																		80

Profit before tax																				421
Income tax		7																		(13	)

Profit for the year from continuing operations																				408

Segment assets				4,116			1,914			667			—			793				7,490
Joint ventures		12		—			—			3			—			—				3
Associates		12		4			3			—			388			—				395

Total assets				4,120			1,917			670			388			793				7,888

Other segment items
Share of results of joint ventures and associates		12		5			1			1			71			—		—		78
Capital expenditure		10, 11		162			35			43			—			—		—		240
Pre-publication investment		20		218			84			59			—			—		—		361
Depreciation		10		56			13			21			—			—		—		90
Amortisation		11, 20		348			103			110			—			—		—		561
Impairment		11		—			—			—			—			—		—		—


			2016
All figures in £ millions	Notes		North America			Core			Growth			Penguin Random House			Corporate		Discontinued operations		Group
Continuing operations
Sales				2,981			803			768			—			—				4,552

Adjusted operating profit				420			57			29			129			—				635
Cost of major restructuring				(172	)		(62	)		(95	)		(9	)		—				(338	)
Intangible charges				(2,684	)		(16	)		(33	)		(36	)		—				(2,769	)
Other net gains and losses				(12	)		(12	)		(1	)		—			—				(25	)

Operating (loss)/profit				(2,448	)		(33	)		(100	)		84			—				(2,497	)
Finance costs		6																		(97	)
Finance income		6																		37

Loss before tax																				(2,557	)
Income tax		7																		222

Loss for the year from continuing operations																				(2,335	)

Segment assets				4,859			1,461			859			—			1,640				8,819
Joint ventures		12		—			—			2			—			—				2
Associates		12		1			4			—			1,240			—				1,245

Total assets				4,860			1,465			861			1,240			1,640				10,066

Other segment items
Share of results of joint ventures and associates		12		(1	)		1			(1	)		98			—		—		97
Capital expenditure		10, 11		153			42			51			—			—		—		246
Pre-publication investment		20		235			92			68			—			—		—		395
Depreciation		10		56			12			27			—			—		—		95
Amortisation		11, 20		394			109			116			—			—		—		619
Impairment		11		2,548			—			—			—			—		—		2,548


			2015
All figures in £ millions	Notes		North America			Core			Growth			PRH			Corporate		Discontinued operations		Group
Continuing operations
Sales				2,940			815			713			—			—				4,468

Adjusted operating profit/(loss)				480			105			(3	)		90			—				672
Intangible charges				(386	)		(79	)		(583	)		(41	)		—				(1,089	)
Cost of major restructuring				—			—			—			—			—				—
Acquisition costs				—			—			—			—			—				—
Other net gains and losses				19			(5	)		—			(1	)		—				13

Operating (loss)/profit				113			21			(586	)		48			—				(404	)
Finance costs		6																		(100	)
Finance income		6																		71

Loss before tax																				(433	)
Income tax		7																		81

Loss for the year from continuing operations																				(352	)

Segment assets				6,399			1,573			719			—			1,841				10,532
Joint ventures		12		1			—			3			—			—				4
Associates		12		—			6			—			1,093			—				1,099

Total assets				6,400			1,579			722			1,093			1,841				11,635

Other segment items
Share of results of joint ventures and associates		12		(9	)		—			(3	)		64			—		16		68
Capital expenditure		10, 11		136			42			50			—			—		15		243
Pre-publication investment		20		218			63			66			—			—		—		347
Depreciation		10		42			9			18			—			—		6		75
Amortisation		11, 20		338			95			109			—			—		15		557
Impairment		11		282			37			530			—			—		—		849

There were no material inter-segment sales in either 2017, 2016 or 2015.

Adjusted operating profit is shown in the above tables as it is the key financial measure used by management to evaluate the performance of the Group and allocate resources to business segments. The measure also enables investors to more easily, and consistently, track the underlying operational performance of the Group and its business segments by separating out those items of income and expenditure relating to acquisition and disposal transactions and major restructuring programmes.

Cost of major restructuring: In January 2016, the Group announced that it was embarking on a restructuring programme to simplify the business, reduce costs and position the Group for growth in its major markets. The costs of this programme of £338m in 2016 were significant enough to exclude from the adjusted operating profit measure so as to better highlight the underlying performance. These costs included costs associated with headcount reductions, property rationalisation and closure or exit from certain systems, platforms, products and supplier and customer relationships. A new programme of restructuring, announced in May 2017, to run between 2017 and 2019, began in the second half of 2017 and is expected to drive further significant cost savings. Costs incurred to date relating to this new programme were £79m at the end of 2017 and related to cost efficiencies in higher education and enabling functions together with further rationalisation of the property portfolio. The costs of this new programme have also been excluded from adjusted operating profit (see note 3).

Intangible charges: These represent charges in respect of goodwill, including impairment, and intangible assets acquired through business combinations and the direct costs of acquiring those businesses. These charges are excluded as they reflect past acquisition activity and do not necessarily reflect the current year performance of the Group. In 2016, intangible charges included an impairment of goodwill in the Group’s North America business of £2,548m (see note 11). In 2015, intangible charges included an impairment of goodwill and intangibles in our North America business of £282m, our Core business of £37m and our Growth business of £530m. There was no impairment in 2017.

Other net gains and losses: These represent profits and losses on the sale of subsidiaries, joint ventures, associates and other financial assets and are excluded from adjusted operating profit as they distort the performance of the Group as reported on a statutory basis. Other net gains of £128m in 2017 largely relate to the sale of the test preparation business in China which resulted in a profit on sale of £44m and the part sale of the Group’s share in Penguin Random House which resulted in a profit of £96m (see note 31). In 2016, the net losses in the Core segment mainly relate to the closure of the Group’s English language schools in Germany and in the North America segment relate to the sale of the Pearson English Business Solutions business. Other net gain and losses in 2015 relate to the profit on disposal of PowerSchool in North America, net of small losses on other investments.

Impact of US tax reform In 2017, as a result of US tax reform, the Group’s share of profit from associates was adversely impacted by £8m. This amount has been excluded from adjusted operating profit as it is considered to be a transition adjustment that is not expected to recur in the near future.

Corporate costs are allocated to business segments on an appropriate basis depending on the nature of the cost and therefore the total segment result is equal to the Group operating profit.

Segment assets, excluding corporate assets, consist of property, plant and equipment, intangible assets, inventories, receivables, deferred taxation and other financial assets and exclude cash and cash equivalents and derivative assets. Corporate assets comprise cash and cash equivalents, marketable securities and derivative financial instruments. Capital expenditure comprises additions to property, plant and equipment and software (see notes 10 and 11).

Property, plant and equipment and intangible assets acquired through business combination were £nil (2016: £10m) (see note 30).

The following tables analyse the Group’s revenue streams. Courseware includes curriculum materials provided in book form and/or via access to digital content. Assessments includes test development, processing and scoring services provided to governments, educational institutions, corporations and professional bodies. Services includes the operation of schools, colleges and universities, including sistemas in Brazil and English language teaching centres around the world as well as the provision of online learning services in partnership with universities and other academic institutions.


All figures in £ millions	2017
All figures in £ millions	North America		Core		Growth		Group
Sales:
Courseware
School Courseware		394		171		139		704
Higher Education Courseware		1,146		93		63		1,302
English Courseware		20		60		102		182

		1,560		324		304		2,188

Assessments
School and Higher Education Assessments		355		256		23		634
Clinical Assessments		146		46		—		192
Professional and English Certification		341		138		60		539

		842		440		83		1,365

Services
School Services		274		5		54		333
Higher Education Services		253		34		32		319
English Services		—		12		296		308

		527		51		382		960

Total		2,929		815		769		4,513


	2016
All figures in £ millions	North America		Core		Growth		Group
Sales:
Courseware
School Courseware		418		173		127		718
Higher Education Courseware		1,147		92		60		1,299
English Courseware		21		65		97		183

		1,586		330		284		2,200

Assessments
School and Higher Education Assessments		378		268		21		667
Clinical Assessments		143		40		–		183
Professional and English Certification		333		112		49		494

		854		420		70		1,344

Services
School Services		259		6		54		319
Higher Education Services		269		29		46		344
English Services		13		18		314		345

		541		53		414		1,008

Total		2,981		803		768		4,552



	2015
All figures in £ millions	North America		Core		Growth		Group
Courseware
School Courseware		406		178		112		696
Higher Education Courseware		1,207		94		57		1,358
English Courseware		22		65		84		171

		1,635		337		253		2,225

Assessments
School and Higher Education Assessments		420		296		20		736
Clinical Assessments		126		32		—		158
Professional and English Certification		269		95		37		401

		815		423		57		1,295

Services
School Services		209		1		47		257
Higher Education Services		223		26		70		319
English Services		18		28		286		332
School Systems		40		—		—		40

		490		55		403		948

Total		2,940		815		713		4,468

The Group operates in the following main geographic areas:


	Sales						Non-current assets
All figures in £ millions	2017		2016		2015		2017		2016
Continuing operations
UK		384		393		421		796		946
Other European countries		262		255		246		128		134
US		2,770		2,829		2,800		2,247		3,351
Canada		126		118		107		240		268
Asia Pacific		643		632		590		151		205
Other countries		328		325		304		184		232

Total continuing		4,513		4,552		4,468		3,746		5,136

Discontinued operations
UK		—		—		134		—		—
Other European countries		—		—		64		—		—
US		—		—		72		—		—
Canada		—		—		2		—		—
Asia Pacific		—		—		35		—		—
Other countries		—		—		5		—		—

Total discontinued		—		—		312		—		—

Total		4,513		4,552		4,780		3,746		5,136

Sales are allocated based on the country in which the customer is located. This does not differ materially from the location where the order is received. The geographical split of non-current assets is based on the subsidiary’s country of domicile. This is not materially different to the location of the assets. Non-current assets comprise property, plant and equipment, intangible assets, investments in joint ventures and associates and trade and other receivables.

There are no discontinued operations in either 2017 or 2016. All discontinued operations in 2015 relate to the FT Group. An analysis of the results and cash flows of discontinued operations is as follows:


	2017		2016		2015
All figures in £ millions	Total		Total		FT Group			Total
Sales		—		—		312			312

Operating profit		—		—		48			48
Finance income/(costs)		—		—		—			—

Profit before tax		—		—		48			48
Income tax		—		—		(8	)		(8	)

Profit after tax		—		—		40			40
Profit on disposal of Penguin		—		—		—			—
Attributable tax benefit		—		—		—			—
Profit on disposal of The Economist		—		—		473			473
Profit on disposal of Financial Times		—		—		711			711
Attributable tax expense		—		—		(49	)		(49	)
Mergermarket transaction costs		—		—		—			—
Profit on disposal of Mergermarket		—		—		—			—
Attributable tax expense		—		—		—			—

Profit for the year from discontinued operations		—		—		1,175			1,175

Operating cash flows		—		—		31			31
Investing cash flows		—		—		3			3
Financing cash flows		—		—		—			—

Total cash flows		—		—		34			34