Segment information

12 Months Ended

Dec. 31, 2019

Text block [abstract]

Segment information

2. Segment information

The primary segments for management and reporting are geographies as outlined below. In addition, the Group separately discloses 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, Europe, Asia Pacific and North Africa.

Growth: Courseware, Assessments and Services businesses in emerging markets including Brazil, India, South Africa, Hispano-America, Hong Kong and China, and the Middle East.

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

			2019
All figures in £ millions	Notes		North America			Core			Growth			Penguin Random House			Corporate		Group
Sales				2,534			838			497			—			—		3,869
Adjusted operating profit				361			92			63			65			—		581
Cost of major restructuring				(110	)		(28	)		(19	)		(2	)		—		(159	)
Intangible charges				(62	)		(7	)		(82	)		(12	)		—		(163	)
Other net gains and losses				13			8			(5	)		—			—		16
Operating profit (loss)				202			65			(43	)		51			—		275
Finance costs		6																(84	)
Finance income		6																41
Profit before tax																		232
Income tax		7																34
Profit for the year																		266
Segment assets				4,316			1,957			484			—			489		7,246
Associates		12		—			7			—			397			—		404
Total assets				4,316			1,964			484			397			489		7,650
Other segment items
Share of results of joint ventures and associates		12		—			3			—			51			—		54
Capital expenditure		10, 11		176			35			51			—			—		262
Pre-publication investment		20		189			81			49			—			—		319
Depreciation		10		75			23			25			—			—		123
Amortisation		11, 20		305			85			147			—			—		537

			2018
All figures in £ millions	Notes		North America			Core			Growth			Penguin Random House			Corporate		Group
Sales				2,784			806			539			—			—		4,129
Adjusted operating profit				362			57			59			68			—		546
Cost of major restructuring				(78	)		(16	)		—			(8	)		—		(102	)
Intangible charges				(72	)		(8	)		(19	)		(14	)		—		(113	)
Other net gains and losses				4			—			226			—			—		230
UK pension GMP equalisation				—			(8	)		—			—			—		(8	)
Operating profit				216			25			266			46			—		553
Finance costs		6																(91	)
Finance income		6																36
Profit before tax																		498
Income tax		7																92
Profit for the year																		590
Segment assets				4,366			1,975			536			—			636		7,513
Associates		12		—			5			—			387			—		392
Total assets				4,366			1,980			536			387			636		7,905
Other segment items
Share of results of joint ventures and associates		12		(4	)		1			1			46			—		44
Capital expenditure		10, 11		135			25			36			—			—		196
Pre-publication investment		20		234			90			64			—			—		388
Depreciation		10		41			12			13			—			—		66
Amortisation		11, 20		344			92			89			—			—		525

Included in the North America segment above is £60m in pre-publication investment and £67m in amortisation relating to assets held for sale.

			2017
All figures in £ millions	Notes		North America			Core			Growth			Penguin Random House			Corporate		Group
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																		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

There were no material inter-segment sales in either 2019, 2018 or 2017.

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 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, which are explained below.

Cost of major restructuring: In May 2017, the Group announced a restructuring programme, to run between 2017 and 2019, to drive significant cost savings. This programme began in the second half of 2017 and net costs incurred were £79m in 2017, £102m in 2018 and £159m in 2019 and relate to delivery of cost efficiencies in the enabling functions and the US Higher Education Courseware business together with further rationalisation of the property and supplier portfolio. The restructuring costs in 2019 relate predominantly to staff redundancies while the restructuring costs in 2018 relate predominantly to staff redundancies and the net cost of property rationalisation including the net impact of the consolidation of the Group’s property footprint in London. The costs of this restructuring programme are significant enough to exclude from the adjusted operating profit measure so as to better highlight the underlying performance (see note 4).

Intangible charges: These represent charges relating to acquired intangibles, acquisition costs and movements in contingent acquisition and disposal consideration. These charges are excluded as they reflect past acquisition activity and do not necessarily reflect the current year performance of the Group. Intangible amortisation charges in 2019 were £163m, including an impairment charge of £65m relating to acquired intangibles in Brazil, compared with a charge of £113m in 2018 and £166m 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 £16m in 2019 mainly relate to the sale of the US K12 Courseware business. Other net gains of £230m in 2018 relate to the sale of the Wall Street English language teaching business (WSE), realising a gain of £207m, the disposal of the Group’s equity interest in UTEL, the online university partnership in Mexico, realising a gain of £19m, and various other smaller disposal items for a net gain of £4m. Other net gains of £128m in 2017 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 and other smaller disposal items for a net loss of £12m (see note 31).

UK pension GMP equalisation: In 2018, also excluded is the impact of adjustments arising from clarification of guaranteed minimum pension (GMP) equalisation legislation in the UK as this relates to historical circumstances.

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 was 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 combinations were £23m (2018: £nil), (2017: £nil) (see note 30).

The Group operates in the following main geographic areas:

	Sales						Non-current assets
All figures in £ millions	2019		2018		2017		2019		2018
UK		385		377		384		694		900
Other European countries		244		246		262		125		143
US		2,417		2,627		2,770		2,604		2,162
Canada		105		126		126		163		250
Asia Pacific		441		455		643		149		146
Other countries		277		298		328		103		137
Total		3,869		4,129		4,513		3,838		3,738

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.