23 February 2018
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Pearson,
the world’s learning company, announces its preliminary full
year results for 2017.
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Highlights
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Operating performance on track
● 2017
adjusted operating profit of £576m is at the top end of our
upwardly-revised October 2017 guidance range, adjusting for
currency movements.
● Adjusted earnings
per share of 54.1p is above the October 2017 guidance range of
49.0p-52.0p reflecting strong profitability, a lower than expected
tax rate of 11.1% and
after a net interest charge of £79m.
● Total underlying
revenues declined 2%, in line with the performance in the
nine-months, due to a decline of 4% in North America partly offset
by stabilisation in Core and Growth.
● Statutory operating
profit for the year was £451m (2016: a loss of
£2,497m).
● Strong cash flow
with cash conversion at 116%.
● Robust financial
position with net debt of £0.4bn (2016: £1.1bn)
benefiting from strong cash flow and the proceeds of disposals in
2017. Reduced leverage at 0.6x net debt to EBITDA
(2016:1.4x).
● Returned £153m
of capital (repurchasing 22m shares) to 31 December 2017 via the
£300m share buyback announced on 17 October 2017. The buyback
was completed on 16 February 2018 repurchasing a total of 42.8m
shares at an average price of 700p.
● The Board proposes
a final dividend of 12p (2016: 34p), which equates to a full year
dividend of 17p (2016: 52p).
● As a result of our
strategic review announced in May 2017 we are now classifying US
K12 courseware as held-for-sale.
● In March, Pearson
will publish the first of our fully audited efficacy reports into a
series of key products.
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John Fallon, Chief Executive said:
“Pearson
has made good progress against its strategic priorities in 2017
with further simplification of the portfolio, strengthening of our
balance sheet and delivering results at the top end of guidance. We
are confident we will make further progress against our strategic
priorities and grow underlying profit in 2018.”
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Financial Summary
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£m
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2017
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2016
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Headline
growth
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CER
growth
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Underlying
growth
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Business performance
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Sales
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4,513
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4,552
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(1)%
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(4)%
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(2)%
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Adjusted
operating profit
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576
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635
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(9)%
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(13)%
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(9)%
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Operating
cash flow
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669
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663
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1%
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Adjusted
earnings per share
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54.1p
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58.8p
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(8)%
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Dividend
per share
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17p
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52p
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(67)%
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Net
debt
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(432)
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(1,092)
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60%
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Statutory results
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Sales
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4,513
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4,552
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(1)%
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(4)%
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(2)%
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Operating
profit/(loss)
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451
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(2,497)
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n/a
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Profit/(loss)
for the year
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408
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(2,335)
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n/a
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Cash
generated from operations
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462
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522
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(11)%
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Basic
earnings / loss per share
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49.9p
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(286.8)p
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n/a
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Progress on our strategic priorities
During 2017 we made good progress on our strategic priorities of
digital transformation, investing in structural growth and
simplification as we become a leaner and more agile
business.
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Grow
market share through digital transformation
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● We have
historically provided a measure of digital and services revenue for
Pearson. On that basis, digital and services revenues grew to 69%
of sales in 2017, up from 68% in 2016, with c.10% of our revenues
derived from non-digital services.
● We are
today giving further transparency on our digital transformation
with an additional view showing our revenues split between three
categories: digital (32%), digitally enabled (27%) and non-digital
(41%). US higher education digital courseware revenue grew by 9% to
become the majority of our revenues in this segment, although
in 2017 this growth was more than offset by the anticipated
continuation of underlying market pressures on our print courseware
revenue.
● US higher education
digital courseware revenue grew by 9% to become the majority of our
revenues in this segment, although in 2017 this growth was more
than offset by the anticipated continuation of underlying market
pressures on our print courseware revenue.
● We continue to
focus on Inclusive Access (Direct Digital Access) solutions,
signing 210 new institutions in 2017 taking the total to over 500
institutions. During the year, we delivered over 1m course
enrolments in this way rising to c.5% of our higher education
courseware revenue.
● We’ve reduced
the rental price of 2,000 eBook titles and have seen revenues rise
by 22% during the year. Furthermore, we saw early success with our
print rental pilot which started in Fall 2017, and we expect to
expand the number of titles to around 130 in Spring
2018.
● We have continued
to invest in the Global Learning Platform (GLP) and our innovative
product and feature pipeline. Over the next 12 months we will
launch pilot versions of new Developmental Math courseware and an
enhanced Revel platform based on the GLP.
● US student
assessment saw growth of 7% in the volume of digital
tests.
● BTEC registrations
in Core student assessment and qualifications stabilised in 2017
following a period of policy change.
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Invest in structural growth markets
+8% OPM
course enrolments
+6% Connections FTE
enrolments
+1% VUE
test
volumes
+67% PTE
test
volumes
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● Online Program
Management (OPM), virtual schools (Connections Education),
Professional Certification (VUE) and English are our biggest growth
opportunities. These are structurally growing markets, which drive
recurring revenue streams, which accounted for around 33% of our
2017 revenues excluding Wall Street English (WSE), GEDU and US K12
courseware.
● OPM and Connections
Education both delivered good enrolment growth partially offset by
contract exits and in-sourcing, but ended the year with strong
pipelines that set them up for growth in 2018 and
beyond.
● VUE signed over 50
new contracts in 2017 including a ten-year contract with the
Association of American Medical Colleges (AAMC) to administer the
Medical College Admission Test (MCAT).
● English - Pearson
Test of English (PTE) grew global volumes by 67%. English
courseware declined slightly as gains in Growth were offset by
declines in Core and North America ahead of new product
introductions. Revenues in our English school franchise business in
Brazil declined as a result of macroeconomic pressure.
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Become simpler and more efficient
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Simplification
● We
completed the sales of Global Education (GEDU) and a 22% stake in
Penguin Random House and announced that we had signed an agreement
to sell WSE.
● We are today
announcing that our US K12 courseware business is held for sale and
we are in discussions with potential buyers regarding a disposal of
the business.
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£300m
Cost efficiency opportunity
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Restructuring
● The
efficiency programme that we presented in August 2017 is on track
to deliver £300m of annualised cost savings by
20202.
● We are making
faster progress than expected in some areas and this is reflected
in the phasing of costs and benefits. Restructuring costs in 2017
were around £80m, slightly higher than our guided £70m
and we now expect restructuring costs of £90m in 2018 and
£130m in 2019 with further incremental savings, building on
the £15m delivered in 2017, of £80m in 2018, £105m
in 2019 and £100m impacting 2020.
● Many of the savings
will come from the simplification of our technology architecture
which allows the increased use of shared service centres enabling
us to standardise processes and reduce headcount. That, in turn,
facilitates opportunities such as the greater centralisation of
procurement and the reduction in the number of our office
locations.
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2018 Outlook
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In
2018, we expect to report adjusted operating profit of between
£520m and £560m and adjusted earnings per share of 49p to
53p (including businesses held for sale.) The base for 2018
adjusted operating profit guidance is 2017 adjusted operating
profit of £510m, being £576m less the full year impacts
of disposals made in 2017 (£44m) and less favourable exchange
rates at 31 December 2017 (£22m).
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Board change
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Pearson
announces that Harish Manwani, a non-executive director of Pearson
since 2013, is retiring from the board at the Annual General
Meeting in May, and will not be seeking re-election, in
anticipation of his future commitments.
Pearson’s
chairman Sidney Taurel said:
“The
board joins me in thanking Harish for his commitment and invaluable
contribution to Pearson. He has brought considerable experience,
particularly in the terms of change management and organisation
structure, emerging markets and consumer products and has
helped us to focus our strategic thinking. We wish Harish all
the best in his future endeavours.”
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Investor Relations
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Jo
Russell, Tom Waldron, Anjali Kotak
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+44
(0) 207 010 2310
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Media
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Tom
Steiner
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+44
(0) 207 010 2310
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Webcast details
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Analyst
and investor webcast details: Pearson’s results presentation
for investors and analysts will be audiocast live today from 0900
(GMT) via
www.pearson.com.
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Financial Overview
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Profit & loss statement. In 2017, Pearson’s sales
decreased by £39m in headline terms to £4,513m. Adjusted
operating profit fell £59m to £576m (2016:
£635m).
Currency
movements, primarily from the depreciation of Sterling against the
US Dollar and other currencies during the period, increased sales
by £126m and operating profits by £23m.
The
effect of disposals reduced sales by £54m and continuing
adjusted operating profits by £24m.
Stripping
out the impact of portfolio changes and currency movements,
revenues were down 2% in underlying terms while adjusted operating
profit fell £58m or 9%.
Trading
contributed £58m to this decline in adjusted operating profit,
other operating factors including increased amortisation expense
and staff incentive contributed £95m to the decline and cost
inflation, an estimated £55m. This was partly offset by a
£150m year on year benefit from restructuring
savings.
Net
interest payable in 2017 was £79m, compared to £59m in
2016. The increase was primarily due to additional charges relating
to the early redemption of various bonds during the year and higher
US interest rates.
Our
adjusted tax rate in 2017 was 11.1% (2016: 16.5%). The decrease in
tax rate was primarily due to uncertain tax position provision
releases following the expiry of the relevant statutes of
limitation.
Adjusted
earnings per share were 54.1p (2016: 58.8p).
Cash generation. Operating cash flow rose by 1% in
headline terms, despite a decrease adjusted in operating
profit, driven by a strong cash conversion of 116% driven
by tight working capital control, strong collections and high
PRH cash dividends.
Return on invested capital. On a gross3 basis ROIC decreased
from 5.0% in 2016 to 4.3% in 2017 and from 7.2% in 2016 to 6.2% in
2017 on a net4 basis. The movement
largely reflects lower profit in the year and increased tax
payments.
Statutory results. Our statutory profit from continuing
operations of £451m in 2017 compares to a loss of £2,497m
in 2016. The loss in 2016 is mainly attributable to an impairment
charge to North American goodwill and the higher level of
restructuring spend.
Capital allocation. Our capital allocation policy remains
unchanged: to maintain a strong balance sheet and a solid
investment grade rating, to continue to invest in the business, to
have a sustainable and progressive dividend policy, and to return
surplus cash to our shareholders.
Balance sheet. Net debt to EBITDA was 0.6x (or 2.1x on a
simplified credit agency view adjusting for leases and other
items). Net debt decreased to £432m (2016: £1,092m)
reflecting disposal proceeds, operating cash flow and a benefit
from the weakening of the US Dollar relative to Sterling, partially
offset by restructuring costs, pension contributions including
amounts related to agreements regarding the disposals of the FT and
Penguin, interest, tax, dividend payments and the share
buyback.
During
2017, we took steps to reduce our level of gross debt and optimise
our balance sheet, successfully executing market tenders
repurchasing $383m of our $500m 3.75% US Dollar Notes due 2022 and
$406m of our $500m 3.25% US Dollar Notes due 2023. In addition, we
redeemed the $300m 4.625% Senior Notes due June 2018 and the $550m
6.25% Notes due May 2018.
During
January 2018, we also successfully repurchased a total of $569m of
debt at an average interest rate of around 2.5% by tendering for
€250m of our Euro 1.875% Notes due May 2021 and
€200m of our Euro 1.375% Notes due May 2025 and cancelling
the associated currency swaps.
Pension plan. The overall surplus on the UK Group pension
plan of £158m at the end of 2016 has increased to a surplus of
£545m at the end of 2017. The increase has arisen due to
increased contributions including £227m as part of the
agreements relating to the PRH merger in 2013 and FT Group sale in
2015, together with the impact of favourable movements in
assumptions.
Our UK
Pension Plan used its strong funding position to purchase two
insurance buy-in policies with Legal & General and
Aviva, covering approximately £1.2bn (one third) of its
total liabilities. This put the Plan in an even stronger
position and substantially reduced Pearson's future pension
funding risk, at no further cost to the company.
Dividend. In line with our policy, the Board is proposing a
final dividend of 12p (2016: 34p) which results in an overall
dividend of 17p (2016: 52p) subject to shareholder
approval.
Share buyback. We launched a £300m share buyback,
beginning on 18 October 2017 utilising part of the proceeds from
the disposal of a 22% stake in Penguin Random House. We completed
the programme on 16 February 2018.
Businesses held for sale. Following the decision to sell
both WSE and the K12 school courseware business in the US, the
assets and liabilities of those businesses have been classified as
held for sale on the balance sheet at 31 December
2017.
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2018 Outlook
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2017
has been a year of progress for Pearson, delivering adjusted
operating profit at the top end of our guidance range and
continuing to invest in the digital transformation and
simplification of the company. We expect to make further progress
in 2018, with underlying profit growth, reporting adjusted
operating profit of between £520m and £560m and adjusted
earnings per share of 49p to 53p. This reflects our portfolio and
exchange rates as at 31 December 2017 and the following
factors:
Trading. We expect ongoing headwinds in our US higher
education courseware to be offset by improving conditions in our
other businesses.
Portfolio changes. We completed the sale of a 22% stake in
Penguin Random House and our Chinese English test-prep business
GEDU in 2017. The annualised impact of these disposals will reduce
2018 operating profit by £44m. We expect to complete the
disposal of WSE and our stake in Mexican joint-venture Utel in the
first-half of 2018 and have today announced that we have concluded
the strategic review of our US K12 courseware business and have
classified the business as held for sale. WSE contributed
£195m to 2017 sales and WSE and Utel contributed £5m to
2017 adjusted operating profit and £5m to statutory profit. US
K12 courseware is expected to contribute £385m to 2018 sales
and around £11m to 2018 operating profit.
Other operational factors, incentive and inflation. Our 2018
guidance incorporates cost inflation of c.£50m together with
other operational factors and incentives of £30m.
Restructuring benefits. We expect incremental in-year
benefits from the 2017-2019 restructuring programme of £80m in
2018. Exceptional restructuring costs of £90m will continue to
be excluded from adjusted operating profit.
Interest & Tax. We expect a 2018 net interest charge of
c.£45m and a tax rate of 20%.
Currency. In 2017, Pearson generated approximately 61% of
its sales in the US, 7% in Greater China, 5% in the Euro zone, 3%
in Brazil, 3% in Canada, 3% in Australia, 2% in South Africa and 1%
in India and our guidance is based on exchange rates at 31 December
2017.
We
calculate that a 5c move in the in the US Dollar exchange rate to
Sterling would impact adjusted EPS by around 2p to
2.5p.
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Notes:
1. Digital includes
products such as digital courseware and eBooks and digital services
such as OPM and virtual schools. An example of Digitally-enabled would be professional
certification services built around the administration of computer
based tests, but in physical centres that ensure the security of
the test. Non-digital
includes our print products, and also non-digital services such as
CTI our university in South Africa.
2 A significant part of these costs and savings are US
Dollar denominated and other non-Sterling currencies and are
therefore subject to exchange rate movements over the
implementation timeframe.
3 Gross ROIC is a
non-GAAP measure and has been disclosed as it is part of
Pearson’s key business performance measures. ROIC is used to
track investment returns and to help inform capital allocation
decisions within the business. Average values for total invested
capital are calculated as the average monthly balance for the
year.
4Net ROIC. For the
first time in 2017 we have presented ROIC on a net basis after
removing impaired goodwill from the invested capital balance. The
net approach assumes that goodwill that has been impaired is
treated in a similar fashion to goodwill disposed as it is no
longer being used to generate returns.
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£ millions
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2017
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2016
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Headline
growth
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CER
growth
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Underlying
growth
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Sales
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North
America
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2,929
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2,981
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(2)%
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(4)%
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(4)%
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Core
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815
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803
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1%
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(1)%
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0%
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Growth
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769
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768
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0%
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(4)%
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0%
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Total sales
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4,513
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4,552
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(1)%
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(4)%
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(2)%
|
|
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Adjusted operating profit
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North
America
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394
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420
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(6)%
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(10)%
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(10)%
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Core
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50
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57
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(12)%
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(14)%
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(14)%
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Growth
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38
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29
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31%
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17%
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3%
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Penguin
Random House
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94
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129
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(27)%
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(29)%
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(8)%
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Total adjusted operating profit
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576
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635
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(9)%
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(13)%
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(9)%
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North America (65% of revenues)
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Revenues
declined 4% in underlying terms, primarily due to anticipated
declines in higher education and school courseware, school
assessment, and Learning Studio, a learning management system we
are retiring.
North
American higher education courseware fell 3%. School courseware
fell high single digits, impacted by a lower adoption participation
rate and weak Open Territory sales in the second half of the year.
School assessment declined high-single digits, due to previously
announced contract losses. Learning Studio revenues continued to
decline as we move towards the retirement of the product in 2019.
Offsetting that we saw modest growth in both virtual schools and
Online Program Management (OPM) due to good underlying volume
growth partially offset by some contract exits and in-sourcing.
Revenues in North American Professional Certification were flat on
phasing of new contracts and a slowdown in IT certification late in
2017.
Adjusted
operating profits fell 10% in underlying terms, due primarily to
the impact of lower sales and other operating factors partially
offset by restructuring savings.
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Courseware
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In
school, revenue declined
high single digits primarily due to sharp declines across Open
Territory states in the second half of the year. This was partially
offset by growth in Adoption state revenues where strong
performance in Texas Grades K-12 Spanish, Indiana Grades K-12
Science and South Carolina Grades 6-8 Science outweighed a lower
adoption participation rate resulting from our decision not to
compete for the California Grades K-8 English Language Arts (ELA)
adoption with a core basal programme.
Our new
adoption participation rate fell to 61% from 64% in 2016. We won an
estimated 38% share of adoptions competed for (30% in 2016) and 29%
of total new adoption expenditure of $365m (19% of $470m in
2016).
In
higher education, total US
college enrolments, as reported by the National Student
Clearinghouse, fell 1.1%, with combined two-year public and
four-year for-profit enrolments declining 2.5%. Enrolment weakness
was particularly focused on part-time students where enrolment
declined 3.3%, a bigger decline than in any of the last five years.
Full-time enrolment grew 0.3%, the first expansion since Fall
2010.
Net
revenues in our higher education courseware business declined 3%
during the year. We estimate around 2% of this decline was driven
by lower enrolment; just over 1% from the adoption of Open
Educational Resources (OER); around 5% from the secondary market,
new initiatives and other factors, primarily the growth in print
rental; offset by c.3% benefit from institutional selling and the
shift to digital and a 2% benefit in 2017 from lower returns by the
channel.
In
2017, Pearson’s US higher education courseware market share,
as reported by MPI, was in the upper half of the c40-41.5% range
seen over the last five years.
During
2017 we performed strongly in Statistics and Business Statistics,
Biology and Accounting. Statistics benefited from the popularity of
“best in class” learning application StatCrunch, Biology from the success of
Campbell Biology 11e and
MasteringBiology, and
Accounting from the success of Miller-Nobles Horngren Accounting 11e
and MyAccountingLab. This
was offset by weakness in Information Technology, particularly in
the for-profit sector and continued softness in Developmental
Mathematics.
Digital
revenues grew 9% benefiting from continued growth in direct sales,
favourable mix and selected price increases. Global digital
registrations of MyLab and related products fell 1%. In North
America, digital registrations fell 3% with good growth in Science,
Business & Economics and Revel offset by lower overall
enrolment and continued softness in Developmental Mathematics.
Revel registrations grew more than 50%. Including stand-alone
e-book registrations, total North American digital registrations
were flat.
The
actions announced in early 2017 to promote access over ownership
met with success. We reduced the rental price of 2,000 eBook titles
and saw, eBook revenues increase more than 20% in response. Our
print rental programme has had a successful start, and we have
added more than 90 further titles. In institutional courseware
solutions we signed 210 institutions to our Inclusive Access
(Direct Digital Access, DDA) solutions, taking the total to over
500. During the year, we delivered over 1m course enrolments with
inclusive access rising to c.5% of our higher education revenue as
more colleges and faculties see the benefit of this
model.
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Assessment
|
In
school assessment (State and
National assessments), revenues declined high single digits due to
previously announced contract losses.
Colorado
announced in June 2017 they will be leaving the PARCC consortium
after the 17/18 school year. Pearson won the subsequent bid to
deliver ELA, Math, Science, and Social Studies for at least the
next six years.
Pearson
secured contract extensions in Virginia, Indiana, Arizona,
Minnesota, Puerto Rico, Kentucky, New York City and North Carolina
and for the National Assessment of Educational
Progress.
We
delivered 25.3m standardised online tests to K12 students, up 7%
from 2016. TestNav 8, Pearson’s next-generation online test
platform, supported a peak load of 752,000 tests in a single day
and provided 99.99% up time. Our AI scoring systems scored 35m
responses to open-ended test items, around 30% of the total. Paper
based standardised test volumes fell 7% to 20.4m.
In
Professional Certification,
VUE global test volume rose 1% to over 15m. Revenues in North
America were flat, with continued growth in certification for
professional bodies, offset by modest declines in US teacher
certification and the GED High School Equivalency Test, after
strong performance last year, and by weakness in higher level IT
certifications in the second half.
We
signed over 50 new contracts in 2017 including a ten-year contract
with the (AAMC) to administer the MCAT, and contracts with
ExxonMobil for five years and the Project Management Institute for
four years. Our renewal rate on existing contracts continues to be
over 95%. During the year we renewed over 50 contracts including
the American Board of Internal Medicine (ABIM) for nine years,
Florida Teacher Licensure Assessments for five years, Pharmacy
Technician Certification Board (PTCB) for five years, and The
Institute of Internal Auditors for four years.
Clinical assessment sales declined slightly on an absence of
new major product introductions. Q-Interactive, Pearson's digital
solution for Clinical Assessment administration, saw continued
strong growth in license sales with sub-test administrations up
more than 33% over the same period last year.
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Services
|
Connections Education our virtual school business, served
nearly 78,000 Full Time Equivalent students through full-time
virtual and blended school programs, up 6% on last
year.
Two new
full-time online, state-wide, partner schools opened for the
2017-18 school year. Enrolment growth from new and existing schools
was partially offset by the termination of a school partnership at
the end of the 2016-2017 school year.
Revenues
grew modestly as enrolment growth was partially offset by increased
in-sourcing, as some partners took non-core services
in-house.
Enrolment
and revenue is expected to grow in 2018 as growth in existing
school partnerships and the opening of new partner schools for the
2018-19 school year offsets the termination of two further
contracts and the in-sourcing of services by some
customers.
The
2017 Connections Academy Parent Satisfaction Survey showed strong
results with 92% of families with students enrolled in full-time
online partner schools stating they would recommend the schools to
others and 95% agreeing that the curriculum is of high quality.
Results from the survey are available at pear.sn/HPTn30dCNHH.
In
Pearson Online Services,
revenues declined high single digits, primarily due to a decline in
Learning Studio revenues as we retire the product and the
restructuring of smaller non-OPM contracts. Learning Studio
declined by just over 50% to a revenue contribution of £11m in
2017. In OPM, we grew revenues modestly as course enrolments grew
strongly, up 8% to more than 341,000, boosted by good growth and
program extensions at key partners including Arizona State
University Online, Maryville University, Rutgers University and
University of Alabama at Birmingham and from new partners,
partially offset by contract exits.
We
signed 45 multi-year programs in 2017 renewed 19 programs and
launched 14 new programs at partners including Maryville
University, Duquesne University and Ohio University. During the
year we also agreed the termination of nine programs that were not
mutually viable and did not renew a further six
programs.
Brinker
International, Inc. (NYSE: EAT), one of the world's leading casual
dining restaurant companies and owner of Chili's® Grill &
Bar and Maggiano’s Little Italy®, with over 1,600 owned,
operated and franchised restaurant locations, partnered with
Pearson to launch a comprehensive employer-education program Best
You EDU that provides free educational opportunities to Brinker
employees including foundational, GED and Associate Degree
programs.
|
2018 Outlook
|
In
US higher education
courseware, we expect revenues to be flat to down mid-single
digit percent as similar pressures seen in the last two years
continue with lower college enrolments, increased use of OER and
attrition from growth in the secondary market driven by print
rental, are partially offset by growth in digital revenues,
benefits from our actions to promote access over ownership and a
continued normalisation of channel returns behaviour.
Evidence
of a marginally slower rate of decline in US student enrolment
together with slightly lower than expected attrition from OER in
2017, mean that we are now planning for an underlying decline in
demand of around 6% in US higher education courseware, slightly
improved from our prior range of 6% to 7%.
We
expect stable testing revenues in North America student assessment as new contracts
offset a continued contraction in revenue associated with our PARCC
contract.
Connections Education is expected to grow modestly as new
partner school openings and good growth in enrolment is partially
offset by in-sourcing of non-core services by some partners and
contract exits. North American
Online Program Management is expected to see modest growth
in revenue as investment in new programs begin to ramp up.
Professional certification
is expected to grow revenues in the mid-single digits benefiting
from new contracts, including our nationwide contract with the
AAMC.
|
Core (18% of revenues)
|
|
Revenues
grew 1% in headline terms, were down 1% at CER and flat on
underlying terms, primarily due to growth in OPM in the UK and
Australia and growth in Pearson Test of English offset by declines
in school, higher education, English courseware and student
assessment and qualifications.
Adjusted
operating profit declined 14%, or £8m, in underlying terms due
to revenue mix, investment in new products and services and
business exits, partially offset by restructuring
savings.
|
|
Courseware
|
Courseware
revenues declined moderately. In school, revenues declined in Australia,
due to market contraction in the primary sector partly offset by
slight growth in secondary, and declines in smaller markets in
Europe and Africa. In higher
education, revenues were down slightly due to declines in
smaller markets, whilst in Australia and the UK an increase in
direct to institution sales and a further shift to digital offset
declines in traditional textbook sales. In English, there were declines in smaller
markets.
|
Assessment
|
In
student assessment and
qualifications, revenues declined mid-single digits
primarily due to lower AS level, iGCSE and Apprenticeship volumes
as a result of policy changes. BTEC revenues also declined modestly
as revenues recognised in 2017 lagged the greater stability we have
seen in registrations and billed revenue in the year. We
successfully delivered the National Curriculum Test for 2017,
marking 3.5m scripts, up slightly from 2016.
Clinical assessment grew strongly with revenues benefiting
from strong growth in the new editions of the Wechsler Intelligence
Scale for Children (WISC-V) and the Clinical Evaluation of Language
Fundamentals (CELF-5).
Pearson Test of English (PTE) saw continued strong growth in
test volumes, which rose 84% from 2016, driven primarily by its use
to support visa applications to the Australian Department of
Immigration and Border Protection and good growth in New
Zealand.
In
Professional certification,
revenues were flat as the impact of last year’s renegotiated
terms of the UK Driving Theory test for the DVSA was offset by
growth from new and existing contracts.
|
Services
|
In
higher education services,
revenues grew strongly. Our OPM revenues were up 33%. In Australia,
we saw good growth due to our successful partnership with Monash
University, and continued success of the Graduate Diploma in
Psychology. We have a total of c.9,300 course registrations across
the seven programs in Australia up from c.6,900 in 2016. In the UK,
we launched five new programs in addition to the two launched in
2016. UK course registrations grew, reaching c.1,400 compared to
c.370 in 2016.
English services
grew, with strong growth in WSE Italy, due to the opening of new
centres in 2015 and 2016, partially offset by declines in
Japan.
|
2018 Outlook
|
In
Core, we are expecting modest growth driven by our recent
investments in student assessment and qualifications, where we are
offering new products and services of considerably greater value,
along with continued growth in PTE and OPM with 10 new program
launches in the UK, and growth in existing programs in
Australia.
|
Growth (17% of revenues)
|
|
Revenues
were flat in both headline and underlying terms due to growth in
China, school courseware in South Africa and Pearson Test of
English, offset by declines in higher education services primarily
due to lower enrolment at CTI and business disposals in India, and
declines in Brazil. Revenues were down 4% at CER due to the
disposal of GEDU.
Adjusted
operating profit increased 3% in underlying terms, reflecting the
higher revenues in China, South Africa school courseware and PTE in
India, together with the benefits of restructuring, partially
offset by lower revenues in Brazil.
|
|
Courseware
|
Courseware
revenues grew moderately, due to strong growth in school textbook
sales in South Africa and English language courseware in China,
partially offset by weakness in Brazil.
|
Services
|
In
English services, growth in
Wall Street English in China, due to new centre openings, was
offset by declines in Brazil due to macroeconomic
pressures.
In
school services, revenue
fell, with student enrolment in our sistemas business in Brazil
falling 14% primarily due to NAME, our public sistema, where we
took the strategic decision to exit two thirds of our contracts
with municipalities due to unattractive economic prospects,
together with a reduction in student enrolments in our Dom Bosco
private sistema due to challenging economic conditions. In India,
Pearson MyPedia, an inside service ‘sistema’ solution
for schools, expanded to over 500 schools with approximately
157,000 learners.
In
higher education services,
revenues declined sharply due to a 14% fall in total student
enrolment at CTI our university in South Africa driven by the
cumulative impact of economic factors in recent years, partially
offset by improved new student enrolments in 2017, together with
business exits in India.
|
Assessment
|
Professional Certification grew strongly. Pearson Test of English saw over 30%
growth in the volume of tests taken in India.
|
2018 Outlook
|
In our
growth markets we expect a modest increase in revenues, with growth
in China in ELT products, PTE and in South Africa due to improving
enrolments in CTI partially offset by declines in school courseware
after a strong 2017. In Brazil, we expect revenue to increase
modestly from growth in Wizard and school sistemas, partially
offset by declines in government contracts. In India, we expect PTE
and MyPedia to continue growing.
|
Penguin Random House
|
|
Following
the disposal of a 22% stake on 5 October 2017 Pearson owns 25% of
Penguin Random House, the first truly global consumer book
publishing company.
Penguin
Random House performed in line with our expectations with revenues
up slightly on a headline and underlying basis year on year on
rising audio sales, broadly stable print sales, and modest ongoing
declines in demand for e-books, whilst the business benefitted from
bestsellers by Dan Brown, R.J. Palacio, John Grisham, Jamie Oliver,
and Dr. Seuss.
|
|
2018 Outlook
|
In
Penguin Random House, we
anticipate a broadly level publishing performance and expect an
annual after-tax contribution of around £60-65m to our
adjusted operating profit.
|
all figures in £ millions
|
2017
|
2016
|
|
|
|
|
|
|
Operating profit /
(loss)
|
451
|
(2,497)
|
Add
back: Cost of major restructuring
|
79
|
338
|
Add
back: Intangible charges
|
166
|
2,769
|
Add
back: Other net gains and losses
|
(128)
|
25
|
Add
back: Impact of US tax reform
|
8
|
-
|
Adjusted
operating profit
|
576
|
635
|
|
|
|
|
all figures in £ millions
|
note
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
|
Sales
|
2
|
4,513
|
4,552
|
Cost of
goods sold
|
|
(2,066)
|
(2,093)
|
Gross
profit
|
|
2,447
|
2,459
|
|
|
|
|
Operating
expenses
|
|
(2,202)
|
(2,480)
|
Other
net gains and losses
|
2
|
128
|
(25)
|
Impairment of
intangible assets
|
|
-
|
(2,548)
|
Share
of results of joint ventures and associates
|
|
78
|
97
|
Operating
profit / (loss)
|
2
|
451
|
(2,497)
|
|
|
|
|
Finance
costs
|
3
|
(110)
|
(97)
|
Finance
income
|
3
|
80
|
37
|
Profit
/ (loss) before tax
|
4
|
421
|
(2,557)
|
Income
tax
|
5
|
(13)
|
222
|
Profit
/ (loss) for the year
|
|
408
|
(2,335)
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
Equity
holders of the company
|
|
406
|
(2,337)
|
Non-controlling
interest
|
|
2
|
2
|
|
|
|
|
|
|
|
|
Earnings / (loss) per share (in pence
per share)
|
|
|
|
Basic
|
6
|
49.9p
|
(286.8)p
|
Diluted
|
6
|
49.9p
|
(286.8)p
|
|
|
|
|
all figures in £ millions
|
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Profit
/ (loss) for the year
|
|
408
|
(2,335)
|
|
|
|
|
Items
that may be reclassified to the income statement
|
|
|
|
Net
exchange differences on translation of foreign operations –
Group
|
|
(158)
|
910
|
Net
exchange differences on translation of foreign operations –
associates
|
(104)
|
3
|
|
Currency
translation adjustment disposed
|
|
(51)
|
-
|
Attributable
tax
|
|
9
|
(5)
|
|
|
|
|
Fair
value gain on other financial assets
|
|
13
|
-
|
Attributable
tax
|
|
(4)
|
-
|
|
|
|
|
Items
that are not reclassified to the income statement
|
|
|
|
Remeasurement of
retirement benefit obligations – Group
|
|
175
|
(268)
|
Remeasurement of
retirement benefit obligations – associates
|
|
7
|
(8)
|
Attributable
tax
|
|
(42)
|
58
|
Other
comprehensive (expense) / income for the year
|
|
(155)
|
690
|
|
|
|
|
Total
comprehensive income / (expense) for the year
|
|
253
|
(1,645)
|
|
|
|
|
Attributable
to:
|
|
|
|
Equity
holders of the company
|
|
251
|
(1,648)
|
Non-controlling
interest
|
|
2
|
3
|
|
|
|
|
all figures in £ millions
|
note
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
281
|
343
|
Intangible
assets
|
11
|
2,964
|
3,442
|
Investments in
joint ventures and associates
|
|
398
|
1,247
|
Deferred income tax
assets
|
|
95
|
451
|
Financial assets
– derivative financial instruments
|
|
140
|
171
|
Retirement benefit
assets
|
|
545
|
158
|
Other financial
assets
|
|
77
|
65
|
Trade and other
receivables
|
|
103
|
104
|
Non-current
assets
|
|
4,603
|
5,981
|
|
|
|
|
Intangible assets
– pre-publication
|
|
741
|
1,024
|
Inventories
|
|
148
|
235
|
Trade and other
receivables
|
|
1,110
|
1,357
|
Financial assets
– marketable securities
|
|
8
|
10
|
Cash and cash
equivalents (excluding overdrafts)
|
|
518
|
1,459
|
Current
assets
|
|
2,525
|
4,085
|
|
|
|
|
Assets classified
as held for sale
|
10
|
760
|
-
|
Total
assets
|
|
7,888
|
10,066
|
|
|
|
|
Financial
liabilities – borrowings
|
|
(1,066)
|
(2,424)
|
Financial
liabilities – derivative financial instruments
|
|
(140)
|
(264)
|
Deferred income tax
liabilities
|
|
(164)
|
(466)
|
Retirement benefit
obligations
|
|
(104)
|
(139)
|
Provisions for
other liabilities and charges
|
|
(55)
|
(79)
|
Other
liabilities
|
12
|
(133)
|
(422)
|
Non-current
liabilities
|
|
(1,662)
|
(3,794)
|
|
|
|
|
Trade and other
liabilities
|
12
|
(1,342)
|
(1,629)
|
Financial
liabilities – borrowings
|
|
(19)
|
(44)
|
Current income tax
liabilities
|
|
(231)
|
(224)
|
Provisions for
other liabilities and charges
|
|
(25)
|
(27)
|
Current
liabilities
|
|
(1,617)
|
(1,924)
|
|
|
|
|
Liabilities
classified as held for sale
|
10
|
(588)
|
-
|
Total
liabilities
|
|
(3,867)
|
(5,718)
|
|
|
|
|
Net
assets
|
|
4,021
|
4,348
|
|
|
|
|
Share
capital
|
|
200
|
205
|
Share
premium
|
|
2,602
|
2,597
|
Treasury
shares
|
|
(61)
|
(79)
|
Reserves
|
|
1,272
|
1,621
|
Total equity
attributable to equity holders of the company
|
|
4,013
|
4,344
|
Non-controlling
interest
|
|
8
|
4
|
Total
equity
|
|
4,021
|
4,348
|
|
|
|
|
||||||||
|
Equity
attributable to equity holders of the company
|
|
|
||||||||
all figures in £ millions
|
Share
capital
|
Share
premium
|
Treasury
shares
|
Capital
redemption reserve
|
Fair
value reserve
|
Translation
reserve
|
Retained
earnings
|
Total
|
Non-controlling
interest
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|||||||||||
At
1 January 2017
|
205
|
2,597
|
(79)
|
-
|
-
|
905
|
716
|
4,344
|
4
|
4,348
|
|
Profit
for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
406
|
406
|
2
|
408
|
|
Other
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
9
|
(313)
|
149
|
(155)
|
-
|
(155)
|
|
Total
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
9
|
(313)
|
555
|
251
|
2
|
253
|
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
33
|
33
|
-
|
33
|
|
Issue
of ordinary shares under share option schemes
|
-
|
5
|
-
|
-
|
-
|
-
|
-
|
5
|
-
|
5
|
|
Buyback
of equity
|
(5)
|
-
|
-
|
5
|
-
|
-
|
(300)
|
(300)
|
-
|
(300)
|
|
Purchase of
treasury shares
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Release
of treasury shares
|
-
|
-
|
18
|
-
|
-
|
-
|
(18)
|
-
|
-
|
-
|
|
Changes
in non-controlling interest
|
-
|
-
|
-
|
-
|
-
|
-
|
(2)
|
(2)
|
2
|
-
|
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(318)
|
(318)
|
-
|
(318)
|
|
At
31 December 2017
|
200
|
2,602
|
(61)
|
5
|
9
|
592
|
666
|
4,013
|
8
|
4,021
|
|
|
|
|
|||||||
|
Equity
attributable to equity holders of the company
|
|
|
|||||||
all figures in £ millions
|
Share
capital
|
Share
premium
|
Treasury
shares
|
Capital
redemption reserve
|
Fair
value reserve
|
Translation
reserve
|
Retained
earnings
|
Total
|
Non-controlling
interest
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
||||||||||
At 1
January 2016
|
205
|
2,590
|
(72)
|
-
|
-
|
(7)
|
3,698
|
6,414
|
4
|
6,418
|
Loss
for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,337)
|
(2,337)
|
2
|
(2,335)
|
Other
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
-
|
912
|
(223)
|
689
|
1
|
690
|
Total
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
-
|
912
|
(2,560)
|
(1,648)
|
3
|
(1,645)
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
22
|
22
|
-
|
22
|
Issue
of ordinary shares under share option schemes
|
-
|
7
|
-
|
-
|
-
|
-
|
-
|
7
|
-
|
7
|
Buyback
of equity
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Purchase of
treasury shares
|
-
|
-
|
(27)
|
-
|
-
|
-
|
-
|
(27)
|
-
|
(27)
|
Release
of treasury shares
|
-
|
-
|
20
|
-
|
-
|
-
|
(20)
|
-
|
-
|
-
|
Changes
in non-controlling interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(3)
|
(3)
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(424)
|
(424)
|
-
|
(424)
|
At 31
December 2016
|
205
|
2,597
|
(79)
|
-
|
-
|
905
|
716
|
4,344
|
4
|
4,348
|
|
|
|
|
all figures in £ millions
|
note
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
Net
cash generated from operations
|
17
|
462
|
522
|
Interest
paid
|
|
(89)
|
(67)
|
Tax
paid
|
|
(75)
|
(45)
|
Net
cash generated from operating activities
|
|
298
|
410
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
Acquisition of
subsidiaries, net of cash acquired
|
13
|
(11)
|
(15)
|
Purchase of
investments
|
|
(3)
|
(6)
|
Purchase of
property, plant and equipment
|
|
(82)
|
(88)
|
Purchase of
intangible assets
|
|
(150)
|
(157)
|
Disposal of
subsidiaries, net of cash disposed
|
|
19
|
(54)
|
Proceeds from sale
of joint ventures and associates
|
|
411
|
4
|
Proceeds from sale
of investments
|
|
-
|
92
|
Proceeds from sale
of property, plant and equipment
|
|
-
|
4
|
Proceeds from sale
of liquid resources
|
|
20
|
42
|
Loans
(advanced to) / repaid by related parties
|
|
(13)
|
14
|
Investment in
liquid resources
|
|
(18)
|
(24)
|
Interest
received
|
|
20
|
16
|
Dividends received
from joint ventures and associates
|
|
458
|
131
|
Net
cash generated from / (used in) investing activities
|
|
651
|
(41)
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
Proceeds from issue
of ordinary shares
|
|
5
|
7
|
Buyback
of equity
|
|
(149)
|
-
|
Purchase of
treasury shares
|
|
-
|
(27)
|
Proceeds from
borrowings
|
|
2
|
4
|
Repayment of
borrowings
|
|
(1,294)
|
(249)
|
Finance
lease principal payments
|
|
(5)
|
(6)
|
Transactions with
non-controlling interest
|
|
-
|
(2)
|
Dividends paid to
company’s shareholders
|
|
(318)
|
(424)
|
Net
cash used in financing activities
|
|
(1,759)
|
(697)
|
|
|
|
|
Effects
of exchange rate changes on cash and cash equivalents
|
|
16
|
81
|
Net
decrease in cash and cash equivalents
|
|
(794)
|
(247)
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
1,424
|
1,671
|
Cash
and cash equivalents at end of year
|
|
630
|
1,424
|
|
|
|
|
all figures in £ millions
|
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Sales
by Geography
|
|
|
|
North
America
|
|
2,929
|
2,981
|
Core
|
|
815
|
803
|
Growth
|
|
769
|
768
|
Total
sales
|
|
4,513
|
4,552
|
|
|
|
|
Adjusted
operating profit by Geography
|
|
|
|
North
America
|
|
394
|
420
|
Core
|
|
50
|
57
|
Growth
|
|
38
|
29
|
PRH
|
|
94
|
129
|
Total
adjusted operating profit
|
|
576
|
635
|
|
|
|
|
|
|
all figures in £ millions
|
North
America
|
Core
|
Growth
|
PRH
|
Total
|
|
|
|
|
|
|
2017
|
|||||
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
|
|
|
|
|
|
|
2016
|
|||||
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)
|
Impact
of US tax reform
|
-
|
-
|
-
|
-
|
-
|
Operating
(loss) / profit
|
(2,448)
|
(33)
|
(100)
|
84
|
(2,497)
|
|
|
|
|
all figures in £ millions
|
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Net
interest payable
|
|
(79)
|
(59)
|
Net
finance income in respect of retirement benefits
|
|
3
|
11
|
Finance
costs associated with transactions
|
|
(6)
|
-
|
Net
foreign exchange gains / (losses)
|
|
44
|
(20)
|
Derivatives in a
hedge relationship
|
|
1
|
-
|
Derivatives not in
a hedge relationship
|
|
7
|
8
|
Net
finance costs
|
|
(30)
|
(60)
|
|
|
|
|
Analysed
as:
|
|
|
|
Finance
costs
|
|
(110)
|
(97)
|
Finance
income
|
|
80
|
37
|
Net
finance costs
|
|
(30)
|
(60)
|
|
|
|
|
Analysed
as:
|
|
|
|
Net
interest payable
|
|
(79)
|
(59)
|
Other
net finance income / (costs)
|
|
49
|
(1)
|
Net
finance costs
|
|
(30)
|
(60)
|
|
|
|
|
all figures in £ millions
|
note
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Profit
/ (loss) before tax
|
|
421
|
(2,557)
|
Cost of
major restructuring
|
2
|
79
|
338
|
Intangible
charges
|
2
|
166
|
2,769
|
Other
net gains and losses
|
2
|
(128)
|
25
|
Other
net finance (income) / costs
|
3
|
(49)
|
1
|
Impact
of US tax reform
|
2
|
8
|
-
|
Adjusted
profit before tax
|
|
497
|
576
|
|
|
|
|
all figures in £ millions
|
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Income
tax (charge) / benefit
|
|
(13)
|
222
|
Tax
benefit on cost of major restructuring
|
|
(26)
|
(84)
|
Tax
benefit on intangible charges
|
|
(85)
|
(255)
|
Tax
charge / (benefit) on other net gains and losses
|
|
20
|
(14)
|
Tax
charge on other net finance costs
|
|
9
|
-
|
Impact
of US tax reform added back
|
|
1
|
-
|
Tax
amortisation benefit on goodwill and intangibles
|
|
39
|
36
|
Adjusted
income tax charge
|
|
(55)
|
(95)
|
|
|
|
|
Tax
rate reflected in statutory earnings
|
|
3.1%
|
8.7%
|
Tax
rate reflected in adjusted earnings
|
|
11.1%
|
16.5%
|
|
|
|
|
all figures in £ millions
|
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Earnings / (loss)
for the year
|
|
408
|
(2,335)
|
Non-controlling
interest
|
|
(2)
|
(2)
|
Earnings
/ (loss) attributable to equity shareholders of the
company
|
|
406
|
(2,337)
|
|
|
|
|
|
|
|
|
Weighted average
number of shares (millions)
|
|
813.4
|
814.8
|
Effect
of dilutive share options (millions)
|
|
0.3
|
-
|
Weighted average
number of shares (millions) for diluted earnings
|
|
813.7
|
814.8
|
|
|
|
|
|
|
|
|
Earnings
/ (loss) per share
|
|
|
|
Basic
|
|
49.9p
|
(286.8)p
|
Diluted
|
|
49.9p
|
(286.8)p
|
|
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
Statutory
income statement
|
Cost of
major restructuring
|
Other
net gains and losses
|
Intangible
charges
|
Other
net finance costs
|
Impact
of US tax reform
|
Tax
amortisation benefit
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
2017
|
|||||||||
Operating
profit / (loss)
|
2
|
451
|
79
|
(128)
|
166
|
-
|
8
|
-
|
576
|
Net
finance costs
|
3
|
(30)
|
-
|
-
|
-
|
(49)
|
-
|
-
|
(79)
|
Profit
/ (loss) before tax
|
4
|
421
|
79
|
(128)
|
166
|
(49)
|
8
|
-
|
497
|
Income
tax
|
5
|
(13)
|
(26)
|
20
|
(85)
|
9
|
1
|
39
|
(55)
|
Profit
/ (loss) for the year
|
|
408
|
53
|
(108)
|
81
|
(40)
|
9
|
39
|
442
|
Non-controlling
interest
|
|
(2)
|
-
|
-
|
-
|
-
|
-
|
-
|
(2)
|
Earnings
/ (loss)
|
|
406
|
53
|
(108)
|
81
|
(40)
|
9
|
39
|
440
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares (millions)
|
|
|
|
813.4
|
|||||
Weighted
average number of shares (millions) for diluted
earnings
|
|
|
|
813.7
|
|||||
|
|
|
|
|
|||||
Adjusted earnings per share (basic)
|
|
|
|
54.1p
|
|||||
Adjusted
earnings per share (diluted)
|
|
|
|
54.1p
|
|
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
Statutory
income statement
|
Cost of
major restructuring
|
Other
net gains and losses
|
Intangible
charges
|
Other
net finance costs
|
Impact
of US tax reform
|
Tax
amortisation benefit
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
2016
|
|||||||||
Operating profit /
(loss)
|
2
|
(2,497)
|
338
|
25
|
2,769
|
-
|
-
|
-
|
635
|
Net
finance costs
|
3
|
(60)
|
-
|
-
|
-
|
1
|
-
|
-
|
(59)
|
Profit
/ (loss) before tax
|
4
|
(2,557)
|
338
|
25
|
2,769
|
1
|
-
|
-
|
576
|
Income
tax
|
5
|
222
|
(84)
|
(14)
|
(255)
|
-
|
-
|
36
|
(95)
|
Profit
/ (loss) for the year
|
|
(2,335)
|
254
|
11
|
2,514
|
1
|
-
|
36
|
481
|
Non-controlling
interest
|
|
(2)
|
-
|
-
|
-
|
-
|
-
|
-
|
(2)
|
Earnings /
(loss)
|
|
(2,337)
|
254
|
11
|
2,514
|
1
|
-
|
36
|
479
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares (millions)
|
|
|
|
814.8
|
|||||
Weighted
average number of shares (millions) for diluted
earnings
|
|
|
|
814.8
|
|||||
|
|
|
|
|
|||||
Adjusted
earnings per share (basic)
|
|
|
|
58.8p
|
|||||
Adjusted
earnings per share (diluted)
|
|
|
|
58.8p
|
|
|
|
|
all figures in £ millions
|
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Amounts
recognised as distributions to equity shareholders in the
year
|
318
|
424
|
|
|
|
|
|
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Average
rate for profits
|
|
1.30
|
1.33
|
Year
end rate
|
|
1.35
|
1.23
|
|
|
|
|
|
all figures in £ millions
|
|
WSE
|
K12
|
2017
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
16
|
-
|
16
|
Intangible
assets
|
|
15
|
166
|
181
|
Deferred income tax
assets
|
|
-
|
68
|
68
|
Trade and other
receivables
|
|
4
|
23
|
27
|
Non-current
assets
|
|
35
|
257
|
292
|
|
|
|
|
|
Intangible assets
– pre-publication
|
|
8
|
239
|
247
|
Inventories
|
|
-
|
46
|
46
|
Trade and other
receivables
|
|
12
|
36
|
48
|
Cash and cash
equivalents (excluding overdrafts)
|
|
127
|
-
|
127
|
Current
assets
|
|
147
|
321
|
468
|
|
|
|
|
|
Total
assets
|
|
182
|
578
|
760
|
|
|
|
|
|
Deferred income tax
liabilities
|
|
(2)
|
-
|
(2)
|
Other
liabilities
|
|
(10)
|
(274)
|
(284)
|
Non-current
liabilities
|
|
(12)
|
(274)
|
(286)
|
|
|
|
|
|
Trade and other
liabilities
|
|
(152)
|
(150)
|
(302)
|
Current
liabilities
|
|
(152)
|
(150)
|
(302)
|
|
|
|
|
|
Total
liabilities
|
|
(164)
|
(424)
|
(588)
|
|
|
|
|
|
Net
assets
|
|
18
|
154
|
172
|
|
|
|
|
all figures in £ millions
|
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Goodwill
|
|
2,030
|
2,341
|
Other
intangibles
|
|
934
|
1,101
|
Non-current
intangible assets
|
|
2,964
|
3,442
|
|
|
|
|
all figures in £ millions
|
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Trade
payables
|
|
(265)
|
(333)
|
Accruals
|
|
(447)
|
(507)
|
Deferred
income
|
|
(322)
|
(883)
|
Other
liabilities
|
|
(441)
|
(328)
|
Trade
and other liabilities
|
|
(1,475)
|
(2,051)
|
|
|
|
|
Analysed
as:
|
|
|
|
Trade
and other liabilities – current
|
|
(1,342)
|
(1,629)
|
Other
liabilities – non-current
|
|
(133)
|
(422)
|
Total
trade and other liabilities
|
|
(1,475)
|
(2,051)
|
|
|
all figures in £ millions
|
2017
|
|
|
|
|
Cash
– Current year acquisitions
|
-
|
Deferred payments
for prior year acquisitions and other items
|
(11)
|
Net
cash outflow on acquisitions
|
(11)
|
|
|
|
|
|
|
all figures in £ millions
|
|
GEDU
|
PRH
|
Other
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
(7)
|
-
|
-
|
(7)
|
Intangible
assets
|
|
(2)
|
-
|
(7)
|
(9)
|
Investments in
joint ventures and associates
|
|
-
|
(352)
|
-
|
(352)
|
Net deferred income
tax assets
|
|
(1)
|
(2)
|
-
|
(3)
|
Intangible assets
– pre publication
|
|
-
|
-
|
(1)
|
(1)
|
Inventories
|
|
(1)
|
-
|
(1)
|
(2)
|
Trade and other
receivables
|
|
(16)
|
-
|
-
|
(16)
|
Current income tax
receivable
|
|
-
|
(5)
|
-
|
(5)
|
Cash and cash
equivalents (excluding overdrafts)
|
|
(13)
|
-
|
-
|
(13)
|
Trade and other
liabilities
|
|
33
|
-
|
1
|
34
|
Cumulative
translation adjustment
|
|
3
|
48
|
-
|
51
|
Net
assets disposed
|
|
(4)
|
(311)
|
(8)
|
(323)
|
|
|
|
|
|
|
Proceeds
|
|
54
|
413
|
1
|
468
|
Costs of
disposal
|
|
(6)
|
(6)
|
(5)
|
(17)
|
Gain
/ (loss) on disposal
|
|
44
|
96
|
(12)
|
128
|
|
|
|
|
|
|
Cash
flow from disposals
|
|
|
|
|
|
Proceeds –
current year disposals
|
|
|
|
|
468
|
Cash and cash
equivalents disposed
|
|
|
|
|
(13)
|
Costs and other
disposal liabilities paid
|
|
|
|
|
(25)
|
Net
cash inflow from disposals
|
|
|
|
|
430
|
|
|
|
|
all figures in £ millions
|
note
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
Derivative
financial instruments
|
|
140
|
171
|
Current
assets
|
|
|
|
Marketable
securities
|
|
8
|
10
|
Cash
and cash equivalents (excluding overdrafts)
|
|
518
|
1,459
|
Non-current
liabilities
|
|
|
|
Borrowings
|
|
(1,066)
|
(2,424)
|
Derivative
financial instruments
|
|
(140)
|
(264)
|
Current
liabilities
|
|
|
|
Borrowings
|
|
(19)
|
(44)
|
Total
|
|
(559)
|
(1,092)
|
Cash
and cash equivalents classified as held for sale
|
|
127
|
-
|
Net
debt
|
|
(432)
|
(1,092)
|
|
|
|
|
EBITDA
(excluding restructuring)
|
|
|
|
Adjusted operating
profit
|
2
|
576
|
635
|
Depreciation
|
|
80
|
80
|
Software
amortisation
|
|
82
|
70
|
EBITDA
|
|
738
|
785
|
|
|
|
|
Net
debt / EBITDA ratio
|
|
0.6x
|
1.4x
|
|
---------Level
2---------
|
-----Level
3------
|
|
|||
all figures in £ millions
|
Available for sale
assets
|
Derivatives
|
Other
assets
|
Available for sale
assets
|
Other
liabilities
|
Total
fair value
|
2017
|
||||||
|
|
|
|
|
|
|
Investments in
unlisted securities
|
-
|
-
|
-
|
77
|
-
|
77
|
Marketable
securities
|
8
|
-
|
-
|
-
|
-
|
8
|
Derivative
financial instruments
|
-
|
140
|
-
|
-
|
-
|
140
|
Total
financial assets held at fair value
|
8
|
140
|
-
|
77
|
-
|
225
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
-
|
(140)
|
-
|
-
|
-
|
(140)
|
Total
financial liabilities held at fair value
|
-
|
(140)
|
-
|
-
|
-
|
(140)
|
|
|
|
|
|
|
|
2016
|
||||||
|
|
|
|
|
|
|
Investments in
unlisted securities
|
-
|
-
|
-
|
65
|
-
|
65
|
Marketable
securities
|
10
|
-
|
-
|
-
|
-
|
10
|
Derivative
financial instruments
|
-
|
171
|
-
|
-
|
-
|
171
|
Total
financial assets held at fair value
|
10
|
171
|
-
|
65
|
-
|
246
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
-
|
(264)
|
-
|
-
|
-
|
(264)
|
Total
financial liabilities held at fair value
|
-
|
(264)
|
-
|
-
|
-
|
(264)
|
|
|
|
|
all figures in £ millions
|
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Investments
in unlisted securities
|
|
|
|
At
beginning of year
|
|
65
|
143
|
Exchange
differences
|
|
(4)
|
8
|
Additions
|
|
3
|
6
|
Fair
value movements
|
|
13
|
-
|
Disposals
|
|
-
|
(92)
|
At
end of year
|
|
77
|
65
|
|
|
|
|
all figures in £ millions
|
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Reconciliation
of profit / (loss) for the year to net cash generated from
operations
|
|
|
|
|
|
|
|
Profit
/ (loss) for the year
|
|
408
|
(2,335)
|
Income
tax
|
|
13
|
(222)
|
Depreciation,
amortisation and impairment charges
|
|
313
|
2,912
|
Net
(profit) / loss on disposal of businesses
|
|
(128)
|
25
|
Net
loss on disposal of fixed assets
|
|
12
|
15
|
Net
finance costs
|
|
30
|
60
|
Share
of results of joint ventures and associates
|
|
(78)
|
(97)
|
Net
foreign exchange adjustment
|
|
(26)
|
43
|
Share-based payment
costs
|
|
33
|
22
|
Pre-publication
|
|
(35)
|
(19)
|
Inventories
|
|
24
|
17
|
Trade
and other receivables
|
|
133
|
156
|
Trade
and other liabilities
|
|
6
|
61
|
Retirement benefit
obligations
|
|
(232)
|
(106)
|
Provisions for
other liabilities and charges
|
|
(11)
|
(10)
|
Net
cash generated from operations
|
|
462
|
522
|
|
|
|
|
all figures in £ millions
|
note
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Reconciliation
of net cash generated from operations to closing net
debt
|
|
|
|
|
|
|
|
Net
cash generated from operations
|
|
462
|
522
|
Dividends from
joint ventures and associates
|
|
458
|
131
|
Less:
re-capitalisation dividends from PRH
|
|
(312)
|
-
|
Net
purchase of PPE including finance lease principal
payments
|
|
(87)
|
(90)
|
Net
purchase of intangible assets
|
|
(150)
|
(157)
|
Add
back: cost of major restructuring paid
|
|
71
|
167
|
Add
back: special pension contribution
|
|
227
|
90
|
Operating
cash flow
|
|
669
|
663
|
Operating tax
paid
|
|
(75)
|
(63)
|
Net
operating finance costs paid
|
|
(69)
|
(51)
|
Operating
free cash flow
|
|
525
|
549
|
Costs
of major restructuring paid
|
|
(71)
|
(167)
|
Special
pension contribution
|
|
(227)
|
(90)
|
Non-operating tax
received
|
|
-
|
18
|
Free
cash flow
|
|
227
|
310
|
Dividends paid
(including to non-controlling interests)
|
|
(318)
|
(424)
|
Net
movement of funds from operations
|
|
(91)
|
(114)
|
Acquisitions and
disposals
|
|
416
|
19
|
Re-capitalisation
dividends from PRH
|
|
312
|
-
|
Purchase of
treasury shares
|
|
-
|
(27)
|
Loans
(advanced) / repaid
|
|
(13)
|
14
|
New
equity
|
|
5
|
7
|
Buyback
of equity
|
|
(149)
|
-
|
Other
movements on financial instruments
|
|
14
|
4
|
Net
movement of funds
|
|
494
|
(97)
|
Exchange movements
on net debt
|
|
166
|
(341)
|
Movement
in net debt
|
|
660
|
(438)
|
Opening
net debt
|
|
(1,092)
|
(654)
|
Closing
net debt
|
15
|
(432)
|
(1,092)
|
|
|
|
|
|
|
all figures in £ millions
|
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
Gross
|
Net
|
Net
|
|
|
|
|
|
|
Adjusted operating
profit
|
|
576
|
635
|
576
|
635
|
Less:
operating tax paid
|
|
(75)
|
(63)
|
(75)
|
(63)
|
Return
|
|
501
|
572
|
501
|
572
|
|
|
|
|
|
|
Average:
goodwill
|
|
7,236
|
6,987
|
3,794
|
3,429
|
Average: other
non-current intangibles
|
|
2,606
|
2,481
|
2,606
|
2,481
|
Average: intangible
assets – pre-publication
|
|
995
|
926
|
995
|
926
|
Average: tangible
fixed assets and working capital
|
|
731
|
1,070
|
731
|
1,070
|
Average:
total invested capital
|
|
11,568
|
11,464
|
8,126
|
7,906
|
|
|
|
|
|
|
ROIC
|
|
4.3%
|
5.0%
|
6.2%
|
7.2%
|
|
PEARSON
plc
|
|
|
Date: 23
February 2018
|
|
|
By: /s/
NATALIE WHITE
|
|
|
|
------------------------------------
|
|
Natalie
White
|
|
Deputy
Company Secretary
|