a3522u
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of August
2022
PEARSON plc
(Exact
name of registrant as specified in its charter)
N/A
(Translation
of registrant's name into English)
80 Strand
London, England WC2R 0RL
44-20-7010-2000
(Address
of principal executive office)
Indicate
by check mark whether the Registrant files or will file annual
reports
under
cover of Form 20-F or Form 40-F:
Form
20-F
X
Form 40-F
Indicate
by check mark whether the Registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934
Yes
No X
Interim results for the six months to 30th
June 2022
(Unaudited)
|
1
August 2022
Strong
financial performance and continued momentum; Full year
expectations reaffirmed
|
|
Highlights
●
Strong
financial performance with underlying sales growth of 6% and
adjusted operating profit up 22%. Full year expectations
reaffirmed.
●
Continued
strategic and operational momentum across the
business.
●
Accelerating
our digital journey with the development of Pearson’s
lifelong learning ecosystem.
●
At
least £100m of further efficiencies identified and to be
delivered in 2023; accelerates our improved margin expectation to
2023 from 2025.
●
We
are launching a strategic review of our OPM business.
Andy Bird, Pearson’s Chief Executive, said:
“Pearson
has delivered another encouraging financial performance in the
first half of the year. We continue to make excellent strategic and
operational progress, with momentum across the business. We are
already seeing clear benefits from our increasingly diverse
learning ecosystem, with Pearson serving more people across their
lifelong learning journeys. Our digital strategy is progressing
well; Pearson+ grew to 4.5m registered users, increasingly taking
us direct to consumers.
“Our
focus on delivery and execution remains and full year 2022
expectations are reaffirmed. In addition, the more integrated
platform we are building across the company is creating
efficiencies, underpinning our new guidance for accelerated margin
improvement. We have a robust balance sheet which, together with
our cash generation, will support continued investment in growth
and create value for our shareholders.”
Underlying sales growth of 6% to £1,788m
●
Assessment &
Qualifications up 16% driven by US Student Assessment and UK &
International Qualifications as exam timetables normalise after
COVID-19 disruption. Clinical Assessment delivered
better-than-expected performance supported by an ongoing focus on
health and wellness as well as government funding.
●
Virtual Learning up
3% with robust retention rates in Virtual Schools, offset by weaker
than expected Spring enrolments in OPM.
●
English Language
Learning up 22% as improved global mobility drove excellent growth
in the Pearson Test of English (PTE).
●
Workforce Skills up
6% with continued growth in BTEC, GED and TalentLens. Recent
acquisitions, Faethm and Credly, grew strongly.
●
Higher Education
down 4%, in line with expectations, as Fall enrolment trends in the
US continued into the Spring period.
●
Sales in businesses
under strategic review declined as expected due to COVID-19
impacting revenue phasing in Canada and South Africa in 2021 as
well as ceased businesses.
Adjusted operating profit up £33m to £160m
●
Driven by an
encouraging trading
performance, FX benefit and property savings, partially
offset by inflation,
portfolio investment and the phasing of costs last year.
●
Adjusted earnings
per share growth to 22.5p (H1 2021: 10.5p) reflecting adjusted
operating profit growth, and the one off tax provision releases
resulting in net interest receivable of £18m (net interest
charge H1 2021: £(27)m) and an adjusted effective tax rate of
5% (H1 2021: 20%).
Strong balance sheet underpins investment in growth and shareholder
returns
●
Operating cash flow
was £9m (H1 2021: £10m) with the drop through of
increased trading profits offset by increased receivables given the
strong revenue growth in H1. These receivables will be collected in
H2.
●
Robust balance
sheet, with H1 net debt of £810m (H1 2021 £646m).
Operating cash was more than offset by dividends, share buyback and
tax. We had available liquidity of approximately £1.2bn (H1
2021: £1.4bn) at the end of H1.
●
H1 acquisitions of
Credly and Mondly are accelerating the growth strategy in Workforce
Skills and English Language Learning divisions
respectively.
●
Proposed interim
dividend of 6.6p (H1 2021: 6.3p) represents an increase of
5%.
●
£350m share
buyback progressing with over £165m of shares repurchased at
the 29th
July.
Statutory results
●
Sales of
£1,788m (H1 2021: £1,597m), reflecting underlying
performance, portfolio changes and currency movements.
●
Operating profit of
£148m (H1 2021: £9m) due to underlying performance, the
reduction in costs of major restructuring and the net gain related
to acquisitions and disposals compared to a loss in
2021.
●
Statutory earnings
per share of 17.5p (H1 2021: 2.3p).
●
Net cash generated
from operations was £53m (H1 2021: £79m).
Strategic progress
●
Accelerating our
digital journey.
-
Continued strategic
progress in building Pearson’s digital learning ecosystem
– already have a large-scale user base.
-
Pearson+ roll out
progressing well, 4.5m registered users and 329k cumulative paid
subscriptions as at 15 July 2022. Channels & Social launching
for back-to-school 2022 to broaden Pearson+ reach and grow total
addressable market.
●
Maintained focus on
driving higher returns through efficiency savings.
-
Re-organisation of
Pearson into five divisions with responsibility for their full cost
base is now complete, enabling more efficient ways of working and
operating as a business in a digital world.
●
Further
efficiencies identified of at least £100m for 2023, through
rightsizing costs as we implement the new strategy and portfolio,
product and content rationalisation, further corporate property
reductions and other operating productivities. This accelerates our
improved margin expectation to 2023 from 2025. One-time costs to
deliver these savings, which we will exclude from adjusted
operating profit to better highlight underlying performance, are
expected to be c.£120m of which approximately half will be
cash related.
●
Reshaping our
portfolio.
-
Integration of
Faethm and Credly progressing well with plans to pilot a new suite
of workforce services in Q3 2022 ahead of a commercial launch in H1
2023.
-
Acquisition of
Mondly enhances our credentials in the language learning direct to
consumer space as well as creating synergies across
Pearson.
-
Ongoing progress
with announcement of sale of Italian and German K12 Courseware
businesses for £163m to Sanoma Corporation and the completion
of sale of ERPI (Editions du renouveau pedagogique) business in
Canada to TC Media.
-
Retaining
Australian and English-speaking Canadian K12 Courseware businesses
to deliver increased shareholder value as part of the
Group.
-
Pearson continues
to make progress in the remaining areas of the strategic
review.
-
Impact of total
strategic review disposals on 2022 adjusted operating profit
expected to be c.£15-20m reflecting the second half weighting
of their financial contribution. Operating cashflow for these
businesses is weighted to Q4 and the timing of completion is also
likely to impact operating cash conversion in 2022.
-
Launching strategic
review of OPM business.
2022 outlook reaffirmed*
Group
revenue and adjusted operating profit expectations remain unchanged
based on prevailing FX rates as outlined on 25 February 2022.
Pearson sees upside potential in English Language Learning, Virtual
Schools and Clinical Assessment given outperformance in the first
half and likely increased pressure in enrolments in OPM and Higher
Education. Growth in Pearson+ subscriptions will lead to a shift in
HE revenue recognition from Q3 to Q4.
This
year we expect a net interest charge of £10-15m and an
effective tax rate of 15-17% reflecting the statute of limitations
on a number of tax provisions which lapsed in April
2022.
Financial
summary
£m
|
H1 2022
|
H1
2021
|
Headline
growth
|
CER
growth**
|
Underlying
growth
|
Business performance
|
|
|
|
|
|
Sales
|
1,788
|
1,597
|
12%
|
6%
|
6%
|
Adjusted
operating profit
|
160
|
127
|
26%
|
19%
|
22%
|
Operating
cash flow
|
9
|
10
|
|
|
|
Adjusted
earnings per share
|
22.5p
|
10.5p
|
|
|
|
Statutory results
|
|
|
|
|
|
Sales
|
1,788
|
1,597
|
|
|
|
Operating
profit
|
148
|
9
|
|
|
|
Net
cash generated from operations
|
53
|
79
|
|
|
|
Basic
earnings per share
|
17.5p
|
2.3p
|
|
|
|
Dividend
per share
|
6.6p
|
6.3p
|
|
|
|
Net
debt
|
(810)
|
(646)
|
|
|
|
Throughout
this announcement: a) Growth rates are on an underlying basis
unless otherwise stated. Underlying growth rates exclude currency
movements, and portfolio changes. b) The ‘business
performance’ measures are non-GAAP measures and
reconciliations to the equivalent statutory heading under IFRS are
included in notes to the attached condensed consolidated financial
statements 2, 3, 4, 5, 7, and 16.
*2022
consensus on the Pearson website as at full year 2021; median
adjusted operating profit of £416m at £:$
1.37.
**Constant
exchange rates are calculated by assuming the average FX in the
prior period prevailed through the current period.
Tax
update
On 8 June 2022 the EU General Court dismissed various applications,
including the UK Government's, to annul the European Commission
decision that certain aspects of the UK tax code constituted State
Aid. Following this decision, it has been concluded that a
provision is now required in relation to this issue. The total
exposure is calculated to be £105m (excluding interest) with a
provision of £63m now included in the results, outside
adjusted earnings, representing our estimate of the exposure. There
is no cash impact as a payment on account was made during
2021.
Executive
Changes
●
Tim Bozik is
retiring after nearly forty years at Pearson. He will remain
interim chief product officer and co-president of Direct to
Consumer until early 2023.
●
We have expanded
Tom ap Simon’s role. He will become President of Higher
Education effective September 6, in addition to his current role as
president of Virtual Learning.
●
Building on
Tim’s work, Tom will look for further opportunities to
transform the Higher Education business, accelerate innovation, and
unlock growth opportunities.
This announcement contains inside information.
Contacts
|
|
|
|
Investor Relations
|
Jo
Russell
James
Caddy
|
+44 (0)
7785 451 266
+44 (0)
7825 948 218
|
|
Media
|
Tom
Steiner
Gemma
Terry
|
+44 (0)
7787 415 891
+44 (0)
7841 363 216
|
|
Teneo
|
Charles
Armitstead
|
+44 (0)
7703 330 269
|
|
Virtual event
|
Pearson’s interim results online presentation today at 0900
(BST). Register to receive log in details:
https://pearson.connectid.cloud/register
|
|
|
|
Notes
Forward looking statements: Except for the historical
information contained herein, the matters discussed in this
statement include forward-looking statements. In particular, all
statements that express forecasts, expectations and projections
with respect to future matters, including trends in results of
operations, margins, growth rates, overall market trends, the
impact of interest or exchange rates, the availability of
financing, anticipated cost savings and synergies and the execution
of Pearson’s strategy, are forward-looking statements. By
their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that will occur in future. They are based on numerous
assumptions regarding Pearson’s present and future business
strategies and the environment in which it will operate in the
future. There are a number of factors which could cause actual
results and developments to differ materially from those expressed
or implied by these forward-looking statements, including a number
of factors outside Pearson’s control. These include
international, national and local conditions, as well as
competition. They also include other risks detailed from time to
time in Pearson’s publicly-filed documents and you are
advised to read, in particular, the risk factors set out in
Pearson’s latest annual report and accounts, which can be
found on this website (www.pearsonplc.com).
Any forward-looking statements speak only as of the date they are
made, and Pearson gives no undertaking to update forward-looking
statements to reflect any changes in its expectations with regard
thereto or any changes to events, conditions or circumstances on
which any such statement is based. Readers are cautioned not to
place undue reliance on such forward-looking
statements.
KPIs
KPI
|
Objective
|
KPI Measure
|
H1 2022
|
H1 2021
|
Digital growth
|
Drive
digital revenue growth
|
OPM student enrolments
|
143k
|
144k
|
OnVUE volumes
|
1.4m
|
1.6m
|
Higher Education US digital registrations
|
4.8m
|
5.3m
|
PTE volume
|
344k
|
189k
|
Consumer
Engagement
|
Create
engaging and personalised
consumer
experiences
|
NPS for Connections Academy
|
+67
|
+62
|
NPS for PTE
|
+51
|
+56
|
Pearson+ registered users*
|
4.5m
|
n/a
|
Workforce Skills registered users**
|
4.1m
|
n/a
|
Product
Effectiveness
|
Improve the effectiveness of our products to
deliver better outcomes
|
PTE speed of score return
|
1.3
days
|
1.2
days
|
VUE*** test volumes
|
10.0m
|
8.5m
|
Higher Education product usage – text
units
|
2.1m
|
2.2m
|
Workforce Skills number of enterprise customers****
|
1,387
|
518
|
Full
list of strategic KPIs to be reported on alongside full year
results
*
Pearson+ registered users represents the number of unique user
accounts added over an academic year.
**
Workforce Skills registered users represents the number of new
unique user accounts on a trailing 12-month basis and includes new
unique user accounts from Credly pre-acquisition.
*** VUE
test volumes include GED tests
****
Workforce Skills number of enterprise customers represents the
number of customers at period end
Operational
review
£ millions
|
H1 2022
|
H1
2021
|
Headline
growth
|
CER
growth*
|
Underlying
growth
|
Sales
|
|
|
|
|
|
Assessment
& Qualifications
|
697
|
573
|
22%
|
16%
|
16%
|
Virtual
Learning
|
390
|
353
|
10%
|
3%
|
3%
|
English
Language Learning
|
122
|
94
|
30%
|
26%
|
22%
|
Workforce
Skills
|
127
|
112
|
13%
|
13%
|
6%
|
Higher
Education
|
373
|
365
|
2%
|
(4)%
|
(4)%
|
Strategic
review
|
79
|
100
|
(21)%
|
(21)%
|
(13)%
|
Total
|
1,788
|
1,597
|
12%
|
6%
|
6%
|
|
|
|
|
|
|
Adjusted operating profit/(loss)
|
|
|
|
|
|
Assessment
& Qualifications
|
137
|
96
|
43%
|
34%
|
34%
|
Virtual
Learning
|
14
|
14
|
0%
|
(21)%
|
(21)%
|
English
Language Learning
|
(4)
|
(13)
|
69%
|
69%
|
62%
|
Workforce
Skills
|
28
|
34
|
(18)%
|
(15)%
|
(6)%
|
Higher
Education
|
(4)
|
4
|
(>100%)
|
(>100%)
|
(>100%)
|
Strategic
review
|
(11)
|
(8)
|
(38)%
|
(25)%
|
0%
|
Total adjusted operating profit/(loss)
|
160
|
127
|
26%
|
19%
|
22%
|
*Constant
exchange rates are calculated by assuming the average FX in the
prior period prevailed through the current period.
Assessment
& Qualifications
In Assessment & Qualifications, revenue increased 16% on an
underlying basis and 22% on a headline basis. Adjusted operating
profit increased 34% in underlying terms due to the operating
leverage on revenue growth.
Professional Certification (VUE) revenue was down 3%. Ongoing
growth across clients and programmes, particularly in the IT and
Professional sectors was offset by the expected headwind resulting
from the DVSA contract change, as previously announced in 2021.
DVSA volumes in the UK have recovered extremely well both at our
test centres and with
competitors who also use the DVSA booking
platform.
Clinical Assessment outperformed expectations in the first half,
with revenue up 14% due to an ongoing focus on mental health and
wellbeing combined with government funding driving demand for core
products and digital solutions.
US Student Assessment saw exceptional underlying sales growth of
45% driven by the resumption of full spring exam activities across
most US states, as well as the positive impact of recent contract
wins and additional scope being added to several existing
contracts.
In UK & International Qualifications, underlying sales grew 24%
as a result of exams returning to normal in the UK and
international markets,
following the COVID-19 related rebate to schools in
2021.
Virtual
Learning
Revenue grew 3% on an underlying basis and 10% on a headline basis
due to robust retention rates in Virtual Schools in the 2021/2022
academic year, partially offset by weaker Spring enrolments in
OPM. Adjusted operating profit was down 21% in underlying
terms, due to the investment in our Virtual Schools’
platform, curriculum and customer care support as well as lower
Spring enrolments in OPM.
In Virtual Schools, revenue grew 6% as retention rates for the
current school year, 2021/22, remain robust, whilst applications
for the 2022-23 academic school year – an early indication of
demand, are tracking well. In June, Pearson announced approval of a
new full-time online school in Colorado, Colorado Connections
Academy, which will serve students statewide in grades K-12,
starting in the 2022-23 academic school year. Pearson operates 47
schools across 30 states.
In OPM, weaker underlying Spring enrolments, down 1% led to a
revenue decline of 2%. During the period we announced the end of
our partnership with Arizona State University at the end of June
2023. We are launching a strategic review of our OPM business. We
will update the market on the outcome once the review is
concluded.
English
Language Learning
In
English Language Learning, sales were up 22% on an underlying basis
and 30% on a headline basis due predominantly to the benefits of
ongoing re-opening of borders and improving global mobility on
Pearson Test of English (PTE) where volumes grew 82% compared to
the same period in 2021. The adjusted operating loss improved by
62% on an underlying basis due to revenue growth.
The
Group is pleased with the progress made so far in integrating the
recent acquisition of Mondly which gives us access to the high
growth direct to consumer language learning market as well as
creating synergies across the group.
Workforce
Skills
In
Workforce Skills, sales were up 6% on an underlying basis and 13%
on a headline basis, predominantly driven by growth in BTEC due to
the return of examinations, growth in GED, TalentLens and
Apprenticeships. Adjusted operating profit decreased 6% in
underlying terms, with high flow through of sales growth driving
operating leverage offset by investment.
Ongoing
progress is being made with developing the Workforce Skills product
roadmap and integrated product strategy. We are focused on the
integration of Faethm and Credly with a dedicated product delivery
team working across both businesses. Pearson has 1,387 enterprise
clients in its Workforce Skills portfolio, up 168% on last year,
with the acquisitions of Credly and Faethm underpinning this
growth.
Higher
Education
In
Higher Education, sales declined 4% on an underlying basis and grew
2% on a headline basis. US Higher Education Courseware revenue
declined 5%, as expected, reflecting the continued decline in
enrolments and courses per enrolment in the 2021/22 academic year.
We continue to make progress with our strategy of shifting from
ownership to access, with Inclusive Access sales into non-profit
institutions up 7% to represent 19% of US Higher Education
revenue.
Adjusted
operating profit declined by £8m in underlying terms driven by
revenue declines.
We are
seeing momentum build in Pearson+ with registered users increasing
64% to 4.5m and cumulative paid subscriptions increased from 133k
to 329k. Pearson+ units as a proportion of total text units have
also increased from 5.7% in H2 2021 to 14.4% in H1
2022.
Building
on the success of Pearson+, we will launch Channels for the
back-to-school period giving students access to 16-18 Channels with
high quality learning videos and practice problems across an array
of disciplines such as Chemistry, Algebra and Anatomy. This will be
a critical tool in building direct relationships with a wider group
of students enabling us to test additional features and deliver
more learning content. Pearson+ Channels can be accessed at
channels.pearson.com.
Strategic
review
Sales
in our international courseware local publishing businesses under
strategic review were down 13% on an underlying basis and 21% on a
headline basis, as COVID-19 impacted revenue phasing in Canada and
South Africa in 2021 as well as ceased businesses. Adjusted
operating profit, on an underlying basis, was flat with sales
decline offset by cost savings.
FINANCIAL REVIEW
Operating
result
Due to
seasonal bias in some of the Group’s businesses, Pearson
typically makes a higher proportion of its profits in the second
half of the year. Operating cash flow at the half year is a modest
cash inflow reflecting the seasonal increase in working
capital.
Sales
for the six months to 30 June 2022 increased on a headline basis by
£191m or 12% from £1,597m for the six months to 30 June
2021 to £1,788m for the same period in 2022 and adjusted
operating profit increased by £33m or 26% from £127m in
the first half of 2021 to a profit of £160m in the first half
of 2022 (for a reconciliation of this measure see note 2 to the
condensed consolidated financial statements).
The
headline basis simply compares the reported results for the six
months to 30 June 2022 with those for the equivalent period in the
prior year. We also present sales and profits on an underlying
basis which exclude the effects of exchange, the effect of
portfolio changes arising from acquisitions and disposals and the
impact of adopting new accounting standards that are not
retrospectively applied, when relevant. Our portfolio change is
calculated by taking account of the contribution from acquisitions
and by excluding sales and profits made by businesses disposed in
either 2021 or 2022. Portfolio changes mainly relate to the sale of
the Group's interests in its Canadian educational publisher ERPI
(Éditions du renouveau pédagogique) in June 2022, the
disposals of Pearson Institute of Higher Education
(‘PIHE’) and the K12 Sistemas business in Brazil in
2021, and the acquisitions of Credly and Mondly in 2022 and of
Faethm in 2021.
On an
underlying basis, sales increased by 6% in the first six months of
2022 compared to the equivalent period in 2021 and adjusted
operating profit increased by 22%. Currency movements increased
sales by £88m and adjusted operating profit by £9m, and
portfolio changes increased sales by £1m and decreased
adjusted operating profit by £4m. There were no new accounting
standards adopted in the first half of 2022 that impacted sales or
profits.
Adjusted operating
profit includes the results from 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. A summary of these adjustments is included below and
in more detail in note 2 to the condensed consolidated financial
statements.
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Operating
profit
|
|
148
|
9
|
183
|
Add
back: Cost of major restructuring
|
|
-
|
85
|
214
|
Add
back: Intangible charges
|
|
26
|
27
|
51
|
Add
back: Other net gains and losses
|
|
(14)
|
6
|
(63)
|
Adjusted
operating profit
|
|
160
|
127
|
385
|
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 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. 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.
The
reported operating profit of £148m in the first half of 2022
compares to a profit of £9m in the first half of 2021. The
increase in 2022 is mainly due to improved trading profits, the
reduction in cost of major restructuring and the net gain related
to acquisitions and disposals compared to a net loss in the first
half of 2021.
Net
finance costs
Net
interest receivable reflected in adjusted earnings to 30 June 2022
was £18m, compared to a payable of £27m in the first half
of 2021. The difference is primarily due to the release of
£35m of interest recorded in respect of provisions for
uncertain tax positions where the related interest was recognised
in this line in the income statement. In addition, interest charges
have reduced due to the reduction in gross bond debt and increased
interest income on cash balances.
Net
finance income relating to retirement benefits has been excluded
from our adjusted earnings as we believe the income statement
presentation does not reflect the economic substance of the
underlying assets and liabilities. Also included in net finance
costs (but not in our adjusted measure) are interest costs relating
to acquisition or disposal consideration, foreign exchange, other
gains and losses on derivatives and interest related to certain tax
provisions. Interest relating to acquisition or disposal
consideration is excluded from adjusted earnings as it is
considered to be part of the acquisition cost or disposal proceeds
rather than being reflective of the underlying financing costs of
the Group. Foreign exchange and other gains and losses are excluded
from adjusted earnings 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. Interest on
certain tax provisions is excluded from our adjusted measure in
order to mirror the treatment of the underlying tax item (for more
information see note 3 to the condensed consolidated financial
statements).
In the
period to 30 June 2022, the total of these items excluded from
adjusted earnings was a benefit of £13m compared to a benefit
of £22m in the first half of 2021. Net finance income relating
to retirement benefits increased from £2m in the first half of
2021 to £4m in 2022 reflecting the comparative funding
position of the plans at the beginning of each year and higher
prevailing discount rates. In 2022, there were no finance charges
relating to the revaluation of the K12 disposal proceeds as the
outstanding amount has been fully repaid compared to income of
£5m in the first half of 2021 (see note 15 to the condensed
consolidated financial statements). In addition, there were similar
gains on long-term interest rate hedges and an interest charge on
tax provisions of £5m has been recognised in relation to the
State Aid matter. For a reconciliation of the adjusted measure see
note 3 to the condensed consolidated financial
statements.
Taxation
The
reported tax on statutory earnings for the six months to 30 June
2022 was a charge of £48m compared to a benefit of £14m
in the period to 30 June 2021. This equates to an effective tax
rate of 27% (2021: (350)%).
The tax
charge for the period has been impacted principally by two
items:
●
The release of tax
risk provisions totalling £72m following the expiry of the
statute of limitations for certain periods in the US. This release
impacts both statutory and adjusted earnings with a £37m
credit to adjusted earnings with the remainder only impacting
statutory results. As noted above there is a release of £35m
of interest associated with these tax risk provisions.
●
As previously
disclosed, the European Commission determined that the United
Kingdom controlled foreign company group financing partial
exemption partially constituted State Aid. This decision was
appealed by the UK Government and other parties. On 8 June 2022,
the EU General Court dismissed the appeal. At 31 December 2021, the
potential risk associated with this issue was disclosed as a
contingent liability, however, following the dismissal of the
appeal the prospects of successfully challenging the European
Commission’s decision are now considered to be such that a
provision is required.
On that basis a tax
provision of £63m plus £5m of associated interest has
been recorded. The provision represents an estimate of the expected
value which has been calculated by 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 (£105m
excluding interest). Due to the large and unusual nature of the
provision and the specific one-off nature of the issue, the
provision is excluded from adjusted earnings. There is no cash
impact as a payment on account was made during 2021. The provision
of £63m has been offset on the balance sheet against the
payments previously made. As the provision is less than the
payments made there is a remaining non-current tax receivable of
£41m associated with this issue.
The
total adjusted tax charge for the period was £9m (2021:
£20m), corresponding to an effective tax rate on adjusted
profit before tax of 5% (2021: 20%). The lower effective rate
compared to 2021 is primarily due to the release of tax risk
provisions following the expiry of the statute of limitations in
the US. We continue to expect the adjusted effective tax rate to be
between 15% and 17% for the 2022 full year.
In the
first half of 2022, there was a net tax payment of £51m. The
majority of the 2022 payment relates to the US. In the first half
of 2021 there was a net payment of £121m of which £100m
related to the ongoing European Commission
investigation.
Other
comprehensive income
Included
in other comprehensive income are the net exchange differences on
translation of foreign operations. The gain on translation of
£334m at 30 June 2022 compares to a loss at 30 June 2021 of
£41m. The gain in 2022 arises from an overall strengthening of
the currencies to which the Group is exposed and in particular the
relative strength of the US dollar. A significant proportion of the
Group’s operations are based in the US and the US dollar
closing rate at 30 June 2022 was £1:$1.21 compared to the
opening rate of £1:$1.35. At the end of June 2021, the US
dollar rate was £1:$1.38 compared to the opening rate of
£1:$1.37.
Also
included in other comprehensive income at 30 June 2022 is an
actuarial gain of £121m in relation to retirement benefit
obligations. The gain arises largely from a decrease in liabilities
driven by higher discount rates and changes to demographic
assumptions, partially offset by losses on associated matching
assets and experience losses. The gain in 2022 compares to an
actuarial gain at 30 June 2021 of £33m.
Fair
value gains of £25m have been recognised in other
comprehensive income and relate to movements in the value of
investments in unlisted securities held at fair value through other
comprehensive income, including the uplift of the investment held
in Credly prior to the acquisition of the remaining shares. This
compares to fair value gains of £22m recognised in other
comprehensive income at 30 June 2021 which related to movements in
the value of investments in unlisted securities held at fair value
through other comprehensive income.
In
2022, a gain of £7m was recycled from the currency translation
reserve to the income statement in relation to the disposal of
ERPI. In 2021, a loss of £4m was recycled from the currency
translation reserve to the income statement in relation to
businesses disposed.
Cash
flow and working capital
Our
operating cash flow measure is used to align cash flows with our
adjusted profit measures (see note 16 to the condensed consolidated
financial statements). Operating cash flow decreased on a headline
basis by £1m from an inflow of £10m in the first half of
2021 to an inflow of £9m in the first half of 2022. The
decrease is largely explained by the drop-through of increased
trading profits which is offset by adverse working capital
movements as a result of timing differences on billings, payments
and inventory.
The
equivalent statutory measure, net cash generated from operations,
was an inflow of £53m in 2022 compared to an inflow of
£79m in 2021. Compared to operating cash flow, this measure
includes restructuring costs but does not include regular dividends
from associates. It also excludes capital expenditure on property,
plant, equipment and software, and additions to right of use assets
as well as disposal proceeds from the sale of property, plant,
equipment and right of use assets (including the impacts of
transfers to/from investment in finance lease
receivable).
In the
first half of 2022, there was an overall decrease of £545m in
cash and cash equivalents from £937m at the end of 2021 to
£392m at 30 June 2022. The decrease in 2022 is primarily due
to payments for the acquisition of subsidiaries of £221m,
repayments of borrowings of £95m, dividends paid of
£107m, own share purchases of £165m, tax paid of
£51m, interest payments of £35m, capital expenditure on
property, plant, equipment and software of £67m and payments
of lease liabilities of £54m. These were offset by the cash
inflow from operations of £53m, business disposals of
£108m and favourable foreign exchange movements on cash of
£53m.
Liquidity
and capital resources
The
Group’s net debt increased from £350m at the end of 2021
to £810m at the end of June 2022. The increase is largely due
to positive operating cash flow and proceeds from disposals of
businesses, offset by tax and interest payments, dividend payments,
amounts paid under the share buyback programme and consideration
paid for acquisitions.
In May
2022, the Group repaid the remaining $117m (£95m) of its 2022
US dollar bond upon maturity. In May 2021, the Group repaid the
remaining €195m (£167m) of its €500m Euro 1.85%
notes.
At 30
June 2022, the Group had approximately £1.2bn in total
liquidity immediately available from cash and its Revolving Credit
Facility maturing February 2026. In assessing the Group’s
liquidity and viability, the Board analysed a variety of downside
scenarios including impacts from COVID-19 and other risks. Even
under a severe downside case where declines in profitability
compared to 2021 and H1 2022 are modelled in H2 2022 and 2023, 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.
Post-retirement
benefits
Pearson
operates a variety of pension and post-retirement plans. Our UK
Group pension plan has by far the largest defined benefit section.
This plan has a strong funding position and a surplus with a very
substantially de-risked investment portfolio including
approximately 50% of the assets in buy-in contracts and no exposure
to quoted equities. We have some smaller defined benefit sections
in the US and Canada but, outside the UK, most of our companies
operate defined contribution plans.
The
charge to profit in respect of worldwide pensions and retirement
benefits amounted to £30m in the period to 30 June 2022 (30
June 2021: £29m) of which a charge of £34m (30 June 2021:
£31m) was reported in adjusted operating profit and income of
£4m (30 June 2021: £2m) was reported against other net
finance costs.
The
overall surplus on UK Group pension plans of £537m at the end
of 2021 has increased to a surplus of £652m at the end of June
2022. The increase has arisen principally due to the actuarial gain
noted above in the other comprehensive income section. In total,
our worldwide net position in respect of pensions and other
post-retirement benefits increased from a net asset of £471m
at the end of 2021 to a net asset of £591m at the end of June
2022.
Businesses
acquired
In
January 2022, the Group acquired 100% of the share capital in
Credly Inc (Credly), having previously held a 19.9% interest in the
company. Total consideration for the acquisition 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
2 years. Additional amounts are also 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. Net assets
acquired of £44m were recognised on the Group’s balance
sheet including £49m of acquired intangible assets. Goodwill
of £105m was also recognised in relation to the
acquisition.
In
April 2022, the Group acquired 100% of the share capital of ATI
STUDIOS A.P.P.S S.R.L (Mondly). Total consideration for the
acquisition was £135m comprising upfront cash consideration of
£105m, and deferred consideration of £30m. The deferred
consideration is payable over the next two years. 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 will be expensed over the period and are
not treated as consideration. Net assets acquired of £38m were
recognised on the Group’s balance sheet including £50m
of acquired intangible assets. Goodwill of £97m was also
recognised in relation to the acquisition.
In
2022, the Group also made two smaller acquisitions for total
consideration of £11m.
The
cash outflow in 2022 relating to acquisitions of subsidiaries was
£221m. In addition, there was a cash outflow relating to the
acquisition of associates of £4m and investments of
£4m.
In
September 2021, the Group completed the acquisition of 100% of the
share capital of Faethm Holdings Pty Limited
(‘Faethm’), having already held 9% of the share capital
previously. Total consideration for the acquisition was £65m
comprising cash consideration of £49m, £6m related to the
Group’s existing interest in Faethm and £10m of
contingent consideration payable in 2 years. Net assets acquired of
£27m were recognised on the Group’s balance sheet
including £21m of acquired intangible assets. Goodwill of
£38m was also recognised in relation to the
acquisition.
In
2021, the Group also made two smaller acquisitions for total
consideration of £11m and acquired interests in two
associates, Smashcut and Academy of Pop, for total consideration of
£17m.
The
cash outflow in 2021 relating to acquisitions of subsidiaries was
£55m. In addition, there was a cash outflow relating to the
acquisition of associates of £10m and investments of
£4m.
Businesses
held for sale and businesses disposed
In
March 2021, the Group announced that it was launching a strategic
review of its international courseware local publishing businesses.
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. In June 2022, the
Group announced the disposal of its courseware businesses in Italy
and Germany. The disposal is expected to complete in the second
half of 2022 and the related assets and liabilities have been
classified as held for sale on the 30 June 2022 balance sheet. The
remaining international courseware assets have also been assessed
in light of IFRS 5 ‘Non-current Assets Held for Sale and
Discontinued Operations’ and those which meet the criteria
have been classified as held for sale. None of the disposed
businesses or held for sale assets meet the criteria to be
presented as discontinued operations.
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
March 2021, the Group announced the sale of its interests in K12
Sistemas in Brazil. At 30 June 2021, the assets and liabilities of
the K12 Sistemas were classified as held for sale on the balance
sheet. The sale completed on 1 October 2021 for R$789m realising a
gain on disposal of £84m in 2021.
The
cash inflow in the first half of 2022 relating to the disposal of
businesses was £108m mainly relating to the disposal of ERPI
and the receipt of deferred proceeds from the US K12 Courseware
sale in 2019. In 2021, the cash inflow from disposals of £83m
mainly related to the disposal of the K12 Sistemas business and the
receipt of deferred proceeds from the US K12 Courseware sale in
2019.
Dividends
The
dividend accounted for in the six months to 30 June 2022 is the
final dividend in respect of 2021 of 14.2p. An interim dividend for
2022 of 6.6p was declared by the Board in July 2022 and will be
accounted for in the second half of 2022.
Share
buyback
On 24
February 2022, the Board approved a £350m share buyback
programme in order to return capital to shareholders. The first
tranche of the programme (contracted at £250m) commenced on 4
April 2022 and in the period to 30 June 2022 approximately 20m
shares have been bought back and cancelled at a cash cost of
£141m. The nominal value of the cancelled shares of £4m
has been transferred to the capital redemption
reserve.
Principal
risks and uncertainties
In the
2021 Annual Report and Accounts (and the US Form 20-F for 2021), we
set out our assessment of the principal risk issues that face the
business under the categories: accreditation risk, capability risk,
competitive marketplace, content and channel risk, customer
expectations and portfolio change.
We also
noted in our 2021 Annual Report and Accounts that the Group
continues to closely monitor significant near-term and emerging
risks which have been identified as climate transition, COVID-19,
inflation, supply chain, tax and the war in Ukraine.
The
principal risks and uncertainties are summarised below. The
selection of principal risks will be reviewed in the second half of
the year alongside the Group’s long-term strategic planning
process. However, these risks have not
changed materially from those detailed in the 2021 Annual Report
(and the US Form 20-F for 2021).
Accreditation Risk
Termination of
accreditation due to policy changes or failure to maintain the
accreditation of our courses and assessments from states,
countries, and professional associations reducing their eligibility
for funding or attractiveness for learners.
Sub-risk: Political
and regulatory
Capability Risk
Inability to meet
our contractual obligations or to transform as required by our
strategy due to infrastructure or organisational
challenges
Sub-risks: business
resilience; business transformation and change; IT resilience;
safety and corporate security; Talent.
Competitive Marketplace
Significant changes
in our target markets could make those markets less attractive.
These could be due to significant changes in demand or in supply
which impact the addressable market, market share and margins (e.g.
changes in enrolments, insourcing of learning and assessment by
customers, Open Educational Resources, shift from in person to
virtual or vice versa).
Sub-risks: consumer
learning preferences; market pricing; product differentiation;
substitutes.
Content and Channel Risk
The
choice of appropriate, effective content and channels for learning
and assessment is a key factor in achieving strong learner outcomes
at an appropriate price point. As the business becomes more
digital, the choice of content and channels will be increasingly
driven by data about learner preferences and
what
leads to the greatest demonstrable improvements in skills and
knowledge.
Sub-risks:
effective method of delivery; intellectual property protection;
products and services – effective investment in own and third
party content; balance of content creation vs content
purchased.
Customer Expectations
Rising
end-user expectations increase the need to offer differentiated
value propositions, risking margin pressure to meet these
expectations and potential loss of sales if not
successful.
Sub
risks: customer experience; accessibility; data architecture and
usage.
Portfolio Change
Failure
to effectively execute desired or required portfolio changes to
promote scale, capability and increase focus on key divisional and
geographic markets either due to execution failures or inability to
secure transactions at appropriate valuations.
Sub-risks:
achieving value on acquisitions/disposals; identification of
requirements; integration of acquisitions.
Reputation and Responsibility
The
risk of serious reputational harm through failure to meet
obligations to key stakeholders. These include legal and regulatory
requirements, avoidance of serious unethical behaviour and serious
breaches of customer trust.
Sub-risks:
compliance with laws and regulations; cyber security; safeguarding;
test failure; data privacy; use of third parties.
CONDENSED
CONSOLIDATED INCOME STATEMENT
for
the period ended 30 June 2022
|
|
|
|
|
all figures in £ millions
|
note
|
2022
|
2021
|
2021
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
|
|
|
Sales
|
2
|
1,788
|
1,597
|
3,428
|
Cost of
goods sold
|
|
(963)
|
(838)
|
(1,747)
|
Gross
profit
|
|
825
|
759
|
1,681
|
|
|
|
|
|
Operating
expenses
|
|
(690)
|
(744)
|
(1,562)
|
Other
net gains and losses
|
2
|
14
|
(6)
|
63
|
Share
of results of joint ventures and associates
|
|
(1)
|
-
|
1
|
Operating
profit
|
2
|
148
|
9
|
183
|
|
|
|
|
|
Finance
costs
|
3
|
(8)
|
(31)
|
(68)
|
Finance
income
|
3
|
39
|
26
|
42
|
Profit
before tax
|
4
|
179
|
4
|
157
|
Income
tax
|
5
|
(48)
|
14
|
3
|
Profit
for the period
|
|
131
|
18
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
Equity
holders of the company
|
|
131
|
17
|
159
|
Non-controlling
interest
|
|
-
|
1
|
1
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing
operations (in pence per share)
|
|
|
|
|
Basic
|
6
|
17.5p
|
2.3p
|
21.1p
|
Diluted
|
6
|
17.4p
|
2.2p
|
20.9p
|
|
|
|
|
|
The
accompanying notes to the condensed consolidated financial
statements form an integral part of the financial
information.
CONDENSED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for
the period ended 30 June 2022
|
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
2021
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Profit
for the period
|
|
131
|
18
|
160
|
|
|
|
|
|
Items
that may be reclassified to the income statement
|
|
|
|
|
Net
exchange differences on translation of foreign
operations
|
|
334
|
(41)
|
(6)
|
Currency
translation adjustment on disposals
|
|
(7)
|
4
|
4
|
Attributable
tax
|
|
-
|
-
|
10
|
|
|
|
|
|
Items
that are not reclassified to the income statement
|
|
|
|
|
Fair
value gain on other financial assets
|
|
25
|
22
|
24
|
Attributable
tax
|
|
(1)
|
(5)
|
(3)
|
|
|
|
|
|
Remeasurement of
retirement benefit obligations
|
|
121
|
33
|
149
|
Attributable
tax
|
|
(30)
|
(36)
|
(61)
|
Other
comprehensive income / (expense)
|
|
442
|
(23)
|
117
|
Total
comprehensive income / (expense)
|
|
573
|
(5)
|
277
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
Equity
holders of the company
|
|
572
|
(6)
|
276
|
Non-controlling
interest
|
|
1
|
1
|
1
|
CONDENSED
CONSOLIDATED BALANCE SHEET
as
at 30 June 2022
|
|
|
|
|
all figures in £ millions
|
note
|
2022
|
2021
|
2021
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Property, plant and
equipment
|
|
292
|
453
|
366
|
Investment
property
|
|
72
|
-
|
-
|
Intangible
assets
|
10
|
3,214
|
2,686
|
2,769
|
Investments in
joint ventures and associates
|
|
24
|
12
|
24
|
Deferred income tax
assets
|
|
41
|
45
|
57
|
Financial assets
– derivative financial instruments
|
|
33
|
34
|
30
|
Net retirement
benefit assets
|
|
652
|
437
|
537
|
Other financial
assets
|
|
120
|
160
|
113
|
Income tax
assets
|
|
41
|
-
|
97
|
Trade and other
receivables
|
|
143
|
137
|
129
|
Non-current
assets
|
|
4,632
|
3,964
|
4,122
|
|
|
|
|
|
Intangible assets
– pre-publication
|
|
932
|
875
|
894
|
Inventories
|
|
103
|
126
|
98
|
Trade and other
receivables
|
|
1,207
|
1,147
|
1,257
|
Financial assets
– derivative financial instruments
|
|
1
|
5
|
2
|
Current income tax
assets
|
|
2
|
134
|
26
|
Cash and cash
equivalents (excluding overdrafts)
|
|
392
|
648
|
937
|
Current
assets
|
|
2,637
|
2,935
|
3,214
|
|
|
|
|
|
Assets classified
as held for sale
|
13
|
201
|
18
|
7
|
Total
assets
|
|
7,470
|
6,917
|
7,343
|
|
|
|
|
|
Financial
liabilities – borrowings
|
|
(1,151)
|
(1,259)
|
(1,245)
|
Financial
liabilities – derivative financial instruments
|
|
(44)
|
(31)
|
(30)
|
Deferred income tax
liabilities
|
|
(96)
|
(103)
|
(40)
|
Net retirement
benefit obligations
|
|
(61)
|
(79)
|
(66)
|
Provisions for
other liabilities and charges
|
|
(9)
|
(8)
|
(7)
|
Other
liabilities
|
|
(123)
|
(61)
|
(95)
|
Non-current
liabilities
|
|
(1,484)
|
(1,541)
|
(1,483)
|
|
|
|
|
|
Trade and other
liabilities
|
|
(1,234)
|
(1,049)
|
(1,256)
|
Financial
liabilities – borrowings
|
|
(150)
|
(156)
|
(155)
|
Financial
liabilities – derivative financial instruments
|
|
(10)
|
(8)
|
(4)
|
Current income tax
liabilities
|
|
(30)
|
(95)
|
(125)
|
Provisions for
other liabilities and charges
|
|
(28)
|
(26)
|
(40)
|
Current
liabilities
|
|
(1,452)
|
(1,334)
|
(1,580)
|
|
|
|
|
|
Liabilities
classified as held for sale
|
13
|
(42)
|
(3)
|
-
|
Total
liabilities
|
|
(2,978)
|
(2,878)
|
(3,063)
|
|
|
|
|
|
Net
assets
|
|
4,492
|
4,039
|
4,280
|
|
|
|
|
|
Share
capital
|
|
185
|
189
|
189
|
Share
premium
|
|
2,628
|
2,622
|
2,626
|
Treasury
shares
|
|
(22)
|
(7)
|
(12)
|
Reserves
|
|
1,690
|
1,225
|
1,467
|
Total equity
attributable to equity holders of the company
|
|
4,481
|
4,029
|
4,270
|
Non-controlling
interest
|
|
11
|
10
|
10
|
Total
equity
|
|
4,492
|
4,039
|
4,280
|
The
condensed consolidated financial statements were approved by the
Board on 31 July 2022.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for
the period ended 30 June 2022
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
2022
half year
|
At
1 January 2022
|
189
|
2,626
|
(12)
|
18
|
33
|
386
|
1,030
|
4,270
|
10
|
4,280
|
Profit
for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
131
|
131
|
-
|
131
|
Other
comprehensive income
|
-
|
-
|
-
|
-
|
25
|
326
|
90
|
441
|
1
|
442
|
Total
comprehensive income
|
-
|
-
|
-
|
-
|
25
|
326
|
221
|
572
|
1
|
573
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
18
|
18
|
-
|
18
|
Issue
of ordinary shares
|
-
|
2
|
-
|
-
|
-
|
-
|
-
|
2
|
-
|
2
|
Buyback
of equity
|
(4)
|
-
|
-
|
4
|
-
|
-
|
(250)
|
(250)
|
-
|
(250)
|
Purchase of
treasury shares
|
-
|
-
|
(24)
|
-
|
-
|
-
|
-
|
(24)
|
-
|
(24)
|
Release
of treasury shares
|
-
|
-
|
14
|
-
|
-
|
-
|
(14)
|
-
|
-
|
-
|
Transfer of gain on
disposal of FVOCI investment
|
-
|
-
|
-
|
-
|
(27)
|
-
|
27
|
-
|
-
|
-
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(107)
|
(107)
|
-
|
(107)
|
At
30 June 2022
|
185
|
2,628
|
(22)
|
22
|
31
|
712
|
925
|
4,481
|
11
|
4,492
|
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for
the period ended 30 June 2022
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
2021
half year
|
At 1
January 2021
|
188
|
2,620
|
(7)
|
18
|
53
|
388
|
865
|
4,125
|
9
|
4,134
|
Profit
for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
17
|
17
|
1
|
18
|
Other
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
22
|
(37)
|
(8)
|
(23)
|
-
|
(23)
|
Total
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
22
|
(37)
|
9
|
(6)
|
1
|
(5)
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
16
|
16
|
-
|
16
|
Issue
of ordinary shares
|
1
|
2
|
(1)
|
-
|
-
|
-
|
-
|
2
|
-
|
2
|
Buyback
of equity
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Purchase of
treasury shares
|
-
|
-
|
(6)
|
-
|
-
|
-
|
-
|
(6)
|
-
|
(6)
|
Release
of treasury shares
|
-
|
-
|
7
|
-
|
-
|
-
|
(7)
|
-
|
-
|
-
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(102)
|
(102)
|
-
|
(102)
|
At 30
June 2021
|
189
|
2,622
|
(7)
|
18
|
75
|
351
|
781
|
4,029
|
10
|
4,039
|
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for
the period ended 30 June 2022
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
2021
full year
|
At 1
January 2021
|
188
|
2,620
|
(7)
|
18
|
53
|
388
|
865
|
4,125
|
9
|
4,134
|
Profit
for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
159
|
159
|
1
|
160
|
Other
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
24
|
(2)
|
95
|
117
|
-
|
117
|
Total
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
24
|
(2)
|
254
|
276
|
1
|
277
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
28
|
28
|
-
|
28
|
Issue
of ordinary shares
|
1
|
6
|
(1)
|
-
|
-
|
-
|
-
|
6
|
-
|
6
|
Buyback
of equity
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Purchase of
treasury shares
|
-
|
-
|
(16)
|
-
|
-
|
-
|
-
|
(16)
|
-
|
(16)
|
Release
of treasury shares
|
-
|
-
|
12
|
-
|
-
|
-
|
(12)
|
-
|
-
|
-
|
Transfer of gain on
disposal of FVOCI investment
|
-
|
-
|
-
|
-
|
(44)
|
-
|
44
|
-
|
-
|
-
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(149)
|
(149)
|
-
|
(149)
|
At 31
December 2021
|
189
|
2,626
|
(12)
|
18
|
33
|
386
|
1,030
|
4,270
|
10
|
4,280
|
CONDENSED
CONSOLIDATED CASH FLOW STATEMENT
for
the period ended 30 June 2022
|
|
|
|
|
all figures in £ millions
|
note
|
2022
|
2021
|
2021
|
|
|
half year
|
half
year
|
full
year
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
Profit
before tax
|
|
179
|
4
|
157
|
Net
finance costs
|
|
(31)
|
5
|
26
|
Depreciation and
impairment – PPE & investment property
|
|
42
|
104
|
241
|
Amortisation and
impairment – software
|
|
60
|
56
|
117
|
Amortisation and
impairment – acquired intangible assets
|
|
26
|
27
|
50
|
Other
net gains and losses
|
|
(14)
|
6
|
(63)
|
Product
development capital expenditure
|
|
(151)
|
(151)
|
(287)
|
Product
development amortisation
|
|
136
|
143
|
279
|
Share-based payment
costs
|
|
18
|
16
|
28
|
Inventories
|
|
(34)
|
(4)
|
22
|
Trade
and other receivables
|
|
14
|
18
|
(71)
|
Trade
and other liabilities
|
|
(197)
|
(156)
|
37
|
Other
movements
|
|
5
|
11
|
34
|
Net
cash generated from operations
|
|
53
|
79
|
570
|
Interest
paid
|
|
(35)
|
(33)
|
(67)
|
Tax
paid
|
|
(51)
|
(121)
|
(177)
|
Net
cash (used in) / generated from operating activities
|
|
(33)
|
(75)
|
326
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
Acquisition of
subsidiaries, net of cash acquired
|
11
|
(221)
|
(6)
|
(55)
|
Acquisition of
joint ventures and associates
|
|
(4)
|
(5)
|
(10)
|
Purchase of
investments
|
|
(4)
|
(1)
|
(4)
|
Purchase of
property, plant and equipment
|
|
(21)
|
(31)
|
(64)
|
Purchase of
intangible assets
|
|
(46)
|
(39)
|
(112)
|
Disposal of
subsidiaries, net of cash disposed
|
12
|
108
|
(7)
|
83
|
Proceeds from sale
of investments
|
|
-
|
-
|
48
|
Proceeds from sale
of property, plant and equipment
|
|
14
|
-
|
-
|
Lease
receivables repaid including disposals
|
|
9
|
6
|
21
|
Interest
received
|
|
11
|
3
|
13
|
Dividends received
from joint ventures and associates
|
|
2
|
-
|
-
|
Net
cash used in investing activities
|
|
(152)
|
(80)
|
(80)
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
Proceeds from issue
of ordinary shares
|
|
2
|
2
|
6
|
Buyback
of equity
|
|
(141)
|
-
|
-
|
Purchase of
treasury shares
|
|
(24)
|
(6)
|
(16)
|
Repayment of
borrowings
|
|
(95)
|
(167)
|
(167)
|
Repayment of lease
liabilities
|
|
(48)
|
(36)
|
(88)
|
Dividends paid to
company’s shareholders
|
|
(107)
|
(102)
|
(149)
|
Net
cash used in financing activities
|
|
(413)
|
(309)
|
(414)
|
|
|
|
|
|
Effects
of exchange rate changes on cash and cash equivalents
|
|
53
|
(1)
|
(8)
|
Net
decrease in cash and cash equivalents
|
|
(545)
|
(465)
|
(176)
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
937
|
1,113
|
1,113
|
Cash
and cash equivalents at end of period
|
|
392
|
648
|
937
|
CONDENSED
CONSOLIDATED CASH FLOW STATEMENT
for
the period ended 30 June 2022
For the
purposes of the cash flow statement, cash and cash equivalents are
presented net of overdrafts repayable on demand. These overdrafts
are excluded from cash and cash equivalents disclosed on the
balance sheet.
The
Group has changed the presentation of the condensed consolidated
cash flow statement with the aim of simplifying for the reader. The
reconciliation to net cash generated from operations is now
presented with the primary condensed cash flow statement and
certain line items have been aggregated and disaggregated. There
has been no change to the classification of cash flows as
operating, investing and financing. There has been no change to the
definition of the Group’s alternative performance measure
related to cash flow as set out in note 16.
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
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
PEARSON
plc
|
|
|
Date: 1
August 2022
|
|
|
By: /s/
NATALIE WHITE
|
|
|
|
------------------------------------
|
|
Natalie
White
|
|
Deputy
Company Secretary
|