Interim Results - Part 2

Pearson PLC 31 July 2000 Part 2 Consolidated Profit and Loss Account for the six months to 30 June 2000 2000 1999 1999 half half full year year year restated restated Note £m £m £m ______________________________________________________________________________ Sales 2 Continuing operations 1,490 1,306 3,332 Acquisitions 55 - - ______________________________________________________________________________ Total sales 1,545 1,306 3,332 Operating profit 2 Continuing operations - group (13) 13 247 Acquisitions - group (6) - - ______________________________________________________________________________ Total operating (loss)/profit - group (19) 13 247 ______________________________________________________________________________ Share of operating profit of associates and joint ventures: Continuing operations 5 12 23 Acquisitions (5) - - ______________________________________________________________________________ - 12 23 Discontinued operations 8 21 48 ______________________________________________________________________________ Total share of operating profit of associates and joint ventures 8 33 71 ______________________________________________________________________________ ______________________________________________________________________________ Total operating profit analysed between: Operating profit before internet enterprises, goodwill amortisation and other items 156 133 588 Internet enterprises (84) (7) (39) Goodwill amortisation (72) (63) (131) Other items (11) (17) (100) ______________________________________________________________________________ ______________________________________________________________________________ Total operating (loss)/profit (11) 46 318 ______________________________________________________________________________ Continuing operations: Profit on sale of fixed assets and investments 3 2 22 349 (Loss) on sale of businesses and associates 4 (15) (17) (44) Discontinued operations: Profit on sale of businesses and associates 4 231 - - ______________________________________________________________________________ 218 5 305 Profit on sale of businesses and associates by an associate - continuing operations - - 1 ______________________________________________________________________________ Profit before interest 207 51 624 Net finance costs Net interest payable - group (67) (70) (145) Net interest payable - associates and joint ventures (1) (1) (2) Arrangement fee 5 (16) - - ______________________________________________________________________________ (84) (71) (147) ______________________________________________________________________________ Profit/(loss) before taxation 123 (20) 477 Taxation 7 (32) (18) (177) ______________________________________________________________________________ Profit/(loss) after taxation 91 (38) 300 Equity minority interests (3) (3) (6) ______________________________________________________________________________ Profit/(loss) for the financial period 88 (41) 294 Dividends on equity shares (58) (54) (138) ______________________________________________________________________________ Profit/(deficit) retained 30 (95) 156 ______________________________________________________________________________ Adjusted earnings per equity share before internet enterprises 6 10.0p 7.1p 53.3p Adjusted (loss)/earnings per equity share after internet enterprises 6 (0.6)p 6.3p 48.5p Earnings/(loss) per equity share 6 14.2p (6.6)p 48.2p Diluted earnings/(loss) per equity share 6 13.8p (6.5)p 47.5p Dividends per equity share 8 9.2p 8.6p 22.5p ______________________________________________________________________________ 1999 has been restated to reflect the adoption of FRS16 'Current Tax'. The results for the 1999 full year are an abridged version of the full accounts which have received an unqualified audit report from the auditors and have been filed with the Registrar of Companies. First half figures are neither audited nor reviewed. Consolidated Balance Sheet as at 30 June 2000 _________________________________________________________________________ 2000 1999 1999 half half full year year year £m £m £m _________________________________________________________________________ Fixed assets Intangible assets 3,018 2,340 2,457 Tangible assets 453 435 405 Investments: Associates 289 208 234 Other 191 291 99 _________________________________________________________________________ 3,951 3,274 3,195 _________________________________________________________________________ Current assets Stocks 945 724 691 Debtors 1,233 1,093 1,132 Investments 3 5 4 Cash at bank and in hand 369 351 328 _________________________________________________________________________ 2,550 2,173 2,155 _________________________________________________________________________ Creditors - amounts falling due within one year Short-term borrowing (902) (594) (47) _________________________________________________________________________ Other creditors (1,356) (1,162) (1,441) _________________________________________________________________________ (2,258) (1,756) (1,488) Net current assets 292 417 667 _________________________________________________________________________ Total assets less current liabilities 4,243 3,691 3,862 Creditors - amounts falling due after more than one year Medium and long term borrowing (2,011) (2,297) (2,276) Other creditors (58) (43) (32) _________________________________________________________________________ (2,069) (2,340) (2,308) Provisions for liabilities and charges Deferred taxation (17) (22) (21) Other provisions for liabilities and (213) (222) (206) charges _________________________________________________________________________ Net assets 1,944 1,107 1,327 _________________________________________________________________________ Capital and reserves Called up share capital 156 153 153 Share premium account 774 504 517 Profit and loss account 901 413 651 _________________________________________________________________________ Equity shareholders' funds 1,831 1,070 1,321 Equity minority interests 113 37 6 _________________________________________________________________________ 1,944 1,107 1,327 _________________________________________________________________________ Statement of Total Recognised Gains and Losses for the six months to 30 June 2000 __________________________________________________________________________ 2000 1999 1999 half half full year year year £m £m £m __________________________________________________________________________ Profit/(loss) for the financial period 88 (41) 294 Other net gains and losses recognised in reserves: Currency translation differences 97 71 36 __________________________________________________________________________ Total recognised gains relating to the period 185 30 330 __________________________________________________________________________ Reconciliation of Movements in Equity Shareholders' Funds for the six months to 30 June 2000 __________________________________________________________________________ 2000 1999 1999 half half full year year year £m £m £m __________________________________________________________________________ Profit/(loss) for the financial period 88 (41) 294 Dividends on equity shares (58) (54) (138) __________________________________________________________________________ 30 (95) 156 Currency translation differences 97 71 36 Goodwill written back 126 40 63 Shares issued 257 6 18 __________________________________________________________________________ Net movement for the period 510 22 273 Equity shareholders' funds at beginning of the period 1,321 1,048 1,048 __________________________________________________________________________ Equity shareholders' funds at end of the period 1,831 1,070 1,321 __________________________________________________________________________ Consolidated Statement of Cash Flows for the six months to 30 June 2000 2000 1999 1999 half half full year year year Note £m £m £m ______________________________________________________________________________ Net cash (outflow)/inflow from operating activities 9 (200) (52) 433 ______________________________________________________________________________ Dividends from associates and joint ventures 43 31 44 ______________________________________________________________________________ Interest received 23 30 41 Interest paid (105) (98) (182) Debt issue costs - - 5 Dividends paid to minority interests - - (1) ______________________________________________________________________________ Returns on investments and servicing of finance (82) (68) (147) ______________________________________________________________________________ Taxation (30) (33) (156) ______________________________________________________________________________ Purchase of tangible fixed assets (65) (41) (102) Sale of tangible fixed assets 8 10 36 Purchase of investments (90) (19) (24) Sale of investments 3 108 624 ______________________________________________________________________________ Capital expenditure and financial investment (144) 58 534 ______________________________________________________________________________ Purchase of subsidiary and undertakings (482) (17) (249) Net debt acquired with subsidiary undertakings (19) - - Purchase of associates and joint ventures (88) (48) (54) Sale of subsidiary undertakings 3 31 44 Net cash disposed with subsidiary undertakings - (3) (3) Sale of associates and joint ventures 394 12 12 ______________________________________________________________________________ Acquisitions and disposals (192) (25) (250) ______________________________________________________________________________ Equity dividends paid (87) (79) (132) ______________________________________________________________________________ Net cash (outflow)/inflow before management of liquid financing resources and financing (692) (168) 326 _____________________________________________________________________________ Liquid resources acquired (49) (9) (9) Liquid resources disposed 44 10 10 Collateral deposit placed (61) - - ______________________________________________________________________________ Management of liquid resources (66) 1 1 ______________________________________________________________________________ Issue of equity share capital 257 6 18 Capital element of finance lease rentals (4) (5) (11) Loan facility repaid (676) (326) (1,112) 4.625 per cent Euro Bonds 2004 advanced - - 358 7 per cent Sterling Bonds 2014 advanced - - 250 6.125 per cent Euro Bonds 2007 advanced 368 - - Loan notes advanced 131 - - Net movement in other borrowings 597 525 202 ______________________________________________________________________________ Financing 673 200 (295) ______________________________________________________________________________ (Decrease)/increase in cash in the period (85) 33 32 _____________________________________________________________________________ Notes to the Interim Results for the six months to 30 June 2000 1. Basis of preparation ______________________________________________________________________________ The interim results for the six months to 30 June 2000 have been prepared in accordance with the accounting policies set out in the 1999 Annual Report. FRS15 'Tangible Fixed Assets' has been adopted. FRS16 'Current Tax' has also been adopted and comparative figures have been restated to reflect that UK dividend income is now presented net of UK tax credits. 2. Sector analysis ______________________________________________________________________________ -------- Sales -------- 2000 1999 1999 half half full year year year £m £m £m ______________________________________________________________________ Pearson Education 647 554 1,725 FT Group 408 330 687 The Penguin Group 326 263 565 Pearson Television 164 159 355 ______________________________________________________________________ Continuing operations 1,545 1,306 3,332 ______________________________________________________________________ Sales in respect of internet enterprises, the group's discrete internet operations, are included within the FT Group £16m (1999 half year: £2m; 1999 full year: £7m). ______________________________________________________________________ --- Operating profit --- --- Operating profit --- (before internet (after internet enterprises, goodwill enterprises, goodwill amortisation and other amortisation and other items) items) 2000 1999 1999 2000 1999 1999 half half full half half full year year year year year year £m £m £m £m £m £m ______________________________________________________________________ Pearson Education (26) (38) 257 (108) (116) 36 FT Group 109 86 150 35 77 103 The Penguin Group 33 31 65 25 31 64 Pearson Television 32 33 68 29 33 67 ______________________________________________________________________ Continuing operations 148 112 540 (19) 25 270 Discontinued operations 8 21 48 8 21 48 ______________________________________________________________________ 156 133 588 (11) 46 318 ______________________________________________________________________ The results of internet enterprises are included within Pearson Education £19m (1999 half year: £nil; 1999 full year: £3m), within FT Group £64m (1999 half year: £7m; 1999 full year: £36m) and within Pearson Television £1m (1999 half year: £nil; 1999 full year: £nil). Other items comprises exceptional items of £11m (1999 half year £15m; 1999 full year £95m) and Year 2000 compliance costs of £nil (1999 half year £2m; 1999 full year £5m). Exceptional items comprise integration costs of £8m (1999 half year £15m; 1999 full year £95m) following the acquisition of Simon & Schuster in 1998 which all relate to the Pearson Education business sector and integration costs of £3m following the acquisition of Dorling Kindersley in May 2000 which all relate to the Penguin Group business sector. Discontinued operations relate to the withdrawal of the Group from the banking business following its disposal of Lazard on 3 March 2000. Included in the analysis of operating profit above are the following amounts in respect of associates and joint ventures: 2000 1999 1999 half half full year year year £m £m £m ______________________________________________________________________ Pearson Education 4 4 6 FT Group (8) 7 14 Pearson Television 4 1 3 ______________________________________________________________________ Continuing operations - 12 23 Discontinued operations 8 21 48 ______________________________________________________________________ 8 33 71 ______________________________________________________________________ 3. Profit on sale of fixed assets and investments ______________________________________________________________________________ 2000 1999 1999 half half full year year year £m £m £m ______________________________________________________________________ Profit on disposal of interest in BSB Holdings Ltd - 16 345 Loss on sale of fixed assets relating to the Simon & Schuster acquisition - - (3) Net profit on sale of other investments and property interests 2 6 7 ______________________________________________________________________ Continuing operations 2 22 349 ______________________________________________________________________ Taxation - (3) (90) ______________________________________________________________________ 4. (Loss)/profit on sale of businesses and associates ______________________________________________________________________________ 2000 1999 1999 half half full year year year £m £m £m ______________________________________________________________________ Loss on sale of Extel research products business - (16) (19) Loss on closure of Simon & Schuster businesses - (3) (12) Net (loss)/profit on sale of other businesses (15) 2 (13) ______________________________________________________________________ Continuing operations (15) (17) (44) ______________________________________________________________________ Profit on sale of Lazard - discontinued operations 231 - - ______________________________________________________________________ Taxation (31) (3) 5 ______________________________________________________________________ 5. Arrangement fee ______________________________________________________________________________ The amortisation of an arrangement fee in respect of a borrowing facility has been accelerated due to the early redemption of the facility. 6. Earnings and adjusted earnings per equity share ______________________________________________________________________________ In order to show results from operating activities on a comparable basis two adjusted earnings per equity share are presented. Firstly, an adjusted earnings per equity share is presented which excludes profits or losses on the sale of fixed assets and investments, businesses and associates (see notes 3 and 4), Year 2000 compliance costs, integration costs in respect of the acquisitions of Simon & Schuster and Dorling Kindersley and the accelerated amortisation of a financing arrangement fee. Goodwill amortisation has also been excluded from the adjusted earnings calculation following the prospective implementation of FRS10 'Goodwill and Intangible Assets' in 1998. Due to a significant level of expenditure on new internet enterprises, a second adjusted earnings per equity share is presented in which the results of these are also excluded from earnings. 2000 1999 1999 half half full year year year £m £m £m _______________________________________________________________________ Profit/(loss) for the financial period 88 (41) 294 Adjustments: (Profit) on sale of fixed assets and investments: continuing operations (2) (22) (349) Loss on sale of businesses and associates: continuing operations 15 17 44 (Profit) on sale of businesses and associates: discontinued operations (231) - - (Profit) on sale of businesses and associates by an associate: continuing Operations - - (1) Internet enterprises 84 7 39 Interest on internet enterprises 2 - - Minority share of internet enterprises (2) - - Goodwill amortisation 72 63 131 Simon & Schuster integration costs 8 15 95 Dorling Kindersley integration costs 3 - - Arrangement fee 16 - - Year 2000 compliance costs - 2 5 Taxation on above items 9 2 67 _______________________________________________________________________ Adjusted earnings before internet enterprises 62 43 325 _______________________________________________________________________ Internet enterprises (84) (7) (39) Interest on internet enterprises (2) - - Minority share of internet enterprises 2 - - Taxation on internet enterprises 18 2 10 _______________________________________________________________________ Adjusted (loss)/earnings after internet enterprises (4) 38 296 _______________________________________________________________________ Profit/(loss) for the financial period 88 (41) 294 Tax on the conversion of ordinary shares (1) - (1) _______________________________________________________________________ Diluted earnings 87 (41) 293 _______________________________________________________________________ Weighted average number of equity shares (millions) - for earnings and adjusted earnings 620.4 609.7 610.2 Effect of dilutive share options 8.2 6.8 7.0 _______________________________________________________________________ Weighted average number of equity shares (millions) - for diluted earnings 628.6 616.5 617.2 _______________________________________________________________________ Adjusted earnings per equity share before internet enterprises 10.0 p 7.1 p 53.3p Adjusted (loss)/earnings per equity share after internet enterprises (0.6)p 6.3 p 48.5p Earnings/(loss) per equity share 14.2 p (6.6)p 48.2p Diluted earnings/(loss) per equity share 13.8 p (6.5)p 47.5p _______________________________________________________________________ 7. Taxation ______________________________________________________________________________ The tax rate provided in the profit and loss account for the half year is based on the estimated effective rate for the full year and is analysed as follows: _______________________________________________________________________ 2000 1999 1999 half half full year year year per cent per cent per cent _______________________________________________________________________ United Kingdom tax rate 30.0 30.2 30.2 Effect of utilisation of tax losses in the USA (4.5) (10.6) (7.7) Other items (0.5) 5.4 2.5 _______________________________________________________________________ Tax rate reflected in adjusted earnings 25.0 25.0 25.0 Effect of profits/(losses) excluded from adjusted earnings 1.0 n/a 12.5 _______________________________________________________________________ Tax rate reflected in earnings 26.0 n/a 37.5 _______________________________________________________________________ Taxation is analysed as: _______________________________________________________________________ 2000 1999 1999 half half full year year year £m £m £m _______________________________________________________________________ Parent and subsidiaries 28 10 162 Associates 4 8 15 _______________________________________________________________________ 32 18 177 _______________________________________________________________________ The group continues to have substantial tax losses available in the US which are not recognised in the accounts and hence the tax rate reflected in adjusted earnings is lower than the UK tax rate. 8. Dividends ______________________________________________________________________________ The directors have declared an interim dividend of 9.2p per equity share, payable on 27 October 2000 to shareholders on the register at the close of business on 11 August 2000. 9. Note to consolidated statement of cash flows ______________________________________________________________________________ _______________________________________________________________________ 2000 1999 1999 half half full year year year £m £m £m _______________________________________________________________________ Reconciliation of operating (loss)/profit to net cash (outflow)/inflow from operating activities Total operating (loss)/profit (11) 46 318 Share of profit of associates and joint ventures (8) (33) (71) Depreciation charges 44 41 82 Goodwill amortisation 70 63 130 (Increase) in stocks (137) (69) (57) Decrease/(increase) in debtors 37 46 (71) (Decrease)/increase in creditors (199) (114) 127 (Decrease) in operating provisions (6) (29) (33) Other and non-cash items 10 (3) 8 _______________________________________________________________________ Net cash (outflow)/inflow from operating activities (200) (52) 433 _______________________________________________________________________ Purchase of fixed assets and finance lease payments (69) (46) (113) Sale of operating tangible fixed assets 5 2 24 Dividends from associates and joint ventures 43 31 44 Other 3 4 8 _______________________________________________________________________ Operating cash flow (218) (61) 396 _______________________________________________________________________ Analysed between: Operating cash flow before internet enterprises and other items (104) (8) 540 Cash effect of other items (26) (49) (110) Cash effect of internet enterprises (88) (4) (34) _______________________________________________________________________ Operating cash flow (218) (61) 396 _______________________________________________________________________ 10. Exchange rates ______________________________________________________________________________ Pearson earns a significant proportion of its sales and profits in overseas currencies, the most prominent being the US dollar and the Euro. The relevant rates are as follows: _______________________________________________________________________ ---- £ versus US$ ----- ---- £ versus Euro ---- 2000 1999 1999 2000 1999 1999 half half full half half full year year year year year year _______________________________________________________________________ Average for operating profits 1.56 1.61 1.61 1.65 1.50 1.53 Period end rate 1.51 1.58 1.61 1.58 1.53 1.61 _______________________________________________________________________

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