Interim Results Cont.
Pearson PLC
30 July 2001
PART 2
Consolidated Profit and Loss Account
for the six months to 30 June 2001
2001 2000 2000
all figures in £ millions Note half half full
year year year
Sales (including share of joint ventures) 1,855 1,548 3,891
Less: share of joint ventures (5) (3) (17)
Continuing operations 1,850 1,545 3,874
Acquisitions 26 - -
Total sales 2 1,876 1,545 3,874
Operating (loss)/profit analysed between: 2
Continuing operations - Group (110) (19) 222
Acquisitions - Group 4 - -
Total operating (loss)/profit - Group (106) (19) 222
Share of operating loss of joint ventures:
Continuing operations (10) (10) (21)
Total share of operating loss of joint ventures (10) (10) (21)
Share of operating (loss)/profit of associates:
Continuing operations (7) 10 2
Discontinued operations - 8 8
Total share of operating (loss)/profit of associates (7) 18 10
Total operating (loss)/profit analysed between:
Operating profit before internet enterprises,
goodwill amortisation and integration costs 174 156 686
Internet enterprises before goodwill amortisation (81) (84) (196)
Goodwill amortisation (188) (72) (239)
Integration costs (28) (11) (40)
Total operating (loss)/profit (123) (11) 211
Consolidated Profit and Loss Account (continued)
for the six months to 30 June 2001
2001 2000 2000
all figures in £ millions Note half half full
year year year
Total operating (loss)/profit (123) (11) 211
Continuing operations:
(Loss)/profit on sale of fixed assets and 3 (2) 2 (4)
investments
(Loss)/profit on sale of businesses and associates 4 (28) (15) 30
Discontinued operations:
Profit on sale of businesses and associates 4 - 231 231
(30) 218 257
Continuing operations:
Profit/(loss) on sale of businesses, associates and 8 - (3)
investments by an associate
(Loss)/profit before interest and taxation (145) 207 465
Net finance costs
Net interest payable - Group (82) (67) (154)
Net interest payable - associates (6) (1) (3)
Other net finance costs - (16) (24)
Total net finance costs (88) (84) (181)
(Loss)/profit before taxation (233) 123 284
Taxation 6 109 (32) (106)
(Loss)/profit after taxation (124) 91 178
Equity minority interests (13) (3) 1
(Loss)/profit for the financial year (137) 88 179
Dividends on equity shares 7 (70) (58) (164)
(Loss)/profit retained (207) 30 15
Adjusted earnings per equity share before internet 5 6.8p 8.9p 54.6p
enterprises
Adjusted (loss)/earnings per equity share after 5 (2.6)p (0.6)p 31.9p
internet enterprises
(Loss)/earnings per equity share 5(17.2)p 12.7p 24.6p
Diluted (loss)/earnings per equity share 5 n/a 12.4p 24.0p
Dividends per equity share 7 8.7p 8.2p 21.4p
There is no difference between the (loss)/profit on ordinary activities before
taxation and the retained (loss)/profit for the period stated above and their
historical cost equivalents.
The results for the 2000 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.
Earnings per equity share and dividends per equity share in the half year and
full year 2000 have been restated to reflect the right issue of equity shares
during 2000.
Consolidated Balance Sheet
as at 30 June 2001
2001 2000 2000
all figures in £ millions half half full
year year year
Fixed assets
Intangible assets 4,635 3,018 4,522
Tangible assets 557 453 524
Investments: joint ventures
Share of gross assets 17 8 13
Share of gross liabilities - - (1)
17 8 12
Investments: associates 955 281 1,024
Investments: other 147 191 155
6,311 3,951 6,237
Current assets
Stocks 969 945 828
Debtors 1,215 1,233 1,217
Investments 4 3 12
Cash at bank and in hand 584 369 516
2,772 2,550 2,573
Creditors - amounts falling due within one
year
Short term borrowing (244) (902) (112)
Other creditors (1,140) (1,356) (1,484)
(1,384) (2,258) (1,596)
Net current assets 1,388 292 977
Total assets less current liabilities 7,699 4,243 7,214
Creditors - amounts falling due after more
than one year
Medium and long term borrowing (3,212) (2,011) (2,705)
Other creditors (54) (58) (34)
(3,266) (2,069) (2,739)
Provisions for liabilities and charges
Deferred taxation (5) (17) (9)
Other provisions for liabilities and charges (238) (213) (257)
Net assets 4,190 1,944 4,209
Capital and reserves
Called up share capital 200 156 199
Share premium account 2,445 774 2,440
Profit and loss account 1,372 901 1,405
Equity shareholders' funds 4,017 1,831 4,044
Equity minority interests 173 113 165
4,190 1,944 4,209
Consolidated Statement of Cash Flows
for the six months to 30 June 2001
2001 2000 2000
all figures in £ millions Note half half full
year year year
Net cash (outflow)/inflow from operating 9 (187) (200) 361
activities
Dividends from joint ventures and associates 19 43 49
Interest received 19 23 16
Interest paid (98) (105) (179)
Debt issue costs (1) - (4)
Dividends paid to minority interests (9) - -
Returns on investments and servicing of (89) (82) (167)
finance
Taxation (39) (30) (90)
Purchase of tangible fixed assets (93) (65) (139)
Sale of tangible fixed assets 5 8 22
Purchase of investments (4) (90) (132)
Sale of investments 19 3 1
Capital expenditure and financial (73) (144) (248)
investment
Purchase of subsidiary undertakings (14) (482) (2,276)
Net debt acquired with subsidiary (2) (19) (31)
undertakings
Purchase of joint ventures and associates (15) (88) (108)
Sale of subsidiary undertakings 6 3 158
Net cash disposed with subsidiary (1) - -
undertakings
Sale of associates 1 394 392
Acquisitions and disposals (25) (192) (1,865)
Equity dividends paid (105) (87) (143)
Net cash outflow before management of liquid
resources and financing (499) (692) (2,103)
Liquid resources acquired - (49) (16)
Liquid resources disposed - 44 -
Collateral deposit reclaimed/(placed) 17 (61) (118)
Management of liquid resources 17 (66) (134)
Issue of equity share capital 6 257 1,959
Capital element of finance lease rentals (5) (4) (10)
Loan facility advanced - - 473
Loan facility repaid (112) (676) (735)
Notes advanced 508 - -
Bonds advanced - 368 411
Loan notes advanced - 131 134
Net movement in other borrowings 40 597 63
Financing 437 673 2,295
(Decrease)/increase in cash in the period (45) (85) 58
Statement of Total Recognised Gains and Losses
for the six months to 30 June 2001
2001 2000 2000
all figures in £ millions half year half year full year
(Loss)/profit for the financial period (137) 88 179
Other net gains and losses recognised in
reserves:
Currency translation differences 169 106 95
Taxation on currency translation differences - (13) (9) (8)
UK
Total recognised gains relating to the period 19 185 266
Reconciliation of Movements in Equity Shareholders' Funds
for the six months to 30 June 2001
2001 2000 2000
all figures in £ millions half half full
year year year
(Loss)/profit for the financial period (137) 88 179
Dividends on equity shares (70) (58) (164)
(207) 30 15
Currency translation differences (net of taxation) 156 97 87
Goodwill arising on prior period acquisitions - 1 1
Goodwill written back on business combinations - 75 585
Goodwill written back 17 50 68
Shares issued 6 257 1,961
Replacement options granted on acquisition of 1 - 6
subsidiary
Net movement for the period (27) 510 2,723
Equity shareholders' funds at beginning of the 4,044 1,321 1,321
period
Equity shareholders' funds at end of the period 4,017 1,831 4,044
Notes
for the six months to 30 June 2001
1. Basis of preparation
The interim results for the six months to 30 June 2001 have been prepared in
accordance with the accounting policies set out in the 2000 Annual Report.
FRS 18 'Accounting Policies' has been adopted but this has had no impact on
the 2001 interim results.
2a. Sector analysis - sales
2001 2000 2000
all figures in £ millions half year half year full year
Pearson Education 1,045 647 2,090
FT Group 429 408 844
The Penguin Group 402 326 755
Television - 164 185
Continuing operations 1,876 1,545 3,874
Sales in respect of internet enterprises, the Group's discrete internet
operations, are included within Pearson Education £3m (2000 half year: £nil;
2000 full year: £3m) and the FT Group £26m (2000 half year: £16m; 2000 full
year: £42m).
2b. Sector analysis - operating profit
----------------------------------------- 2001 half year
------------------------------------------
Results Internet Integration Goodwill Operating
from enterprises costs amortisation profit
all figures in operations
£ millions
Pearson 16 (43) (12) (129) (168)
Education
FT Group 88 (38) - (33) 17
The Penguin 37 - (16) (10) 11
Group
Television 33 - - (16) 17
Continuing 174 (81) (28) (188) (123)
operations
----------------------------------------- 2000 half year
-----------------------------------------
Results Internet Integration Goodwill Operating
from enterprises costs amortisation profit
all figures in operations
£ millions
Pearson (26) (20) (8) (54) (108)
Education
FT Group 109 (64) - (10) 35
The Penguin 33 - (3) (5) 25
Group
Television 32 - - (3) 29
Continuing 148 (84) (11) (72) (19)
operations
Discontinued 8 - - - 8
operations
156 (84) (11) (72) (11)
2b. Sector analysis - operating profit (continued)
------------------------------------------ 2000 full year
------------------------------------------
Results Internet Integration Goodwill Operating
from enterprises costs amortisation profit
all figures in operations
£ millions
Pearson 320 (83) (13) (157) 67
Education
FT Group 211 (113) - (53) 45
The Penguin 79 - (27) (14) 38
Group
Television 68 - - (15) 53
Continuing 678 (196) (40) (239) 203
operations
Discontinued 8 - - - 8
operations
686 (196) (40) (239) 211
Integration costs include costs in respect of the Simon & Schuster acquisition
in 1998 and the Dorling Kindersley and National Computer Systems acquisitions
in 2000. Discontinued operations relate to the withdrawal of the Group from
the banking business following its disposal of Lazard in March 2000. Internet
enterprises consist of the Group's discrete internet operations, principally
FT.com and Learning Network. Analyses of the profits of joint ventures and
associates are shown in note 2c.
2c. Sector analysis - joint ventures and associates
Included in the analysis of operating profit in note 2b are the following
amounts in respect of joint ventures and associates:
---------------------- Joint ventures
---------------------
2001 2000 2000
all figures in £ millions half year half year full year
Continuing operations - FT (10) (10) (21)
Group
The results above include internet enterprises of £(1)m (2000 half year: £(1)
m; 2000 full year: £(2)m).
----------------------------------------------------- Associates
-----------------------------------------------------
Results before Results before Results before
goodwill goodwill goodwill
amortisation amortisation amortisation
2001 2000 2000
half year Total half year Total full year Total
2001 2000 2000
all figures half half full
in £ year year year
millions
Pearson 2 2 5 5 7 7
Education
FT Group (2) (26) 2 - 7 (30)
Television 33 17 5 5 39 25
Continuing 33 (7) 12 10 53 2
operations
Discontinued - - 8 8 8 8
operations
33 (7) 20 18 61 10
The results above include internet enterprises in FT Group of £(6)m (2000 half
year: £(4)m; 2000 full year: £(10)m).
3. (Loss)/profit on sale of fixed assets and investments
2001 2000 2000
All figures in £ millions half half full
year year year
Continuing operations:
Net (loss)/profit on other investments and (2) 2 (4)
property interests
4. (Loss)/profit on sale of businesses and associates
2001 2000 2000
All figures in £ millions half half full
year year year
Continuing operations:
Profit on sale of 20% of Recoletos - - 86
Loss on closure of Dorling Kindersley Family - - (16)
Learning business
Net loss on sale of other businesses and (28) (15) (40)
associates
(28) (15) 30
Discontinued operations:
Profit on sale of Lazard (before taxation - 231 231
estimated at £34m)
5. Earnings per share
In order to show results from operating activities on a comparable basis two
adjusted earnings per equity share are presented. First, an adjusted earnings
per share is presented which excludes profits or losses on the sale of fixed
assets and investments, businesses and associates (see notes 3 and 4). Also
excluded are integration costs in respect of the acquisitions of Simon &
Schuster, Dorling Kindersley and National Computer Systems (NCS) (see note 2),
the accelerated amortisation of a financing arrangement fee following the
early redemption of a borrowing facility in 2000, the premium paid in respect
of a forward currency option in connection with the acquisition of NCS in
2000, and goodwill amortisation. Due to a significant level of expenditure on
internet enterprises, a second adjusted earnings per equity share is presented
in which the results of these are also excluded from earnings.
2001 2000 2000
All figures in £ millions half half full
year year year
(Loss)/profit for the financial period (137) 88 179
Adjustments:
Loss/(profit) on sale of fixed assets and investments: 2 (2) 4
continuing operations
Loss/(profit) on sale of businesses and associates: 28 15 (30)
continuing operations
(Profit) on sale of businesses and associates: - (231) (231)
discontinued operations
(Profit)/loss on sale of businesses, associates and
investments by an associate: continuing operations (8) - 3
Internet enterprises 81 84 196
Interest on internet enterprises 7 2 9
Goodwill amortisation 188 72 239
Integration costs 28 11 40
Other net finance costs - 16 24
Taxation on above items (132) 9 (18)
Minority interest share of above items (3) (2) (18)
Adjusted earnings before internet enterprises 54 62 397
Internet enterprises (81) (84) (196)
Interest on internet enterprises (7) (2) (9)
Taxation on internet enterprises 12 18 37
Minority interest share of internet enterprises 1 2 3
Adjusted (loss)/earnings after internet enterprises (21) (4) 232
(Loss)/profit for the financial period (137) 88 179
Taxation on the conversion of ordinary shares - (1) (2)
Diluted (loss)/earnings (137) 87 177
Weighted average number of equity shares (millions)
- for earnings and adjusted earnings 794.7 694.8 727.7
Effect of dilutive share options n/a 9.2 8.4
Weighted average number of equity shares (millions)
- for diluted earnings n/a 704.0 736.1
Adjusted earnings per equity share before internet 6.8p 8.9p 54.6p
enterprises
Adjusted (loss)/earnings per equity share after (2.6)p(0.6)p 31.9p
internet enterprises
(Loss)/earnings per equity share (17.2)p 12.7p 24.6p
Diluted (loss)/earnings per equity share n/a 12.4p 24.0p
For the half year 2001 the effect of share options on the loss per share is
anti-dilutive.
6. Taxation
The tax rate provided in the profit and loss account is analysed as follows:
2001 2000 2000
All figures in percentages half half full
year year year
United Kingdom tax rate 30.0 30.0 30.0
Effect of overseas tax rates 5.5 3.4 2.2
Effect of utilisation of tax losses in the US (9.6) (4.5) (7.8)
Other items (0.9) (3.9) (1.4)
Tax rate reflected in adjusted earnings (before 25.0 25.0 23.0
internet enterprises)
Tax rate reflected in earnings 46.8 26.0 37.3
Taxation is analysed as:
2001 2000 2000
All figures in £ millions half year half year full year
Parent and subsidiaries 116 (28) (92)
Joint ventures and associates (7) (4) (14)
109 (32) (106)
The Group has significant 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. Included in the parent and
subsidiaries taxation of £116m, and hence in the tax rate reflected in
earnings, is an adjustment of £121m relating to a prior year transaction.
7. Dividends
The directors have declared an interim dividend of 8.7p per equity share,
payable on 26 October 2001 to shareholders on the register at the close of
business on 10 August 2001.
8. 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:
-------------- £ versus US$ ---------------
2001 2000 2000
half year half year full year
Average for operating 1.43 1.56 1.51
profits
Period end rate 1.41 1.51 1.49
The weakening of sterling on an average basis in 2001 has had a beneficial
impact on sales and profits. It is estimated that if the 2000 average rates
had prevailed in 2001 then sales would have been lower by £64m and operating
profit lower by £5m.
9. Note to consolidated statement of cash flows
2001 2000 2000
All figures in £ millions half half full
year year year
Reconciliation of operating (loss)/profit to net
cash (outflow)/
inflow from operating activities
Operating (loss)/profit - total (123) (11) 211
Share of loss/(profit) of joint ventures and 17 (8) 11
associates
Depreciation charges 64 44 100
Goodwill amortisation 148 70 188
(Increase) in stocks (98) (137) (97)
(Increase)/decrease in debtors (49) 37 53
(Decrease) in creditors (155) (199) (119)
Increase/(decrease) in operating provisions 3 (6) (4)
Other and non-cash items 6 10 18
Net cash (outflow)/inflow from operating (187) (200) 361
activities
Purchase of fixed assets and finance lease (98) (69) (149)
payments
Sale of tangible fixed assets 5 8 22
Dividends from joint ventures and associates 19 43 49
Other 13 - (8)
Operating cash flow (248) (218) 275
Analysed between:
Operating cash flow before internet enterprises (152) (104) 580
and other items
Dorling Kindersley exceptional payments - - (46)
Integration costs:
Simon & Schuster/NCS (5) (19) (36)
Dorling Kindersley (23) (7) (25)
Cash effect of internet enterprises (68) (88) (198)
Operating cash flow (248) (218) 275
The Dorling Kindersley exceptional payments are in respect of creditors on the
acquisition balance sheet beyond normal trading terms.
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