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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