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 July 2023
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
Pearson Interim Results for the six months to 30th
June 2023
(Unaudited)
31st
July 2023
|
Excellent H1 financial performance; full year Group financial
expectations reaffirmed
|
Highlights
●
|
Underlying Group sales growth1 of
6%, excluding OPM2 and
the Strategic Review3
businesses with particularly strong performances in English
Language Learning and Assessment & Qualifications.
|
●
|
Underlying adjusted operating profit growth of 44% and strong
operating cash flow performance of £79m, reflecting strong
trading and benefits of the cost efficiency programme in H1, with
the remainder to be realised in H2.
|
●
|
Further portfolio reshaping with completion of the acquisition of
Personnel Decisions Research Institutes (PDRI) within our
Assessment & Qualifications division and the completion of the
disposal of Pearson Online Learning Services (POLS).
|
●
|
Good strategic progress, including ongoing execution of Artificial
Intelligence (AI) strategy.
|
Statutory results
●
|
Sales
increased 5% to £1,879m (H1 2022: £1,788m) reflecting
underlying performance, portfolio changes and currency
movements.
|
●
|
Statutory
operating profit of £219m (H1 2022: £148m) reflecting
underlying performance, portfolio changes and currency
movements.
|
●
|
Net
cash generated from operations was £106m (H1 2022:
£53m).
|
●
|
Statutory earnings per share of 26.1p (H1 2022:
18.1p5).
|
Underlying sales
growth1
of 6%, excluding
OPM2
and Strategic
Review3
businesses; 4% in
aggregate
●
|
Assessment
& Qualifications sales were up 7% largely driven by a strong
performance in Pearson VUE underpinned by good growth in the IT and
healthcare segments, alongside the commencement of a number of new
contracts.
|
●
|
Virtual Learning sales decreased 15%, primarily due to an expected
69% decrease in the OPM business given the previously announced ASU
contract loss. Virtual Schools declined 2%, driven by enrolment
declines for the 2022/23 academic year and lower district
partnership renewals, which was offset by good retention rates and
the return of a school that had previously left.
|
●
|
Higher
Education sales were down 2%, in line with expectations, driven by
a decline in enrolments and loss of adoptions to non-mainstream
publishers. Pearson+ momentum continued, increasing c.200% in
cumulative paid subscriptions to 938k for the full academic year
(2022: 329k).
|
●
|
English
Language Learning sales increased 44% due to increased Pearson Test
of English (PTE) volumes, which were up 76%.
|
●
|
Workforce
Skills sales grew 9%, with good growth in both Vocational
Qualifications and Workforce Solutions.
|
●
|
Sales
in businesses under Strategic Review3
decreased 50% as expected.
|
Adjusted operating
profit1
up 44% on an underlying basis to
£250m including realisation of just under half of the
£120m cost efficiency programme
●
|
Performance
driven by operating leverage on revenue growth and implementation
of the £120m cost efficiency programme for 2023, partially
offset by inflation. First half profit margin grew to 13% (H1 2022:
9%).
|
●
|
Headline
growth was 56% reflecting underlying performance, portfolio changes
and currency movements.
|
●
|
Adjusted
earnings per share grew to 25.6p (H1 2022: 22.5p) reflecting
adjusted operating profit
growth,
tax and interest returning to more normalised levels and the
reduction in issued shares given the 2022 share
buyback.
|
Strong operating cash flow with robust balance sheet enabling
continued investment and driving increased shareholder
returns
●
|
Operating
cash flow was £79m (H1 2022: £9m) with the significant
growth driven by the drop through of increased trading profits, and
in particular the cost efficiency programme, as well as strong
collections and portfolio changes.
|
●
|
Net
debt of £0.9bn (H1 2022: £0.8bn) increased due to
dividend payments, tax payments and the 2022 share buyback, more
than offsetting operating cash flows.
|
|
●
|
Proposed
interim dividend of 7.0p (H1 2022: 6.6p) represents an increase of
6%.
|
|
●
|
Previously
announced buyback to repurchase £300m of shares on track to
commence in Q3.
|
|
Andy Bird, Pearson’s Chief Executive, said:
“Our excellent performance in the first half of 2023 means we
are confident of achieving our full year expectations. We have
continued to execute well operationally and maintained a sharp
focus on delivering efficiencies whilst positioning our portfolio
for long-term growth. The progress we are making to accelerate our
digital journey, increase interconnectivity and leverage our
long-standing AI capabilities will enable us to serve an
ever-greater number of individuals and enterprises with our
trusted, proprietary learning content.”
Continued
operational and strategic progress
Advancing future growth drivers across the business
●
|
In
Assessment & Qualifications, Pearson VUE has launched the
delivery of the Next Generation NCLEX Nurse licensure exam in the
US and PDRI has launched a full suite of hiring assessment
programmes for the Transportation Security Administration (TSA). We
also continued to progress in our offering of onscreen exams within
our UK & International Qualifications business, with the roll
out of GCSE Computer Science and International GCSEs in English
Language and Literature.
|
●
|
In
Virtual Learning, we are launching a new Connections Academy Career
Pathways programme for middle and high school students from the
second half of the year, where we will be offering a tri-credit
approach to career-readiness courses in partnership with Coursera
and Acadeum, amongst others.
|
●
|
In
Higher Education, the re-organisation of our sales force has helped
to increase adoption retention rates and generate new wins. Our
work to converge our platforms, to enhance stability and to deliver
upgraded, best-in-class features to improve our customer experience
is progressing well. These initiatives
make the division much more commercial and competitive on a
day-to-day basis and we continue to develop new AI features,
some of which we will launch as early as this Fall back-to-school.
Uptake of our iLab products was also
encouraging in the Spring semester, where more than 1,900 virtual
labs were assigned across more than 600 courses through Mastering
Biology. Momentum continued for Pearson+ with a c.200% increase in
cumulative paid subscriptions to 938k for the full academic
year.
|
●
|
In
Workforce Skills, our Vocational Qualifications business
won three T level contracts in the UK.
We also signed a contract with the Jordanian Ministry of Education
to partner on the reform of Jordan’s technical and vocational
education and training provision in schools with over 50,000
learners expected to take these courses over the next three
years. Within our Workforce Solutions business we have built
a powerful technology stack that has enabled us to break down core
Faethm capabilities into modular application programming
interfaces, enabling use across Workforce Skills and other Pearson
products. Feedback from our customers
has resulted in us making the decision to focus our efforts on
delivering a modular, personalisable approach versus a fully
integrated platform.
|
●
|
In
English Language Learning, we recently won recognition for the
Pearson Test of English for Canadian Student Direct Stream and
economic migration visa applications. This grants access to the
full potential of the Canadian market at an opportune time, as
Immigration, Refugees and Citizenship Canada has recently announced
that it plans to welcome a record number of permanent residents in
the years ahead. The Canadian market is the largest of the three
key markets which Pearson has recognition to operate
in.
|
Leveraging our AI capabilities alongside trusted, proprietary
learning content to drive success for our learners and broader
stakeholders
●
|
AI has been embedded into how Pearson operates, reflecting the
deployment of the technology across our product portfolio for many
years. For instance, there are AI-based open response assessments
within English Language Learning and large language models within
Workforce Skills which develop proprietary predictive algorithms
designed to assess trends in demand for skills and occupations
globally and recommend career and learning pathways for consumers,
enterprises and governments.
|
●
|
We have recently brought to market a generative AI tool within our
Pearson+ service which enables users to automatically summarise the
content of Channels videos into simple bullet points.
|
●
|
Additional generative AI study tools designed to help students
better learn and understand challenging subjects will launch in
Pearson+ and Mastering for this Fall back-to-school. These study
tools combine Pearson’s trusted content and structured
pedagogy with conversational AI capabilities to provide
personalised real time support for students in a secure Pearson
product environment, which is free from the noise and corruption of
web-based AI models. Further features are in development for the
2024 Fall back-to-school period and our products will continue to
evolve and grow over time to meet the needs of
students.
|
●
|
We are also exploring opportunities to consider how we can continue
to leverage innovative AI technology to drive further efficiency
and generate additional cost savings.
|
Maintaining focus on efficiencies
●
|
We
remain on track to achieve £120m of cost efficiencies in 2023,
having delivered a little under half in the first half of this
year.
|
●
|
We continue to expect margin improvement for the year from 12% in
2022 to mid-teens for 2023.
|
Reshaping the portfolio
●
|
The
disposal of our POLS business is now complete, further focusing
Pearson’s portfolio towards future growth
opportunities.
|
|
●
|
We
completed the acquisition of PDRI, significantly expanding
Pearson’s services to the U.S. federal
government.
|
●
|
The
integration of Mondly continues to enhance our credentials in the
online language learning self-study space with paid subscriptions
standing at 473k at the end of the period, up 41%, with
particularly strong growth in our MondlyWorks
offering.
|
Outlook reaffirmed4
Group revenue, adjusted operating profit and profit margin outlook
remain in line with expectations for 2023.
We also re-iterate our guidance of mid-single digit Group revenue
growth over 2022 to 2025 and for margins to rise to the upper end
of mid-teens in 2025.
In terms of divisional guidance and phasing:
●
|
We are raising our revenue growth expectations in English Language
Learning from high single digit to c.20% for 2023 following strong
growth in the first half which we expect to normalise in H2. We are
investing a portion of the operating leverage on this improvement
to support future growth opportunities.
|
●
|
In
Workforce Skills, given our focus on delivering modular solutions,
our 2023 and 2022 to 2025 growth expectations for this division are
likely to be more stretching.
|
●
|
Continued
growth in Pearson+ subscriptions will lead to a shift in Higher
Education revenue recognition from Q3 to Q4.
|
●
|
Contract
timing in Assessment & Qualifications will see delivery in
earlier quarters meaning Q4 growth will be lower than average. We
are confident in achieving our full year revenue growth
expectations.
|
●
|
In
Virtual Learning the termination of the ASU contract will continue
to impact growth in H2.
|
●
|
Revenue
growth expectations for Virtual Schools remain unchanged with H2
enrolments impacted by the loss of a previously cited large school
contract.
|
Financial
summary
£m
|
H1 2023
|
H1
2022
|
Headline
growth
|
CER
growth1
|
Underlying
growth1
|
Business performance
|
|
|
|
|
|
Sales
|
1,879
|
1,788
|
5%
|
2%
|
4%
|
Adjusted
operating profit
|
250
|
160
|
56%
|
48%
|
44%
|
Operating
cash flow
|
79
|
9
|
|
|
|
Adjusted
earnings per share
|
25.6p
|
22.5p
|
|
|
|
Statutory results
|
|
|
|
|
|
Sales
|
1,879
|
1,788
|
|
|
|
Operating
profit
|
219
|
148
|
|
|
|
Net
cash generated from operations
|
106
|
53
|
|
|
|
Basic
earnings per share
|
26.1p
|
18.1p5
|
|
|
|
Dividend
per share
|
7.0p
|
6.6p
|
|
|
|
Net
debt
|
(911)
|
(810)
|
|
|
|
Contacts
Investor Relations
|
Jo
Russell
James
Caddy
|
+44
(0) 7785 451 266
+44
(0) 7825 948 218
|
|
Gemma
Terry
Brennan
Matthews
|
+44
(0) 7841 363 216
+1
(332) 238-8785
|
Teneo
|
Charles
Armitstead
|
+44
(0) 7703 330 269
|
Results event
|
Pearson’s
interim results presentation today at 09:30 (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 its 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 2023
|
H1 2022
|
Digital Growth
|
Drive
digital revenue growth
|
OnVUE
volumes
|
1.7m
|
1.4m
|
Higher
Education US digital registrations
|
4.5m
|
4.6m*
|
PTE
volume
|
606k
|
344k
|
Consumer Engagement
|
Create
engaging and personalised consumer experiences
|
NPS for
Connections Academy
|
+67
|
+67
|
NPS for
PTE
|
+56
|
+51
|
Pearson+
registered users
|
4.7m
|
4.5m
|
Mondly
paid subscriptions
|
473k
|
336k
|
Workforce
Skills registered users
|
5.3m
|
4.1m
|
Product Effectiveness
|
Improve
the effectiveness of our products to deliver better
outcomes
|
PTE
speed of score return
|
1.1
days
|
1.3
days
|
VUE
test volumes
|
12.2m
|
10.0m
|
Workforce
Skills number of enterprise customers
|
1,556
|
1,387
|
Higher
Education product usage – text units
|
2.0m
|
2.1m
|
*H1
2022 US digital registrations restated from 4.8m to 4.6m due to
recategorizing 0.2m of registrations from US to
International.
The
above table is a subset of our full list of strategic KPIs, which
will be reported on alongside full year results.
For a
full list of KPI measure definitions, please refer to: https://plc.pearson.com/en-GB/purpose/our-targets-kpis
Operational
review
£m
|
H1 2023
|
H1
2022
|
Headline
growth
|
CER
Growth1
|
Underlying
growth1
|
Sales
|
|
|
|
|
|
Assessment
& Qualifications
|
796
|
7106
|
12%
|
8%
|
7%
|
Virtual
Learning
|
373
|
390
|
(4)%
|
(9)%
|
(15)%
|
Higher
Education
|
379
|
373
|
2%
|
(2)%
|
(2)%
|
English
Language Learning
|
184
|
122
|
51%
|
50%
|
44%
|
Workforce
Skills
|
140
|
127
|
10%
|
9%
|
9%
|
Strategic
review3
|
7
|
666
|
(89)%
|
(89)%
|
(50)%
|
Total
|
1,879
|
1,788
|
5%
|
2%
|
4%
|
Total, excluding OPM2 and
Strategic Review3
|
|
|
|
|
6%
|
|
|
|
|
|
|
Adjusted operating profit/loss
|
|
|
|
|
|
Assessment
& Qualifications
|
174
|
1366
|
28%
|
21%
|
20%
|
Virtual
Learning
|
47
|
14
|
236%
|
207%
|
72%
|
Higher
Education
|
(1)
|
(4)
|
75%
|
25%
|
25%
|
English
Language Learning
|
8
|
(4)
|
300%
|
300%
|
275%
|
Workforce
Skills
|
21
|
28
|
(25)%
|
(21)%
|
(20)%
|
Strategic
review3
|
1
|
(10)6
|
110%
|
110%
|
100%
|
Total
|
250
|
160
|
56%
|
48%
|
44%
|
1Throughout this announcement: a) Growth rates are stated 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, 14 and 16. Constant exchange
rates are calculated by assuming the average FX in the prior period
prevailed through the current period.
2We have completed the sale of the Pearson Online Learning
Services (POLS) business and as such have removed from underlying
measures throughout. Within this specific measure we exclude our
entire OPM business (POLS and ASU) to aid comparison to
guidance.
3Strategic Review is revenues in international courseware
local publishing businesses being wound down, which will continue
to be reported separately until dissipated.
42023 consensus on the Pearson website as at 19th April
2023; median adjusted operating profit of £568m at £:$
1.20, interest charge £34m, tax rate 24%. Our Group revenue
growth expectation for 2023 is low to mid-single digit, excluding
OPM2 and
the Strategic Review3
businesses.
5Comparative amounts have been revised, see note 1 of the
condensed consolidated financial statements for further
details.
6Comparative amounts have been restated to reflect the move
between operating segments.
Assessment
& Qualifications
In Assessment & Qualifications, sales increased 7% on an
underlying basis and 12% on a headline basis. Adjusted operating
profit increased 20% in underlying terms due to operating leverage
on revenue growth and cost efficiencies partially offset by
inflation and 28% in headline terms due to this, currency movements
and portfolio changes.
Pearson VUE sales were up 12% in underlying terms as test
volumes grew 22% versus the same
period last year to 12.2m. Volume growth was driven by
particularly good performance in the IT and healthcare segments,
alongside the commencement of a number of new
contracts.
In US Student Assessment, sales increased 4% in underlying terms
driven by commencement of new contracts following new business
wins.
In Clinical Assessment, sales increased 2% in underlying terms
supported by good government funding and continued focus on
health and wellbeing.
In UK and International Qualifications, sales increased 6% in
underlying terms driven by price increases and good International
growth.
Virtual
Learning
In Virtual Learning, sales decreased 15% on an underlying basis and
4% on a headline basis due to currency movements and portfolio
changes. Adjusted operating profit grew 72% in underlying terms due
to efficiency improvements and phasing relating to contract
closures in OPM and increased 236% in headline terms due to this,
currency movements and portfolio changes.
Virtual Schools sales were down 2%, driven by enrolment declines
for the 2022/23 academic year and lower district partnership
renewals, offset by good retention rates and the return of a school
that had previously left. New applications for the 2023/24 academic
year are tracking well, but performance will be lower in the second
half due to the previously cited loss of a larger partner school.
Pearson will operate 45 schools in 29 states for the 2023/24
academic year.
We will be launching a new Connections Academy Career Pathways
programme for middle and high school students which will deliver
curated learning experiences in the fields of IT, Business, and
Healthcare. These initiatives will launch in select Connections
Academy schools in the 2023/24 school year, rolling out nationwide
in following years. We have seen encouraging application trends in
this programme to date.
In OPM, sales were down 69% on an underlying basis as
expected.
Higher
Education
In Higher Education, sales declined 2% on an underlying basis and
increased 2% on a headline basis due to currency movements.
Adjusted operating profit increased 25% in underlying terms driven
primarily by cost efficiencies partially offset by trading and
phasing related to amortisation and increased 75% in headline terms
due to this and currency movements.
In the US, as expected, we saw a continuation of the trends
observed in the Fall semester of the 2022/23 academic year, with a
decline in enrolments and a loss of adoptions to non-mainstream
publishers. Pearson+ performed well with 4.7m cumulative registered
users and 938k paid subscriptions for the full academic year, the
latter representing a c.200% increase compared to the prior
year.
English
Language Learning
In English Language Learning, sales were up 44% on an underlying
basis and 51% on a headline basis due to currency movements and
portfolio changes. Adjusted operating profit increased by 275% in
underlying terms due to increased revenue partially offset by
increased investment and increased 300% in headline terms due to
this, currency movements and portfolio changes.
PTE
volumes were up 76%. The strength of growth was heightened by
comparison to a prior period in which global mobility had not fully
resumed and supported by favourable migration policy in Australia.
We also saw market share gains in India.
Within
Institutional, performance was strong, with particularly good
growth in LATAM and Middle East markets.
Our Online Self-Study business, Mondly, performed well, bringing
new users to the Pearson ecosystem and demonstrating
interconnectivity with other divisions. Paid subscriptions
increased 41% versus the prior period driven by particularly strong
growth in our MondlyWorks offering.
Workforce
Skills
In Workforce Skills, sales were up 9% on an underlying basis and
10% on a headline basis. Adjusted operating profit decreased by 20%
in underlying terms due to trading offset by investment in the
business and decreased 25% in headline terms due to this and
currency movements.
The
Vocational Qualifications business grew by 7% in underlying
terms. The Workforce Solutions
business grew by 14% in underlying terms. Pearson has a broad reach
of 1,556 enterprise clients in its Workforce Skills portfolio, up
12% on last year.
Strategic
Review
Sales
in businesses under strategic review declined 50% on an underlying
basis, in line with expectations and were down 89% on a headline
basis due to currency movements and portfolio changes.
FINANCIAL REVIEW
Operating
result
Sales
for the six months to 30 June 2023 increased on a headline basis by
£91m or 5% from £1,788m for the six months to 30 June
2022 to £1,879m for the same period in 2023 and adjusted
operating profit increased by £90m or 56% from £160m in
the first half of 2022 to a profit of £250m in the first half
of 2023 (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 2023 with those for the equivalent period in the
prior year. We also present sales and profits on an underlying
basis which excludes 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 excluding sales and profits made by businesses
disposed in either 2022 or 2023 and by ensuring the contribution
from acquisitions is comparable year on year. Portfolio changes
mainly relate to the disposals of the Group’s interest in
POLS, Pearson College and our international courseware local
publishing business in India in 2023, the disposal of our
international courseware local publishing businesses in Europe,
French-speaking Canada, South Africa and Hong Kong in 2022, the
acquisition of PDRI in 2023 and the acquisitions of Credly and
Mondly in 2022.
On an
underlying basis, sales increased by 4% in the first six months of
2023 compared to the equivalent period in 2022 and adjusted
operating profit increased by 44%. Currency movements increased
sales by £62m and adjusted operating profit by £14m, and
portfolio changes decreased sales by £29m and increased
adjusted operating profit by £4m. There were no new accounting
standards adopted in the first half of 2023 that impacted sales or
profits.
Adjusted operating
profit includes the results from discontinued operations when
relevant but excludes charges for acquired intangible amortisation
and impairment, acquisition related costs, gains and losses arising
from disposals, the cost of major restructuring and one off-costs
related to the UK pension scheme. 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
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Operating
profit
|
|
219
|
148
|
271
|
Add
back: Cost of major restructuring
|
|
-
|
-
|
150
|
Add
back: Intangible charges
|
|
24
|
26
|
56
|
Add
back: UK pension discretionary increase
|
|
-
|
-
|
3
|
Add
back: Other net gains and losses
|
|
7
|
(14)
|
(24)
|
Adjusted
operating profit
|
|
250
|
160
|
456
|
There
is no cost of major restructuring in the first half of 2023. In H1
2022, there were no costs of major restructuring. In H2 2022,
restructuring costs of £150m mainly related to staff
redundancies and impairment of right of use property assets
including the impact of updated assumptions related to the
recoverability of right-of-use assets made in 2021.
Intangible
amortisation charges to the end of June 2023 were £24m
compared to a charge of £26m in the equivalent period in 2022.
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 2023 relate largely to the gain on disposal
of the POLS business and a gain resulting from the release of a
provision related to a historical disposal, offset by losses on the
disposal of Pearson College and costs related to current and prior
year disposals and acquisitions. Other net gains and losses in the
first half of 2022 largely related to the gain on disposal of the
international courseware local publishing business in
French-speaking Canada and a gain arising on a decrease in the
deferred consideration payable on prior year acquisitions, offset
by costs related to disposals and acquisitions.
The
reported operating profit of £219m in the first half of 2023
compares to a profit of £148m in the first half of 2022. The
increase in 2023 is mainly due to improved trading profits,
partially offset by a net loss related to acquisitions and
disposals compared to a net gain in the first half of
2022.
Due to
seasonal bias in some of the Group’s businesses, Pearson
typically makes a higher proportion of its profits and operating
cash flows in the second half of the year.
Revision of prior year comparative figures
In H2
2022, the Group corrected an error related to the accounting
treatment for certain investments in unlisted securities. The
related accounting was corrected in the second half of 2022 and the
impact of the correction and the prior year restatements are
reflected in the 2022 Annual Report and Accounts. In these 2023
interim condensed consolidated financial statements, comparative
2022 half year line items have been corrected to reflect the change
in accounting treatment. For the period to half year 2022, the
restatement has resulted in an increase in statutory profit of
£5m, comprising finance income of £6m and a tax charge of
£1m. Other comprehensive income has decreased by £5m but
total comprehensive income is unchanged. The impact on statutory
earnings per share is an increase of 0.6p and the impact on diluted
earnings per share is an increase 0.7p for the period to 30 June
2022. There is no impact to any adjusted measures, net assets, cash
flows nor total equity. See note 1 to the Condensed Consolidated
Financial Statements for further details.
Net
finance costs
Net
finance income decreased on a headline basis from £37m in the
first half of 2022 to £17m in the same period in 2023. The
decrease is primarily due to the release, in 2022, of £35m of
interest recorded in respect of provisions for uncertain tax
positions, partially offset by additional finance income in respect
of retirement benefits.
Net
interest payable reflected in adjusted earnings to 30 June 2023 was
£12m, compared to a receivable of £18m in the first half
of 2022. The difference is primarily due to the release, in 2022,
of £35m of interest recorded in respect of provisions for
uncertain tax positions.
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 the net finance
costs (but not in our adjusted measure) are interest costs relating
to acquisition or disposal transactions, fair value movements on
investments classified as fair value through profit and loss,
foreign exchange and other gains and losses on derivatives.
Interest relating to acquisition or disposal transactions is
excluded from adjusted earnings as it is considered part of the
acquisition cost or disposal proceeds rather than being reflective
of the underlying financing costs of the Group. Foreign exchange,
fair value movements 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.
In the
period to 30 June 2023, the total of these items excluded from
adjusted earnings was net income of £29m compared to net
income of £19m in the first half of 2022. Net finance income
relating to retirement benefits increased from £4m in the
first half of 2022 to £13m in 2023 reflecting the comparative
funding position of the plans at the beginning of each year and
higher prevailing discount rates. Fair value gains on investments
in unlisted securities are £5m in the first half of 2023
compared to £6m in 2022. In addition, there were similar gains
on long-term interest rate hedges and an interest charge on tax
provisions of £5m was recognised in 2022 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
2023 was a charge of £49m compared to a charge of £49m in
the period to 30 June 2022. This equates to an effective tax rate
of 20.8% (2022: 26.5%). The lower effective tax rate compared to
the prior year is primarily due to a tax credit being recognised on
the disposal of the POLS business.
The
total adjusted tax charge for the period was £54m (2022:
£9m), corresponding to an effective tax rate on adjusted
profit before tax of 22.7% (2022: 5.1%). The higher effective rate
compared to 2022 is primarily due to the 2022 release of tax risk
provisions following the expiry of the statute of limitations in
the US not recurring. For
a reconciliation of the adjusted measure see notes 4 and 5 to the
condensed consolidated financial statements.
In the
first half of 2023, there was a net tax payment of £59m,
principally relating to the US. In the six months to 30 June 2022
there was a net tax payment of £51m, also principally relating
to the US.
UK
legislation in relation to Pillar 2 was substantively enacted on 20
June 2023 and will be effective from 1 January 2024. An initial
assessment on the impact of this legislation has been completed and
this legislation is not expected to materially impact
Pearson’s effective tax rate in future periods.
Other
comprehensive income
Included
in other comprehensive income are the net exchange differences on
translation of foreign operations. The loss on translation of
£166m at 30 June 2023 compares to a gain at 30 June 2022 of
£334m. The loss in 2023 arises from an overall weakening of
the currencies to which the Group is exposed and in particular the
relative movement in 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 2023 was £1:$1.27 compared to the
opening rate of £1:$1.21. At the end of June 2022, the US
dollar rate was £1:$1.21 compared to the opening rate of
£1:$1.35.
Also
included in other comprehensive income at 30 June 2023 is an
actuarial loss of £27m in relation to retirement benefit
obligations. The loss arises largely from losses on assets and
experience losses, partially offset by a decrease in liabilities
driven by higher discount rates. The loss in 2023 compares to an
actuarial gain at 30 June 2022 of £121m.
Fair
value gains of £2m (2022: £19m) have been recognised in
other comprehensive income and relate to movements in the value of
investments in unlisted securities held at FVOCI.
In
2023, a gain of £122m was recycled from the currency
translation reserve to the income statement in relation to the
disposal of the POLS business. In 2022, a gain of £7m 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 increased on a headline
basis by £70m from an inflow of £9m in the first half of
2022 to an inflow of £79m in the first half of 2023. The
increase is largely explained by the drop-through of increased
trading profits, and in particular the cost efficiency programme,
as well as strong collections and portfolio changes.
The
equivalent statutory measure, net cash generated from operations,
was an inflow of £106m in 2023 compared to an inflow of
£53m in 2022. 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 2023, restructuring cash outflow was £46m
compared to £13m in the same period in 2022.
In the
first half of 2023, there was an overall decrease of £195m in
cash and cash equivalents from £543m at the end of 2022 to
£348m at 30 June 2023. The decrease in 2023 is primarily due
to payments for the acquisition of subsidiaries of £173m, a
net cash outflow on disposal of subsidiaries of £19m,
dividends paid of £106m, own share purchases of £25m, tax
paid of £59m, interest payments of £34m, capital
expenditure on property, plant, equipment and software of £63m
and payments of lease liabilities of £42m. These were offset
by the cash inflow from operations of £106m and proceeds from
borrowings of £220m.
Liquidity
and capital resources
The
Group’s net debt increased from £557m at the end of 2022
to £911m at the end of June 2023. The increase is largely due
to cash outflows on acquisitions and disposals of subsidiaries, tax
payments, dividend payments and capital expenditure, partially
offset by positive operating cash flow.
At 30
June 2023, the Group had drawn £220m on its Revolving Credit
Facility.
At 30
June 2023, the Group had approximately £0.8bn in total
liquidity immediately available from cash and its Revolving Credit
Facility maturing February 2026. In assessing the Group’s
ability to continue as a going concern for the period until 31
December 2024, 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 H2 2023, 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
2024.
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 £23m in the period to 30 June 2023 (30
June 2022: £30m) of which a charge of £36m (30 June 2022:
£34m) was reported in adjusted operating profit and income of
£13m (30 June 2022: £4m) was reported against other net
finance costs.
The
overall surplus on UK Group pension plans of £574m at the end
of 2022 has decreased to a surplus of £548m at the end of June
2023. The decrease has arisen principally due to the actuarial loss
noted above in the other comprehensive income section. In total,
our worldwide net position in respect of pensions and other
post-retirement benefits decreased from a net asset of £520m
at the end of 2022 to a net asset of £500m at the end of June
2023.
Businesses
acquired
In
March 2023, the Group completed the acquisition of 100% of the
share capital of Personnel Decisions Research Institutes, LLC
(‘PDRI’) for cash consideration of £152m ($187m).
There is no contingent or deferred consideration. Net assets
acquired of £91m were recognised on the Group’s balance
sheet including £117m of acquired intangible assets. Goodwill
of £61m was also recognised in relation to the
acquisition.
The
cash outflow in 2023 relating to acquisitions of subsidiaries was
£173m. In addition, there was a cash outflow relating to the
acquisition of associates of £5m and investments of
£6m.
The
cash outflow in 2022 relating to acquisitions of subsidiaries was
£221m arising primarily from the acquisitions of Credly and
Mondly. In addition, there was a cash outflow relating to the
acquisition of associates of £4m and investments of
£4m.
Businesses
disposed
In June
2023, the Group disposed of its interests in its POLS businesses in
the US, UK, Australia and India. The business disposed excludes
Pearson’s contract with ASU. The consideration to be received
is deferred and comprises a 27.5% share of positive adjusted EBITDA
in each calendar year for 6 years and 27.5% of the proceeds
received by the purchaser in relation to any future monetization
event. The consideration has been valued at £12m and a pre-tax
gain on disposal of £17m has been recognised. In addition, a
gain of £9m has been recognised which arises from the release
of a provision related to a historical disposal and £24m of
losses arose from other immaterial disposals and costs related to
previous disposals.
The
cash outflow in the first half of 2023 relating to the disposal of
businesses was £19m mainly relating to the disposal of POLS
and Pearson College. In 2022, the cash inflow from disposals of
£108m mainly related to the disposal of ERPI and the receipt
of deferred proceeds from the US K12 Courseware sale in
2019.
In
addition, proceeds of £3m (2022 FY: £17m) were received
in relation to the disposal of investments.
Dividends
The
dividend accounted for in the six months to 30 June 2023 is the
final dividend in respect of 2022 of 14.9p. An interim dividend for
2023 of 7p was declared by the Board in July 2023 and will be
accounted for in the second half of 2023.
Share
buyback
On 28
April 2023, the Group announced its intention to commence a
£300m share buyback programme in Q3 of 2023 in order to return
capital to shareholders. In the period to 30 June 2023, no shares
have been bought back, and no formal commitments have been
made.
Principal
risks and uncertainties
In the
2022 Annual Report and Accounts (and the US Form 20-F for 2022), 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, portfolio change, and reputation and
responsibility.
We also
noted in our 2022 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, recession, 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 2022 Annual Report
(and the US Form 20-F for 2022).
Accreditation Risk
Termination of
accreditation due to policy changes or failure to maintain the
accreditation of our courses and assessments by states, countries,
and professional associations, reducing their eligibility for
funding or attractiveness to learners.
Capability Risk
Inability to meet
our contractual obligations or to transform as required by our
strategy due to infrastructure or organisational
challenges.
Competitive Marketplace
Significant changes
in our target markets could make those markets less attractive.
This 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, a shift from in person to
virtual or vice versa or innovations in areas such as generative
AI).
Content and Channel Risk
Inability
to demonstrate differentiated content compared to freely available
alternatives (such as generative AI) and/or failure to select
appropriate content and delivery channels to conveniently deliver
anticipated learning, resulting in loss of
sales.
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.
Portfolio Change
Failure
to effectively execute desired or required portfolio changes to
promote scale or capability and increase focus on key divisional
and geographic markets, due to either execution failures or
inability to secure transactions at appropriate
valuations.
Reputation and Responsibility
The
risk of serious reputational harm through failure to meet
obligations to key stakeholders. These include legal and regulatory
requirements, the possibility of serious unethical behaviour and
serious breaches of customer trust.
CONDENSED
CONSOLIDATED INCOME STATEMENT
for
the period ended 30 June 2023
|
|
|
|
|
all figures in £ millions
|
note
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year1
|
full
year
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
|
|
|
Sales
|
2
|
1,879
|
1,788
|
3,841
|
Cost of
goods sold
|
|
(960)
|
(963)
|
(2,046)
|
Gross
profit
|
|
919
|
825
|
1,795
|
|
|
|
|
|
Operating
expenses
|
|
(688)
|
(690)
|
(1,549)
|
Other
net gains and losses
|
2
|
(7)
|
14
|
24
|
Share
of results of joint ventures and associates
|
|
(5)
|
(1)
|
1
|
Operating
profit
|
2
|
219
|
148
|
271
|
|
|
|
|
|
Finance
costs
|
3
|
(36)
|
(8)
|
(71)
|
Finance
income
|
3
|
53
|
45
|
123
|
Profit
before tax
|
4
|
236
|
185
|
323
|
Income
tax
|
5
|
(49)
|
(49)
|
(79)
|
Profit
for the period
|
|
187
|
136
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
Equity
holders of the company
|
|
186
|
136
|
242
|
Non-controlling
interest
|
|
1
|
-
|
2
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing
operations (in pence per share)
|
|
|
|
|
Basic
|
6
|
26.1p
|
18.1p
|
32.8p
|
Diluted
|
6
|
25.9p
|
18.1p
|
32.6p
|
|
|
|
|
|
1.
Comparative balances have been restated – see note 1 for
further details.
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 2023
|
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year1
|
full
year
|
|
|
|
|
|
Profit
for the period
|
|
187
|
136
|
244
|
|
|
|
|
|
Items
that may be reclassified to the income statement
|
|
|
|
|
Net
exchange differences on translation of foreign
operations
|
|
(166)
|
334
|
330
|
Currency
translation adjustment on disposals
|
|
(122)
|
(7)
|
(5)
|
Attributable
tax
|
|
1
|
-
|
4
|
|
|
|
|
|
Items
that are not reclassified to the income statement
|
|
|
|
|
Fair
value gain on other financial assets
|
|
2
|
19
|
18
|
Attributable
tax
|
|
-
|
-
|
1
|
|
|
|
|
|
Remeasurement of
retirement benefit obligations
|
|
(27)
|
121
|
54
|
Attributable
tax
|
|
7
|
(30)
|
(12)
|
Other
comprehensive (expense) / income
|
|
(305)
|
437
|
390
|
Total
comprehensive (expense) / income
|
|
(118)
|
573
|
634
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
Equity
holders of the company
|
|
(118)
|
572
|
630
|
Non-controlling
interest
|
|
-
|
1
|
4
|
1.
Comparative balances have been restated – see note 1 for
further details.
CONDENSED
CONSOLIDATED BALANCE SHEET
as
at 30 June 2023
|
|
|
|
|
all figures in £ millions
|
note
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Property, plant and
equipment
|
|
226
|
292
|
250
|
Investment
property
|
|
60
|
72
|
60
|
Intangible
assets
|
10
|
3,126
|
3,214
|
3,177
|
Investments in
joint ventures and associates
|
|
17
|
24
|
25
|
Deferred income tax
assets
|
|
27
|
41
|
57
|
Financial assets
– derivative financial instruments
|
|
41
|
33
|
43
|
Retirement benefit
assets
|
|
554
|
652
|
581
|
Other financial
assets
|
|
138
|
120
|
133
|
Income tax
assets
|
|
41
|
41
|
41
|
Trade and other
receivables
|
|
138
|
143
|
139
|
Non-current
assets
|
|
4,368
|
4,632
|
4,506
|
|
|
|
|
|
Intangible assets
– product development
|
|
947
|
932
|
975
|
Inventories
|
|
110
|
103
|
105
|
Trade and other
receivables
|
|
1,060
|
1,207
|
1,139
|
Financial assets
– derivative financial instruments
|
|
17
|
1
|
16
|
Current income tax
assets
|
|
10
|
2
|
9
|
Cash and cash
equivalents (excluding overdrafts)
|
|
355
|
392
|
558
|
Current
assets
|
|
2,499
|
2,637
|
2,802
|
|
|
|
|
|
Assets classified
as held for sale
|
13
|
15
|
201
|
16
|
Total
assets
|
|
6,882
|
7,470
|
7,324
|
|
|
|
|
|
Financial
liabilities – borrowings
|
|
(1,308)
|
(1,151)
|
(1,144)
|
Financial
liabilities – derivative financial instruments
|
|
(43)
|
(44)
|
(54)
|
Deferred income tax
liabilities
|
|
(31)
|
(96)
|
(37)
|
Retirement benefit
obligations
|
|
(54)
|
(61)
|
(61)
|
Provisions for
other liabilities and charges
|
|
(14)
|
(9)
|
(14)
|
Other
liabilities
|
|
(80)
|
(123)
|
(120)
|
Non-current
liabilities
|
|
(1,530)
|
(1,484)
|
(1,430)
|
|
|
|
|
|
Trade and other
liabilities
|
|
(1,020)
|
(1,234)
|
(1,254)
|
Financial
liabilities – borrowings
|
|
(75)
|
(150)
|
(86)
|
Financial
liabilities – derivative financial instruments
|
|
(5)
|
(10)
|
(11)
|
Current income tax
liabilities
|
|
(27)
|
(30)
|
(43)
|
Provisions for
other liabilities and charges
|
|
(37)
|
(28)
|
(85)
|
Current
liabilities
|
|
(1,164)
|
(1,452)
|
(1,479)
|
|
|
|
|
|
Liabilities
classified as held for sale
|
13
|
-
|
(42)
|
-
|
Total
liabilities
|
|
(2,694)
|
(2,978)
|
(2,909)
|
|
|
|
|
|
Net
assets
|
|
4,188
|
4,492
|
4,415
|
|
|
|
|
|
Share
capital
|
|
179
|
185
|
179
|
Share
premium
|
|
2,635
|
2,628
|
2,633
|
Treasury
shares
|
|
(20)
|
(22)
|
(15)
|
Reserves
|
|
1,381
|
1,690
|
1,605
|
Total equity
attributable to equity holders of the company
|
|
4,175
|
4,481
|
4,402
|
Non-controlling
interest
|
|
13
|
11
|
13
|
Total
equity
|
|
4,188
|
4,492
|
4,415
|
The
condensed consolidated financial statements were approved by the
Board on 30 July 2023.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for
the period ended 30 June 2023
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
2023
half year
|
At
1 January 2023
|
179
|
2,633
|
(15)
|
28
|
(13)
|
709
|
881
|
4,402
|
13
|
4,415
|
Profit
for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
186
|
186
|
1
|
187
|
Other
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
2
|
(287)
|
(19)
|
(304)
|
(1)
|
(305)
|
Total
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
2
|
(287)
|
167
|
(118)
|
-
|
(118)
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
20
|
20
|
-
|
20
|
Issue
of ordinary shares
|
-
|
2
|
-
|
-
|
-
|
-
|
-
|
2
|
-
|
2
|
Buyback
of equity
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Purchase of
treasury shares
|
-
|
-
|
(25)
|
-
|
-
|
-
|
-
|
(25)
|
-
|
(25)
|
Release
of treasury shares
|
-
|
-
|
20
|
-
|
-
|
-
|
(20)
|
-
|
-
|
-
|
Transfer of gain on
disposal of FVOCI investment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(106)
|
(106)
|
-
|
(106)
|
At
30 June 2023
|
179
|
2,635
|
(20)
|
28
|
(11)
|
422
|
942
|
4,175
|
13
|
4,188
|
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for
the period ended 30 June 2023
|
|
|
|
|
Equity
attributable to equity holders of the company
|
|
|
all figures in £ millions
|
Share
capital
|
Share
premium
|
Treasury
shares
|
Capital
redemption reserve
|
Fair
value reserve1
|
Translation
reserve
|
Retained
earnings1
|
Total
|
Non-controlling
interest
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
2022
half year
|
At 1
January 2022
|
189
|
2,626
|
(12)
|
18
|
(4)
|
386
|
1,067
|
4,270
|
10
|
4,280
|
Profit
for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
136
|
136
|
-
|
136
|
Other
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
19
|
326
|
91
|
436
|
1
|
437
|
Total
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
19
|
326
|
227
|
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
|
(12)
|
712
|
968
|
4,481
|
11
|
4,492
|
1.
Comparative
balances have been restated – see note 1 for further
details.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for
the period ended 30 June 2023
|
|
|
|
|
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
full year
|
At 1
January 2022
|
189
|
2,626
|
(12)
|
18
|
(4)
|
386
|
1,067
|
4,270
|
10
|
4,280
|
Profit
for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
242
|
242
|
2
|
244
|
Other
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
18
|
323
|
47
|
388
|
2
|
390
|
Total
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
18
|
323
|
289
|
630
|
4
|
634
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
38
|
38
|
-
|
38
|
Tax on
equity-settled transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
3
|
3
|
-
|
3
|
Issue
of ordinary shares
|
-
|
7
|
-
|
-
|
-
|
-
|
-
|
7
|
-
|
7
|
Buyback
of equity
|
(10)
|
-
|
-
|
10
|
-
|
-
|
(353)
|
(353)
|
-
|
(353)
|
Purchase of
treasury shares
|
-
|
-
|
(37)
|
-
|
-
|
-
|
-
|
(37)
|
-
|
(37)
|
Release
of treasury shares
|
-
|
-
|
34
|
-
|
-
|
-
|
(34)
|
-
|
-
|
-
|
Transfer of gain on
disposal of FVOCI investment
|
-
|
-
|
-
|
-
|
(27)
|
-
|
27
|
-
|
-
|
-
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(156)
|
(156)
|
(1)
|
(157)
|
At 31
December 2022
|
179
|
2,633
|
(15)
|
28
|
(13)
|
709
|
881
|
4,402
|
13
|
4,415
|
CONDENSED
CONSOLIDATED CASH FLOW STATEMENT
for
the period ended 30 June 2023
|
|
|
|
|
all figures in £ millions
|
note
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
Profit
before tax1
|
|
236
|
185
|
323
|
Net
finance costs1
|
|
(17)
|
(37)
|
(52)
|
Depreciation and
impairment – PPE & investment property
|
|
38
|
42
|
136
|
Amortisation and
impairment – software
|
|
64
|
60
|
125
|
Amortisation and
impairment – acquired intangible assets
|
|
24
|
26
|
54
|
Other
net gains and losses
|
|
7
|
(14)
|
(24)
|
Product
development capital expenditure
|
|
(144)
|
(151)
|
(357)
|
Product
development amortisation
|
|
137
|
136
|
303
|
Share-based payment
costs
|
|
19
|
18
|
35
|
Change
in inventories
|
|
(9)
|
(34)
|
(34)
|
Change
in trade and other receivables
|
|
(20)
|
14
|
33
|
Change
in trade and other liabilities
|
|
(187)
|
(197)
|
(84)
|
Change
in provisions for other liabilities and charges
|
|
(45)
|
(11)
|
50
|
Other
movements
|
|
3
|
16
|
19
|
Net
cash generated from operations
|
|
106
|
53
|
527
|
Interest
paid
|
|
(34)
|
(35)
|
(57)
|
Tax
paid
|
|
(59)
|
(51)
|
(109)
|
Net
cash generated from / (used in) operating activities
|
|
13
|
(33)
|
361
|
Cash
flows from investing activities
|
|
|
|
|
Acquisition of
subsidiaries, net of cash acquired
|
11
|
(173)
|
(221)
|
(228)
|
Acquisition of
joint ventures and associates
|
|
(5)
|
(4)
|
(5)
|
Purchase of
investments
|
|
(6)
|
(4)
|
(12)
|
Purchase of
property, plant and equipment
|
|
(16)
|
(21)
|
(57)
|
Purchase of
intangible assets
|
|
(47)
|
(46)
|
(90)
|
Disposal of
subsidiaries, net of cash disposed
|
12
|
(19)
|
108
|
333
|
Proceeds from sale
of investments
|
|
3
|
-
|
17
|
Proceeds from sale
of property, plant and equipment
|
|
1
|
14
|
14
|
Lease
receivables repaid including disposals
|
|
8
|
9
|
18
|
Interest
received
|
|
10
|
11
|
22
|
Dividends received
from joint ventures and associates
|
|
-
|
2
|
1
|
Net
cash (used in) / generated from investing activities
|
|
(244)
|
(152)
|
13
|
Cash
flows from financing activities
|
|
|
|
|
Proceeds from issue
of ordinary shares
|
|
2
|
2
|
7
|
Buyback
of equity
|
|
-
|
(141)
|
(353)
|
Purchase of
treasury shares
|
|
(25)
|
(24)
|
(37)
|
Repayment of
borrowings
|
|
-
|
(95)
|
(171)
|
Proceeds from
borrowings
|
|
220
|
-
|
-
|
Repayment of lease
liabilities
|
|
(42)
|
(48)
|
(93)
|
Dividends paid to
company’s shareholders
|
|
(106)
|
(107)
|
(156)
|
Dividends paid to
non-controlling interest
|
|
-
|
-
|
(1)
|
Net
cash generated from / (used in) financing activities
|
|
49
|
(413)
|
(804)
|
Effects
of exchange rate changes on cash and cash equivalents
|
|
(13)
|
53
|
36
|
Net
decrease in cash and cash equivalents
|
|
(195)
|
(545)
|
(394)
|
Cash
and cash equivalents at beginning of period
|
|
543
|
937
|
937
|
Cash
and cash equivalents at end of period
|
|
348
|
392
|
543
|
1.
Comparative
balances have been restated – see note 1 for further
details.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
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 2022, 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 2022
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.
No new
standards and interpretations that apply to annual reporting
periods beginning on or after 1 January 2023 have had a material
impact on the financial position of the Group.
In assessing the Group’s
ability to continue as a going concern for the period until 31
December 2024, 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 H2 2023, 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
2024.
At 30
June 2023, the Group had available liquidity of c£0.8bn,
comprising central cash balances and the undrawn element of its
$1bn 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 the assessment period to 31 December 2024. 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 2022
Annual Report.
In
2023, the Group disposed of its interests in its POLS business.
Whether the associated results and cash flows of the POLS
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 POLS business should not be
classified and presented as discontinued operations on the basis
that the business disposed of does not constitute a separate major
line of business or geographical area of operations, and the
cashflows related to one of the large contracts within the business
are being retained. The POLS business is within the Virtual
Learning segment and represent £93m of sales for the period
ended 30 June 2023 out of the total sales in the Virtual Learning
segment of £373m. If the Group had concluded that this
business represented discontinued operations, its results and the
related gain on disposal would not have been included within each
of the continuing operations income statement lines. Profit for the
period from continuing operations would have been £14m lower
and this amount would have been separately presented as profit for
the period from discontinued operations as a single line item.
Adjusted operating profit would be unchanged.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
1. Basis of preparation continued
The
financial information for the year ended 31 December 2022 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 2022 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 2023 are
unaudited but have been reviewed by the auditors and their review
opinion is included at the end of these interim financial
statements.
Comparative period revisions
Investments in unlisted securities
In
2022, the Group identified an error related to the classification
of certain investments in unlisted securities as fair value through
other comprehensive income rather than fair value through profit
and loss. The investments are held within other financial assets on
the balance sheet. The related accounting was corrected in the
second half of 2022 and the impact of the correction and the prior
year restatements are reflected in the 2022 Annual Report and
Accounts. In these 2023 interim condensed consolidated financial
statements, comparative 2022 half year line items have been
corrected to reflect the change in accounting treatment. The fair
value movements are now recorded within finance income in the
income statement, rather than within other comprehensive income.
All impacted primary statements and related notes have been
restated.
For the
period to half year 2022, the restatement has resulted in an
increase in statutory profit of £5m, comprising finance income
of £6m and a tax charge of £1m. Other comprehensive
income has decreased by £5m but total comprehensive income is
unchanged. The impact on statutory earnings per share is an
increase of 0.6p and the impact on diluted earnings per share is an
increase 0.7p for the period to 30 June 2022. Opening retained
earnings at 1 January 2022 have increased by £37m and closing
retained earnings have increased by £43m and equivalent
decreases have been recorded to the opening and closing fair value
reserve.
The
restatement has no impact on the carrying amount of other financial
assets on the balance sheet and has no impact on reported net
assets, cash flows or total equity. The fair value movements in the
income statement are excluded from adjusted earnings, as described
in note 3. There is no impact to any adjusted
measures.
Operating segments
In the
second half of 2022, some of the businesses from the Strategic
Review division were disposed of (see note 12) and the decision was
made to retain the English-speaking Canadian and Australian K12
courseware businesses. Both of these businesses have been
transferred from the Strategic Review division to Assessment &
Qualifications. Comparative figures for half year 2022 have been
restated to reflect this move between segments.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
2. Segment information
The
Group has 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, most of which were disposed in 2022 with the
remainder being wound down, are being managed as a separate
division, known as Strategic Review.
In the
second half of 2022, some of the businesses from the Strategic
Review division were disposed of and the decision was made to
retain the English-speaking Canadian and Australian K12 courseware
businesses. Both of these businesses were transferred from the
Strategic Review division to the Assessment & Qualifications
division to reflect a change in reporting lines. Comparative
figures for half year 2022 have been restated to reflect the move
between segments, resulting in £13m of sales and £1m of
adjusted operating losses being transferred from the Strategic
Review division to the Assessment & Qualifications division at
the 2022 half year.
|
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Sales
|
|
|
|
|
Assessment &
Qualifications
|
|
796
|
710
|
1,444
|
Virtual
Learning
|
|
373
|
390
|
820
|
English
Language Learning
|
|
184
|
122
|
321
|
Workforce
Skills
|
|
140
|
127
|
204
|
Higher
Education
|
|
379
|
373
|
898
|
Strategic
Review
|
|
7
|
66
|
154
|
Total
sales
|
|
1,879
|
1,788
|
3,841
|
|
|
|
|
|
Adjusted
operating profit
|
|
|
|
|
Assessment &
Qualifications
|
|
174
|
136
|
258
|
Virtual
Learning
|
|
47
|
14
|
70
|
English
Language Learning
|
|
8
|
(4)
|
25
|
Workforce
Skills
|
|
21
|
28
|
(3)
|
Higher
Education
|
|
(1)
|
(4)
|
91
|
Strategic
Review
|
|
1
|
(10)
|
15
|
Total
adjusted operating profit
|
250
|
160
|
456
|
There
were no material inter-segment sales.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
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
|
|
|
|
|
|
|
|
|
|
|
2023
half year
|
Courseware
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
30
|
-
|
51
|
1
|
108
|
7
|
197
|
Products and
services transferred over time
|
10
|
-
|
5
|
-
|
268
|
-
|
283
|
|
40
|
-
|
56
|
1
|
376
|
7
|
480
|
Assessments
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
96
|
-
|
3
|
11
|
-
|
-
|
110
|
Products and
services transferred over time
|
660
|
-
|
103
|
105
|
-
|
-
|
868
|
|
756
|
-
|
106
|
116
|
-
|
-
|
978
|
Services
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
-
|
-
|
11
|
-
|
-
|
-
|
11
|
Products and
services transferred over time
|
-
|
373
|
11
|
23
|
3
|
-
|
410
|
|
-
|
373
|
22
|
23
|
3
|
-
|
421
|
|
|
|
|
|
|
|
|
Total
sales
|
796
|
373
|
184
|
140
|
379
|
7
|
1,879
|
|
|
|
|
|
|
|
|
|
|
2022
half year
|
Courseware
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
27
|
-
|
41
|
1
|
92
|
60
|
221
|
Products and
services transferred over time
|
14
|
-
|
8
|
-
|
278
|
3
|
303
|
|
41
|
-
|
49
|
1
|
370
|
63
|
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
|
710
|
390
|
122
|
127
|
373
|
66
|
1,788
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
2. Segment information continued
all figures in £ millions
|
Assessment &
Qualifications
|
Virtual
Learning
|
English
Language Learning
|
Workforce
Skills
|
Higher
Education
|
Strategic
Review
|
Total
|
|
|
|
|
|
|
|
|
|
|
2022
full year
|
Courseware
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
64
|
-
|
110
|
2
|
302
|
148
|
626
|
Products and
services transferred over time
|
21
|
-
|
25
|
-
|
588
|
6
|
640
|
|
85
|
-
|
135
|
2
|
890
|
154
|
1,266
|
Assessments
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
169
|
-
|
5
|
14
|
-
|
-
|
188
|
Products and
services transferred over time
|
1,190
|
-
|
138
|
142
|
-
|
-
|
1,470
|
|
1,359
|
-
|
143
|
156
|
-
|
-
|
1,658
|
Services
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
-
|
-
|
29
|
-
|
-
|
-
|
29
|
Products and
services transferred over time
|
-
|
820
|
14
|
46
|
8
|
-
|
888
|
|
-
|
820
|
43
|
46
|
8
|
-
|
917
|
|
|
|
|
|
|
|
|
Total
sales
|
1,444
|
820
|
321
|
204
|
898
|
154
|
3,841
|
Adjusted operating
profit is one of the Group’s key business performance
measures. The measure includes the operating profit from the total
business but excludes charges for acquired intangibles amortisation
and impairment, acquisition related costs, gains and losses arising
from disposals, the cost of major restructuring and one-off costs
related to the UK pension scheme.
Cost of
major restructuring – In August 2022, the Group announced a
major restructuring programme to run in 2022. Restructuring costs
of £150m in 2022 mainly related to staff redundancies and
impairment of right of use property assets including the impact of
updated assumptions related to the recoverability of right-of-use
assets made in 2021. There is no cost of major restructuring in the
first half of 2023.
Intangible charges
– These represent charges relating to intangibles acquired
through business combinations. These charges are excluded as they
reflect past acquisition activity and do not necessarily reflect
the current year performance of the Group. Intangible amortisation
charges in the first half of 2023 were £24m compared to a
charge of £26m in the equivalent period in 2022.
UK
pension discretionary increases - Charges in 2022 relate to one-off
pension increases awarded to certain cohorts of pensioners in
response to the cost of living crisis.
Other
net gains and losses – These represent profits and losses on
the sale of subsidiaries, joint ventures, associates and other
financial assets and are excluded from adjusted operating profit as
they distort the performance of the Group as reported on a
statutory basis. Other net gains and losses also includes costs
related to business closures and acquisitions. Other net gains and
losses in 2023 relate largely to the gain on disposal of the POLS
business and a gain related to the release of a provision related
to a historical acquisition, offset by losses on the disposal of
Pearson College and costs related to current and prior year
disposals and acquisitions. Other net gains and losses in the first
half of 2022 largely related to the gain on disposal of the
international courseware local publishing business in
French-speaking Canada and a gain arising on a decrease in the
deferred consideration payable on prior year acquisitions, offset
by costs related to disposals and acquisitions.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
2. Segment information continued
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.
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
|
2023
half year
|
Adjusted operating
profit / (loss)
|
174
|
47
|
8
|
21
|
(1)
|
1
|
250
|
Cost of
major restructuring
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Intangible
charges
|
(6)
|
(6)
|
(5)
|
(5)
|
(2)
|
-
|
(24)
|
UK
Pension discretionary increases
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Other
net gains and losses
|
(1)
|
17
|
5
|
(17)
|
-
|
(11)
|
(7)
|
Operating
profit / (loss)
|
167
|
58
|
8
|
(1)
|
(3)
|
(10)
|
219
|
2022
half year
|
Adjusted operating
profit / (loss)
|
136
|
14
|
(4)
|
28
|
(4)
|
(10)
|
160
|
Cost of
major restructuring
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Intangible
charges
|
(7)
|
(10)
|
(2)
|
(5)
|
(2)
|
-
|
(26)
|
UK
Pension discretionary increases
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Other
net gains and losses
|
-
|
-
|
(3)
|
4
|
-
|
13
|
14
|
Operating
profit / (loss)
|
129
|
4
|
(9)
|
27
|
(6)
|
3
|
148
|
2022
full year
|
Adjusted operating
profit / (loss)
|
258
|
70
|
25
|
(3)
|
91
|
15
|
456
|
Cost of
major restructuring
|
(39)
|
(29)
|
(11)
|
(7)
|
(63)
|
(1)
|
(150)
|
Intangible
charges
|
(14)
|
(21)
|
(6)
|
(12)
|
(3)
|
-
|
(56)
|
UK
Pension discretionary increases
|
(1)
|
(1)
|
-
|
-
|
(1)
|
-
|
(3)
|
Other
net gains and losses
|
(2)
|
(2)
|
(11)
|
-
|
-
|
39
|
24
|
Operating
profit / (loss)
|
202
|
17
|
(3)
|
(22)
|
24
|
53
|
271
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
3. Net finance costs
|
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year1
|
full
year
|
|
|
|
|
|
Net
finance income
|
|
17
|
37
|
52
|
Net
finance income in respect of retirement benefits
|
|
(13)
|
(4)
|
(9)
|
Interest on
deferred and contingent consideration
|
|
2
|
1
|
5
|
Fair
value movements on investments held at FVTPL
|
|
(5)
|
(6)
|
(28)
|
Net
foreign exchange gains
|
|
(4)
|
(1)
|
(1)
|
Derivatives not in
a hedge relationship
|
|
(9)
|
(14)
|
(25)
|
Interest on tax
provisions
|
|
-
|
5
|
5
|
Net
interest (payable) / receivable reflected in adjusted
earnings
|
|
(12)
|
18
|
(1)
|
|
|
|
|
|
Analysed
as:
|
|
|
|
|
Finance
costs
|
|
(36)
|
(8)
|
(71)
|
Finance
income
|
|
53
|
45
|
123
|
Net
finance income
|
|
17
|
37
|
52
|
1.
Comparative
balances have been restated – see note 1 for further
details.
Net
interest payable is the finance cost measure used in calculating
adjusted earnings. The above table reconciles net finance income to
net interest payable.
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 excluded are interest costs
relating to acquisition or disposal transactions, fair value
movements on investments classified as FVTPL, foreign exchange and
other gains and losses on derivatives. Interest relating to
acquisition or disposal transactions is excluded from adjusted
earnings as it is considered part of the acquisition cost or
disposal proceeds rather than being reflective of the underlying
financing costs of the Group.
Foreign
exchange, fair value movements 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.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
4.
Profit before tax
|
|
|
|
|
all figures in £ millions
|
note
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year1
|
full
year
|
|
|
|
|
|
Profit
before tax
|
|
236
|
185
|
323
|
Cost of
major restructuring
|
2
|
-
|
-
|
150
|
Other
net gains and losses
|
2
|
7
|
(14)
|
(24)
|
Intangible
charges
|
2
|
24
|
26
|
56
|
UK
Pensions discretionary increases
|
2
|
-
|
-
|
3
|
Other
net finance income
|
3
|
(29)
|
(19)
|
(53)
|
Adjusted
profit before tax
|
|
238
|
178
|
455
|
1.
Comparative
balances have been restated – see note 1 for further
details.
5.
Income tax
|
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year1
|
full
year
|
|
|
|
|
|
Income
tax charge
|
|
(49)
|
(49)
|
(79)
|
Tax
benefit on cost of major restructuring
|
|
-
|
-
|
(37)
|
Tax
charge / (benefit) on other net gains and losses
|
|
(8)
|
34
|
10
|
Tax
benefit on intangible charges
|
|
(6)
|
(6)
|
(11)
|
Tax
benefit on UK Pensions discretionary increases
|
|
-
|
-
|
(1)
|
Tax
charge on other net finance income
|
|
7
|
4
|
13
|
Tax
amortisation benefit on goodwill and intangibles
|
|
2
|
7
|
16
|
Tax
charge / (benefit) on UK tax rate change
|
|
-
|
1
|
(1)
|
Other
tax items
|
|
-
|
-
|
19
|
Adjusted
income tax charge
|
|
(54)
|
(9)
|
(71)
|
|
|
|
|
|
Tax
rate reflected in statutory earnings
|
|
20.8%
|
26.5%
|
24.5%
|
Tax
rate reflected in adjusted earnings
|
|
22.7%
|
5.1%
|
15.6%
|
1.
Comparative
balances have been restated – see note 1 for further
details.
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 credit
on other net gains and losses of £8m is primarily due to tax
credit being recognised on the disposal of the POLS business. 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.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
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
period, 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
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year1
|
full
year
|
|
|
|
|
|
Earnings for the
period
|
|
187
|
136
|
244
|
Non-controlling
interest
|
|
(1)
|
-
|
(2)
|
Earnings
attributable to equity shareholders
|
|
186
|
136
|
242
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares (millions)
|
|
714.0
|
750.3
|
738.1
|
Effect
of dilutive share options (millions)
|
|
5.0
|
2.6
|
3.9
|
Weighted average
number of shares (millions) for diluted earnings
|
|
719.0
|
752.9
|
742.0
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
Basic
|
|
26.1p
|
18.1p
|
32.8p
|
Diluted
|
|
25.9p
|
18.1p
|
32.6p
|
1.
Comparative
balances have been restated – see note 1 for further
details.
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 users of the accounts 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 2023
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
|
UK
Pension discretionary increases
|
Other
net finance costs
|
Other
tax items
|
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 half year
|
Operating
profit / (loss)
|
2
|
219
|
-
|
7
|
24
|
-
|
-
|
-
|
|
250
|
Net
finance income / (costs)
|
3
|
17
|
-
|
-
|
-
|
-
|
(29)
|
-
|
|
(12)
|
Profit
/ (loss) before tax
|
4
|
236
|
-
|
7
|
24
|
-
|
(29)
|
-
|
|
238
|
Income
tax
|
5
|
(49)
|
-
|
(8)
|
(6)
|
-
|
7
|
2
|
|
(54)
|
Profit
/ (loss) for the year
|
|
187
|
-
|
(1)
|
18
|
-
|
(22)
|
2
|
|
184
|
Non-controlling
interest
|
|
(1)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
(1)
|
Earnings
/ (loss)
|
|
186
|
-
|
(1)
|
18
|
-
|
(22)
|
2
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares (millions)
|
|
|
|
|
714.0
|
Weighted average number of shares (millions) for diluted
earnings
|
|
|
|
|
719.0
|
|
|
|
|
|
|
Adjusted earnings per share (basic)
|
|
|
|
|
25.6p
|
Adjusted earnings per share (diluted)
|
|
|
|
|
25.5p
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
7. Adjusted earnings per share
continued
|
|
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
Statutory
income statement1
|
Cost of
major restructuring
|
Other
net gains and losses
|
Intangible
charges
|
UK
Pension discretionary increases
|
Other
net finance costs1
|
Other
tax items
|
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022
half year
|
Operating
profit / (loss)
|
2
|
148
|
-
|
(14)
|
26
|
-
|
-
|
-
|
|
160
|
Net
finance costs
|
4
|
37
|
-
|
-
|
-
|
-
|
(19)
|
-
|
|
18
|
Profit
/ (loss) before tax
|
5
|
185
|
-
|
(14)
|
26
|
-
|
(19)
|
-
|
|
178
|
Income
tax
|
6
|
(49)
|
-
|
34
|
(6)
|
-
|
4
|
8
|
|
(9)
|
Profit
/ (loss) for the year
|
|
136
|
-
|
20
|
20
|
-
|
(15)
|
8
|
|
169
|
Non-controlling
interest
|
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
-
|
Earnings
/ (loss)
|
|
136
|
-
|
20
|
20
|
-
|
(15)
|
8
|
|
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
|
1.
Comparative
balances have been restated – see note 1 for further
details.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
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
|
UK
Pension discretionary increases
|
Other
net finance costs
|
Other
tax items
|
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022
full year
|
Operating
profit / (loss)
|
2
|
271
|
150
|
(24)
|
56
|
3
|
-
|
-
|
|
456
|
Net
finance costs
|
4
|
52
|
-
|
-
|
-
|
-
|
(53)
|
-
|
|
(1)
|
Profit
/ (loss) before tax
|
5
|
323
|
150
|
(24)
|
56
|
3
|
(53)
|
-
|
|
455
|
Income
tax
|
6
|
(79)
|
(37)
|
10
|
(11)
|
(1)
|
13
|
34
|
|
(71)
|
Profit
/ (loss) for the year
|
|
244
|
113
|
(14)
|
45
|
2
|
(40)
|
34
|
|
384
|
Non-controlling
interest
|
|
(2)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
(2)
|
Earnings
/ (loss)
|
|
242
|
113
|
(14)
|
45
|
2
|
(40)
|
34
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares (millions)
|
|
|
|
738.1
|
Weighted
average number of shares (millions) for diluted
earnings
|
|
|
|
742.0
|
|
|
|
|
|
|
Adjusted
earnings per share (basic)
|
|
|
|
51.8p
|
Adjusted
earnings per share (diluted)
|
|
|
|
51.5p
|
8.
Dividends
|
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Amounts
recognised as distributions to equity shareholders in the
period
|
|
106
|
107
|
156
|
The
directors are declaring an interim dividend of 7p per equity share,
payable on 18 September 2023 to shareholders on the register at the
close of business on 11 August 2023. This interim dividend, which
will absorb an estimated £50m of shareholders’ funds,
has not been included as a liability as at 30 June
2023.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
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:
|
|
|
|
|
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Average
rate for profits
|
|
1.24
|
1.30
|
1.24
|
Period
end rate
|
|
1.27
|
1.21
|
1.21
|
10.
Non-current intangible assets
|
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Goodwill
|
|
2,441
|
2,470
|
2,480
|
Other
intangibles
|
|
685
|
744
|
697
|
Non-current
intangible assets
|
|
3,126
|
3,214
|
3,177
|
In
2023, business combinations resulted in the recognition of
additional goodwill of £61m and intangible assets of
£117m (see note 11 for further details).
In
2023, business disposals resulted in the disposal of £53m of
intangible assets (see note 12 for further details). A relative
value method was used to allocate goodwill to the disposed business
in the Virtual Learning CGU aggregation, the result of this was
that no goodwill was allocated to the disposed
business.
Other
movements in the goodwill balance relate to foreign exchange
differences and in the intangibles balance relate to amortisation
and foreign exchange differences.
At
half year 2022, the table above excludes goodwill and intangible
assets of £75m which were classified as held for sale, and
subsequently disposed in H2 2022.
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 2023.
The
2022 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
2022 Annual Report.
There
were no significant impairments to acquisition related or other
intangibles in the first half of 2023 or 2022.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
11.
Business Combinations
On 22
March 2023, the Group acquired 100% of the share capital of
Personnel Decisions Research Institutes, LLC (‘PDRI’)
for cash consideration of £152m ($187m). PDRI is a provider of
workforce assessment services and has significant expertise in
providing assessment solutions to the U.S. federal government. It
will form part of the Assessment & Qualifications division.
There is no contingent or deferred consideration. Net assets
acquired of £91m were recognised on the Group’s balance
sheet including £117m of acquired intangible assets mainly
relating to customer relationships and contracts, and technology
that will be amortised over periods up to 15 years.
This
transaction has resulted in the recognition of £61m of
goodwill, which represents the expected growth, 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.
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. 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). 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.
In
2022, the Group also made two smaller acquisitions in the period
for total consideration of £11m.
Details
of the fair values of the assets acquired and the consideration are
shown in the table below. Amounts for 2023 are provisional as
management finalise reviews of the asset valuations, which have
been carried out by a third party specialist.
|
|
|
|
|
|
|
|
all figures in £ millions
|
|
|
|
|
2023
|
2022
|
2022
|
|
|
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
|
|
|
117
|
109
|
110
|
Deferred tax
assets
|
|
|
|
|
-
|
8
|
8
|
Trade and other
receivables
|
|
|
|
|
8
|
9
|
8
|
Cash and cash
equivalents
|
|
|
|
|
4
|
13
|
13
|
Trade and other
liabilities
|
|
|
|
|
(7)
|
(26)
|
(26)
|
Deferred tax
liabilities
|
|
|
|
|
(31)
|
(22)
|
(22)
|
Net
assets acquired
|
|
|
|
|
91
|
91
|
91
|
Goodwill
|
|
|
|
|
61
|
204
|
204
|
Total
|
|
|
|
|
152
|
295
|
295
|
|
|
|
|
|
|
|
|
Satisfied
by:
|
|
|
|
|
|
|
|
Cash
consideration
|
|
|
|
|
152
|
223
|
223
|
Deferred and
contingent consideration
|
|
|
|
|
-
|
41
|
41
|
Fair value of
existing investment
|
|
|
|
|
-
|
31
|
31
|
Total
consideration
|
|
|
|
|
152
|
295
|
295
|
PDRI
generated revenues of £8m and a profit after tax of £1m
for the period from acquisition date to 30 June 2023. If the
acquisitions had occurred on 1 January 2023, the Group’s
revenue would have been £7m higher and the profit after tax
would have been £2m higher. In 2023, total acquisition costs
incurred in respect of current year and prior year acquisitions
were £9m (2022: £8m). In 2022, there was also a gain
arising on a decrease in the deferred consideration payable on a
prior year acquisition.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
11. Business Combinations continued
The net
cash outflow relating to acquisitions in the period is shown in the
table below including £21m (2022: £7m) relating to
deferred payments for prior year acquisitions.
|
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Cash –
current year acquisitions
|
|
(152)
|
(223)
|
(223)
|
Cash and cash
equivalents acquired
|
|
4
|
13
|
13
|
Deferred payments
for prior year acquisitions
|
|
(21)
|
(7)
|
(10)
|
Acquisition costs
paid
|
|
(4)
|
(4)
|
(8)
|
Net
cash outflow on acquisitions
|
|
(173)
|
(221)
|
(228)
|
In
addition, the Group paid £5m (2022: £4m) in respect of
its associate Academy of Pop. The payment related to the
Group’s initial capital contribution that had not yet been
paid as at 31 December 2022.
12.
Disposals and business closures
On 30
June 2023, the Group disposed of its interests in its POLS
businesses in the US, UK, Australia and India. The business
disposed excludes Pearson’s contract with ASU. The
consideration to be received is deferred and comprises a 27.5%
share of positive adjusted EBITDA in each calendar year for 6 years
and 27.5% of the proceeds received by the purchaser in relation to
any future monetisation event. The consideration has been valued at
£12m and a pre-tax gain on disposal of £17m has been
recognised. In addition, a gain of £9m has been recognised
which arises from the release of a provision related to a
historical disposal and £24m of losses arose from other
immaterial disposals and costs related to previous
disposals.
In
2022, the Group disposed of its interests in the Canadian
educational publisher (ERPI), Pearson Italia S.p.A, Stark Verlag
GmbH, Austin Education (Hong Kong) Limited, Pearson South Africa
(Pty) Ltd and various other South African companies. Total cash
consideration received was £287m resulting in a pre-tax gain
on disposal of £42m. £5m of losses arose from other
immaterial disposals and costs related to the wind-down of certain
businesses. Deferred proceeds relating to the K12 sale were
received in 2022.
|
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Intangible
assets
|
|
(53)
|
(1)
|
(77)
|
Property, plant and
equipment
|
|
(5)
|
-
|
(11)
|
Intangible assets
– product development
|
|
(15)
|
(9)
|
(39)
|
Inventories
|
|
(1)
|
(7)
|
(33)
|
Trade
and other receivables
|
|
(63)
|
(5)
|
(106)
|
Deferred
tax
|
|
8
|
-
|
(12)
|
Current
tax (receivable) / payable
|
|
(2)
|
-
|
7
|
Cash
and cash equivalents (excluding overdrafts)
|
|
(12)
|
(3)
|
(21)
|
Provisions for
other liabilities and charges
|
|
-
|
-
|
1
|
Retirement benefit
obligations
|
|
-
|
-
|
2
|
Trade
and other liabilities
|
|
26
|
6
|
45
|
Financial
liabilities - borrowings
|
|
-
|
-
|
8
|
Net
assets disposed
|
|
(117)
|
(19)
|
(236)
|
|
|
|
|
|
Cumulative
translation adjustment
|
|
122
|
7
|
5
|
Cash
proceeds
|
|
1
|
38
|
291
|
Deferred
proceeds
|
|
12
|
-
|
2
|
Costs
of disposal
|
|
(16)
|
(13)
|
(25)
|
Gains
on disposal
|
|
2
|
13
|
37
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
for the period ended 30 June 2023
12. Disposals and business closures continued
The net
cash outflow relating to disposals in the period is shown in the
table below.
|
|
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Proceeds –
current year disposals
|
|
1
|
38
|
291
|
Proceeds –
prior year disposals
|
|
-
|
87
|
86
|
Cash and cash
equivalents disposed
|
|
(12)
|
(3)
|
(21)
|
Costs and other
disposal liabilities paid
|
|
(8)
|
(14)
|
(23)
|
Net
cash (outflow) / inflow from disposals
|
|
(19)
|
108
|
333
|
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 at 30 June 2023 and 31 December 2022 relate to
properties which are in the process of being sold, and are level 3
assets. The held for sale assets and liabilities at 30 June 2022
related to the Group’s interests in its international
courseware local publishing businesses which were subsequently sold
in the second half of 2022.
|
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Property, plant and
equipment
|
|
15
|
9
|
16
|
Intangible
assets
|
|
-
|
75
|
-
|
Deferred income tax
assets
|
|
-
|
14
|
-
|
Intangible assets
– pre-publication
|
|
-
|
26
|
-
|
Inventories
|
|
-
|
28
|
-
|
Trade
and other receivables
|
|
-
|
49
|
-
|
Provisions for
liabilities and charges
|
|
-
|
(2)
|
-
|
Trade
and other liabilities
|
|
-
|
(33)
|
-
|
Financial
liabilities – borrowings
|
|
-
|
(7)
|
-
|
Net
assets classified as held for sale
|
|
15
|
159
|
16
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
14.
Net debt
|
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
Derivative
financial instruments
|
|
41
|
33
|
43
|
Trade
and other receivables – investment in finance
lease
|
|
90
|
109
|
104
|
Current
assets
|
|
|
|
|
Derivative
financial instruments
|
|
17
|
1
|
16
|
Trade
and other receivables – investment in finance
lease
|
|
17
|
17
|
17
|
Cash
and cash equivalents (excluding overdrafts)
|
|
355
|
392
|
558
|
Non-current
liabilities
|
|
|
|
|
Borrowings
|
|
(1,308)
|
(1,158)
|
(1,144)
|
Derivative
financial instruments
|
|
(43)
|
(44)
|
(54)
|
Current
liabilities
|
|
|
|
|
Borrowings
|
|
(75)
|
(150)
|
(86)
|
Derivative
financial instruments
|
|
(5)
|
(10)
|
(11)
|
Net
debt
|
|
(911)
|
(810)
|
(557)
|
Included in
borrowings at 30 June 2023 are lease liabilities of £561m
(non-current £492m, current £69m). This compares to lease
liabilities of £630m (non-current £557m, current
£73m) at 30 June 2022 and £605m (non-current £534m,
current £71m) at 31 December 2022. The net lease liability at
30 June 2023 after including the investment in finance leases noted
above was £454m (2022 half year: £504m, 2022 full year:
£484m). Net debt excluding net lease liabilities is £457m
(2022 half year: £306m, 2022 full year:
£73m).
In May
2022, the Group repaid its $117m (£95m) USD 3.75% notes upon
maturity. In December 2022, the Group repaid its $94m (£76m)
USD 3.25% notes.
In
2023, the movement on borrowings primarily reflects the drawdown on
the revolving credit facility of £220m and the repayment of
lease liabilities of £42m.
At 30
June 2022, net debt presented above includes non-current borrowings
of £7m which were included in assets and liabilities held for
sale.
For the
purposes of the cash flow statement, cash and cash equivalents are
presented net of overdrafts of £7m (HY 2022: £nil; FY
2022: £15m) which are repayable on demand. These overdrafts
are excluded from cash and cash equivalents disclosed on the
balance sheet.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
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
– Investments and Other
|
|
|
|
|
|
|
2023
half year
|
|
|
|
|
|
|
Investments in
unlisted securities
|
-
|
-
|
24
|
114
|
138
|
Cash
and cash equivalents
|
39
|
-
|
-
|
-
|
39
|
Derivative
financial instruments
|
-
|
58
|
-
|
-
|
58
|
Deferred and
contingent consideration
|
-
|
-
|
-
|
12
|
12
|
Total
financial assets held at fair value
|
39
|
58
|
24
|
126
|
247
|
|
|
|
|
|
|
Derivative
financial instruments
|
-
|
(48)
|
-
|
-
|
(48)
|
Deferred and
contingent consideration
|
-
|
-
|
-
|
(56)
|
(56)
|
Total
financial liabilities held at fair value
|
-
|
(48)
|
-
|
(56)
|
(104)
|
|
|
|
|
|
|
2022
half year1
|
|
|
|
|
|
|
Investments in
unlisted securities
|
-
|
-
|
22
|
98
|
120
|
Cash
and cash equivalents
|
23
|
-
|
-
|
-
|
23
|
Derivative
financial instruments
|
-
|
34
|
-
|
-
|
34
|
Deferred and
contingent consideration
|
-
|
-
|
-
|
-
|
-
|
Total
financial assets held at fair value
|
23
|
34
|
22
|
98
|
177
|
|
|
|
|
|
|
Derivative
financial instruments
|
-
|
(54)
|
-
|
-
|
(54)
|
Deferred and
contingent consideration
|
-
|
-
|
-
|
(79)
|
(79)
|
Total
financial liabilities held at fair value
|
-
|
(54)
|
-
|
(79)
|
(133)
|
|
|
|
|
|
|
2022
full year
|
|
|
|
|
|
|
Investments in
unlisted securities
|
-
|
-
|
24
|
109
|
133
|
Cash
and cash equivalents
|
40
|
-
|
-
|
-
|
40
|
Derivative
financial instruments
|
-
|
59
|
-
|
-
|
59
|
Deferred and
contingent consideration
|
-
|
-
|
-
|
-
|
-
|
Total
financial assets held at fair value
|
40
|
59
|
24
|
109
|
232
|
|
|
|
|
|
|
Derivative
financial instruments
|
-
|
(65)
|
-
|
-
|
(65)
|
Deferred and
contingent consideration
|
-
|
-
|
-
|
(79)
|
(79)
|
Total
financial liabilities held at fair value
|
-
|
(65)
|
-
|
(79)
|
(144)
|
1.
Comparative
balances have been restated – see note 1 for further
details.
There
have been no transfers in classification during the
year.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
15. Classification of assets and liabilities measured at fair
value continued
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.
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 our investments in unlisted securities
are 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. Level 3 assets also include the
contingent consideration receivable in respect of the sale of the
POLS business, which has been determined on the basis of a
discounted cash flow model, and valued by a third party specialist,
and deferred and contingent consideration payable in respect of
prior year acquisitions, which is measured as the net present value
of the expected cashflows. Reasonably possible changes in
assumptions for the inputs into the model would not have a material
impact on the carrying value of the contingent consideration, and
therefore sensitivities have not been disclosed.
The
movements in fair values of level 3 financial assets measured at
fair value, being the investments in unlisted securities and
contingent consideration receivable, are shown in the table
below:
|
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year1
|
full
year
|
|
|
|
|
|
At
beginning of period
|
|
133
|
200
|
200
|
Exchange
differences - OCI
|
|
(5)
|
9
|
11
|
Additions
|
|
18
|
4
|
12
|
Repayments
|
|
-
|
(87)
|
(88)
|
Disposals
|
|
(3)
|
(31)
|
(48)
|
Fair
value movements - Income Statement
|
|
5
|
6
|
28
|
Fair
value movements - OCI
|
|
2
|
19
|
18
|
At
end of period
|
|
150
|
120
|
133
|
1.
Comparative
balances have been restated – see note 1 for further
details.
The
movement in the fair value of the deferred and contingent
consideration is shown in the table below:
|
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
At
beginning of period
|
|
(79)
|
(44)
|
(44)
|
Exchange
differences
|
|
4
|
(7)
|
(7)
|
Acquisitions
|
|
-
|
(41)
|
(42)
|
Fair
value movements - Income Statement
|
|
(2)
|
6
|
4
|
Repayments
|
|
21
|
7
|
10
|
At end of period
|
|
(56)
|
(79)
|
(79)
|
In
2022, disposals of investments in unlisted securities include the
impact of acquiring the remaining shares in Credly Inc. The fair
value movements on financial assets and liabilities measured at
fair value and held at the end of the reporting period are
unrealised.
The
market value of the Group’s bonds is £540m (2022 half
year: £658m; 2022 full year: £562m) compared to their
carrying value of £596m (2022 half year: £678m; 2022 full
year: £610m). 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 2023
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
|
UK
Pension discretionary increases
|
Purchase
/ disposal of PPE and software
|
Net
addition of right of use assets
|
Dividends
from joint ventures and associates
|
Adjusted
measure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023
half year
|
Operating
profit
|
219
|
-
|
7
|
24
|
-
|
-
|
-
|
-
|
250
|
Adjusted operating profit
|
Net
cash generated from operations
|
106
|
46
|
-
|
-
|
-
|
(62)
|
(11)
|
-
|
79
|
Operating cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022
full year
|
Operating
profit
|
271
|
150
|
(24)
|
56
|
3
|
-
|
-
|
-
|
456
|
Adjusted operating profit
|
Net
cash generated from operations
|
527
|
35
|
-
|
-
|
-
|
(133)
|
(29)
|
1
|
401
|
Operating cash flow
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
16. Cash flows continued
|
|
|
|
|
all figures in £ millions
|
note
|
2023
|
2022
|
2022
|
|
|
half
year
|
half
year
|
full
year
|
|
|
|
|
|
Reconciliation
of operating cash flow to closing net debt
|
|
|
|
|
|
|
|
|
Operating
cash flow
|
|
79
|
9
|
401
|
Tax
paid
|
|
(59)
|
(51)
|
(109)
|
Net
finance costs paid
|
|
(24)
|
(24)
|
(35)
|
Cost
paid for major restructuring
|
|
(46)
|
(13)
|
(35)
|
Free
cash flow
|
|
(50)
|
(79)
|
222
|
Dividends paid
(including to non-controlling interest)
|
|
(106)
|
(107)
|
(157)
|
Net
movement of funds from operations
|
|
(156)
|
(186)
|
65
|
Acquisitions and
disposals
|
|
(200)
|
(121)
|
105
|
Disposal of lease
liabilities
|
|
-
|
-
|
8
|
Net
equity transactions
|
|
(23)
|
(163)
|
(383)
|
Other
movements on financial instruments
|
|
25
|
10
|
(2)
|
Movement
in net debt
|
|
(354)
|
(460)
|
(207)
|
Opening
net debt
|
|
(557)
|
(350)
|
(350)
|
Closing
net debt
|
14
|
(911)
|
(810)
|
(557)
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the period ended 30 June 2023
17. Contingencies and other liabilities
There
are Group contingent 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.
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,
however, this decision has been further appealed by the UK
Government and other parties. The total exposure is calculated to
be £105m (excluding interest) with a provision of £63m
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 (£105m). This issue is specific to periods up to 2018
and is not a continuing exposure.
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 1,253m (£205m) up to 30 June
2023, with additional potential exposure of BRL 48m
(£8m) 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.
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 2023 were
substantially the same in nature to
those
disclosed in note 36 of the Annual Report and Accounts for the year
ended 31 December 2022. 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
There
have been no post balance sheet events.
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 2022 Annual
Report.
The
directors of Pearson plc are listed in the 2022 Annual Report.
There have been the following changes to the Board since the
publication of the Annual Report.
Linda
Lorimer – resigned April 2023
Alison
Dolan and Alex Hardiman – appointed 1 June 2023
A list
of current directors is maintained on the Pearson plc website:
www.pearsonplc.com.
By
order of the Board
Andy
Bird
Chief
Executive
30 July
2023
Sally
Johnson
Chief
Financial Officer
30 July
2023
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 2023 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 2023
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"
(ISRE) 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. 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
30 July
2023
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: 31
July 2023
|
|
|
By: /s/
NATALIE WHITE
|
|
|
|
------------------------------------
|
|
Natalie
White
|
|
Deputy
Company Secretary
|
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