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 January 2005
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
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This Report includes the following documents:
1. A press release from Pearson plc announcing Interim Results
26 July 2004
PEARSON PLC INTERIM RESULTS (unaudited)
Six months ended 30 June 2004
Half year 2004 Half year 2003 Change - Change - Full year 2003
underlying headline
Sales GBP1,594m GBP1,665m 1% (4)% GBP4,048m
Business
performance
Adjusted GBP39m GBP38m 47% 3% GBP490m
operating profit*
Adjusted profit/ GBP2m GBP(1)m -- GBP410m
(loss) before
tax*
Adjusted earnings (1.8)p (2.3)p 22% 32.0p
per share*
Operating cash GBP(195)m GBP(338)m 42% GBP320m
flow
Free cash flow GBP(262)m GBP(381)m 31% GBP192m
Statutory results
Operating (loss)/ GBP(77)m GBP(110)m 30% GBP226m
profit
(Loss)/ profit GBP(112)m GBP(138)m 19% GBP152m
before tax
(Loss)/ earnings (15.5)p (20.1)p 23% 6.9p
per share
Dividend per 9.7p 9.4p 3% 24.2p
share
Net borrowings GBP1,734m GBP1,897m 9% GBP1,361m
*Continuing operations before goodwill and non-operating items.
Throughout this statement, we refer to business performance measures and growth
rates on an underlying basis unless otherwise stated. Underlying growth rates
exclude the impact of currency movements and portfolio changes. In the first
half of 2004, portfolio changes reduced profits by GBP6m and increased revenues
by GBP39m. This was largely due to the acquisition of London Qualifications.
Strong first-half performance; on track for the full year
- Good progress on adjusted operating profit (up 47%) and operating cash flow
(improved 42% as reported).
- Decline in the US dollar reduces headline revenues by GBP129m and adjusted
operating profit by GBP8m.
- Cost actions paying off: FT reduces first-half losses by GBP9m; profits
increasing at all business newspapers; school digital learning businesses
return to first-half profit.
- Gaining share and getting stronger: School business takes number one position
in new maths adoptions and extends lead in personalised learning; Higher
Education, Penguin US and IDC growing ahead of their markets; business
newspapers gaining audience share; $400m worth of new long-term contracts in
testing and government services.
Improving market conditions support confidence in 2004 and beyond
- Business advertising revenue growth turns positive for the first time in
three years.
- Growing base of long-term contracts, helped by growth trends in school
testing, professional certification and government outsourcing.
- Recovery in state budgets and political commitment to education support
healthy outlook for US school and higher education businesses.
Marjorie Scardino, chief executive, said:
"These results for the first half are a good sign of our financial and
competitive success, though as usual they represent a small part of our annual
total. They make us confident that we will meet our goals, both this year and
beyond, as our market conditions improve."
Outlook
Pearson makes most of its sales and almost all of its profits in the second
half of the year, due to the seasonal phasing of our book publishing
businesses. At this stage we continue to expect underlying progress in
earnings, cash and returns. The outlook for our major businesses is:
At Pearson Education, we expect revenues at our School business to be broadly
level with 2003, as growth in our testing and supplementary businesses offsets
the particularly weak 2004 school adoption opportunity. We expect our US Higher
Education business to grow in the 4-6% range, as its leading print and online
programmes enable it to grow ahead of its market once again. Our Professional
operations are on track to increase revenues and profits, despite our
investment in new professional testing centres. We continue to expect that we
will receive the full $151m payment for work completed in 2002 on behalf of the
US Transportation and Security Administration.
We expect significant revenue and profit growth from Pearson Education in 2005,
helped by a rebound in the School adoption cycle, improving state budgets,
steady growth in Higher Education and the benefits of our 2003 Professional
contract wins.
The FT Group is on track to make good profit progress this year. Although
advertising trends at our business newspapers remain erratic from month to
month and between categories, advertising revenue growth has turned positive
for the first half as a whole and forward bookings continue to run a little
ahead of last year. With costs now significantly lower than at any point in the
past three years, all of our business newspapers are in good shape to benefit
from further improvement in the corporate advertising environment. We expect
losses at the Financial Times to be some GBP20m lower than last year, even
without any growth in full-year advertising revenues. The FT Group will also
benefit from another strong year from IDC.
The Penguin Group's publishing schedule is once again heavily weighted to the
second half of the year. Penguin faces tough comparisons after a record 2003
and reported results will again be affected by the weak US dollar. We expect a
good second half as we have a very strong publishing schedule in the US and the
UK, and we are now well on the way to restoring fulfilment standards following
the move to our new UK warehouse.
Exchange rates and interest. A five cent change in the average exchange rate
for the full year (which in 2003 was GBP1:$1.63) will have an impact of
approximately 1p on adjusted earnings per share. We expect our interest charge
in the second half to be marginally higher than the first-half level of GBP37m,
as better cash flow is offset by the expected rise in interest rates.
Trading updates. From this year, Pearson will issue an additional trading
statement to the market around the end of October. This will provide investors
and analysts with an update on trading in the third quarter, which is an
important selling period for our book publishing businesses. Our pre-close
trading update will now be published early in January, after our busy end of
year trading period.
For more information: Luke Swanson / Charlotte Elston + 44 (0) 20 7010 2310
Pearson's interim results presentation for investors and analysts will be
webcast live today from 0900 (BST) and available for replay from 12 noon (BST)
via www.pearson.com. We are holding a conference call for US investors at 1500
(BST) / 1000 (EDT). To participate in the conference call or to listen to the
audiocast, please register at www.pearson.com.
A video interview with Rona Fairhead is also available at www.pearson.com.
High resolution photographs are available for the media at www.newscast.co.uk.
Notes. Throughout this statement (unless otherwise stated):
1. Growth rates are stated on an underlying basis, excluding the impact of
currency movements and portfolio changes. Pearson generates approximately
70% of its revenues in the US. The average exchange rate for the first
half of 2004 was GBP1:$1.82 (GBP1:$1.61 in the first half of 2003). The
full year exchange rate in 2003 was GBP1:$1.63;
2. Adjusted figures are presented as additional measures of business
performance. They are stated before goodwill and non-operating items.
Goodwill is amortised over no more than 20 years.
3. The 'business performance' measures, which Pearson uses alongside other
measures to track performance, are included to provide additional detail
on business performance. They are non-GAAP measures for both US and UK
reporting. Reconciliations of adjusted operating profit, adjusted profit/
(loss) before tax, adjusted earnings per share and operating cash flow to
the equivalent statutory heading under UK GAAP are included in notes 2, 5,
6 and 10 respectively.
Financial review
Due to the seasonal phasing of our book publishing businesses, we generate most
of our sales and profits in the second half of the year. We make approximately
two-thirds of our revenues in the US and our reported results continue to be
affected by the weakness of the US dollar. The weakening of the dollar to
GBP1:$1.82 in the first half of 2004 (from GBP1:$1.61 in the first half of
2003) reduced our headline sales by GBP129m and our adjusted operating profit
by GBP8m.
Sales in the first half were GBP1,594m, 1% ahead of the first half of 2003 in
underlying terms. Growth in Higher Education and the FT Group was largely
offset by lower sales in US School publishing as a result of the expected weak
adoption cycle.
Adjusted operating profit was up 47% to GBP39m, helped by cost actions -
particularly at the FT Group, where profits were up 36% on 5% revenue growth.
Adjusted loss per share improved from (2.3)p to (1.8)p.
Operating cash flow improved by GBP143m to GBP(195)m and free cash flow by
GBP119m to GBP(262)m. Our cash flow benefited from Penguin's very strong
publishing schedule in the fourth quarter of 2003, which pushed collections
into the early part of this year, cost reductions at the FT Group, and an
improved cash performance from Pearson Education. Excluding the impact of TSA,
the average working capital to sales ratio improved from 31.0% to 30.7% even as
we increased investment in our businesses.
On a statutory basis, our loss before tax improved 19% to GBP(112)m, helped by
a lower (non-cash) goodwill amortisation charge of GBP116m (GBP148m in 2003).
We make a statutory loss in the first half because we make most of our
operating profits in the second half but spread our goodwill amortisation
evenly through the year.
Pearson's net borrowings, which peak at the half-year stage, were 9% lower than
last year at GBP1,734m.
During the first half, we successfully refinanced Pearson's debt facilities
maturing in 2004 and 2005. In May we issued $750m of 5-year and 10-year bonds
into the US market, refinancing bonds due in the second half of 2004. In July
we signed a $1,350m revolving credit facility arrangement with a group of 18
banks to support our working capital borrowings and to refinance a similar
agreement due in July 2005. These refinancings have extended the average
maturity of Pearson's debt by about two years.
The board has declared a 3% increase in the interim dividend to 9.7p, payable
on 24 September 2004 to shareholders who are on the register at the close of
business on 27 August 2004.
Pearson Education
Half year Half year Change - Change - headline Full year
GBP millions 2004 2003 underlying 2003
Sales
School 466 487 (2)% (4)% 1,176
Higher Education 187 196 6% (5)% 772
Professional 220 244 0% (10)% 503
Total 873 927 0% (6)% 2,451
Adjusted operating profit
School 8 12 29% (33)% 127
Higher Education (41) (43) (9)% 5% 148
Professional 7 5 100% 40% 38
Total (26) (26) 6% 0% 313
Pearson Education generates most of its sales in the second half of the year
and is typically loss-making in the first half.
Sales at our School business were 2% lower. 2004 is as expected a weak year for
the US School publishing industry, driven by the low new adoption opportunity.
(In the US, 20 'adoption' states buy textbooks and related programmes on a
planned contract schedule or 'adoption cycle'. The level of spending varies
from year to year with this schedule, depending on the number of adoptions in
the largest states and subjects. In 'open territory' states, school districts
or individual schools buy textbooks according to their own individual schedules
rather than on a statewide basis.)
However, we have had another strong year in new adoption sales, taking
approximately 27% of the total new adoption market (after competing for some
90% of the total). We have taken the leading share in maths, science and social
studies adoptions this year, benefiting from the breadth of our business across
subject disciplines and across elementary, middle and high school grades. We
have also begun the year strongly in non-adoption states or 'open territories',
which mostly buy textbooks in the second half and will constitute a larger
proportion of the overall market this year, given the weak adoption calendar.
We are performing well in all major subject areas and particularly in maths and
social studies as we customise major programmes for individual states.
Our digital learning and supplementary publishing businesses are well placed to
benefit from the recovery in US state budgets which is now under way and the
flow of new federal education funds into the market under the No Child Left
Behind legislation. Though both businesses make most of their sales in the
second half, profits improved significantly as a result of measures taken last
year to reduce costs and focus on a smaller number of large-scale, more
profitable programmes. Revenues were down a little at our school testing
business as a result of the phasing of its major contracts this year. However,
we continued to win contracts to help states including Florida and New Jersey
meet the No Child Left Behind accountability requirements from 2005.
Our school businesses are also performing well outside the US. We have begun to
introduce our testing capabilities in the UK, successfully marking more than
one million GCSE and A-level scripts on screen this summer. In addition, the
UK's National Assessment Agency has recently awarded Pearson a three-year
contract for the National Curriculum or Key Stage Tests. KnowledgeBox, our
digital learning programme launched last year, which contains content,
assessment and lesson plans, is now installed in more than 500 primary schools.
We also launched English Adventure, our new English language teaching
programme, in the first half. The series, for ages 4 - 12, uses Disney
characters to motivate young learners, and is our first worldwide ELT programme
for schools. It is exceeding our expectations in Spain, its first market, where
over 100,000 children will be learning with it from September. Seven further
editions for other markets are due to be launched next year.
Our Higher Education business makes approximately three-quarters of its
revenues in the second half of the year, with major selling seasons in July/
August and December, ahead of the two US college semesters. The business
reports losses in the first half as it invests in publishing, sales and
marketing to deliver full-year growth. Worldwide, sales were up 6%.
In the US, sales were up 4%. We have had a successful first-half sales
campaign, benefiting from new publishing in targeted segments such as health
and languages, success in high enrolment basic English and maths skills
courses, the rapid roll-out of our online learning services to new subject
areas and our fast-growing custom publishing business. The US higher education
market is changing rapidly, and we are helping faculty and students to adapt by
offering a broad range of choice and value. Our Pearson Choices programme makes
our leading educational content available in a wide range of formats:
conventional textbooks, low-cost print alternatives, online learning platforms
and custom programmes. This summer we are using our Safari joint venture to
launch the latest addition to that range: an online service (www.safarix.com)
which will provide more than 300 web-based textbooks at 50% of the cost of
their print alternatives.
In our Professional business, profits were ahead on flat revenues. Our
technology publishing businesses around the world continue to face very tough
market conditions, with employment levels and software releases in the IT
industry still low. Although technology publishing revenues were 3% lower in
the first half, our business is gaining share and expects to benefit from a
pick-up in new software and games releases from the second half of 2004. Our
Government Solutions business increased revenues by 10%, with good growth from
existing contracts, and won more than $100m in new contracted business.
Revenues at our Professional Testing business were 14% ahead, with particularly
strong growth from our contract with the National Council of State Boards of
Nursing. We are investing this year to expand our international network of
testing centres to support newly won contracts for customers such as the
Graduate Management Admissions Council and the UK's Driving Standards Agency.
Financial Times Group
Half year Half year Change - Change - headline Full year
2004 2003 underlying 2003
GBP millions
Sales
Financial Times 104 102 3% 2% 203
Other FT publishing 56 54 10% 4% 112
Recoletos 90 82 12% 10% 169
IDC 130 132 2% (2)% 273
Total 380 370 5% 3% 757
Adjusted operating profit
Financial Times (6) (15) 60% 60% (32)
Other FT publishing 6 3 58% 100% 6
Recoletos 15 14 7% 7% 28
IDC 37 41 2% (10)% 81
Associates and joint ventures 3 0 -- -- 3
Total 55 43 36% 28% 86
The Financial Times Group grew revenues by 5% and profits by 36% as our
business newspapers benefited from cost savings and, for the first time in
three years, improvements in advertising revenues.
Losses at the Financial Times improved by GBP9m as a result of cost measures
taken last year including the integration of our UK and European commercial
operations. Advertising revenues were 3% higher for the first half of the year,
having been 4% lower in the first two months and flat at the end of April.
Advertising trends remain erratic from week to week and across categories. We
have seen rapid growth in recruitment, luxury goods and business travel
advertising, although the technology and business-to-business sectors remain
weak. Newspaper circulation was some 5% lower at 427,000, but the FT is
performing well on the key business readership surveys and FT.com's paying
subscribers increased from 57,000 in June 2003 to 76,000 in June 2004.
Profits at Les Echos were significantly ahead of last year as costs were lower
and advertising revenues grew 7%, benefiting from the French government
privatisation programme and increased M&A activity including the Sanofi/
Aventis deal. Daily paid circulation was slightly ahead at 118,000 as the
relaunch of Les Echos in its new Berliner format helped it to grow as the
overall French newspaper market declined. FT Business has seen a broad-based
return to advertising growth since the start of the year, and is performing
well.
Recoletos (Bolsa Madrid: REC) achieved sales growth of 12% and profit growth of
7%, recovering strongly after a weak March following the terrorist attacks in
Madrid and the Spanish election. Advertising revenues increased 14% overall and
5% in Recoletos' business and finance division. Circulation at sports newspaper
Marca declined by 5% to 360,000 and was up 3% to 48,000 at Expansion, Spain's
leading business newspaper. Recoletos has announced plans to invest $16.5m in
the second half - with a profit impact of some $13.5m - in the launch of Rumbo,
a network of Spanish-language newspapers targeted at the fast-growing Hispanic
community in Texas and other southern US states.
Interactive Data Corporation (NYSE:IDC) increased revenues by 2% and adjusted
operating profit by 2%. Renewal rates in IDC's institutional data business,
which accounts for two-thirds of revenues, remain very high at or above 95%,
and IDC has successfully launched several new products. The integration of
Comstock is going well and IDC is in the process of consolidating its data
centres in the US. After several difficult years for the market data industry,
IDC is now seeing a gradual improvement in market conditions.
The FT's associates and joint ventures generated a profit of GBP3m, against
breakeven in the first half of 2003. FT Deutschland, our joint venture with
Gruner + Jahr, increased circulation a further 5% to 95,500 and increased
advertising revenues in double digits despite the tough market environment. The
Economist continued its excellent circulation performance: average worldwide
weekly circulation grew to 943,490, a 4% increase for the year, with the
strongest growth in North America.
The Penguin Group
Half year Half year Change - Change - headline Full year
2004 2003 underlying 2003
GBP millions
Sales 341 368 0% (7)% 840
Adjusted operating profit 10 21 (15)% (52)% 91
At Penguin, sales were level with last year, with our schedule of major
frontlist titles once again heavily weighted to the second half. Adjusted
operating profit declined by GBP4m, as a result of our investment in new
channel initiatives, the bankruptcy of distributor Thomas Cork and disruption
to UK distribution. Reported profit shows a further GBP7m impact from the
weaker dollar.
In the US, Penguin's largest market, sales were ahead, helped by strong
performances from Lynne Truss' Eats, Shoots and Leaves, Tom Clancy's Battle
Ready with Gen. Tony Zinni (Ret.), Nora Roberts' Key trilogy, Chesapeake Blue
and Birthright and Karen Joy Fowler's The Jane Austen Book Club. The Penguin
translation of Leo Tolstoy's Anna Karenina, which sells an average of 20,000
copies per year, was selected in May for Oprah Winfrey's book club and now has
almost one million copies in print. Penguin US has also benefited from
contributions from its new imprints The Penguin Press, Gotham and Portfolio.
All three new imprints have published New York Times bestselling titles,
including Ron Chernow's Alexander Hamilton and Steve Coll's Ghost Wars. In the
first half Penguin had a total of 75 titles on the New York Times list.
In the UK, Penguin had a strong first half bestseller performance, with a total
of 34 books in the Nielsen Bookscan top 10. Kevin Lewis' memoir The Kid spent
nine weeks at number one, and Marian Keyes' The Other Side of the Story also
hit number one. There were strong debuts from a number of new fiction authors,
with Jillian Hoffman's Retribution, Plum Sykes' Bergdorf Blondes and PJ Tracy's
Want to Play? all making it into the bestseller charts.
We are continuing to integrate back offices, warehousing and distribution for
Penguin and Pearson Education in several markets around the world. We have
successfully combined our businesses and their supply chains in Australia,
Canada and India and are on track to deliver some GBP20m of annual cost savings
from our integration initiatives from 2005, which will be shared with Pearson
Education.
In the UK, the move to a new shared distribution centre for Penguin and Pearson
Education disrupted supply of Penguin titles to bookstores in the second
quarter. We are well on the way to restoring fulfilment standards to normal
levels, ahead of Penguin's major selling season in the second half.
In the second half, Penguin will benefit from another strong publishing
schedule. In US fiction we have new titles from many of our most reliable
repeat best-selling writers, including Patricia Cornwell, Nora Roberts, Sue
Grafton, Clive Cussler, GP Taylor and Madonna. In the UK, we have new titles
from Jamie Oliver, Jeremy Clarkson and Sue Townsend, as well as a number of TV
tie-ins: You are What you Eat, How to Buy a House and Too Posh to Wash. Dorling
Kindersley is also set for a strong second half, with Human and Plant in the
same series as existing bestsellers Earth and Animal, and a follow up to last
year's America 24/7 with The America 24/7 State Book series, with a book for
each of the 50 states.
ENDS
Except for the historical information contained herein, the matters discussed
in this press release include forward-looking statements that involve risk and
uncertainties that could cause actual results to differ materially from those
predicted by such forward-looking statements. These risks and uncertainties
include international, national and local conditions, as well as competition.
They also include other risks detailed from time to time in the company's
publicly-filed documents, including the company's Annual Report on form 20-F.
The company undertakes no obligation to update publicly any forward looking
statement, whether as a result of new information, future events or otherwise.
Consolidated profit and loss account
for the six months to 30 June 2004
2004 2003 2003
all figures in GBP millions note half year half year full year
Sales (including share of joint ventures) 1,603 1,673 4,066
Less: share of joint ventures (9) (8) (18)
Sales 2a 1,594 1,665 4,048
Group operating (loss) / profit (82) (105) 226
Share of operating profit / (loss) of joint ventures
and associates 2c / d 5 (5) -
Total operating (loss) / profit 2b (77) (110) 226
Total operating (loss) / profit analysed between:
Operating profit before goodwill amortisation 39 38 490
Goodwill amortisation (116) (148) (264)
Total operating (loss) / profit 2b (77) (110) 226
Loss on sale of fixed assets and investments - (1) (2)
Profit on sale of subsidiaries and associates 3 2 12 8
Non operating items 2 11 6
(Loss) / profit before interest and taxation (75) (99) 232
Net finance costs 4 (37) (39) (80)
(Loss) / profit before taxation 5 (112) (138) 152
Taxation 7 - (9) (75)
(Loss) / profit after taxation (112) (147) 77
Equity minority interests (11) (13) (22)
(Loss) / profit for the financial period (123) (160) 55
Dividends on equity shares 8 (77) (74) (192)
Loss retained (200) (234) (137)
Adjusted (loss) / earnings per share 6 (1.8)p (2.3)p 32.0p
Basic (loss) / earnings per share 6 (15.5)p (20.1)p 6.9p
Diluted (loss) / earnings per share 6 (15.5)p (20.1)p 6.9p
Dividends per share 8 9.7p 9.4p 24.2p
There is no difference between the (loss) / profit before taxation and the loss
retained for the period stated above and their historical cost equivalents.
The results for the 2003 full year are an abridged version of the full
accounts, which have received an unqualified audit report from the auditors and
have been filed with the Registrar of Companies. First half year figures are
neither audited nor reviewed.
Consolidated balance sheet
as at 30 June 2004
2004 2003 2003
all figures in GBP millions half year half year full year
restated* restated*
Fixed assets
Intangible assets 3,106 3,560 3,260
Tangible assets 458 498 468
Investments: joint ventures
Share of gross assets 10 1 7
Share of gross liabilities (1) - (1)
9 1 6
Investments: associates 64 62 58
Investments: other 21 22 21
3,658 4,143 3,813
Current assets
Stocks 760 792 683
Debtors 1,192 1,240 1,132
Deferred taxation 173 180 145
Investments 1 2 2
Cash at bank and in hand 753 229 561
2,879 2,443 2,523
Creditors - amounts falling due within one year
Short-term borrowing (686) (206) (575)
Other creditors (945) (1,046) (1,129)
(1,631) (1,252) (1,704)
Net current assets 1,248 1,191 819
Total assets less current liabilities 4,906 5,334 4,632
Creditors - amounts falling due after more than one year
Medium and long-term borrowing (1,801) (1,920) (1,347)
Other creditors (96) (41) (45)
(1,897) (1,961) (1,392)
Provisions for liabilities and charges (139) (148) (152)
Net assets 2,870 3,225 3,088
Capital and reserves
Called up share capital 201 200 201
Share premium account 2,470 2,466 2,469
Profit and loss account (4) 348 223
Equity shareholders' funds 2,667 3,014 2,893
Equity minority interests 203 211 195
2,870 3,225 3,088
* See notes 1 and 11
Consolidated statement of cash flows
for the six months to 30 June 2004
2004 2003 2003
all figures in GBP millions note half year half year full year
restated restated
Net cash (outflow) / inflow from operating activities 10 (147) (293) 359
Dividends from joint ventures and associates 1 1 9
Interest received 7 8 11
Interest paid (42) (44) (86)
Debt issue costs (1) (1) (1)
Dividends paid to minority interests (1) (2) (19)
Returns on investments and servicing of finance (37) (39) (95)
Taxation (29) (1) (44)
Purchase of tangible fixed assets (50) (56) (105)
Sale of tangible fixed assets - 3 8
Purchase of investments - (2) (3)
Sale of investments 3 - -
Capital expenditure and financial investment (47) (55) (100)
Purchase of subsidiaries (13) (87) (94)
Net cash acquired with subsidiaries - 1 34
Purchase of joint ventures and associates (7) (2) (5)
Sale of subsidiaries - - (4)
Net overdrafts disposed with subsidiaries - - 1
Sale of associates - 56 57
Acquisitions and disposals (20) (32) (11)
Equity dividends paid (119) (113) (188)
Net cash outflow before management of liquid resources and financing (398) (532) (70)
Liquid resources acquired (84) (112) (85)
Management of liquid resources (84) (112) (85)
Issue of equity share capital 1 1 5
Purchase of own shares (2) (1) (1)
Capital element of finance leases (1) (2) (3)
Loan facility advanced 55 326 1
Bonds advanced 414 182 180
Bonds repaid - (18) (159)
Collateral deposit (placed) / reimbursed (43) 45 54
Net movement in other borrowings (2) (5) (13)
Financing 422 528 64
Decrease in cash in the period (60) (116) (91)
Statement of total recognised gains and losses
for the six months to 30 June 2004
2004 2003 2003
all figures in GBP millions note half year half year full year
(Loss) / profit for the financial period (123) (160) 55
Other net gains and losses recognised in reserves
Exchange differences net of taxation (32) (29) (254)
Total recognised losses relating to the period (155) (189) (199)
Prior year adjustment - UITF 38 11 37 - -
Total recognised losses (118) (189) (199)
Reconciliation of movements in equity shareholders' funds
for the six months to 30 June 2004
2004 2003 2003
all figures in GBP millions note half year half year full year
restated restated
(Loss) / profit for the financial period (123) (160) 55
Dividends on equity shares (77) (74) (192)
(200) (234) (137)
Exchange differences net of taxation (32) (29) (254)
Shares issued 1 1 5
Replacement options granted on acquisition of subsidiary - 1 -
Purchase of own shares (2) (1) (1)
UITF 17 charge for the period 7 - 4
Net movement for the period (226) (262) (383)
Equity shareholders' funds at beginning of the period 2,893 3,338 3,338
Prior year adjustment - UITF 38 11 - (62) (62)
Equity shareholders' funds at end of the period 2,667 3,014 2,893
Notes to the 2004 results
for the six months to 30 June 2004
1. Basis of preparation
The results for the six months ended 30 June 2004 have been prepared in
accordance with the accounting policies set out in the 2003 Annual Report,
except that UITF 38 'Accounting for ESOP trusts' and the revision of UITF
Abstract 17 'Employee share schemes' have been adopted in these statements.
Restatements have been made to the half year and full year figures for 2003
where appropriate (see note 11).
2a. Sector analysis - sales
2004 2003 2003
all figures in GBP millions half year half year full year
Pearson Education 873 927 2,451
FT Group 380 370 757
The Penguin Group 341 368 840
1,594 1,665 4,048
2b. Sector analysis - operating (loss) / profit
2004 half year
all figures in results from goodwill operating
GBP millions operations amortisation loss
Pearson Education (26) (93) (119)
FT Group 55 (13) 42
The Penguin Group 10 (10) -
39 (116) (77)
2003 half year
all figures in results from goodwill operating
GBP millions operations amortisation loss
Pearson Education (26) (120) (146)
FT Group 43 (18) 25
The Penguin Group 21 (10) 11
38 (148) (110)
2003 full year
all figures in results from goodwill operating
GBP millions operations amortisation profit
Pearson Education 313 (207) 106
FT Group 86 (36) 50
The Penguin Group 91 (21) 70
490 (264) 226
Notes to the 2004 results continued
for the six months to 30 June 2004
2c. Sector analysis - joint ventures
2004 2003 2003
all figures in GBP millions half year half year full year
Pearson Education - - -
FT Group (4) (4) (11)
The Penguin Group - - 1
(4) (4) (10)
2d. Sector analysis - associates
2004 half year
all figures in results from goodwill operating
GBP millions operations amortisation profit
Pearson Education 1 - 1
FT Group 8 - 8
The Penguin Group - - -
9 - 9
2003 half year
all figures in results from goodwill operating
GBP millions operations amortisation loss
Pearson Education 1 - 1
FT Group 6 (8) (2)
The Penguin Group - - -
7 (8) (1)
2003 full year
all figures in results from goodwill operating
GBP millions operations amortisation profit
Pearson Education 1 - 1
FT Group 16 (7) 9
The Penguin Group - - -
17 (7) 10
Notes to the 2004 results continued
for the six months to 30 June 2004
3. Profit on sale of subsidiaries and associates
2004 2003 2003
all figures in GBP millions half year half year full year
Profit on sale of Unidesa - 12 12
Net profit / (loss) on sale of other 2 - (4)
subsidiaries and associates
2 12 8
4. Net finance costs
2004 2003 2003
all figures in GBP millions half year half year full year
Net interest payable:
Group (37) (39) (81)
Associates - - 1
(37) (39) (80)
5. (Loss) / profit before taxation
2004 2003 2003
all figures in GBP millions half year half year full year
(Loss) / profit before taxation (112) (138) 152
Goodwill amortisation 116 148 264
Non operating items (2) (11) (6)
Adjusted profit / (loss) before taxation 2 (1) 410
Notes to the 2004 results continued
for the six months to 30 June 2004
6. (Loss) / earnings per share
In order to show results from operating activities on a consistent basis, an
adjusted earnings per share is presented which excludes items as set out below.
The company's definition of adjusted earnings per share may not be comparable
to other similarly titled measures reported by other companies.
2004 2003 2003
all figures in GBP millions half year half year full year
(Loss) / profit for the financial (123) (160) 55
period
Adjustments:
- Non operating items (2) (11) (6)
- Goodwill amortisation 116 148 264
Taxation on above items (1) 9 (53)
Minority interest share of above items (4) (4) (6)
Adjusted (loss) / earnings (14) (18) 254
Weighted average number of shares (millions)
- for earnings and adjusted earnings 795.4 797.1 794.4
Effect of dilutive share options - - 0.9
Weighted average number of shares (millions)
- for diluted loss 795.4 797.1 795.3
Adjusted (loss) / earnings per share (1.8)p (2.3)p 32.0p
Basic (loss) / earnings per share (15.5)p (20.1)p 6.9p
Diluted (loss) / earnings per share (15.5)p (20.1)p 6.9p
Where the Group has made a loss for the financial period, after taking into
account goodwill amortisation, the effect of share options is anti-dilutive and
there is no difference between the loss per share and the diluted loss per
share.
Notes to the 2004 results continued
for the six months to 30 June 2004
7. Taxation
The tax rate provided in the profit and loss account is analysed as follows:
2004 2003 2003
all figures in percentages half year half year full year
UK tax rate 30.0 30.0 30.0
Effect of overseas tax rates 4.0 4.0 1.3
Other items - - (0.1)
Tax rate reflected in adjusted (loss) 34.0 34.0 31.2
/ earnings
The taxation charge is analysed as follows:
2004 2003 2003
all figures in GBP millions half year half year full year
Parent and subsidiaries 2 (7) (70)
Joint ventures and associates (2) (2) (5)
- (9) (75)
8. Dividends
The directors have declared an interim dividend of 9.7p per equity share,
payable on 24 September 2004 to shareholders on the register at the close of
business on 27 August 2004.
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:
2004 2003 2003
half year half year full year
Average rate for profits 1.82 1.61 1.63
Period end rate 1.81 1.65 1.79
Notes to the 2004 results continued
for the six months to 30 June 2004
10. Note to consolidated statement of cash flows
2004 2003 2003
all figures in GBP millions half year half year full year
restated restated
Reconciliation of operating (loss) / profit to net cash (outflow) /
inflow from operating activities
Total operating (loss) / profit (77) (110) 226
Share of operating (profit) / loss of joint ventures and associates (5) 5 -
Depreciation charges 49 56 111
Subsidiary goodwill amortisation 116 140 257
Increase in stocks (86) (68) (8)
Increase in debtors (70) (137) (96)
Decrease in creditors (71) (165) (68)
Decrease in operating provisions (11) (14) (20)
Other and non-cash items 8 - (43)
Net cash (outflow) / inflow from operating activities (147) (293) 359
Dividends from joint ventures and associates 1 1 9
Purchase of tangible fixed assets (50) (56) (105)
Capital element of finance lease rentals (1) (2) (3)
Proceeds from sale of tangible fixed assets - 3 8
Add back: Cash received relating to acquired deferred income - - 42
Add back: Non operating expenditure on fixed assets - 3 2
Add back: Cash spent against integration and fair value provisions 2 6 8
Pearson operating cashflow (195) (338) 320
Operating tax paid (25) (1) (34)
Operating finance charges (36) (36) (76)
Operating free cashflow (256) (375) 210
Non operating tax paid (4) - (10)
Integration and fair value spend (2) (6) (8)
Total free cashflow (262) (381) 192
Dividends paid (including minorities) (120) (115) (207)
Net movement of funds from operations (382) (496) (15)
Acquisitions of businesses and investments (20) (58) (111)
Disposals of businesses, investments and property 3 51 52
New equity 1 1 5
Purchase of own shares (2) (1) (1)
Other non operating items (2) - -
Net movement of funds (402) (503) (70)
Exchange movements on net debt 29 14 117
Total movement in net debt (373) (489) 47
Notes to the 2004 results continued
for the six months to 30 June 2004
11. UITF 38 and revision to UITF 17
UITF Abstract 38 'Accounting for ESOP trusts' and the revision of UITF Abstract
17 'Employee share schemes' were issued on 15 December 2003 and these revisions
have been applied for the first time in these statements. Under UITF 38 own
shares held in treasury or through an ESOP trust are recorded at cost and shown
as a deduction in arriving at shareholders' funds. Previously these shares were
recorded at cost less provision for impairment and shown as a fixed asset
investment with impairment charges being taken to the profit and loss account.
Under the revised UITF 17, employee share scheme charges to the profit and loss
account are now always calculated as the intrinsic value of the award and
spread over the performance period. The intrinsic value is the difference
between the fair value of shares at the date of grant and the amount paid by
the employee to exercise the rights to those shares irrespective of the cost of
shares purchased to fund the award.
The reclassification of own shares from fixed asset investments to equity has
reduced net assets by GBP54 million at 30 June 2004 (30 June 2003 - GBP63
million; 31 December 2003 - GBP59 million; 1 January 2003 - GBP62 million). The
reversal of prior year impairments taken on the cost of shares held in trust
(GBP37 million) has been shown as a prior year adjustment in the statement of
total recognised gains and losses. The amendment to UITF 17 in respect of the
calculation of share scheme charges has had no material effect on the profit
and loss account.
12. International financial reporting standards
In 2002 the European Commission published proposals which will require all
companies whose securities are traded on a regulated market of the European
Union to publish their consolidated financial statements in accordance with
International Financial Reporting Standards (IFRS) for financial years starting
on or after 1 January 2005.
For Pearson plc, the financial statements for the year ended 31 December 2005
and the interim results for the period to 30 June 2005 will be presented under
IFRS, with the relevant comparative figures restated.
In early 2003, Pearson formed a project team to convert its accounts and
financial reporting onto IFRS. The project is sponsored by the Chief Financial
Officer and involves specialists from both the Group Finance function as well
as representatives from each of the main operating companies.
Phase I of the project has been completed, which involved the identification of
significant issues, the preparation of a project plan and the preparation of a
rigorous web based work programme for both operating companies and group
functions. Phase II of the project involves the restatement and reconciliation
of opening balances to IFRS and the adjustment of reporting systems to capture
new data requirements for ongoing IFRS reporting. We expect to publish
reconciliations to IFRS in Spring 2005 once Phase III of the project, in
respect of financial information for the year ending 31 December 2004, is
completed.
From the work completed to date a number of areas of difference between IFRS
and UK GAAP have been identified including goodwill and intangible assets,
financial instruments, share based payments, employee benefits and taxation.
In all of these phases, Pearson has been and is dependent upon the timely
publication of new and revised IFRSs by the International Accounting Standards
Board. Only since March 2004 has a 'stable platform' of standards been
available to implement.
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: 05 January 2005
By: /s/ STEPHEN JONES
-----------------------
Stephen Jones
Deputy Secretary