Solid H1 financial performance; No change to 2024 and 2025
guidance; Beyond 2025, expect to grow at mid-single digits with
expanding adjusted operating margins
Pearson (FTSE: PSON.L):
Financial Highlights
£m
H1 2024
H1 2023
£m
H1 2024
H1 2023
Business performance
Statutory results
Sales
1,754
1,879
Sales
1,754
1,879
Adjusted operating profit
250
250
Operating profit
219
219
Operating cash flow
129
79
Profit for the period
158
187
Free cash flow
27
(50)
Net cash generated from
operations
185
106
Adjusted earnings per share
25.6p
25.6p
Basic earnings per share
23.1p
26.1p
Highlights
- Underlying Group sales growth1 of 2%, excluding OPM2 and the
Strategic Review3 businesses with each segment performing broadly
in line with our expectations.
- Underlying adjusted operating profit growth1 of 4% to
£250m.
- Strong free cash flow performance up £77m to £27m.
- £500m share buyback substantially complete and raised
interim dividend by 6%, while balance sheet remains
robust.
- Remain on track to deliver on FY24 expectations and
reiterate guidance out to 2025.
- Beyond 2025, Pearson is positioned to deliver mid-single
digit underlying sales CAGR and sustained margin improvement that
will equate to an average increase of 40 basis points per annum by
continuing to drive performance in the core business, executing
synergies and expanding into adjacent markets.
Omar Abbosh, Pearson’s Chief Executive, said:
“Since joining Pearson at the start of the year, I have led a
comprehensive review of our business and the markets in which we
operate. This process has only reinforced my conviction in the
potential of Pearson and the vital role we play in helping people
realise the life they imagine through learning. Significant
demographic shifts and rapid advances in AI will be important
drivers of growth in education and work over the coming years, and
this plays to Pearson’s strengths as a trusted provider of learning
and assessment services.
We are implementing plans across all of our businesses that will
see us deliver better products & services with greater
efficiency. We’re also focusing on opportunities to progressively
build our presence in materially larger and higher growth markets
in which we are well positioned to succeed, with a particular focus
on early careers and enterprise skilling.
“Our good strategic and financial performance in the first half
of the year sets us up to achieve our guidance for the current year
and for 2025, and we expect thereafter to continue to deliver
attractive growth with progressive improvements in our margins
alongside consistently strong cash generation.”
Underlying sales growth1 of 2%, excluding OPM2 and Strategic
Review3 businesses; 1% in aggregate
- Assessment & Qualifications sales grew 2%, with growth
across Pearson VUE, Clinical, and UK & International
Qualifications partially offset by an expected, small decline in US
Student Assessments.
- Virtual Schools sales declined 1%, reflecting the previously
announced contract losses for the current academic year. Virtual
Learning sales declined 8% mostly attributable to the final portion
of the OPM ASU contract in the first half of 2023.
- Higher Education sales were down 2%, in line with our phasing
guidance. We are seeing encouraging signs of progress in the
business with Spring adoption data indicating small market share
gains.
- English Language Learning sales increased 11% due to strong
growth in Institutional as well as growth in Mondly, partially
offset by a sales decline in PTE given market dynamics. The
Argentina FX impact discussed at Q1 has reduced as expected, and
will be immaterial in a full year context.
- Workforce Skills sales grew 6%, with strong performances in
Vocational Qualifications, GED and Credly.
Adjusted operating profit1 up 4% on an underlying basis to
£250m
- Performance driven by trading alongside net cost phasing and
savings, partially offset by inflation and restructuring charges in
Higher Education, which were weighted to the first half. First half
adjusted profit margin grew to 14% (H1 2023: 13%).
- Headline growth was flat reflecting underlying performance,
portfolio changes and currency movements.
- Adjusted earnings per share was flat at 25.6p (H1 2023: 25.6p)
with higher net interest costs offset by the reduction in issued
shares, both due to the share buyback.
Strong free cash flow with robust balance sheet enabling
continued investment and driving increased shareholder
returns
- Operating cash flow was again strong, up £50m to £129m (H1
2023: £79m) with good underlying fundamentals, as well as some
phasing and FX benefits.
- Free cash flow was also strong, up £77m to £27m (H1 2023:
(£50)m) given the operating cash performance and no reorganisation
costs this year.
- Our balance sheet remains robust with net debt of £1.2bn (H1
2023: £0.9bn), the year on year increase being due to the £500m
share buyback and dividends, partially offset by free cash
flow.
- Proposed interim dividend of 7.4p (H1 2023: 7.0p) represents an
increase of 6%.
- The previously announced buyback extension to repurchase £200m
of shares continued. As at 30th June 2024 £163m of shares had been
repurchased at an average price of 994p per share, representing 81%
of the total programme.
Continued operational progress
Operational progress continued across each of our
businesses
- In Assessment & Qualifications, Pearson VUE renewed and won
a number of key contracts, which will support future growth.
Pearson VUE wins included university entrance tests in the UK and
the teacher licence contract in Georgia, and it renewed key
contracts with the National Council of State Boards of Nursing, the
Project Management Institute, and the American Registry of
Radiologic Technologists. PDRI also saw good growth, with strong
volumes across both the TSA and United States Airforce
contracts.
- In Virtual Schools, we have already announced the opening of 3
new schools this year and a further 19 career programmes. This
brings our total number of schools to 40, with 24 career
programmes, across 30 states for the 2024/25 academic year.
- In Higher Education, recent Spring semester market data
indicates a small gain in adoption share, while we also saw 3%
growth in core text units, 2% growth in US digital subscriptions
and Inclusive Access growth of 25%. Pearson+ continued to perform
well with 5.0m cumulative registered users and paid subscriptions
for the full academic year increasing 18% to 1.1m. We are seeing
good engagement with our AI study tools, and are on track to extend
to a further c.80 titles for Fall back to school. Pearson will also
be launching AI tools for instructors for the Fall 2024 semester in
25 of our best-selling titles across business, math, science, and
nursing in the US.
- In English Language Learning, PTE continued to gain market
share, despite a market which has declined given tightening of
policies around international study and migration across Australia,
Canada and the UK. Given these market dynamics, we expect PTE sales
to be flat to down for the year. Our market share gains in PTE, and
the ramp up for Canada, mean we are well placed for English high
stakes testing market growth, which we expect in the medium term
given demographic projections.
- In Workforce Skills, Vishaal Gupta joined Pearson on April 15th
to lead the division, and play a critical role in executing our
enterprise skills strategy.
- Dave Treat joined Pearson as Chief Technology Officer on 2nd
July 2024. Dave will report to CEO, Omar Abbosh, and work in close
partnership with Pearson’s Chief Product and Chief Information
Officers. He will lead technology innovation and architecture
across the company.
- Ginny Cartwright Ziegler joined Pearson, today, 29 July 2024 as
Chief Marketing Officer. Ginny will report to CEO Omar Abbosh and
will lead the next generation of our work in marketing, brand and
communications. Ginny is succeeding Lynne Frank, who has stepped
down from her dual role as Chief Marketing Officer and
Co-President, Direct to Consumer.
Positioning Pearson for sustained growth with continued
higher margins
Through an extensive examination of the business and the
markets in which we operate, we have identified a targeted market
expansion opportunity for Pearson and have updated our strategy to
drive higher performance in the core business and unlock new
synergies
- Pearson is in a strong position today. We are the world’s
lifelong learning company, where we are trusted to help individuals
realise the life they imagine through learning. Our five businesses
have clear lines of accountability and improving financial
performance, with particular strength in assessments and
verification.
- We are leaders today in a c.$15bn subsegment of the U.S.
learning market, and are well positioned to play in a larger, and
faster growing c.$80bn addressable market.
- The opportunity for Pearson will be supported by two key
secular trends foreseen over the coming years: shifts in
demographic trends and the rapid growth in the power of AI. The
demographic shift will see the baby boomer generation leave the
workforce, resulting in heightened pressure on talent sourcing, and
the rapid development of increasingly powerful AI models will
significantly change the world of work and skills requirements.
Employers will need to find new pools of talent and continuously
develop and verify the skills of their workforces to keep pace with
and benefit from technology and AI advancements.
- To realise the growth opportunity for Pearson we will:
- Drive further performance from our existing five core
businesses to deliver an improved customer proposition, growth and
efficiencies. We have identified a number of technology enabled
initiatives, which we expect to unlock tens of millions of savings
over the medium term. Initially these savings will be offset by
restructuring costs, but as these pay back they will enable us to
further invest in growth opportunities.
- Unlock execution-based synergies across the business units from
product & service bundling, a modern approach to software and
product development, and a focus on strategic partnerships.
- We will allocate our investment where we see the best
opportunities for growth and returns: firstly assessments and
verifications; then enterprise skills and early careers.
- We will maintain net debt to EBITDA of around 2x, on average
over time, though in the short term we intend to remain below this
level to maintain some investment optionality. Our dividend policy
is progressive and sustainable. At present, we do not plan to
extend our share buyback programme, but are committed to regularly
reviewing this.
Outlook
2024 Outlook reaffirmed4 Group underlying sales growth,
adjusted operating profit and tax outlook for 2024 remain in line
with market expectations. As guided, interest will be c.£45m and
free cash flow conversion 95-100%.
In terms of divisional guidance and phasing:
- Expect improved growth momentum in the second half of 2024 with
the growth of Higher Education and normalised comparators for the
assessments businesses.
- In Assessment & Qualifications, we continue to expect low
to mid-single digit sales growth for the year, with sales growth
weighted to H2.
- In Virtual Schools, we continue to expect sales to decline at a
similar rate to 2023, given the previously cited loss of a larger
partner school for the 2024/25 academic year. We expect Virtual
Schools to return to growth in 2025 and beyond.
- In Higher Education, we remain confident we will return to
growth in the second half and for the full year. Growth in digital
sales will continue to shift revenue recognition from Q3 to
Q4.
- In English Language Learning, we continue to expect high single
digit sales growth and growth weighted to the second half given the
outstanding performance in the first half of 2023. The growth will
be driven mainly by Institutional, with PTE being flat to
down.
- In Workforce Skills, we expect to achieve high single digit
sales growth.
- Every 1c movement in £:$ rate equates to approximately £5m
adjusted operating profit impact.
2025 Outlook We continue to expect the Group to achieve
mid-single digit underlying sales 3-year CAGR from 2022 to 2025,
excluding OPM and Strategic Review businesses, and remain on track
to achieve our 16-17% adjusted operating profit margin
guidance.
Medium Term Outlook Our future growth and investment
focus will lead to mid-single digit underlying sales CAGR. Through
continued operational improvements, we also expect to deliver
sustained margin improvement that will equate to an average
increase of 40 basis points per annum beyond 2025. We will maintain
free cash flow conversion in the region of 90-100% on average
across the period.
Contacts
Investor Relations
Jo Russell
Alex Shore
+44 (0) 7785 451 266
+44 (0) 7720 947 853
Gemma Terry
Brennan Matthews
+44 (0) 7841 363 216
+1 (332) 238-8785
Media
Teneo
Ed Cropley
+44 (0) 7492 949 346
Pearson
Laura Ewart
+44 (0) 7798 846 805
Results event
Pearson’s Interim Results presentation will be held today at
both 09:30 and 14:00 (BST). If you would like to attend the
in-person session at 09:30, please email amy.plavecky@pearson.com.
Register to join either session virtually here
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 2024
H1 2023
Digital Growth
Drive digital sales growth
OnVUE volumes
1.2m
1.5m*
Higher Education US digital
subscriptions
4.5m
4.4m+
PTE volume
546k
606k
Consumer Engagement
Create engaging and personalised consumer
experiences
NPS for Connections Academy
+67
+67
NPS for PTE
+57
+56
Pearson+ registered users
5.0m
4.7m
Mondly paid subscriptions
532k
473k
Workforce Skills registered users
5.4m
5.3m
Product Effectiveness
Improve the effectiveness of our products
to deliver better outcomes
PTE speed of score return
1.1 days
1.1 days
VUE test volumes
10.9m
10.8m*
VUE partner retention
99.7%
98.0%
Workforce Skills number of enterprise
customers
1,487
1,556
Higher Education product usage – text
units
2.1m
2.0m
*H1 2023 figures have been restated for adjustments made in H2
2023.
+H1 2023 US digital subscriptions restated
from 4.5m to 4.4m due to removal of non-paying subscribers.
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 2024
H1 2023
Headline
growth
CER
Growth1
Underlying
growth1
Sales
Assessment & Qualifications
811
796
2%
4%
2%
Virtual Learning
254
373
(32%)
(31%)
(8%)
Higher Education
358
379
(6%)
(4%)
(2%)
English Language Learning
188
184
2%
11%
11%
Workforce Skills
143
140
2%
3%
6%
Strategic review3
-
7
(100%)
(100%)
(100%)
Total
1,754
1,879
(7%)
(4%)
1%
Total, excluding OPM2 and Strategic
Review3
2%
Adjusted operating profit/loss
Assessment & Qualifications
187
174
7%
10%
7%
Virtual Learning
31
47
(34%)
(32%)
(32%)
Higher Education
(1)
(1)
0%
100%
100%
English Language Learning
4
8
(50%)
38%
38%
Workforce Skills
29
21
38%
33%
27%
Strategic review3
-
1
(100%)
(100%)
(100%)
Total
250
250
0%
5%
4%
1
Throughout 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, 6, 7 and 14. c) Constant
exchange rates are calculated by assuming the average FX in the
prior period prevailed through the current period.
2
In 2023, we completed the sale of the 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. As expected,
there are no sales in the OPM business in 2024.
3
Strategic Review is sales in international
courseware local publishing businesses which have been wound down.
As expected, there are no sales in these businesses in 2024.
4
2024 consensus on the Pearson website as
at 22nd November 2023; organic CER sales growth of 3.7%, median
adjusted operating profit of £621m at £:$ 1.22, tax rate 24%.
Assessment & Qualifications In Assessment &
Qualifications, sales increased 2% on an underlying basis and 2% on
a headline basis. Adjusted operating profit increased 7% in
underlying terms due to operating leverage on sales growth, and
cost phasing and savings partially offset by inflation and 7% in
headline terms due to this, PDRI profit and currency movements.
Pearson VUE sales were up 4% in underlying terms driven by
favorable mix and value-added services. Test volumes increased
versus the same period last year to 10.9m. PDRI also saw good
growth with strong volumes.
In US Student Assessment, sales decreased 3% in underlying terms
due to reduced scope and phasing of some contracts which will
normalise in the second half.
In Clinical Assessment, sales increased 1% in underlying terms
supported by pricing, digital product growth and a new product
release.
In UK and International Qualifications, sales increased 7% in
underlying terms driven by volume, pricing and strong International
growth.
Virtual Learning Virtual Schools sales were down 1% on an
underlying basis, given the previously cited loss of a larger
partner school in the 2023/24 academic year. In Virtual Learning,
sales decreased 8% on an underlying basis mostly attributable to
the final portion of the OPM ASU contract in the first half of 2023
and 32% on a headline basis due to currency movements and the
disposal of the OPM business. Adjusted operating profit declined
32% in underlying terms, as the prior year comparator benefited
from the ASU contract, and decreased 34% in headline terms due to
this and currency movements.
Higher Education In Higher Education, sales
declined 2% on an underlying basis, in line with our phasing
guidance, and decreased 6% on a headline basis due to this,
currency movements and portfolio changes. Adjusted operating profit
increased in underlying terms driven by cost savings partially
offset by restructuring costs and trading and was flat in headline
terms due to this offset by currency movements and portfolio
changes.
We also saw a strong performance in K-12 with sales growth of
12%, given strong adoption cycle fundamentals in this market this
year.
English Language Learning In English Language Learning,
sales were up 11% on an underlying basis due to strong growth in
Institutional (including hyperinflationary pricing in Argentina) as
well as growth in Mondly, and 2% on a headline basis due to this
offset by currency movements. Adjusted operating profit increased
by 38% in underlying terms due to increased operating leverage on
sales partially offset by increased investment and decreased 50% in
headline terms due to this and currency movements.
PTE volumes were down 10%, due to declines in the English High
Stakes testing market due to tightening of policies around
international study and migration. PTE has continued to see market
share gains, particularly in India and China, while it also
continues to benefit in the ramp up for Canada.
Within Institutional, performance was strong, with particularly
good growth in Latin America and the Middle East.
Our Online Self-Study business, Mondly, performed well with paid
subscriptions increasing 12% versus the prior period driven by new
enterprise contracts and DTC users.
Workforce Skills In Workforce Skills, sales were up 6% on
an underlying basis and 2% on a headline basis. Adjusted operating
profit increased by 27% in underlying terms due to trading and cost
savings and increased 38% in headline terms due to this, currency
movements and portfolio changes.
Both the Vocational Qualifications and the Workforce Solutions
businesses grew by 6% in underlying terms.
FINANCIAL REVIEW
Operating result Sales for the six months to 30 June 2024
decreased on a headline basis by £125m or 7% from £1,879m for the
six months to 30 June 2023 to £1,754m for the same period in 2024
and adjusted operating profit remained at £250m in the first half
of 2024 compared to £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 2024 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 2023 or 2024 and by ensuring the contribution from
acquisitions is comparable year on year. For prior year
acquisitions, the corresponding pre-acquisition period is excluded
from the current 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 and
businesses within Higher Education in 2023, and the acquisition of
PDRI in 2023.
On an underlying basis, sales increased by 1% in the first six
months of 2024 compared to the equivalent period in 2023 and
adjusted operating profit increased by 4%. Currency movements
decreased sales by £45m and adjusted operating profit by £12m, and
portfolio changes decreased sales by £93m and increased adjusted
operating profit by £1m. There were no new accounting standards
adopted in the first half of 2024 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
reorganisation, when relevant, property charges and one off-costs
related to the UK pension scheme. A summary of these adjustments is
included below and in note 2 to the condensed consolidated
financial statements.
all figures in £ millions
2024
2023
2023
half year
half year
full year
Operating profit
219
219
498
Add back: Intangible charges
20
24
48
Add back: UK pension discretionary
increase
5
-
-
Add back: Other net gains and losses
6
7
16
Add back: Property charges
-
-
11
Adjusted operating profit
250
250
573
Intangible amortisation charges to the end of June 2024 were
£20m compared to a charge of £24m in the equivalent period in 2023.
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.
UK pension discretionary increases in 2024 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 in 2024 relate to costs related to
prior year acquisitions and disposals, partially offset by a gain
on the partial disposal of our investment in an associate. 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 previous disposal, offset by losses on the
disposal of Pearson College and costs related to disposals and
acquisitions.
Property charges of £11m in the second half of 2023 relate to
impairments of property assets arising from the impact of updates
in 2023 to assumptions initially made during the 2022 and 2021
reorganisation programmes. There are no such charges in the first
half of 2024.
The reported operating profit of £219m in the first half of 2024
compares to a profit of £219m in the first half of 2023, with the
disposal of POLS and other businesses in 2023 reducing sales but
having minimal impact on profit, and unfavourable FX movements and
inflation costs being offset by operating leverage on sales and
cost phasing and savings.
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.
Net finance costs Net finance income decreased on a
headline basis from income of £17m in the first half of 2023 to an
expense of £7m in the same period in 2024. The decrease is
primarily due to losses on investments held at fair value through
profit and loss (FVTPL) compared to gains in 2023, a reduction in
foreign exchange gains, increased borrowings and a reduction in
returns on cash deposits.
Net interest payable reflected in adjusted earnings to 30 June
2024 was £21m, compared to a payable of £12m in the first half of
2023. The increase is primarily due to increased borrowings and a
reduction in returns on cash deposits.
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 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.
In the period to 30 June 2024, the total of these items excluded
from adjusted earnings was net income of £14m compared to net
income of £29m in the first half of 2023. Net finance income
relating to retirement benefits decreased from £13m in the first
half of 2023 to £11m in 2024 reflecting the comparative funding
position of the plans at the beginning of each year offset by
higher prevailing discount rates. Fair value movements on
investments in unlisted securities are a loss of £8m in the first
half of 2024 compared to a gain of £5m in 2023. 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 2024 was a charge of £54m compared to a
charge of £49m in the period to 30 June 2023. This equates to an
effective tax rate of 25.5% (2023: 20.8%). The higher effective tax
rate compared to the prior period is primarily due to a tax credit
being recognised on the disposal of the POLS business in 2023 which
is not recurring in 2024.
The total adjusted tax charge for the period was £54m (2023:
£54m), corresponding to an effective tax rate on adjusted profit
before tax of 23.6% (2023: 22.7%). For a reconciliation of the
adjusted measure see note 4 to the condensed consolidated financial
statements.
In the first half of 2024, there was a net tax payment of £69m
(2023: £59m), principally relating to the US and the UK.
Other comprehensive income Included in other
comprehensive income are the net exchange differences on
translation of foreign operations. The loss on translation of £9m
at 30 June 2024 compares to a loss at 30 June 2023 of £166m. The
loss in 2024 arises from an overall weakening of the majority of
currencies to which the Group is exposed, partially offset by a
slight strengthening of 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 2024 was £1:$1.26 compared to the opening
rate of £1:$1.27. At the end of June 2023, the US dollar rate was
£1:$1.27 compared to the opening rate of £1:$1.21.
Also included in other comprehensive income at 30 June 2024 is
an actuarial gain of £1m in relation to retirement benefit
obligations. The gain arises largely from losses on assets and
experience losses, offset by a decrease in liabilities driven by
higher discount rates. The gain in 2024 compares to an actuarial
loss at 30 June 2023 of £27m.
Fair value losses of £4m (2023: gains of £2m) have been
recognised in other comprehensive income and relate to movements in
the value of investments in unlisted securities held at fair value
through other comprehensive income (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.
Cash flow and working capital Our operating cash flow
measure is used to align cash flows with our adjusted profit
measures (see note 14 to the condensed consolidated financial
statements). Operating cash flow increased on a headline basis by
£50m from an inflow of £79m in the first half of 2023 to an inflow
of £129m in the first half of 2024. The increase is largely
explained by reduced capital expenditure on product development,
property, plant, equipment and software and FX as well as
favourable working capital movements, some of which arise from
portfolio changes.
The equivalent statutory measure, net cash generated from
operations, was an inflow of £185m in 2024 compared to an inflow of
£106m in 2023. Compared to operating cash flow, this measure
includes reorganisation 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 2024, reorganisation cash outflow was £5m compared to
£46m in the same period in 2023.
In the first half of 2024, there was an overall increase of £23m
in cash and cash equivalents from £309m at the end of 2023 to £332m
at 30 June 2024. The increase in 2024 is primarily due to the cash
inflow from operations of £185m and proceeds from borrowings of
£495m offset by payments for the acquisition of subsidiaries of
£38m, share buyback programme of £278m, dividends paid of £107m,
own share purchases of £37m, tax paid of £69m, net interest
payments of £28m, capital expenditure on property, plant, equipment
and software of £58m and payments of lease liabilities of £39m.
The movement on trade and other liabilities is driven by the
payment of deferred consideration relating to previous
acquisitions, the net movement on the accrual for share buyback
programmes as well as movements in working capital balances.
Liquidity and capital resources The Group’s net debt
increased from £744m at the end of 2023 to £1,177m at the end of
June 2024. The increase is largely due to free cash flow which is
more than offset by the share buyback programme and dividend
payments.
At 30 June 2024, the Group had drawn £495m on its Revolving
Credit Facility.
At 30 June 2024, the Group had approximately £0.5bn in total
liquidity immediately available from cash and its Revolving Credit
Facility maturing February 2027. In assessing the Group’s ability
to continue as a going concern for the period until 31 December
2025, 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 2024, 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 2025. During
the period under evaluation, the Group has a €300m bond (converted
to c£260m) due for repayment in May 2025 and the model assumes that
this is refinanced with a similar sized bond in 2024. In all
scenarios, 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.
Post-retirement benefits Pearson operates a variety of
pension and post-retirement plans. The 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. We have some smaller defined benefit sections in
the US and Canada but, outside the UK, most of the companies
operate defined contribution plans.
The charge to profit in respect of worldwide pensions and
retirement benefits amounted to £30m in the period to 30 June 2024
(30 June 2023: £23m) of which a charge of £41m (30 June 2023: £36m)
was reported in operating profit and income of £11m (30 June 2023:
£13m) was reported against other net finance costs. In the period
to 30 June 2024, a charge of £5m (30 June 2023: nil) related to
one-off discretionary pension increases has been excluded from
adjusted operating profit.
The overall surplus on UK Group pension plans of £491m at the
end of 2023 has decreased to a surplus of £485m at the end of June
2024. The decrease has arisen principally due to asset returns
being lower than expected, an increase in long-term inflation
expectations, and inflation over the period being slightly higher
than was expected at the beginning of the year. In total, our
worldwide net position in respect of pensions and other
post-retirement benefits decreased from a net asset of £455m at the
end of 2023 to a net asset of £449m at the end of June 2024.
Businesses acquired The Group made no acquisitions of
subsidiaries in H1 2024. The cash outflow in H1 2024 relating to
acquisitions of subsidiaries was £38m, arising from the payment of
deferred consideration in respect of prior year acquisitions,
mainly Credly and Mondly, which were acquired in 2022. In addition,
there was a cash outflow relating to investments of £7m.
The cash outflow in the first half of 2023 relating to
acquisitions of subsidiaries was £173m arising primarily from the
acquisition of PDRI. In addition, there was a cash outflow relating
to the acquisition of associates of £5m and investments of £6m.
Businesses disposed The Group made no disposals of
subsidiaries in H1 2024. In 2024, the cash outflow relating to
costs paid in relation to the disposal of businesses in prior years
was £6m. 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 addition, the Group sold part of its investment in its
associate, Academy of Pop, for £4m (which has not yet been paid),
resulting in a gain of £2m. The remaining stake is now classified
as a financial investment.
Dividends The dividend accounted for in the six months to
30 June 2024 is the final dividend in respect of 2023 of 15.7p. An
interim dividend for 2024 of 7.4p was declared by the Board in July
2024 and will be accounted for in the second half of 2024.
The interim dividend will be paid on 16 September 2024 to
shareholders who are on the register of members at close of
business on 9 August 2024 (the Record Date). Shareholders may elect
to reinvest their dividend in the Dividend Reinvestment Plan
(DRIP). The last date for receipt of DRIP elections and revocations
will be 23 August 2024. A Dividend Reinvestment Plan (DRIP) is
provided by our Registrar, Computershare Investor Services. The
DRIP enables the Company's shareholders to elect to have their cash
dividend payments used to purchase the Company's shares. More
information can be found at www.computershare.com/Investor
Share buyback On 20 September 2023, the Board approved a
£300m share buyback programme in order to return capital to
shareholders, with a further £200m extension being announced by the
Group on 1 March 2024. In the first half of 2024, c28m shares have
been bought back at a cash cost of £278m. The £300m programme
completed in March 2024 and as at 30 June 2024 the £200m programme
was c80% complete. A £40m liability for the remainder of the £200m
programme plus related costs has been accrued as at 30 June 2024.
At 31 December 2023, a liability of £118m was accrued in relation
to the £300m share buyback programme. The nominal value of the
cancelled shares of £7m has been transferred to the capital
redemption reserve. In the period from 1 to 26 July 2024, an
additional c2m of shares have been repurchased.
Principal risks and uncertainties In the 2023 Annual
Report and Accounts, we set out our assessment of the principal
risk issues that face the business under the categories:
accreditation risk, artificial intelligence, content and channel
risks, capability risk, competitive marketplace, customer
expectations, portfolio change, and reputation and
responsibility.
We also noted in our 2023 Annual Report and Accounts that the
Group continues to closely monitor significant near-term and
emerging risks which have been identified as climate transition,
inflation and interest rates, recession, supply chain, tax and
sanctions and geopolitics.
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 2023 Annual Report.
Accreditation Risk
Termination or modification 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.
Artificial Intelligence, Content and Channel Risk
The risk that Pearson’s intellectual property is harder to
protect as a result of increased content generation through
artificial intelligence and that Pearson’s content and method of
delivery (channel) is, or is perceived to be, insufficiently
differentiated in terms of outcomes or learner experience.
Capability Risk
Inability to meet our contractual obligations or to transform as
required by our strategy due to infrastructure, system 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, in-sourcing 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).
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 2024
all figures in £ millions
note
2024
2023
2023
half year
half year
full year
Continuing operations
Sales
2
1,754
1,879
3,674
Cost of goods sold
(875
)
(960
)
(1,839
)
Gross profit
879
919
1,835
Operating expenses
(654
)
(688
)
(1,322
)
Other net gains and losses
2
(6
)
(7
)
(16
)
Share of results of joint ventures and
associates
-
(5
)
1
Operating profit
2
219
219
498
Finance costs
3
(57
)
(36
)
(81
)
Finance income
3
50
53
76
Profit before tax
212
236
493
Income tax
4
(54
)
(49
)
(113
)
Profit for the period
158
187
380
Attributable to:
Equity holders of the company
157
186
378
Non-controlling interest
1
1
2
Earnings per share from continuing
operations (in pence per share)
Basic
5
23.1
p
26.1
p
53.1
p
Diluted
5
22.8
p
25.9
p
52.7
p
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 2024
all figures in £ millions
2024
2023
2023
half year
half year
full year
Profit for the period
158
187
380
Items that may be reclassified to the
income statement
Net exchange differences on translation of
foreign operations
(9
)
(166
)
(177
)
Currency translation adjustment on
disposals
-
(122
)
(122
)
Attributable tax
-
1
-
Items that are not reclassified to the
income statement
Fair value gain on other financial
assets
(4
)
2
1
Attributable tax
-
-
-
Remeasurement of retirement benefit
obligations
1
(27
)
(85
)
Attributable tax
-
7
20
Other comprehensive expense
(12
)
(305
)
(363
)
Total comprehensive income /
(expense)
146
(118
)
17
Attributable to:
Equity holders of the company
145
(118
)
16
Non-controlling interest
1
-
1
CONDENSED CONSOLIDATED BALANCE SHEET as at 30 June
2024
all figures in £ millions
note
2024
2023
2023
half year
half year
full year
Property, plant and equipment
207
226
217
Investment property
75
60
79
Intangible assets
9
3,050
3,126
3,091
Investments in joint ventures and
associates
11
17
22
Deferred income tax assets
34
27
35
Financial assets – derivative financial
instruments
4
41
32
Retirement benefit assets
491
554
499
Other financial assets
141
138
143
Income tax assets
41
41
41
Trade and other receivables
134
138
135
Non-current assets
4,188
4,368
4,294
Intangible assets – product
development
941
947
947
Inventories
89
110
91
Trade and other receivables
1,081
1,060
1,050
Financial assets – derivative financial
instruments
55
17
16
Current income tax assets
23
10
15
Cash and cash equivalents (excluding
overdrafts)
332
355
312
Current assets
2,521
2,499
2,431
Assets classified as held for sale
-
15
2
Total assets
6,709
6,882
6,727
Financial liabilities – borrowings
(1,300
)
(1,308
)
(1,094
)
Financial liabilities – derivative
financial instruments
(3
)
(43
)
(38
)
Deferred income tax liabilities
(56
)
(31
)
(46
)
Retirement benefit obligations
(42
)
(54
)
(44
)
Provisions for other liabilities and
charges
(14
)
(14
)
(15
)
Other liabilities
(65
)
(80
)
(98
)
Non-current liabilities
(1,480
)
(1,530
)
(1,335
)
Trade and other liabilities
(1,036
)
(1,020
)
(1,275
)
Financial liabilities – borrowings
(313
)
(75
)
(67
)
Financial liabilities – derivative
financial instruments
(44
)
(5
)
(5
)
Current income tax liabilities
(15
)
(27
)
(32
)
Provisions for other liabilities and
charges
(10
)
(37
)
(25
)
Current liabilities
(1,418
)
(1,164
)
(1,404
)
Liabilities classified as held for
sale
-
-
-
Total liabilities
(2,898
)
(2,694
)
(2,739
)
Net assets
3,811
4,188
3,988
Share capital
167
179
174
Share premium
2,644
2,635
2,642
Treasury shares
(15
)
(20
)
(19
)
Reserves
1,000
1,381
1,177
Total equity attributable to equity
holders of the company
3,796
4,175
3,974
Non-controlling interest
15
13
14
Total equity
3,811
4,188
3,988
The condensed consolidated financial statements were approved by
the Board on 28 July 2024.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the
period ended 30 June 2024
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
2024 half year
At 1 January 2024
174
2,642
(19
)
33
(12
)
411
745
3,974
14
3,988
Profit for the period
-
-
-
-
-
-
157
157
1
158
Other comprehensive income / (expense)
-
-
-
-
(4
)
(9
)
1
(12
)
-
(12
)
Total comprehensive income / (expense)
-
-
-
-
(4
)
(9
)
158
145
1
146
Equity-settled transactions1
-
-
-
-
-
-
16
16
-
16
Issue of ordinary shares
-
2
-
-
-
-
-
2
-
2
Buyback of equity
(7
)
-
-
7
-
-
(204
)
(204
)
-
(204
)
Purchase of treasury shares
-
-
(30
)
-
-
-
-
(30
)
-
(30
)
Release of treasury shares
-
-
34
-
-
-
(34
)
-
-
-
Dividends
-
-
-
-
-
-
(107
)
(107
)
-
(107
)
At 30 June 2024
167
2,644
(15
)
40
(16
)
402
574
3,796
15
3,811
1.
Equity-settled transactions are presented
net of withholding taxes that the Group is obligated to pay on
behalf of employees. The payments to the tax authorities are
accounted for as a deduction
from equity for the shares withheld.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the
period ended 30 June 2024
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
)
-
-
-
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 2024
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 full year
At 1 January 2023
179
2,633
(15
)
28
(13
)
709
881
4,402
13
4,415
Profit for the period
-
-
-
-
-
-
378
378
2
380
Other comprehensive income / (expense)
-
-
-
-
1
(298
)
(65
)
(362
)
(1
)
(363
)
Total comprehensive income / (expense)
-
-
-
-
1
(298
)
313
16
1
17
Equity-settled transactions
-
-
-
-
-
-
40
40
-
40
Tax on equity-settled transactions
-
-
-
-
-
-
1
1
-
1
Issue of ordinary shares
-
9
-
-
-
-
-
9
-
9
Buyback of equity
(5
)
-
-
5
-
-
(304
)
(304
)
-
(304
)
Purchase of treasury shares
-
-
(35
)
-
-
-
-
(35
)
-
(35
)
Release of treasury shares
-
-
31
-
-
-
(31
)
-
-
-
Dividends
-
-
-
-
-
-
(155
)
(155
)
-
(155
)
At 31 December 2023
174
2,642
(19
)
33
(12
)
411
745
3,974
14
3,988
CONDENSED CONSOLIDATED CASH FLOW STATEMENT for the period
ended 30 June 2024
all figures in £ millions
note
2024
2023
2023
half year
half year
full year
Cash flows from operating
activities
Profit before tax
212
236
493
Net finance costs / (income)
7
(17
)
5
Depreciation and impairment – PPE,
investment property and assets held for sale
40
38
90
Amortisation and impairment – software
61
64
123
Amortisation and impairment – acquired
intangible assets
20
24
46
Other net gains and losses
5
7
13
Product development capital
expenditure
(130
)
(144
)
(300
)
Product development amortisation
144
137
284
Share-based payment costs
23
19
40
Change in inventories
1
(9
)
9
Change in trade and other receivables
(34
)
(20
)
(24
)
Change in trade and other liabilities
(164
)
(187
)
(20
)
Change in provisions for other liabilities
and charges
(12
)
(45
)
(61
)
Other movements
12
3
(16
)
Net cash generated from operations
185
106
682
Interest paid
(41
)
(34
)
(60
)
Tax paid
(69
)
(59
)
(97
)
Net cash generated from operating
activities
75
13
525
Cash flows from investing
activities
Acquisition of subsidiaries, net of cash
acquired
10
(38
)
(173
)
(171
)
Acquisition of joint ventures and
associates
-
(5
)
(5
)
Purchase of investments
(7
)
(6
)
(8
)
Purchase of property, plant and
equipment
(18
)
(16
)
(30
)
Purchase of intangible assets
(40
)
(47
)
(96
)
Disposal of subsidiaries, net of cash
disposed
11
(6
)
(19
)
(38
)
Proceeds from sale of investments
-
3
7
Proceeds from sale of property, plant and
equipment
6
1
5
Lease receivables repaid including
disposals
9
8
15
Interest received
13
10
20
Net cash used in investing
activities
(81
)
(244
)
(301
)
Cash flows from financing
activities
Proceeds from issue of ordinary shares
2
2
9
Buyback of equity
(278
)
-
(186
)
Settlement of share based payments
(37
)
(25
)
(35
)
Repayment of borrowings
-
-
(285
)
Proceeds from borrowings
495
220
285
Repayment of lease liabilities
(39
)
(42
)
(84
)
Dividends paid to company’s
shareholders
(107
)
(106
)
(154
)
Net cash generated from / (used in)
financing activities
36
49
(450
)
Effects of exchange rate changes on cash
and cash equivalents
(7
)
(13
)
(8
)
Net increase / (decrease) in cash and
cash equivalents
23
(195
)
(234
)
Cash and cash equivalents at beginning of
period
309
543
543
Cash and cash equivalents at end of
period
332
348
309
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
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 2023, which were prepared
in accordance with UK-adopted International Accounting Standards
and with the requirements of the Companies Act 2006 and in
accordance with IFRS accounting standards 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 IFRS accounting standards as
issued by the IASB.
The condensed consolidated financial statements have also been
prepared in accordance with the accounting policies set out in the
2023 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 2024 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 2025, 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 2024, 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 2025. At 30 June 2024, the Group had
available liquidity of c£0.5bn, comprising central cash balances
and the undrawn element of its $1bn Revolving Credit Facility (RCF)
maturing February 2027. During the period under evaluation, the
Group has a €300m bond (converted to c£260m) due for repayment in
May 2025 and the model assumes that this is refinanced with a
similar sized bond in 2024. 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 and to meet its liabilities as they fall due
for the assessment period to 31 December 2025. 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 2023
Annual Report.
The financial information for the year ended 31 December 2023
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 2023 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 2024 are
unaudited but have been reviewed by the auditors and their review
opinion is included at the end of these condensed consolidated
financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
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 in 2023, were being
managed as a separate division, known as Strategic Review. There
are no longer any reported results for the Strategic Review
division.
all figures in £ millions
2024
2023
2023
half year
half year
full year
Sales
Assessment & Qualifications
811
796
1,559
Virtual Learning
254
373
616
English Language Learning
188
184
415
Workforce Skills
143
140
220
Higher Education
358
379
855
Strategic Review
-
7
9
Total sales
1,754
1,879
3,674
Adjusted operating profit
Assessment & Qualifications
187
174
350
Virtual Learning
31
47
76
English Language Learning
4
8
47
Workforce Skills
29
21
(8
)
Higher Education
(1
)
(1
)
110
Strategic Review
-
1
(2
)
Total adjusted operating profit
250
250
573
There were no material inter-segment sales.
The following table reconciles the Group’s measure of segmental
performance, adjusted operating profit, to statutory operating
profit:
all figures in £ millions
2024
2023
2023
half year
half year
full year
Adjusted operating profit
250
250
573
Intangible charges
(20
)
(24
)
(48
)
UK pension discretionary increases
(5
)
-
-
Other net gains and losses
(6
)
(7
)
(16
)
Property charges
-
-
(11
)
Operating profit
219
219
498
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
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
2024 half year
Courseware
Products transferred at a point in
time
28
-
60
-
91
-
179
Products and services transferred over
time
9
-
6
-
267
-
282
37
-
66
-
358
-
461
Assessments
Products transferred at a point in
time
93
-
3
3
-
-
99
Products and services transferred over
time
681
-
97
120
-
-
898
774
-
100
123
-
-
997
Services
Products transferred at a point in
time
-
-
12
-
-
-
12
Products and services transferred over
time
-
254
10
20
-
-
284
-
254
22
20
-
-
296
Total sales
811
254
188
143
358
-
1,754
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
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
2. Segment information continued
all figures in £ millions
Assessment
& Qualifications
Virtual Learning
English Language
Learning
Workforce Skills
Higher Education
Strategic Review
Total
2023 full year
Courseware
Products transferred at a point in
time
57
-
135
2
254
9
457
Products and services transferred over
time
20
-
15
-
595
-
630
77
-
150
2
849
9
1,087
Assessments
Products transferred at a point in
time
198
-
5
5
-
-
208
Products and services transferred over
time
1,284
-
204
170
-
-
1,658
1,482
-
209
175
-
-
1,866
Services
Products transferred at a point in
time
-
-
35
-
-
-
35
Products and services transferred over
time
-
616
21
43
6
-
686
-
616
56
43
6
-
721
Total sales
1,559
616
415
220
855
9
3,674
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
reorganisation where relevant, property charges and one-off costs
related to the UK pension scheme.
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 2024 were £20m
compared to a charge of £24m in the equivalent period in 2023.
UK pension discretionary increases – Charges in 2024 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 in
order to show the performance of the Group on a more comparable
basis year on year. Other net gains and losses also includes costs
related to business closures and acquisitions. Other net gains and
losses in 2024 relate to costs related to prior year acquisitions
and disposals, partially offset by a gain on the partial disposal
of our investment in an associate. Other net gains and losses in
the first half of 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.
Property charges – In the second half of 2023, charges of £11m
relate to impairments of property assets arising from the impact of
updates in 2023 to assumptions initially made during the 2022 and
2021 reorganisation programmes. There are no such charges in the
first half of 2024.
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 reorganisation
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.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
3. Net finance income / costs
all figures in £ millions
2024
2023
2023
half year
half year
full year
Net finance (costs) / income
(7
)
17
(5
)
Net finance income in respect of
retirement benefits
(11
)
(13
)
(26
)
Interest on deferred and contingent
consideration
1
2
4
Fair value movements on investments held
at FVTPL
8
(5
)
(13
)
Net foreign exchange gains
-
(4
)
(3
)
Fair value movements on derivatives
(12
)
(9
)
10
Net interest payable reflected in
adjusted earnings
(21
)
(12
)
(33
)
Analysed as:
Finance costs
(57
)
(36
)
(81
)
Finance income
50
53
76
Net finance (costs) / income
(7
)
17
(5
)
Net interest payable is the finance cost measure used in
calculating adjusted earnings. Net interest payable primarily
consists of interest costs related to bonds, the RCF and lease
liabilities, partially offset by interest income on cash deposits
and lease receivables. Net interest payable at 30 June 2024 has
increased when compared to 30 June 2023 due to increased borrowings
and a reduction in returns on cash deposits.
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 2024
4. Income tax
all figures in £ millions
2024
2023
2023
half year
half year
full year
Income tax charge
(54
)
(49
)
(113
)
Tax on property charges
-
-
(3
)
Tax on other net gains and losses
-
(8
)
(10
)
Tax on intangible charges
(5
)
(6
)
(11
)
Tax on UK pension discretionary
increases
(1
)
-
-
Tax on other net finance income
4
7
7
Tax amortisation benefit on goodwill and
intangibles
2
2
4
Tax benefit on UK tax rate change
-
-
1
Other tax items
-
-
1
Adjusted income tax charge
(54
)
(54
)
(124
)
Adjusted profit before tax
229
238
540
Tax rate reflected in statutory
earnings
25.5
%
20.8
%
24.5
%
Tax rate reflected in adjusted
earnings
23.6
%
22.7
%
23.0
%
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 2). The adjusted tax charged in the period ended 30
June 2024 has been calculated by applying management’s best
estimate of the weighted average annual effective rate of tax which
is expected to apply to the Group for the year ended 31 December
2024 to the adjusted profit before tax for the period ended 30 June
2024. Adjusting items have been tax effected on an item by item
basis based on the applicable statutory tax rate in the country to
which the item relates.
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.
The statutory tax charge in the period ended 30 June 2024 is
higher than the period ended 30 June 2023 due to a tax credit being
recognised on the disposal of the POLS business in 2023 which is
not recurring in 2024.
The Group is within the scope of the UK legislation in relation
to Pillar Two which was effective from 1 January 2024. Based on the
most recent forecast financial information available for the
constituent entities in the Group, the Pillar Two effective tax
rates in most of the jurisdictions in which the Group operates are
above 15%. However, there are a limited number of jurisdictions
where the transitional safe harbour relief does not apply and the
Pillar Two effective tax rate is close to 15%. There is no material
impact of the Pillar Two legislation for the Group.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
5. 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
2024
2023
2023
half year
half year
full year
Earnings for the period
158
187
380
Non-controlling interest
(1
)
(1
)
(2
)
Earnings attributable to equity
shareholders
157
186
378
Weighted average number of shares
(millions)
680.5
714.0
711.5
Effect of dilutive share options
(millions)
6.9
5.0
5.8
Weighted average number of shares
(millions) for diluted earnings
687.4
719.0
717.3
Earnings per share
Basic
23.1
p
26.1
p
53.1
p
Diluted
22.8
p
25.9
p
52.7
p
6. 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 reorganisation programmes and certain
other items that are also not representative of underlying
performance (see notes 2, 3 and 4 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 and 4.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
6. Adjusted earnings per share continued
all figures in £ millions
note
Statutory income statement
Property charges
UK pension discretionary
increases
Other net gains and losses
Intangible charges
Other net finance costs
Other tax items
Adjusted income statement
2024 half year
Operating profit
2
219
-
5
6
20
-
-
250
Net finance income / (costs)
3
(7
)
-
-
-
-
(14
)
-
(21
)
Profit / (loss) before tax
212
-
5
6
20
(14
)
-
229
Income tax
4
(54
)
-
(1
)
-
(5
)
4
2
(54
)
Profit / (loss) for the year
158
-
4
6
15
(10
)
2
175
Non-controlling interest
(1
)
-
-
-
-
-
-
(1
)
Earnings / (loss)
157
-
4
6
15
(10
)
2
174
Weighted average number of shares
(millions)
680.5
Weighted average number of shares
(millions) for diluted earnings
687.4
Adjusted earnings per share
(basic)
25.6
p
Adjusted earnings per share
(diluted)
25.3
p
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
6. Adjusted earnings per share continued
all figures in £ millions
note
Statutory income statement
Property charges
UK pension discretionary
increases
Other net gains and losses
Intangible charges
Other net finance costs
Other tax items
Adjusted income statement
2023 half year
Operating profit
2
219
-
-
7
24
-
-
250
Net finance income / (costs)
3
17
-
-
-
-
(29
)
-
(12
)
Profit / (loss) before tax
236
-
-
7
24
(29
)
-
238
Income tax
4
(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)
25.6
p
Adjusted earnings per share (diluted)
25.5
p
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
6. Adjusted earnings per share continued
all figures in £ millions
note
Statutory income statement
Property charges
UK pension discretionary
increases
Other net gains and losses
Intangible charges
Other net finance costs
Other tax items
Adjusted income statement
2023 full year
Operating profit
2
498
11
-
16
48
-
-
573
Net finance income / (costs)
3
(5
)
-
-
-
-
(28
)
-
(33
)
Profit / (loss) before tax
493
11
-
16
48
(28
)
-
540
Income tax
4
(113
)
(3
)
-
(10
)
(11
)
7
6
(124
)
Profit / (loss) for the year
380
8
-
6
37
(21
)
6
416
Non-controlling interest
(2
)
-
-
-
-
-
-
(2
)
Earnings / (loss)
378
8
-
6
37
(21
)
6
414
Weighted average number of shares
(millions)
711.5
Weighted average number of shares
(millions) for diluted earnings
717.3
Adjusted earnings per share (basic)
58.2
p
Adjusted earnings per share (diluted)
57.7
p
7. Dividends
all figures in £ millions
2024
2023
2023
half year
half year
full year
Amounts recognised as distributions to
equity shareholders in the period
107
106
155
The directors are declaring an interim dividend of 7.4p per
equity share, payable on 16 September 2024 to shareholders on the
register at the close of business on 9 August 2024. This interim
dividend, which will absorb an estimated £49m of shareholders’
funds, has not been included as a liability as at 30 June 2024.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
8. Exchange rates
Pearson earns a significant proportion of its sales and profits
in overseas currencies, the most important being the US dollar. The
relevant rates are as follows:
2024
2023
2023
half year
half year
full year
Average rate for profits
1.26
1.24
1.25
Period end rate
1.26
1.27
1.27
9. Non-current intangible assets
all figures in £ millions
2024
2023
2023
half year
half year
full year
Goodwill
2,436
2,441
2,434
Other intangibles
614
685
657
Non-current intangible assets
3,050
3,126
3,091
There were no significant acquisitions or disposals in 2024.
In 2023, business combinations resulted in the recognition of
additional goodwill of £61m and intangible assets of £117m (see
note 10 for further details).
In 2023, business disposals resulted in the disposal of £53m of
intangible assets (see note 11 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. Other movements in the intangibles balance
relate to additions, amortisation and foreign exchange
differences.
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 2024.
The 2023 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 2023 Annual Report.
There were no impairments to acquisition related or other
intangibles in the first half of 2024 or 2023.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
10. Business combinations
There have been no significant acquisitions of subsidiaries in
H1 2024.
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). There was 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, and
were valued by a third party specialist. The transaction resulted
in the recognition of £61m of goodwill. Details of the fair values
of the assets that were acquired and the consideration were set out
in the 2023 Annual Report.
The net cash outflow relating to acquisitions in the period is
shown in the table below and relates to deferred payments for prior
year acquisitions, mainly arising from the acquisitions of Credly
and Mondly in 2022.
all figures in £ millions
2024
2023
2023
half year
half year
full year
Cash – current year acquisitions
-
(152
)
(152
)
Cash and cash equivalents acquired
-
4
4
Deferred payments for prior year
acquisitions and other items
(38
)
(25
)
(23
)
Net cash outflow on
acquisitions
(38
)
(173
)
(171
)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
11. Disposals and business closures
There have been no disposals of subsidiaries in H1 2024.
On 30 June 2023, the Group disposed of its interests in its POLS
businesses in the US, UK, Australia and India. The business
disposed excluded 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 from the disposal
date and 27.5% of the proceeds received by the purchaser in
relation to any future monetisation event. The consideration was
valued at £12m and a pre-tax gain on disposal of £13m was
recognised for the year ended 31 December 2023.
The net cash outflow relating to disposals in the period is
shown in the table below.
all figures in £ millions
2024
2023
2023
half year
half year
full year
Proceeds – current year disposals
-
1
1
Cash and cash equivalents disposed
-
(12
)
(12
)
Costs and other disposal liabilities
paid
(6
)
(8
)
(27
)
Net cash outflow from disposals
(6
)
(19
)
(38
)
In addition, the Group sold part of its investment in its
associate, Academy of Pop, for £4m (which has not yet been paid),
resulting in a gain of £2m. The remaining stake is now classified
as a financial investment. In 2023, the Group paid £5m relating to
the Group’s initial capital contribution.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
12. Net debt
all figures in £ millions
2024
2023
2023
half year
half year
full year
Non-current assets
Derivative financial instruments
4
41
32
Trade and other receivables – investment
in finance lease
73
90
82
Current assets
Derivative financial instruments
55
17
16
Trade and other receivables – investment
in finance lease
19
17
18
Cash and cash equivalents (excluding
overdrafts)
332
355
312
Non-current liabilities
Borrowings
(1,300
)
(1,308
)
(1,094
)
Derivative financial instruments
(3
)
(43
)
(38
)
Current liabilities
Borrowings
(313
)
(75
)
(67
)
Derivative financial instruments
(44
)
(5
)
(5
)
Net debt
(1,177
)
(911
)
(744
)
Included in borrowings at 30 June 2024 are lease liabilities of
£521m (non-current £458m, current £63m). This compares to lease
liabilities of £561m (non-current £492m, current £69m) at 30 June
2023 and £547m (non-current £483m, current £64m) at 31 December
2023. The net lease liability at 30 June 2024 after including the
investment in finance leases noted above was £429m (2023 half year:
£454m, 2023 full year: £447m). Net debt excluding net lease
liabilities is £748m (2023 half year: £457m, 2023 full year:
£297m).
In 2024, the increase in borrowings primarily reflects the
additional drawdown on the revolving credit facility of £495m,
partially offset by the repayment of lease liabilities of £39m. 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.
For the purposes of the cash flow statement, cash and cash
equivalents are presented net of overdrafts of £nil (at 30 June
2023: £7m; 31 December: £3m) 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 2024
13. 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
2024 half year
Investments in unlisted securities
-
-
26
115
141
Cash and cash equivalents
42
-
-
-
42
Derivative financial instruments
-
59
-
-
59
Deferred and contingent consideration
-
-
-
12
12
Total financial assets held at fair
value
42
59
26
127
254
Derivative financial instruments
-
(47
)
-
-
(47
)
Deferred and contingent consideration
-
-
-
(21
)
(21
)
Total financial liabilities held at
fair value
-
(47
)
-
(21
)
(68
)
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
)
2023 full year
Investments in unlisted securities
-
-
23
120
143
Cash and cash equivalents
31
-
-
-
31
Derivative financial instruments
-
48
-
-
48
Deferred and contingent consideration
-
-
-
12
12
Total financial assets held at fair
value
31
48
23
132
234
Derivative financial instruments
-
(43
)
-
-
(43
)
Deferred and contingent consideration
-
-
-
(57
)
(57
)
Total financial liabilities held at
fair value
-
(43
)
-
(57
)
(100
)
There have been no transfers in classification during the
year.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
13. 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 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
comprises a 27.5% share of positive adjusted EBITDA in each
calendar year for 6 years from the disposal date and 27.5% of the
proceeds received by the purchaser in relation to any future
monetisation event. The valuation of the deferred consideration has
been determined on the basis of a discounted cash flow model, and
valued by a third-party specialist. The key inputs into the
discounted cash flow model are the estimates of adjusted EBITDA for
the 6 year period and the estimate of the valuation of the business
thereafter. 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 deferred and contingent
consideration payable in respect of prior year acquisitions is
measured as the net present value of the expected cashflows.
The movements in fair values of level 3 financial assets
measured at fair value, being principally the investments in
unlisted securities and contingent consideration receivable, are
shown in the table below:
all figures in £ millions
2024
2023
2023
half year
half year
full year
At beginning of period
155
136
136
Exchange differences – OCI
1
(5
)
(5
)
Additions
9
18
20
Disposals and repayments
-
(6
)
(10
)
Fair value movements – Income
Statement
(8
)
5
13
Fair value movements – OCI
(4
)
2
1
At end of period
153
150
155
The movement in the fair value of the deferred and contingent
consideration payable is shown in the table below:
all figures in £ millions
2024
2023
2023
half year
half year
full year
At beginning of period
(57
)
(79
)
(79
)
Exchange differences
(1
)
4
3
Fair value movements – Income
Statement
(1
)
(2
)
(4
)
Repayments
38
21
23
At end of period
(21
)
(56
)
(57
)
The market value of the Group’s bonds is £570m (30 June 2023:
£540m; 31 December 2023: £579m) compared to their carrying value of
£597m (30 June 2023: £596m; 31 December 2023: £611m). 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 2024
14. 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 free cash flow to net debt.
all figures in £ millions
Statutory measure
Cost of major reorganisation
Property charges
Other net gains and losses
UK pension discretionary
increases
Intangible charges
Purchase/disposal of PPE and
software
Net addition of right of use
assets
Dividends from joint ventures and
associates
Adjusted measure
2024 half year
Operating profit
219
-
-
6
5
20
-
-
-
250
Adjusted operating profit
Net cash generated from
operations
185
5
-
3
-
-
(52
)
(12
)
-
129
Operating cash flow
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
2023 full year
Operating profit
498
-
11
16
-
48
-
-
-
573
Adjusted operating profit
Net cash generated from
operations
682
63
-
4
-
-
(121
)
(41
)
-
587
Operating cash flow
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
14. Cash flows continued
all figures in £ millions
note
2024
2023
2023
half year
half year
full year
Reconciliation of operating cash flow
to closing net debt
Operating cash flow
129
79
587
Tax paid
(69
)
(59
)
(97
)
Net finance costs paid
(28
)
(24
)
(40
)
Cost paid for major reorganisation
(5
)
(46
)
(63
)
Free cash flow
27
(50
)
387
Dividends paid (including to
non-controlling interest)
(107
)
(106
)
(154
)
Net movement of funds from
operations
(80
)
(156
)
233
Acquisitions and disposals
(54
)
(200
)
(219
)
Net equity transactions
(313
)
(23
)
(212
)
Other movements on financial
instruments
14
25
11
Movement in net debt
(433
)
(354
)
(187
)
Opening net debt
(744
)
(557
)
(557
)
Closing net debt
12
(1,177
)
(911
)
(744
)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for
the period ended 30 June 2024
15. Contingencies, tax uncertainties 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. An appeal by the UK Government and other parties was dismissed
by the EU General Court on 8 June 2022. Following a further appeal
heard in January 2024, on 11 April 2024 the Advocate General
released their (non-binding) expert opinion finding in favour of
the UK Government and other parties. We now await the final binding
judgement. The total exposure is calculated to be £105m (excluding
interest) with a provision of £63m held in relation to this issue.
The remaining tax receivable is disclosed as a non-current asset on
the balance sheet. 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 2020. Similar assessments may be raised for
other years. Potential total exposure (including possible interest
and penalties) could be up to BRL 1,345m (£192m) for periods up to
30 June 2024, with additional potential exposure of BRL 24m (£3m)
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
for the years 2019 to 2021. The maximum exposure is calculated to
be £43m with a provision of £21m currently held. 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 (£43m). The points being assessed are specific to
2019 to 2021 and do not represent continuing exposures.
16. Related parties
Related party transactions in the six months ended 30 June 2024
were substantially the same in nature to those disclosed in note 36
of the Annual Report and Accounts for the year ended 31 December
2023. 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.
17. 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
2023 Annual Report.
The directors of Pearson plc are listed in the 2023 Annual
Report. There have been the following changes to the Board since
the publication of the Annual Report.
Tim Score – resigned 26 April 2024
A list of current directors is maintained on the Pearson plc
website: www.pearsonplc.com.
By order of the Board
Omar Abbosh Chief Executive 28 July 2024
Sally Johnson Chief Financial Officer 28 July 2024
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 2024 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 2024 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 for
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 28 July 2024
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Investor Relations Jo Russell +44 (0) 7785 451 266
Alex Shore +44 (0) 7720 947 853
Gemma Terry +44 (0) 7841 363 216
Brennan Matthews +1 (332) 238-8785
Media Teneo Ed Cropley +44 (0) 7492 949 346
Pearson Laura Ewart +44 (0) 7798 846 805
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