Due to the differing risks and rewards associated with each business segment and the different customer focus of each segment, the Group's primary segment reporting format is by business. The Group is organised into the following five business segments:
School - publisher, provider of testing and software services for primary and secondary schools;
Higher Education - publisher of textbooks and related course materials for colleges and universities;
Penguin - publisher with brand imprints such as Penguin, Putnam, Berkley, Viking, Dorling Kindersley;
FT Publishing - publisher of the Financial Times, other business newspapers, magazines and specialist information;
Interactive Data Corporation (IDC) - provider of financial and business information to financial institutions and retail investors.
The remaining business group, Professional, brings together a number of education publishing, testing and services businesses that publish texts, reference and interactive products for industry professionals and does not meet the criteria for classification as a 'segment' under IFRS. For more detail on the services and products included in each business segment refer to the Business Review.
| All figures in £ millions | Notes | School | Higher Education |
Professional | Penguin | FT Publishing |
IDC | Corporate | 2006 Group |
|---|---|---|---|---|---|---|---|---|---|
| Continuing operations | |||||||||
| Sales (external) | 1,455 | 795 | 341 | 848 | 366 | 332 | – | 4,137 | |
| Sales (inter-segment) | 1 | – | – | 18 | – | – | – | 19 | |
| Operating profit before joint ventures and associates |
161 | 161 | 36 | 58 | 18 | 82 | – | 516 | |
| Share of results of joint ventures and associates |
6 | – | 1 | – | 17 | – | – | 24 | |
| Operating profit | 167 | 161 | 37 | 58 | 35 | 82 | – | 540 | |
| Finance costs | 7 | (133) | |||||||
| Finance income | 7 | 59 | |||||||
| Profit before tax | 466 | ||||||||
| Income tax | 8 | (11) | |||||||
| Profit for the year from continuing operations |
455 | ||||||||
| Reconciliation to adjusted operating profit |
|||||||||
| Operating profit | 167 | 161 | 37 | 58 | 35 | 82 | – | 540 | |
| Adjustment to goodwill on recognition of pre-acquisition deferred tax |
– | – | – | 7 | – | – | – | 7 | |
| Amortisation of acquired intangibles |
17 | – | 1 | 1 | 2 | 7 | – | 28 | |
| Other net gains and losses of associates |
– | – | – | – | (4) | – | – | (4) | |
| Other net finance costs of associates |
– | – | – | – | (1) | – | – | (1) | |
| Adjusted operating profit – continuing operations |
184 | 161 | 38 | 66 | 32 | 89 | – | 570 | |
| Segment assets | 2,684 | 1,347 | 580 | 954 | 317 | 314 | 703 | 6,899 | |
| Joint ventures | 13 | 5 | – | – | 3 | 4 | – | – | 12 |
| Associates | 13 | 4 | – | – | – | 4 | – | – | 8 |
| Assets – continuing operations | 2,693 | 1,347 | 580 | 957 | 325 | 314 | 703 | 6,919 | |
| Assets – discontinued operations | – | – | 294 | – | – | – | – | 294 | |
| Total assets | 2,693 | 1,347 | 874 | 957 | 325 | 314 | 703 | 7,213 | |
| Total liabilities | (662) | (268) | (177) | (269) | (300) | (131) | (1,762) | (3,569) | |
| Other segment items | |||||||||
| Capital expenditure | 11, 12, 17 | 124 | 88 | 30 | 38 | 19 | 20 | – | 319 |
| Depreciation | 11 | 21 | 8 | 19 | 7 | 9 | 13 | – | 77 |
| Amortisation | 12, 17 | 117 | 78 | 21 | 34 | 4 | 7 | – | 261 |
| All figures in £ millions | Notes | School | Higher Education |
Professional | Penguin | FT Publishing |
IDC | Corporate | 2005 Group |
| Continuing operations | |||||||||
| Sales (external) | 1,295 | 779 | 301 | 804 | 332 | 297 | – | 3,808 | |
| Sales (inter-segment) | – | – | – | 16 | – | – | – | 16 | |
| Operating profit before joint ventures and associates |
138 | 156 | 24 | 60 | 49 | 75 | – | 502 | |
| Share of results of joint ventures and associates |
4 | – | 1 | – | 9 | – | – | 14 | |
| Operating profit | 142 | 156 | 25 | 60 | 58 | 75 | – | 516 | |
| Finance costs | 7 | (132) | |||||||
| Finance income | 7 | 62 | |||||||
| Profit before tax | 446 | ||||||||
| Income tax | 8 | (116) | |||||||
| Profit for the year from continuing operations |
330 | ||||||||
| Reconciliation to adjusted operating profit |
|||||||||
| Operating profit | 142 | 156 | 25 | 60 | 58 | 75 | – | 516 | |
| Amortisation of acquired intangibles |
5 | – | – | – | 1 | 5 | – | 11 | |
| Other net gains and losses | – | – | – | – | (40) | – | – | (40) | |
| Other net finance costs of associates |
– | – | – | – | 2 | – | – | 2 | |
| Adjusted operating profit – continuing operations |
147 | 156 | 25 | 60 | 21 | 80 | – | 489 | |
| Segment assets | 2,347 | 1,648 | 1,179 | 960 | 154 | 291 | 985 | 7,564 | |
| Joint ventures | 13 | 6 | – | – | 2 | 4 | – | – | 12 |
| Associates | 13 | 6 | – | – | – | 18 | – | – | 24 |
| Total assets | 2,359 | 1,648 | 1,179 | 962 | 176 | 291 | 985 | 7,600 | |
| Total liabilities | (557) | (341) | (263) | (280) | (336) | (109) | (1,981) | (3,867) | |
| Other segment items | |||||||||
| Capital expenditure | 11, 12, 17 | 114 | 96 | 43 | 34 | 14 | 19 | – | 320 |
| Depreciation | 11 | 26 | 8 | 17 | 7 | 11 | 11 | – | 80 |
| Amortisation | 12, 17 | 91 | 78 | 20 | 24 | 3 | 5 | – | 221 |
In 2006, sales from the provision of goods were £3,117m (2005: £2,956m) and sales from the provision of services were £1,020m (2005: £852m). Sales from the Group's educational publishing, consumer publishing and newspaper business are classified as being from the provision of goods and sales from its assessment and testing, market pricing, corporate training and management service businesses are classified as being from the provision of services.
Corporate costs are allocated to business segments on an appropriate basis depending on the nature of the cost and therefore the segment result is equal to the Group operating profit. Inter-segment pricing is determined on an arm's length basis. Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, receivables and deferred taxation and exclude cash and cash equivalents and derivative assets. Segment liabilities comprise operating liabilities and exclude borrowings and derivative liabilities. Corporate assets and liabilities comprise cash and cash equivalents, marketable securities, borrowings and derivative financial instruments. Capital expenditure comprises additions to property, plant and equipment and intangible assets, including pre-publication but excluding goodwill (see notes 11, 12 and 17).
Property, plant and equipment and intangible assets acquired through business combinations were £173m (2005: £111m) (see notes 11, 12 and 17). Capital expenditure, depreciation and amortisation include amounts relating to discontinued operations. In April 2005, Pearson sold its 79% interest in Recoletos Grupo de Communicación S.A. This operation is disclosed as a discontinued operation in 2005 (see note 3). In December 2006 Pearson announced its intention to sell Pearson Government Solutions. This operation is disclosed as a discontinued operation (see note 3) and the assets and liabilities are classified as held for sale (see note 29).
The Group's business segments are managed on a worldwide basis and operate in the following main geographic areas:
| Sales | Total assets | Capital expenditure | ||||||
|---|---|---|---|---|---|---|---|---|
| All figures in £ millions | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | ||
| Continuing operations | ||||||||
| European countries | 1,089 | 951 | 1,608 | 1,711 | 70 | 63 | ||
| North America | 2,642 | 2,451 | 4,908 | 5,476 | 231 | 242 | ||
| Asia Pacific | 298 | 300 | 327 | 325 | 12 | 13 | ||
| Other countries | 108 | 106 | 56 | 52 | 2 | 2 | ||
| Total | 4,137 | 3,808 | 6,899 | 7,564 | 315 | 320 | ||
| Discontinued operations | ||||||||
| European countries | 17 | 39 | 9 | – | 1 | – | ||
| North America | 257 | 266 | 281 | – | 2 | – | ||
| Other countries | 12 | 10 | 4 | – | 1 | – | ||
| Total | 286 | 315 | 294 | – | 4 | – | ||
| Joint ventures and associates | – | – | 20 | 36 | – | – | ||
| Total | 4,423 | 4,123 | 7,213 | 7,600 | 319 | 320 | ||
Sales are allocated based on the country in which the customer is located. This does not differ materially from the location where the order is received.