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Notes to the Consolidated Financial Statements

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2. Segment information

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 of textbooks and web-based learning tools, 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 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.

Primary reporting format – business segments

  2007
All figures in £ millions Notes School Higher Education Professional FT Publishing Interactive Data Penguin Corporate Group
Continuing operations
Sales (external) 1,537 793 298 344 344 846 4,162
Sales (inter-segment) 1 19 20
Operating profit before
joint ventures and associates
169 159 26 34 90 73 551
Share of results of
joint ventures and associates
6 1 16 23
Operating profit 175 159 27 50 90 73 574
Finance costs 6 (150)
Finance income 6 44
Profit before tax 468
Income tax 7 (131)
Profit for the year from
continuing operations
337
Reconciliation to
adjusted operating profit
Operating profit 175 159 27 50 90 73 574
Amortisation of acquired
intangibles
28 2 1 6 7 1 45
Adjusted operating profit –
continuing operations
203 161 28 56 97 74 619
Segment assets 2,780 1,742 318 397 330 937 651 7,155
Joint ventures 12 5 4 2 11
Associates 12 3 1 5 9
Assets – continuing operations 2,788 1,743 318 406 330 939 651 7,175
Assets – discontinued operations 117 117
Total assets 2,788 1,743 435 406 330 939 651 7,292
Total liabilities (798) (266) (130) (251) (129) (220) (1,624) (3,418)
Other segment items
Capital expenditure 10 11 17 147 98 20 28 19 44 356
Depreciation 10 22 11 9 9 10 7 68
Amortisation 11  17 124 80 11 9 8 30 262
    2006
All figures in £ millions Notes School Higher
Education
Professional FT
Publishing
Interactive
Data
Penguin Corporate Group
Continuing operations
Sales (external) 1,455 795 280 280 332 848 3,990
Sales (inter-segment) 1 18 19
Operating profit before
joint ventures
and associates
161 161 23 13 82 58 498
Share of results of
joint ventures
and associates
6 1 17 24
Operating profit 167 161 24 30 82 58 522
Finance costs 6 (133)
Finance income 6 59
Profit before tax 448
Income tax 7 (4)
Profit for the year from
continuing operations
444
Reconciliation to
adjusted operating profit
Operating profit 167 161 24 30 82 58 522
Adjustment to goodwill
on recognition of
pre-acquisition
deferred tax
7 7
Amortisation of
acquired intangibles
17 1 2 7 1 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 25 27 89 66 552
Segment assets 2,684 1,347 580 317 314 954 703 6,899
Joint ventures 12 5 4 3 12
Associates 12 4 4 8
Assets – continuing operations 2,693 1,347 580 325 314 957 703 6,919
Assets – discontinued operations 294 294
Total assets 2,693 1,347 874 325 314 957 703 7,213
Total liabilities (662) (268) (177) (300) (131) (269) (1,762) (3,569)
Other segment items
Capital expenditure 10 11 17 124 88 30 19 20 38 319
Depreciation 10 21 8 19 9 13 7 77
Amortisation 11 17 117 78 21 4 7 34 261

In 2007, sales from the provision of goods were 3,086m (2006: 3,031m) and sales from the provision of services were 1,076m (2006: 959m). 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 of property, plant and equipment, intangible assets, inventories, receivables, retirement benefit assets and deferred taxation and exclude cash and cash equivalents and derivative assets. Segment liabilities comprise operating liabilities and retirement benefit obligations 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 10, 11 and 17).

Property, plant and equipment and intangible assets acquired through business combination were 226m (2006: 173m) (see note 29). Capital expenditure, depreciation and amortisation include amounts relating to discontinued operations. Discontinued operations relate to Government Solutions, Datamark, Les Echos and the Data Management business (see note 3).

Secondary reporting format – geographic segments

The Group’s business segments are managed on a worldwide basis and operate in the following main geographic areas:

All figures in millions Sales Total assets Capital expenditure
2007 2006 2007 2006 2007 2006
Continuing operations
European countries 1,102 1,003 1,827 1,608 90 70
North America 2,591 2,585 4,867 4,908 248 231
Asia Pacific 351 295 365 327 14 12
Other countries 118 107 96 56 2 2
Total 4,162 3,990 7,155 6,899 354 315
Discontinued operations
European countries 83 103 9 1 1
North America 78 314 117 281 1 2
Other countries 6 16 4 1
Total 167 433 117 294 2 4
Joint ventures and associates 20 20
Total 4,329 4,423 7,292 7,213 356 319

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.

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