12. Investments in joint ventures and associates
The amounts recognised in the balance sheet are as follows:
|
All figures in £ millions |
2017 | 2016 | ||||||
|
Associates |
395 | 1,245 | ||||||
|
Joint ventures |
3 | 2 | ||||||
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|
|
|
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Total |
398 | 1,247 | ||||||
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The amounts recognised in the income statement are as follows:
|
All figures in £ millions |
2017 | 2016 | ||||||
|
Associates |
77 | 98 | ||||||
|
Joint ventures |
1 | (1 | ) | |||||
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|
|
|
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Total |
78 | 97 | ||||||
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Investment in associates
The Group has the following material associates:
| Principal place of business |
Ownership interest |
Nature of relationship |
Measurement method |
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|
Penguin Random House Ltd |
UK/Global | 25 | % | See below | Equity | |||||||||||
|
Penguin Random House LLC |
US | 25 | % | See below | Equity | |||||||||||
On 1 July 2013, Penguin Random House was formed, upon the completion of an agreement between Pearson and Bertelsmann to merge their respective trade publishing companies, Penguin and Random House, with the parent companies owning 47% and 53% of the combined business respectively. On 5 October 2017, Pearson sold a 22% stake in Penguin Random House to Bertelsmann, retaining a 25% share (see note 31 for more information on disposal of associates). Pearson owns its 25% interest in Penguin Random House via 25% interests in each of the two entities listed in the table above. Despite the separate legal structures of the two Penguin Random House entities, Pearson regards Penguin Random House as one combined global business. Consequently, Pearson discloses Penguin Random House as one single operating segment and presents disclosures related to its interests in Penguin Random House on a combined basis.
The shareholder agreement includes protective rights for Pearson as the minority shareholder, including rights to dividends. Management considers ownership percentage, Board composition and the additional protective rights, and exercises judgement to determine that Pearson has significant influence over Penguin Random House and Bertelsmann has the power to direct the relevant activities and therefore control. Following the transaction in 2017 the assessment of significant influence has not changed. Penguin Random House does not have a quoted market price.
The summarised financial information of the material associate is detailed below:
| 2017 | 2016 | |||||||
|
All figures in £ millions |
Penguin Random House |
Penguin Random House |
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|
Assets |
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|
Non-current assets |
1,048 | 1,267 | ||||||
|
Current assets |
1,758 | 1,587 | ||||||
|
Liabilities |
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|
Non-current liabilities |
(859 | ) | (394 | ) | ||||
|
Current liabilities |
(1,579 | ) | (1,074 | ) | ||||
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|
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|
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|
Net assets |
368 | 1,386 | ||||||
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|
|
|
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|
Sales |
2,693 | 2,620 | ||||||
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|
|
|
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|
Profit for the year |
171 | 209 | ||||||
|
Other comprehensive expense |
(60 | ) | (14 | ) | ||||
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|
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Total comprehensive income |
111 | 195 | ||||||
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Dividends received from associate in relation to profits |
146 | 131 | ||||||
|
Re-capitalisation dividends received from associate |
312 | — | ||||||
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|
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The information above reflects the amounts presented in the financial statements of the associate, adjusted for fair value and similar adjustments. The tax on Penguin Random House LLC is settled by the partners. For the purposes of clear and consistent presentation, the tax has been shown in the associate line items in the consolidated income statement and consolidated balance sheet, recording the Group’s share of profit after tax consistently for the Penguin Random House associates.
A reconciliation of the summarised financial information to the carrying value of the material associate is shown below:
| 2017 | 2016 | |||||||
|
All figures in £ millions |
Penguin Random House |
Penguin Random House |
||||||
|
Opening net assets |
1,386 | 1,206 | ||||||
|
Exchange differences |
(18 | ) | 179 | |||||
|
Profit for the year |
171 | 209 | ||||||
|
Other comprehensive expense |
(60 | ) | (14 | ) | ||||
|
Dividends, net of tax paid |
(1,167 | ) | (194 | ) | ||||
|
Tax adjustments in relation to disposals |
56 | — | ||||||
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|
|
|
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|
Closing net assets |
368 | 1,386 | ||||||
|
Share of net assets |
92 | 651 | ||||||
|
Goodwill |
296 | 589 | ||||||
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Carrying value of associate |
388 | 1,240 | ||||||
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Information on other individually immaterial associates is detailed below:
|
All figures in £ millions |
2017 | 2016 | ||||||
|
Profit for the year |
7 | — | ||||||
|
|
|
|
|
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|
Total comprehensive income |
7 | — | ||||||
|
|
|
|
|
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Transactions with material associates
The Group has loans to Penguin Random House which are unsecured and interest is calculated based on market rates. The amount outstanding at 31 December 2017 was £46m (2016: £33m). The loans are provided under a working capital facility and fluctuate during the year. The loan outstanding at 31 December 2017 was repaid in its entirety in January 2018.
The Group also has a current asset receivable of £19m (2016: £21m) from Penguin Random House and a current liability payable of £3m (2016: £nil) arising from the provision of services. Included in other income (note 4) is £3m (2016: £4m) of service fees. In addition, the Group will receive a further re-capitalisation dividend of £49m in April 2018, which was triggered by the Group’s decision to sell a 22% stake in Penguin Random House in 2017.
Investment in joint ventures
Information on joint ventures, all of which are individually immaterial, is detailed below:
|
All figures in £ millions |
2017 | 2016 | ||||||
|
Profit/(loss) for the year |
1 | (1 | ) | |||||
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|
|
|
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Total comprehensive income/(expense) |
1 | (1 | ) | |||||
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