Notes contentsNotes to consolidated financial statements

33. Cash generated from operations

All figures in £ millions Notes 2008 2007
Net profit   323 310
Adjustments for:      
Income tax   209 222
Depreciation 10 80 68
Amortisation of purchased intangible assets 11 86 45
Amortisation of other intangible assets 11 30 25
Loss on sale of property, plant and equipment   1 1
Net finance costs 6 91 106
Share of results of joint ventures and associates 12 (25) (23)
Loss/(profit) on sale of discontinued operations 3 53 (146)
Goodwill impairment of discontinued operation 3 97
Net foreign exchange adjustment from transactions   105 11
Share-based payment costs 26 33 30
Pre-publication   (58) (38)
Inventories   (12) (1)
Trade and other receivables   (81) (5)
Trade and other liabilities   82 80
Retirement benefit obligations   (14) (126)
Provisions for other liabilities and charges   (9) 3
Net cash generated from operations   894 659
Dividends from joint ventures and associates   23 32
Purchase of property, plant and equipment   (75) (86)
Purchase of intangible assets   (45) (33)
Finance lease principal payments   (3) (2)
Proceeds from sale of property, plant and equipment   2 14
Add back: Special pension contribution   100
Operating cash flow   796 684
Operating tax paid   (89) (61)
Net operating finance costs paid   (76) (90)
Operating free cash flow   631 533
Non-operating tax paid   (26)
Special pension contribution   (100)
Total free cash flow   631 407
Dividends paid (including to minorities)   (285) (248)
Net movement of funds from operations   346 159
Acquisitions and disposals   (285) (15)
Purchase of treasury shares   (47) (72)
New equity   6 12
Other movements on financial instruments   8 (7)
Net movement of funds   28 77
Exchange movements on net debt   (515) 9
Total movement in net debt   (487) 86

Net cash generated from operations is translated at an exchange rate approximating to the rate at the date of cash flow. In 2008 the difference between this rate and the average rate used to translate profit gives rise to a large currency adjustment in the reconciliation between net profit and net cash generated from operations. This adjustment reflects the timing difference between recognition of profit and the related cash receipts or payments.

Included in net cash generated from operations is an amount of £nil (2007: £7m) relating to discontinued operations.

Operating cash flow, operating free cash flow and total free cash flow are non-GAAP measures and have been disclosed as they are part of Pearson’s corporate and operating measures. Following the completion of the latest actuarial valuation of the UK Group pension plan as at January 2006, the Group agreed that during 2007 it would make additional payments to the plan amounting to £100m. The Group excluded this £100m from its definition of operating cash flow and operating free cash flow as it distorted the underlying operating performance for that year.

In the cash flow statement, proceeds from sale of property, plant and equipment comprise:

All figures in £ millions 2008 2007
Net book amount 3 15
Loss on sale of property, plant and equipment (1) (1)
Proceeds from sale of property, plant and equipment 2 14

The principal other non-cash transactions are movements in finance lease obligations of £2m (2007: £4m).