Annual report and accounts 2008

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).