Pearson IFRS boost ignored

Pearson investors whose eyes lit up when they saw that the publisher expected 2004 operating profit to almost double because of IFRS will be disappointed to hear that the apparent windfall will have no material benefit for the company.

Link: St James’s reveals IFRS assets impact

Pearson’s operating profit for 2004 came in at £231m but could have been boosted by as much as £224m had it reported under IFRS. However, analysts quickly played down what may have appeared to be a financial blessing as being insignificant.

The extra £224m arose because Pearson would no longer have to amortise goodwill – a factor that analysts say will have no effect on their view of Pearson.

‘At the moment we always look at profits before goodwill, so this has no impact,’ said Charles Peacock, analyst at Seymour Pierce Limited.

Richard Hitchcock from Numis Corporation said large increases in operating profits that resulted from no longer amortising goodwill were a ‘mockery’.

‘It is nothing more than an accounting change,’ he said. ‘The cash situation is exactly the same.’

Anthony De Larrinaga, media analyst at SG Securities, said writing down goodwill had never been taken into account when making valuations, as it ‘did not reflect reality’ when assessing a business.

‘This practice (amortising goodwill) was stopped in the US, and under IFRS it will be the same here too,’ said De Larrinaga.

‘Goodwill amortisation has zilch impact on earnings. If a company blows shareholder funds on overvalued assets the impairment charge for those assets is priced into the market anyway.’

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