Pearson PLC (PSO) 2008 Q2 法說會逐字稿

Thank you for coming. This is our first half results. I know it's a pretty horrible week for all of you, probably even more so in these kinds of markets, so we really appreciate your taking the time to come out. We can't really ease the media reporting season for you but we will offer you a pain free, at least for some of you pain free, start to the week.

We do have another very good set of first half numbers this year. And I want you to concentrate on this slide, five-year record. 15% (sic - see presentation) annual sales growth, 15% annual profit growth, rising margins, rising returns. And our start to 2008 I think confirms that we're still on the track - sales up 14%, profits 38%, rising first half dividend 6.3% up.

I think they illustrate a couple of themes that we're going to try to talk to you about today. The first is that Pearson is a durable company. In these markets, nobody can claim to be immune but we have really been inoculating ourselves for the past six years. And so we're feeling that we're very much stronger because of the portfolio decisions that we've taken and because of the new business models that we've built and because of our very long-term approach to efficiency we've been working on and, of course, our very strong financial position, our good balance sheet.

Secondly, we're a growth company and we don't want you to forget that. We're in good long-term growth markets. We've invested consistently and I'd like to think imaginatively, to build the leading positions that we've got now in most all our markets. Those positions are about a lot more than size. They are about quality and breadth and innovation and international markets and international scale.

That's why today we are reaffirming our guidance for this year and restating our confidence that we believe that Pearson can continue to grow and continue to perform in this economic climate.

Now, Robin's going to substantiate this with numbers and then I'll come back and talk a little bit more about that. Thank you, Robin.

Thanks, Marjorie. Good morning, everybody. As you know, our trading is always seasonally light in the first half. That makes the outlook particularly important, so I'll spend a little time on that. Also, these are the first numbers we've reported under our new education segments and I'll give you some detail of those as well. But let's do the numbers first.

Sales are up 6% on an underlying basis and 14% at CER, i.e. including acquisitions. And again, we're seeing good growth in all businesses. Education is up 4% underlying. And that comprises North American Education, up 5%. Breaking that down, US Higher Education was up 10%, albeit off a small first half base, and US School was up 3%, despite a weak supplementary market, helped by a 31% share of new adoptions.

International Education was up 4% with good growth in all regions, despite the absence of the UK Key Stage testing contract. Professional was level, as expected, after double-digit growth last year. Sales are up 8% at FT Publishing and 7% at Interactive Data. Growth is strong at our subscription and our digital businesses. And circulation and advertising revenues are ahead too. Penguin grew 9% with an excellent all-round performance and the runaway success of Eckhart Tolle's 'A New Earth'.

There is some phasing that helped the first half. Part of the Texas maths adoption shipped early, Edexcel accelerated its GCSE and A level marking, Penguin benefited from the weighting of its publishing schedule and has tougher second half comparatives. Even so, the underlying trading performance is clearly strong.

That 6% underlying growth added GBP97m to our 2008 first half sales. Acquisitions added a further 8%, with Harcourt and eCollege performing strongly. Favorable exchange rates against weaker sterling increased reported profits by 2%, or GBP37m, mainly through translation effects, giving headline sales growth of 16%. The dollar averaged $1.97 against sterling in the first half this year, against $1.98 in the first half last year, and was therefore marginally advantageous to us.

Overall, we turned that 6% sales increase into 20% underlying operating profit growth. We continue to make steady progress on margins. We increased profits in all our businesses and Education made a first half contribution for the first time.

In North America, our traditional first half loss was about level with 2007. Underlying profitability continued to improve at our US School business, offset by restructuring and integration charges. And there was our usual first half investment in higher education.

In International Education, we continue to benefit from organic growth, integration benefits and margin improvement, with profits up by GBP17m to GBP20m. In Professional, profits were about level with 2007, as we continue to benefit from increased volumes in our testing network.

Profits were a little lower in Publishing, but due to phasing. FT Publishing profits were up 13% to GBP30m. The FT itself benefited from continued growth and efficiency moves, and Mergermarket is now making a significant and reliable contribution to operating profit.

Interactive Data increased profits by 16% to GBP54m, with a strong all-round performance. And Penguin improved by 28% to GBP26m, benefiting from strong first half publishing schedule and its longstanding efficiency drive.

About 20% or GBP17m underlying profit growth was supplemented by profits arising from acquisitions, which after integration costs added GBP16m or 18%. Foreign exchange increased reported operating profit by GBP5m, or 6%, resulting in headline growth of 44%. These numbers include expense integration and restructuring costs of more than GBP10m in the first half.

Looking below adjusted operating profit, our total interest charge was GBP1m higher than 2007 at GBP40m, reflecting higher average net debt but lower dollar variable interest rates. In spite of the challenging credit conditions, we successfully raised $900m of finance in the US bond market at rates of 5.5% and 6.25% for five and 10-year money. Our tax rate in the first half was 28% and adjusted earnings per share grew from 3.1p to 5.6p on a flat number of shares.

On a statutory basis, operating profit increased to GBP95m from GBP70m, despite a rise in intangible amortization charges to GBP29m. Earnings on a statutory basis were affected by a tax charge on the sale of our Scanners business, which you see in discontinued. The bulk of that charge was offset by usage of brought forward tax losses in the US, so cash tax on the disposal was minimal.

Turning to cash flow, as you know, we always see a significant increase in working capital during the first half, as stock is built ahead of the summer season in our education businesses. This year, the working capital outflow, including capitalized prepublication spend, was an increase on last year of 21% at GBP316m, mainly due to FX and to Harcourt International being in the numbers for the first time.

Our average working capital to sales ratio improved once again, from 26.1% to 25.6%. Six years ago, this was 33%. Our fixed capital spend of GBP46m was, as usual, below our first half depreciation charge of GBP54m. Total free cash flow was an outflow of GBP274m versus GBP324m last year, mostly reflecting the absence of the GBP50m special contribution into the UK pension scheme in the first half 2007.

On the balance sheet, our defined benefit scheme is the largest of our pension schemes. It remained in surplus by GBP36m under IAS19 at the end of June 2008, despite a longer mortality assumption. Details of our pension numbers are in the back of your packs.

Net debt was GBP1.7b compared to GBP1.4b last year, as a result of the Harcourt Assessment and Testing consideration paid in January, offset partially by proceeds from the sale of Scanners.

Now, in the first half, as you know, we announced a new segmental analysis of our Education business, reflecting an organization change and new responsibilities in that business. We don't normally go into this level of detail, but to help you build your models I thought that this time I'd give you an analysis of what's now where in the Group.

In 2007, Education in total contributed GBP2.75b, or 64%, of Pearson's pro forma sales. About one quarter of those revenues came from digitally enabled products and services. Under our new Education segments, the Education business now breaks into North America, which is 41% of Pearson, International, which is 18%, and Professional at 5%.

Drilling down into each segment, within North American Education, US Higher Education makes up 14% of Pearson, School Curriculum 14%. And within that, new adoptions are typically around 3%, Testing and Student Information 10% and Canada is 3%.

Our International Education business has a strong position in Europe, 12%, and especially now here in the UK. It also has a good platform in some exciting growth markets, such as China, India, Middle East, Africa and Latin America, which totals 6%.

Within our Professional Education business, Professional Testing now makes up 3% and the Professional Publishing business is 2%. It has two parts, Technology Publishing, which we've scaled back significantly in recent years, and Business Publishing under the Imprints like Wharton Press and FT Press.

Penguin as a whole is 20% of Pearson. The US business makes up about 10%, the UK 4% and the rest of the world, including Australia, India and South Africa, 6%.

Just to complete the picture, the analysis with the FT Group, its Content revenues make up 11% and Advertising revenues less than 5%.

That analysis illustrates three points which are important at this stage in the cycle. First, our revenues are broadly spread across a range of geographies, business models, types of customer and sources of funding, among them federal, state and local governments, companies and individual consumers. Second, a significant and growing proportion of our sales come from businesses with either multi-year contracts or annual contracts with very high renewal rates. And third, Advertising and Technology Publishing, the two areas that proved particularly difficult during the last downturn, today account for less than 6% of our sales. In 2000 they accounted for 16%.

That is why, as Marjorie says, we're feeling confident about the future, durable and able to grow, even in tough markets. With that background, let me set out the outlook for the rest of this year.

Our guidance reflects that new segmental reporting in Education and is unchanged except for last week's upgrade at Interactive Data. In North American Education, we expect 2% to 4% underlying sales growth this year and CER growth around 10%, with stable margins as we expense integration costs. In International Education, we expect low-single-digit underlying sales growth and around 10% CER growth with stable margins. Our guidance for Professional is unchanged.

Looking forwards to 2009, we expect around a 1% improvement in overall Education margin, as integration costs fall away and related benefits come through.

Guidance for Penguin and FT Publishing is also unchanged, though we are very encouraged by the strong performance of both businesses.

And Interactive Data has increased its guidance to sales growth of 8% to 10% and operating profit growth of 11% to 13%. The first half was helped by some phasing, as I mentioned. But the strength of our trading has increased our confidence in our full year guidance, despite the wider economic issues. And as a result, we're increasing the interim dividend by 6.3% to 11.8p per share.

So, to sum up, we're seeing strength in trading across the Company and we're continuing to invest for the future. We're continuing to improve margins and there's more to come in future years, especially in Education, as we consolidate inside North America and gain scale outside. We have a strong balance sheet, low levels of debt, robust long-term funding arrangements and a high level of interest cover. That gives us the capability to weather and take advantage of tougher economic conditions.

We have stuck to our cash and capital allocation disciplines and we'll continue to do so. We focus on organic investment, bolt-on acquisitions and our dividend as the primary use of cash returned to shareholders. We have made a good start to the year and although there remains some way to go, our momentum is clearly strong.

Thank you. Back to Marjorie.

Thanks, Robin. I want to take a few minutes now to show you more of the basis for our claims of durability and growth, reflected as they are so far in this year's results, and then to mention one or two changes that I think we're making to underpin them beyond this year.

First, just to remind you of our framework, this list of priorities may be getting boring for you if you've been to other results presentations, but we've been showing it for several years because it is our strategy for long-term reliable growth, growth in earnings and cash and returns. It involves steady investment in content, creation of allied digital services and services businesses, expansion into emerging markets, into growing markets, and studied and continuous improvement in efficiency, in margins and in working capital use.

So, let me talk about how this has been applied around Pearson so far this year and why it means durability and growth. I'll start with Penguin.

Penguin durability comes from the quality and imagination in the publishing, first off, the international spread, the strength of the back list and the rigor of its operations. On the growth side, our focus over the past few years, as you know, here, has been on margin and profit growth. You can see that strategy in the record through last year, as well as in the first half numbers this year, which show strength on the top line and strength on the bottom line.

These are the results from a plan that we set out a few years ago, with those four fundamental points. First, sustained and disciplined investment in content and publishing. Penguin's publishing performance has been consistently high. Here are some of the things we're doing now, or you can expect later in this year.

Secondly, the development of Penguin as an integrated international publishing company. That way of working gives us scale benefits and access to emerging markets like India and China, where literacy rates in the book industry are rising and where new models for growth in publishing can spring up and can really thrive. Penguin sales are in double digits in those two markets.

And it has been some kind of an indication of success and, I think, some kind of a record that Penguin was named the publisher of the year in Australia and Canada on the very same day this year, and that last year it was the publisher of the year in the UK, and in India we won just about every literary award we could.

That international outlook that we have in Penguin helps with the third prong of its strategy as well, digital innovation. We've been investing in ebooks now for many years and we're starting to ramp up production, finally, as we see sales coming through strongly, though from a very small base, I have to add.

We're also experimenting with richer and more interactive ways of digital reading and writing. Our customized travel guides experiment with new forms of writing on the web and enhanced Penguin classics are a good example.

This is the digital version of Pride and Prejudice you see here. It includes important things for all of you, like etiquette and recipes from Jane Austen sites and information about dress and those kinds of things. We price this very rich digital version at $8, compared with $3 for a standard copy of the book. And it went straight to number six on the Amazon Kindle best seller chart. So we do think people are going to like this, at least some people.

Digital innovation, though, is much, much more than product design. It's how we create and store and reuse the content, how we do things like that, how we capture readers' imaginations, how we sell them and how we enlarge the market.

That digital approach also contributes greatly to the fourth part of the plan, which is efficiency. Our efficiency in Penguin is clearly increasing steadily and Penguin is homing in on its double-digit margin target for this year.

At the FT Group, durability and growth come from the same strategy, focused most tightly on two areas. The changes we've made to the composition of the Group, that is selling advertising-driven national print media like Recoletos and Les Echos and FT Deutschland, and building digital subscription businesses like Interactive Data and Mergermarket. And secondly, the changes we've made to the very businesses themselves, investing in content that attracts premium prices and recurring revenues, diversifying into new geographic markets and new digital services, becoming as always ever more efficient. You can see the value of those kinds of changes in our record here, as well as in the first half performance.

Starting with Interactive Data, you've probably already seen those results, which they published last week. So, you'll know the highlights - good revenue growth, very high renewal rates, 95% or higher, steady margin improvement.

You'll also remember, I hope, that Interactive Data is durability itself. Historically, it has been. It carried on growing every year through the last downturn in the financial markets. That's because there are some powerful structural trends in markets that favor it - heightened scrutiny about the valuation of securities, increased regulation and demand for high-speed real-time data. It doesn't depend on numbers or trading volumes. Rather, its customers depend on it to value their portfolios and to meet their regulatory requirements, no matter what the weather.

On the publishing side of the FT Group, the record of the last four years is strong, as you see here, as is the first half of the year, with sales up 13%, operating profit up 26%, thanks to all areas of FT Publishing.

Mergermarket, for instance, is proving to be an excellent addition to the family. It's growing profit strongly, well ahead of our acquisition model. Its resilience comes from its very high, around 90%, renewal rates. And its growth comes from new products and new services, which it efficiently adds to its platform quite quickly in response to the market.

The FT newspaper, the winner of awards all over the world this year, is performing especially well. Its circulation revenue is up 20%. Its circulation is steady at 450,000. And despite tough markets, advertising revenue continues to grow, up 2% in the first half and taking ad market share in most of its markets.

That newspaper performance, I realize, goes against the grain of the wider industry, but it's possible for us for three reasons, really. First, there is a good market for niche premium content and the FT's editorial is both specialized and relevant, especially in these times.

Secondly, we've diversified its revenue streams. In 2000, advertising made up over 50% of the revenues of the FT Group. In the first half of this year, it was under 30%. We've been bold and consistent in our vision of building global businesses and building a digital business. And our exposure to these growing markets and our reliance on digital delivery and processes is another key to the FT success.

So, we're pushing on with that vision. We're opening up some new growth opportunities, just to show you a few of those. We've launched a new edition of the FT for the Middle East, which as you know is becoming a real market center. We've entered China in print with a new magazine you see here, called Rui. It's for the region's super rich, of whom there are now a growing number.

We've added new services, like Exec Appointments in recruitment and Money Media for fund managers, which is beginning to move through Europe; that's what this Ignites Europe says. And we're always building up FT.com, adding more enhancements. It now has more than 0.5m registered users from its new access model, and that's feeding a very solid subscription base of about 100,000 and is also a group of people that are attractive to advertisers.

A few years ago, at the bottom of a pretty savage advertising slump, we said we would restore serious profitability in this division. We've done that. The advertising market is uncertain once again, but we're much more diversified now and so we are confident the FT Group profits will become even more serious this year.

Moving on to education and starting with the Professional Division in our new set of categories. We've focused this business right down on the core education market. And here the durability comes from the long-term contracts in our Professional Testing, which are typically for five to seven years, with the option of renewal.

And it also comes from the changes that we've been making to the publishing side of the business, where we have scaled back dramatically on technology publishing, as Robin mentioned, in favor of building our presence in business publishing. The growth is going to come mainly from strong and worldwide demand for vocational and professional and adult learning and certification.

So, for example, volumes in our nurses' tests, that is a test to take to be a nurse in America, which is given all over the world, those volumes are up 5% in the first half. For the GMAT test, the business school admissions test, volumes are up 12% in the first half.

And new sources of growth really abound for us in this area. We're connecting the businesses with other parts of Pearson that serve professional customers. We have a highly successful suite of vocational qualifications under the BTec brand. We have a great deal of content and technology serving professions in great demand, such as teaching and accounting and healthcare. And of course, we have valuable business brands in the FT and Penguin that we find aspiring professionals really do respect.

Our largest opportunity is to apply our strategy of connecting content and assessment and technology in educational services to that booming adult and vocational sector around the world. We have plenty of concrete reasons to be enthusiastic about our prospects for doing that.

Next, North American Education. This is our biggest business now, with sales of $3.3b and profits of $550m last year. It has a good record of growth, as you see here, with sales increasing at an average annual rate of 9% over the past four years. Profits have grown a little faster, at 12%, even as we've been investing through the P&L in new programs and in the transformation of digital services.

Over the past three years, the US School and Higher Ed market combined has grown 12%. Our North American business combining those two has grown 18%. And we're off to another good start this year.

In enVisionMATH, our new print and digital elementary math program, has taken the leading share of adoptions. In Texas, our market share is more than 50%. In California, our win rate is also more than 50%. And it looks like we'll take a share of around 40% in all the open territories. Next year, the adoption opportunity looks a little lower at around $800m, but in 2010 it jumps back to around $1.1b, we reckon.

We've also continued to win big multi-year testing contracts, for students in Maryland and Tennessee, for teachers in California and Oklahoma, for accomplished teachers across the United States. Our momentum in this testing and in our certification business is very strong.

Meanwhile, our suite of online learning programs in higher ed, the MyLabs that we've talked to you so much about, have increased student registrations, which means student usage, by close to 50% because they've just made students more successful.

I do know that some of you are concerned about the impact of US economic conditions on this business. Some states do have budget woes, but almost across the board our part of the education budgets has been shielded from cuts or even has received increases.

It is a dynamic market, though. We are seeing changes. The demand for more technology, more customization, more evidence of effectiveness, is big. And there's much less demand for print supplemental materials. Those changes all play to our strengths, though.

We see the US School publishing market growing around 3% to 4% this year and the higher education market doing a little better. So, this is a good growth market. And we can have confidence our North American business is going to grow in 2009 and 2010 because of the structural changes we're making to our own business. In the short term, those changes are going to matter more to our performance than external market conditions.

First, the integration of Harcourt Assessment and eCollege into the Company. Both are trading very well and both are resilient businesses in their own right, with long-term contracts in assessment and with very high renewal rates in eCollege. Both contribute to our prediction that total education margins will improve by around a percentage point, as Robin outlined a few minutes ago. And both severely advance our education strategy.

The second structural change is the alignment of US School and US Higher Education. This is a lot more than changing how we report our numbers. It reflects our view of learning as a continuum from kindergarten through school and college and into the workforce. And it enhances our ability to move products and technology from one market segment to another. And it will be the operational integration of our two largest companies, so obviously will yield new cost and revenue opportunities and give us advantages that less broad competitors just don't have.

We'll regard that reorganization as a regular cost of doing business. We'll expense it through the P&L, as we always do. But we do plan to keep talking to you about it, because we think the opportunities really are significant in this new company.

Part of the change, too, is our decision to manage and report International Education as a separate segment. Over the past four years, in this business we've increased sales at an average headline rate of 15% and underlying rate in the high single digits.

You can see the magnitude of the profit growth here. That's come as we've strengthened the organization and improved and consolidated the back office operations and integrated new businesses like Edexcel and like Paravia Bruno Mondadori, our Italian business. Profits have increased more than threefold in this business, from GBP27m in 2004 to GBP92m last year.

Our plans for International are raised on the very same education strategy as we're applying in North America, using technology to connect content and assessment and student information to make learning personal. And as we do that, we move from being a publishing company to being a services company.

Within that plan, we're focusing on a few areas. First, adapting our breakthrough products internationally. So, for example, the MyLab products I talked to you about, developed in the US, are now available in 65 countries and we're taking eCollege into the same level of international markets.

Secondly, building new growth businesses, including our private language English schools in China and our worldwide test development company, working now especially in the Middle East, and everywhere in between, from schools and colleges in Africa to innovative work course qualifications in the UK from Edexcel.

We're also leading the global English language teaching market, both in our traditional publishing operations and in those new growth areas like language schools, assessment, test preparation, adaptive learning and, in particular, on the job language training.

And, as every company, this Company is continuing to be more efficient. Over the past four years, we've increased margins here from 5.6% to 12.5%. We used to believe that International Education margins were structurally lower than the US. We now see more scope for improvement. In this globalizing and technology driven knowledge economy, we're building the world leader in education content and services. That's an exciting opportunity and we believe it's going to be a very big factor in our future growth.

So, that's some of the evidence of our confidence that we're durable and that we can keep on growing. The upshot of it is that we're maintaining our guidance for 2008 in spite of a world that kind of looks like it's melting, sometimes.

We're also optimistic about our outlook for 2009, not only because an increasing amount of our business is in highly predictable contracts and subscriptions, but also because of those structural changes we've been making to our own house. Those will be a large source of our improvement in the next couple of years.

We are, of course, mindful of the current economic conditions and we're keeping a very careful eye on trading and the trading environment. But our momentum has been built on sustained investment and innovation and change through good times and through bad times, and we think that is really going to stand us in good stead.

And, I think, finally, we believe that an economic downturn can bring many, many opportunities to a company that has a clear strategy, good trading and a strong financial position, and we have all of those.

So, thank you very much for listening. We'll be happy to take your questions. My colleagues are going to join me. Rona from the FT Group, John Fallon, who runs our International business, who you may remember from his other life, five years ago in communications, John Makinson from Penguin and Will Ethridge, who is the big winner in that he's now running the North American Education business, our biggest business. And also our Chairman, Glen Moreno, is over there on the side, if you have a question to ask him. I'm sure he'd be happy to answer or he'll tell you to [expletive] off or something. Go ahead.

Hi. It's Polo Tang from UBS. I just have a couple of different questions. The first question is just on the reorganization of the education assets. Why have you decided to organize them now? What was the rationale behind that?

The second question is just on your guidance for the North American Education business, because you're saying 2% to 4% growth for the full year but you've done 4% to 5% for the first half. The college market's very strong and by the looks of things you're taking a significant amount of share, so isn't the 2% to 4% for North American Education conservative?

And the final question is just on the FT. Are you seeing any impact from the Wall Street Journal?

Okay. Well, let me talk about why we reorganized and I think Will will be happy to tell you about the guidance. He's a very prudent guy, so you're not going to get much out of him, I don't think.

But we reorganized just because of what I said, because we see learning changing and because we would like to be the technology leader, as I think we are right now. We'd like to stay that way. And we really do believe the addition of technology to content and assessment and the kinds of student information we have will allow us to teach along a personal developmental continuum, not just to the middle of the class, as so many other companies do. And because we are broader than all the other education companies, we're able to connect those. So we're able to connect early learning and take a child who is 14 years old but ready for college biology and give him that.

But we can't do that until we're able to connect all those businesses and begin to have a smoother flow of assets. And then, just look at the cost savings and look at the opportunities in new product terms. Don't put those into your model right now, but that's really why we did this because we see a huge opportunity and this is going to be the very best way to accomplish it.

You want to talk about guidance for North American Education?

Sure, Marjorie. As Robin said, we have these three segments. Let me just talk briefly about them. In School, we had a good year in new adoption. Our plan was to get around 30%. We think we'll be at 31%. And we have good data now, so we can be relatively confident about that. And as Marjorie said, had a very good year with enVisionMATH. Open Territory, the data's coming in still, so we don't have quite the visibility but we think we're on track. We had obviously a good first half.

Supplemental is a tough market. It's not a big area for us. We're not doing quite as well as we wanted. A&I is Assessment and Information. Had a good first half. We still have some ways to go in the second half, but we have pretty good visibility given the contracts. Higher Ed, we had a very good first half but, again, it's so early and we have some phasing issues. We had a stronger second half last year than this, so we think we're well on our way to having a good year in Higher Ed.

The big point, though, is you have to look at overall North America. I know it's a little confusing because we looked at International. And we've looked at these numbers and we're on track to make our guidance and we're feeling good about our businesses.

And I guess, just to make sure that everybody understands, this is absolutely no change in our guidance, but when you put the two together it's a 2% to 4% prediction. But I don't want anybody going out confused about that.

Another question? Sorry, the Wall Street Journal? I just --

In terms of the Wall Street Journal, clearly it's early days, but in a sense I think we believe that our strategy's quite different. We are much more focused on being a niche market and being global, whereas I think they're still more Main Street. And I think what we are doing is making sure that we stick to our strategy, which is about being niche, which is about diversifying, which is about getting more sustainable sources of revenue like subscribers and more digital.

And so we bought, you'll have seen, a business called Money Media, which again is focused on fund managers. It's online. And the Ignites program that you saw on the screen is us taking that US product international, which is the hallmark of the FT Publishing Group.

So, I think at the moment it's early days. We don't see any immediate impact. But I think we'll just stick to our strategy because we think that's the right one for us. And as you see, the results are good. It seems to be working.

Sami, you need this microphone.

Thank you. I have several questions, if I may, please. The first one --

Seven questions, was that seven?

Several.

Several.

Try to keep it down to no more than three.

Given the H2 release schedule you mentioned in your press release at Penguin, would you quantify where you see the revenue growth for the full year or why should we expect the H2 to be weaker, given the slate you mentioned in the press release?

Secondly, within the International Education, could you -- would you please break down the Higher Ed versus School revenues you make internationally?

And lastly, in the 10% Higher Education revenue growth in H1, would you be able to split out the contribution from enrollment growth or comment on the enrollment trends throughout the North American colleges, please?

Okay. Why don't we start with Penguin and half two sales non-prediction?

Well, there are two important moving parts. The first is in the first half of this year, and particularly in the first quarter of this year, the contribution of the Eckhart Tolle book that Robin mentioned and you'll see in the release shipping numbers that we've given for that. So, when you look at the 9% growth in the first half, that is affected to some significant extent by that one book.

And you may remember, secondly, when we were talking six months ago or so about the impact of the final quarter in the US, where sales were exceptionally strong. We showed year-on-year sales growth in that quarter of about 28%. And that was a function of a lot of trade paperbacks, in particular Eat, Pray, Love, Follett books, which were just very, very strong.

So, I think we don't see it as the second half being weaker, but as last year's second half being exceptionally strong and this year's second half being a more normal level of performance. So that sort of -- you can make your own assumptions about how that curve plays out, but the only guidance we're actually giving, as you can see, is to maintain the guidance about the 10% margin for 2008. But clearly, we're not going to be showing 9% sales growth for the year as a whole.

John, you want to take International, Higher Ed and School revenues?

Yes. I'm sat next to the Finance Director, who tells me that I can't give you the split between Schools and Higher Ed. What I can say is both parts are off to a very strong start to the year and both parts have been contributing to the good growth that we've seen over the last few years. In Higher Education that's coming in part from, I don't know if you've been following, in places like the Middle East. Egypt, Jordan, UAE, Saudi Arabia have seen very strong growth, both in public and private sector universities and much more teaching done in English and much bigger focus on technology, which obviously plays greatly to our strengths.

And in School we're doing well in Italy, as Marjorie mentioned. We're having a very strong performance in the UK, both with the Edexcel business and very pleased with the way the Heinemann acquisition is going.

But I think perhaps one of the most interesting and exciting things is really the role that we're seeing in places like Africa, so we're having a very strong year in places like Ghana, Nigeria, South Africa. I was looking at some World Bank statistics over the weekend who -- they forecast there may be as many as 40m children of primary school age who currently do not get a primary school education. And one of the key Millennium goals is to really drive those enrollments and that will then feed through obviously into secondary and higher education.

So I think the message is we are very pleased with the growth we're getting internationally, both in School and Higher Ed, and there's every reason to be confident that we can sustain that growth over the next few years.

Will, you want to talk about your 10% growth and how much is enrollment?

Yes. We had a really good first half. We don't actually get actual enrollment data right now. It's always lagging. But we're assuming we would have enrollment both of one to two. And then you have prices and then you have real share gains. In the first half, we've clearly gotten real share gains and that's really gratifying. A lot of competitors, especially Cengage, maybe because they're in need to get cash, raised prices quite a bit higher than we have. In fact, I think probably the rest of industry is down in units a little bit and we're up, so we've taken some real share.

But again, having said all that, we have a big third and fourth quarter, so don't get too excited yet. There's a long way to go. And we had a big second half last year.

Meg?

I have three questions, as well, I'll keep it to. First of all, for Robin, can you just update us on the cash tax rate this year and going forward? Is there any kind of picture you can paint for us there?

Secondly, I know you don't like to give us the restructuring and integration costs, but can you describe what the picture looks like? Was a lot of it in the first half? Was it even throughout this year? Will there be more in 2009? And that holds for the acquisition integrations but also the merger of the US -- two Education divisions in the US.

And then, thirdly, I just was wondering if, in the International side, Europe is the biggest part, I think I saw from your chart. How big is the euro zone versus UK, just for currency reasons? Thanks.

John, would you like to take that first or do you need time to think about that? Or can Robin --?

Well, I need some guidance from the Finance Director on Europe.

(Multiple speakers) of Europe, I think.

Yes, okay.

He's never really this obedient.

I think that on the -- I think on the European side it's fair to say that the UK is by some way the biggest single contributor to that business, although, again, we're getting good performances right across the spread. And obviously it's not just the euro, because we have decent size businesses in Poland and further into Eastern Europe, as well.

So, Robin, cash tax rate, restructuring and integration?

Yes. Cash tax rates will be very similar, I think, this year to what it has been in recent years. It's typically run in the 12% to 14% territory. That's as a result, obviously, of the losses we've been using in the UK and the losses, the NOLs in the US. What we've said, I think, very consistently is that those losses will last well into 2009 and that picture really hasn't changed.

On restructuring and integration, I think we did give you some numbers on the way through. Remember, we set off the year, and this is about the restructuring and integration of the acquisitions, expecting to expense about GBP20m through the P&L this year. And remember, we don't separate these off and give them a whizzy name and put them in a separate bucket and not talk about them ever again. We take these through the P&L and they're all in our margin guidance.

And as I said on the way through, we spent a little bit more than GBP10m in the first half, so you can see that there's about GBP9.5m left to go on that plan in the second half.

On the possibility -- the probability that we will take some restructuring associated with Will's business in the North American integration, I think what we are expecting on that is that either that will fall this year, and this is the very early stages so I can't give you any numbers on it, but either it will fall a little bit into this year, in which case it's covered by our guidance in this year's numbers and the outlook we've given you.

To the extent that it falls into next year, then it will be the early part of next year and therefore it will be self-funding. In other words, the benefit that comes from it will offset any costs associated with it. So the guidance we've given you on margin improvement in North America or the overall Education margin improvement as it now is still holds good, even if we take that integration into next year.

So it doesn't change the guidance. Okay. Yes?

It's Jonathan Helliwell at Cazenove. Two questions. First, I think Will had touched on it earlier, but just more broadly, in School and Higher Ed you've got quite a lot of change in the competition, leverage competitors. I'm just wondering whether you're starting to see a real change in the way they compete against you. You can guess it from the numbers but I'd be interested to hear if they're coming out with new digital products or new combined products and so on.

And then separately, historically, college publishing has been very resilient in a downturn but this time round there seems a lot more pressure on student loans and the financing side of the student equation. I'm wondering if you're beginning to see any impact yet from that.

Okay. Will, would you like to talk about our competitors?

Yes. I think the situation's a little bit different, although it's still early days, by School and Higher Ed. In School you have the combination of Holt and Harcourt, which makes them the biggest, which gives -- that's good for them. They have more scale. And some of the real changes we're seeing in the transformation of education are happening slower, although I think they're really starting to pick up in School. So they're going to be focused right now, it's clear, on integration and driving the core traditional publishing textbook model.

And given they have more scale, we have to assume in some ways they could be even tougher in the short run, if they handle that integration well, but that's always difficult. But at a time when you really also should be focusing on transformation, they have this massive integration to pull off. They probably don't have as much capital to spend.

And we do think that this is a pivotal point in American education. It doesn't change overnight but if you wait too long you can't catch up. And so we're focused on efficiency, we're focused on our core model, but we're also focused on transformation.

In Higher Ed you have Cengage is owned by Apex. It's pretty clear. I'm not saying that anyone knows that they have raised prices more than anyone else. I don't think that's good for them in the long term. I don't think it's good for the industry. We're trying to focus on value. Students are upset. We are getting tremendous growth in our MyLabs.

What's interesting is those books are priced well. We are holding our pricing power. But people are happy about it because they're improving how they're doing in math, they're improving how they're doing in physics.

So we do believe, again, we don't take any of our competitors for granted. They're all smart people working hard. But again, Higher Ed is really accelerating. We're seeing tremendous growth in eCollege. We're seeing tremendous growth in our MyLabs. At the same time, if you're just -- in those parts of our portfolio where we're just publishing books without the accompanying class, we're having the same kind of problems that our competitor's having.

So we're excited about where we're going in Higher Ed and the moves we've made. And we have two major competitors and they're having to deal with some issues right now that I think we're not having to deal with right now.

On the loan side, we really haven't seen it. I think in the beginning of the year we were a little worried about the For Profit sector. That's held up well. And I think that our fears about -- on the student loan front were eased when the US government agreed that they would buy or they would federally guarantee those student loans, so that really freed up capital for banks to lend again. And we haven't seen any dip in enrollment so far. As Will said, the enrollment data lags a bit, but we haven't really seen that. So I think it's unlikely that that is going to really be the perpetrator of a major decline.

Yes. And actually, the enrollment data we've gotten from For Profit so far, they just announced some, was surprisingly good. Plus one thing that could happen is in the four-year market some students might want to take their first two years at community college. If that happened, that's good news for us because that's where these introductory courses, they want the more structure, they want the MyLabs. You're more likely to have at the four-year school the individual professor do their own thing. So if there is a shift from four-year to two-year, that really plays to our benefit.

We make more money from a student at Dallas Community College than from a student at Harvard. Another one, way back in the back.

Hi, thanks. This is Tim Nollen from JP Morgan. Could you please expand - you've touched on it a couple of times - could you expand a little bit on technology in the School side, not the Higher Ed side but the School side? What's changing now, what it could ultimately mean for you in terms of revenues, profitabilities? You won't give us numbers but just what it means for you?

And then a quick update, if you could, on No Child Left Behind reauthorization, I guess that may come up again next year, and on Reading First, please.

Okay. Well, I'll take the No Child Left Behind and you want to talk about School technologies, [Ed]? Our No Child Left Behind did come up for reauthorization but it's a perpetual bill, so if it's not reauthorized it just keeps on ticking over until something else replaces it.

Our view is that probably something will replace it. It may be something just like it but called the Democratic Party's plan for Student Improvement or something. But we think it will and we think that both candidates, while they haven't talked a whole lot about education, have indicated their support for the standards movement, which is the basis for No Child Left Behind, and their understanding that you've got to test students in order to figure out if they're making the standards or not.

So we're pretty enthusiastic about what's going to happen. Remember, No Child Left Behind was a bipartisan bill and the difference in the Republicans and the Democrats was the Democrats wanted to put more money behind it. We didn't get that more money and I think one of the reasons it hasn't been implemented as well is because it didn't have enough money. So the Democrats, were there to be a Democratic President, would certainly put more money behind it, which is going to be a good thing for us.

School technology?

Yes, school technology. Marjorie mentioned in her opening remarks how well we did with enVisionMATH. One of the reasons we did so well with enVisionMATH is it has the industry-leading digital component with it. So if it's slower in School than Higher Ed, it is happening and it is accelerating. We also believe, and one of the reasons why we wanted to put these two companies together, is we think that technology can be shared across Higher Ed and School.

One of the great examples of that is - and we're really starting to move on it - is the MyLab in high school. College readiness is a huge issue. College readiness is really around math readiness. And we are in a better position than anyone else, as I said before. Holt and Harcourt's only focus is on school. Cengage is only focused on higher ed. We're the big company that's both school and higher ed.

I've been talking to university presidents. I've been talking to school districts. They want to solve this problem of a student graduating from high school saying you know math and then three months later showing up in college and saying you don't. And Pearson has the tools. Pearson has the resources to connect that. That's probably the biggest single problem in American education right now is math. And it's something we're really focusing on and I think it's one of the reasons and one of the benefits we'll get from putting our Higher Ed and School companies together.

John, how about we've got also school technology internationally?

Yes. Well, I just wanted to say I think this is an area where the investment that we've made in technology on the back of the scale of our North American business is a huge competitive advantage internationally, because it enables -- we can offer a range of products and services that none of our competitors, who tend to be national or regional players, can match.

And just to give two examples of that, we took the ePen technology, which is the technology that underpins our marking system, the way we mark our test scores in the US, adapted that for the UK. And it means that every student taking an Edexcel GCSE or GCE exam this year can get a very -- previously they would just get a headline mark, A plus, A, D, E or whatever. Now we can give them very, very detailed analysis right down to every single question, which helps to inform their future study and also helps schools to improve teacher development training, compare performance and the like. That is a huge competitive advantage compared to what the other boards can offer.

And secondly, I think what's really exciting now, whether it's here in the UK, Scandinavia, the Middle East, parts of Asia, we're really just starting to see the sort of level of take-up of the MyLabs that we were seeing in the United States three or four years ago. And again, I think that's a very big competitive advantage for us.

And for Reading First, I think there are going to be a lot of government-inspired and government-funded programs, but I think the Reading First money is probably going to go away and be replaced by some other programs.

I think one last thing to say about government, particularly US government and funding, is right before the new President of the United States gets inaugurated in January, in December the results are going to come out for the Thames Test. The Thames Test is a test that's given every four years worldwide. It's one of the only two worldwide tests for gauging the achievement of students in math and in science.

And probably it's going to be that American students are going to come, as they generally have, pretty low in that Thames Test scale and the new President is going to be confronting a real problem in education. And though I don't wish that to happen, I think that it's inevitable that they're not going to do well. And in fact, UK students aren't going to do that well either. So this is going to stir up a lot more interest in that because that's a very big test known to everybody.

Yes?

Hi. It's Giasone Salati from Execution. I actually studied my maths in Italy, I wanted to point out before I start. I have only two questions, please. First one is on weight of the FT Group going forward and it's a question for both of you. You mentioned --

What was the first part?

The weight of FT Group going forward in the whole --

I'm standing here in a vortex of -- okay, go ahead.

You mentioned a downturn may bring up some important opportunities and so far we have seen very interesting opportunities in education. Most of them have been caught even beyond what we could have thought in terms of antitrust, etc., etc.

The FT Group is clearly maybe the most interesting growing part within the whole Group and I was wondering where would you like to expand that, if this is one of your aims, and how much would you put in terms of capital from the whole Group behind that.

And focusing on vocation?

Sorry?

Focusing on vocational, yes, I think you said?

On FT Group.

Yes, FT Group but focusing on what opportunities you've got in that area. Yes, go.

Okay. I thought you would answer that one.

I'd like to but I know you'd want some air time.

In terms of the FT Group, and I think we'll carry on adding businesses that make sense, I think we've had some very successful bolt-on acquisitions. We've consistently done that in Interactive Data. That's something that we've carried on doing this year. And again, I think it's a strategy which has proven to be very value-creative for our shareholders.

Similarly with the FT Publishing Group, as Marjorie said, the acquisition of Mergermarket was a good one. We have moved away from national print-based companies like Recoletos, like Les Echos, and we are adding businesses like Money Media.

I have to say that during the course of the last couple of years it's been very difficult to see businesses that you can bolt on and you can truly say this is going to be a really good value proposition for our shareholders. But I think that might -- that the current environment may throw up opportunities, but I think we will be very, very selective. I think there is a lot of capital discipline required in these times and we'll be very selective in terms of any add-ons and they're likely to be of the nature of bolt-ons.

And we don't have a particular target of the FT Group has to be this weight and the other business needs to be this weight. But I think the other area that we will be building in Pearson is this area of vocational education and professional education. And I think what we'll be doing is looking at ways that we can join up the Education businesses with the brands of the FT and really build a powerful vocational and professional business across the world. And so I think that will also be an area of capital allocation.

We're often surprised just at what power the FT brand has in business audiences or in audiences with students in schools. So we think it's got a lot of running to do. You want to --?

(Multiple speakers) be more precise. What do you think of IDC going forward? Is there a level at which you would be interested in that? And generally, without thinking of any target, how much capital do you think Pearson would like to invest in the FT Group to grow, in this moment in which clearly some buying opportunities will arise?

Our capital allocation is something, obviously, that's for our board room, not really for here. But we're fairly careful about it. We look at the returns on investments, we look at how strategic they are and we look at how financially robust they are. So that's what we'll do and the FT Group will get their share if they have some good ideas, just as the Education business will. But frankly, we think our --

And Penguin will.

And Penguin will. Penguin gets so much now, it's not -- but frankly, we're going to be looking at a lot of opportunities worldwide, a lot of opportunities in the vocational and professional area. We think those are the big growth areas. And also in emerging markets, particularly in these kinds of economic times, we're going to look at fast-growing markets.

I'm sorry, the second question was --

IDC. IDC, we look at our portfolio of businesses all the time. It is something also that is done in our board room. And we think about whether something is worth more to somebody else or worth more to us, what we can do with it, how it connects to the rest of the Group and all those things. That's an ongoing thing and IDC is part of that. And we're also pretty religious about the fact that we don't talk about it until we've done it, so I hope you'll pardon me.

Yes, right behind you. Give it to the guy right behind you.

Thanks. It's Ian Whittaker from Liberum. Just one question, to do with Penguin. There's been some press news about Hachette being in rather a -- well, it seems like a bit of a nasty dispute with Amazon with regard to royalty rates and Amazon has actually taken some of Hachette's titles off some of its front pages. I'm just wondering if you're actually seeing anything similar, whether you expect to be in further discussions with Amazon over royalty rates at some point.

And also, as well, there's been some discussion about Hachette trying to get some of the other publishers to band together. I don't know if you have any views on that.

John?

I think it's about discount rates rather than royalty rates, isn't it? Yes. We have conversations with Amazon in all of the markets in which we operate all the time. So there is a continuous discussion with Amazon about the terms of the relationship. But what I really can't do is get into the details of that in relation to our own business, and certainly not in relation to Hachette's business.

I would guess the question is have you -- generally, have you seen pressure from Amazon?

Well, Amazon's market share is growing and has been growing consistently in every market. So, in my experience, retailers that have grown market share come to you and look for some value from that. On the other hand, there is a lot about the Amazon business model that is extremely attractive to a publisher, particularly the low rates of return on Amazon. But it's a conversation that we have with Amazon all the time.

Yes? Right here on the end.

John Clarke, Brewin Dolphin. I note that now 12% of your Group sales come from emerging markets, effectively. Can you give us some idea of whether you're in some of these markets, perhaps particularly China or India? You're reaching a phase where you're going to perhaps have to invest in content producing locally, in some form or another, in order to capitalize on the obvious opportunity that you must have there.

Related to that, is the growth that's coming from these countries, is it largely -- is it from increased number of Asian students in American and other western universities or is it more of an export market for content and material? Not that I'm -- I'm really asking for a longer-term view and a next phase and perhaps which of these big markets are your priority. India seems to me an obviously easier one for you, as it's an Anglophone country, than China in many ways.

Well, just to say that's a good question and a hard question to answer because every one of these people here have an international strategy. And their success is partly based on the fact that they're working in those emerging markets and they have strategies that they share with their colleagues about it. So we could spend a long time about it. We have been, though, focused on those countries together. So our India strategy is made up of our FT's India strategy and our Education India strategy and our Penguin Indian strategy and so forth.

So, I think I'll let John talk a little bit about the opportunities in emerging markets in Education and then maybe Rona can talk a little bit about what the FT is doing and give you just a flavor for it, because we do see huge opportunities, absolutely. And as far as investment goes, we --

Sorry, that wasn't intended to be an unfair question. It's really just a question of the next phase in scale, however you handle it.

Yes, (multiple speakers). As far as investment goes, we do look at these emerging markets as part of our growth picture and therefore we will be investing in them. Whether we'll be investing to buy local content creators, I would say is not necessarily the case. But we have lots of different kind of plans we're not quite ready to talk about. But John, talk about International Education.

I think the first question is to say that for a long time particularly a key part of the Longman heritage is that we've always had very strong local publishing teams in places like Hong Kong, South Africa, Nigeria, Singapore, Malaysia. So it's not a new trend. We've always had strong local content.

And interestingly enough, although prices can be lower in those markets, your actual cost of operation can be lower as well and your volumes and your sales and marketing costs lower as well. So, actually, we can earn pretty good margin. So I don't think you should think just because we've got to have local content that necessarily means it's not a good business to be in.

I think, actually, the point that we are now, for the reasons I implied earlier, it's actually getting much easier for us to share content across different markets. And one of the major projects that Will's been leading on across all the businesses is a content management initiative that enables us to share content across different countries and regions. So, I think we can grow quite quickly without having to invest significantly, if that's the question, in expanding capacity because we already have it to a large extent.

Did you want me to talk about the opportunities as well or is that --?

Sure, go ahead.

And then I think just in -- clearly, in places like China, there are opportunities in Higher Education and vocational markets and the like. But the biggest single opportunity, clearly, is around learning English as a foreign language. You look at a country like China, rapidly growing middle class, often several salaries supporting the education of a single child. And one of the biggest items of -- or the biggest item of expenditure after food is actually going into education and learning English as a foreign language is top of the list. So that just gives you a bit of a flavor of the growth opportunity.

Rona, would you like to add anything?

Yes. I can add. If you look at the FT Group and FT Publishing, we are working across the Group with of all these guys here to look at how we expand. I'd pick out a couple of countries or regions. For example, in the Middle East you'll see we've built the Financial Times Middle East edition. If you look at our advertising performance, what that's been helped by is having a very diversified range of revenues. And that includes having a connection with parts of the world or particular industries that are doing well, even when other parts are not doing so well.

So, for example, we have our Middle East edition. You'll see a number of adverts from Middle Eastern companies in the FT. Equally, our Mergermarket business has been taken. A lot of investors are wanting information about what is happening in the Middle East and who's investing where and what are they doing. So we have launched a Deal Reporter Middle East emerging market product.

So, again, we are looking at particular regions. We are also looking at China. You see our magazine, our wealth magazine, Rui. Part of what we are doing in the media world is there are limits, sometimes, to published printed newspaper in country and so we are looking for ways to ensure that our brands are present and are still aligned with the brand strategy we have across the world. So the Rui product is a great example. FT Chinese, where we have a Chinese language website which hits the very, very top niche players in China, is also part of that strategy. And again, we are building our editorial capability in places like China.

The last thing I would say is we've talked a little bit about building that vocational education business across the Group. We have a business called View which does assessment and certification of professionals, some of the professionals. They certify people in the accounting and financial field. And again, we are looking for ways that we can link up that business with Will's business, with John's business, with the FT, to make something that is very compelling in the professional education world.

So that is ongoing work and that is targeted at those key emerging markets where we see a lot of growth and a lot of opportunity.

And actually, we just opened a financial training company in China, Pearson Financial Learning. Is that the right name? Something like that. Yes.

Hi. It's Mark Sugarman from Citigroup. I've got three questions, please. The first is actually on FT. Could you give us a bit of color on some of the advertising categories? I think you say in the release that recruitment was down a little bit and some of the other categories offsetting that.

Secondly, Robin, you've made a point that the pension -- you contributed to the pension fund in the first half of last year. Are you likely to do so in the second half of this year?

And then thirdly, on Education, Marjorie, you talked about $800m adoptions for 2009. How do you come by that because obviously March -- most of the fiscal budgets are the first quarter, so March '10 is a long way away? How do you --?

And also, do you expect to compete in all of those adoptions?

(Multiple speakers) '09?

For '09, yes, so for the March '10, but do you expect to compete in all those adoptions?

Okay. Well, let me just take off the adoption one. How do we come by it? With great difficulty, I have to say. Some things are moving and a lot of -- not a lot, but a couple of programs have moved into the following year not because of funding or anything like that but because states just have trouble getting their curriculum decisions made and their new standards set.

But that is our best guess. I don't know if Will wants to add to that, why we got that. We will be participating in a little bit less next year and the following year it all pops up again, the $1.1m.

The states give a schedule on proclamations and depending on the state, the various times that they are confirmed. But obviously, this is something we are tracking all the time and our latest estimate is based upon what we're getting from the states is roughly around $800m in '09. I'd point out that we're going to have a record-breaking year in '10. It will be over $1b, the single greatest adoption -- new adoption opportunity ever.

Our participation rate is going down in '09. That is not new news. A lot of the big adoptions are in health. That is not an area that's been something we have been focusing on. In '10, both the opportunity and our participation rate rises.

Robin, pensions?

Yes. We took some action last year as part of our scheme de-risking program. We put $100m in it, actually, in total, $50m in each half. The scheme's in surplus, as you see, under IAS19, despite that stronger mortality assumption. So we have now gone for a medium cohort with a 1% floor in there as well. There is no need to put any more money over and above the normal contributions into the scheme in the second half of this year.

So, Rona, ad categories?

FT, so 2% up for the first half. If we just look at it, the second quarter, interestingly, was slightly better than the first quarter. And if we look today, I have to say visibility is poor, so it's -- and we're about to go into August. So it will depend how people come back in September. But bookings, frankly, are pretty much in line with the first half, so that's where we stand today.

In terms of categories, the categories that are suffering are the financial services market, recruitment and the technology advertising. But I think, if you look to the break-up, and this is why we talk about being diversified, in the last downturn they were between 60% and 70% of our advertising revenues and now they are less than 40%. Okay? The categories that are doing well are our online category, our luxury brand, not just in how to spend it but you will see it in FT Magazine and you will see that in the advertising now increasingly in the newspaper too as well as online.

We also have very strong industrial advertising. Again, if you look at the world, the energy prices are at a decent level and therefore the advertising is coming along there. And I think that we are also -- if you look geographically, that has changed too. So last year US was very strong. This year, the US has been less strong. But that has been picked up this year by good strength in Europe and the Middle East.

So that just gives you a flavor, so ups and downs. But overall, slightly ahead in bookings, in reasonable shape.

I think we've got a couple of more questions (inaudible) for [Lorna].

Thank you. I'm just wondering about the (inaudible). I'm always told my voice carries. Hello. I'm just wondering --

I assure you, it does.

I just want to ask you about the Kindle, what you are seeing and what you are doing about it, because I've just come back from a US road show and people are talking about it in the sort of revered terms they used to reserve for the Blackberry and the Ipod. That is my first question.

The second is, if it does really take off, then I guess the sell or return model could change, which actually might mean that books could produce the sort of margins other media businesses produce.

A lovely question. John, would you like to answer that?

I would, Marjorie, thank you. Yes, I feel the same way about it, Lorna. We have certainly seen, in the US, a changing attitude towards both Kindle and the Sony e-book reader devices, really, over the last six to 12 months. And they have entered the book -- publishing book retailing mainstream in a way, I think, in the last six months. And adoption rates are definitely picking up. Amazon have said, as you may have seen, they've also said that 6% of Amazon's book sales are now to the Kindle, so in the form of e-books. And we are expecting that our e-book sales in the US, not just through the Kindle but through all devices available, will increase probably fivefold this year over last year.

So, the absolute numbers are still relatively small. This still adds up to less than 1% of our total sales. But we are seeing some real momentum. And I think it will be interesting to see how the Sony e-book reader performs when it is launched with Waterstone's in September, you've probably seen that that's been announced, and whether we get the same kind of penetration rates in the UK for digital readers as we are starting to see now in the US.

In time, if the e-book becomes a really serious alternative to the format of a book, and I think we are a long way from drawing that conclusion yet. But then, there are all sorts of implications for the publishing model and pricing model and relationship with retailers and consumers, on which we haven't got time to get into today. But certainly, there are implications. And on the whole, positive, I think.

Yes?

The margins, if it works?

Well, I don't think, in the short term, there is a positive margin benefit to the publisher, because we don't know where we are not selling a physical book that is being cannibalized by an e-book, if you like, assuming - which is not a completely correct assumption - but assuming there is a one-to-one correlation between a book sale and an e-book sale. Until the e-book market gets substantially bigger, we won't change our physical distribution of books. We will keep printing, warehousing and shipping and probably getting return of the same number of books. But once it reaches a certain critical mass, then we might see a margin implication.

Yes. She'll come and give you --

Hi. It's [Ritchie Malone] from Citigroup. There was some speculation in the Spanish press that [Puizon] might look to sell 25% of [St. Alana], its education business. Would it make sense for Pearson to own a minority stake in something like that? I know you might not want to say if you're interested in it or not, but would it make sense?

We've had some minority partnerships in the past and sometimes they make some sense. On the whole, they aren't good for us because we've got a lot of scale. And therefore, to bring that scale to bear and to bring our assets to bear on another organization in which we own a minority probably is pretty impossible and that is what we've found. So, in general, we've tried to get a majority stake in things that we -- we think that that's the best for giving us returns.

Yes.

Morning. It's Usman Ghazi from Dresdner Kleinwort. Just a question on US school publishing. If I was being a cynic, I'd say that you're seeing pressure in the supplementary market right now, you are seeing adoption -- the adoption market kind of -- the revenues have been delayed there into 2010. Reading First is being threatened, is probably going to be zero this year, which played a big part in reading material purchases in the open territories. And you are just seeing weakness in the general funding environment, so 2009 begins to look slightly worrying. Could I just get your comments on that?

And then, the second question is could you quantify how much of the US school publishing revenues are coming from early learning or technology? Because if I see budgets in California and Florida, the programs that were cut most heavily were the early learning programs or their technology budgets, so could you give further clarification? Thanks.

All right. Well, let me just say a couple of general things and then I think Will will want to say something.

On the technology spend of our Education company, digital is about 36%, 35%, something like that, about 25% of Pearson, so that is a pretty heavy level. We have been an early learning publisher. We've got a small early learning company, not huge. But most of our online programs that are in reading, in particular, are key to younger students, Waterford reading and things like that.

On the general atmosphere, I think let me just take a couple of the points of that. Reading First, we weren't a big Reading First recipient. Actually, we were late into the Reading First money and we never really got rolling in getting a lot of that funding. So I do think it is going to zero out, but that is not going to particularly hurt us.

And I think the general funding environment is you have to keep in mind that, as far as we have seen across the piece, states have protected education funding. In some cases, there has even been a rise in education funding for our category. And that category would be technology and student information and mostly materials, which is a very tiny portion of the education budget.

Florida is a good example of that. In Florida, they have a huge budget deficit, as you can figure out. Their real estate is going down by half. But they have -- and they have cut their budget and they did cut the education budget and our share of it got a 2% cut in that. 2% cut amounted to $6m. So it is not of consequence in the worst state in the union, so we are not particularly depressed about the funding environment. We see states protecting that.

But you might want to talk about adoptions and the supplemental business.

Yes. Listen, we are mindful about the '09 economy and we know there is more risk out there. I also think it is important, though, to really think through the shape of Pearson in North America and how that -- how it's changed.

The adoption, the new adoption opportunity is not as relevant to us as it used to be. It'd be about 5% or so of our revenues. We are a company that has got a lot of long-term contracts with must-have information, whether it is eCollege or state contracts or SIS contracts. We are a company that is very strong on higher ed and that has been countercyclical. And what's happening in higher ed is it's moving more digital, it's moving more online, so we're helped there.

So we believe that there will be growth for Pearson in '09. We see that we can really control of our destiny. We see integration costs from the Harcourt acquisition going away. We see efficiencies from the new North American structure, which we at the appropriate time will outline to you. So we like the fact that we are in control of certain things.

And if it does get really tough out there, and who knows, it could get tougher out there, I'd like to be in the education sector better than any place else because people really understand the importance of education. They have shown in previous downturns that politicians and voters will protect that. And I like our position in terms of the competition because we are not as leveraged as Cengage, we are not as leveraged as Holt and Harcourt. And if it really does get tough, education will always come back and we will be gaining share.

So we are mindful. We are planning. We've anticipated certain things and we are not at all complacent. But I think look at the overall shape of Pearson North America, remember how people will do everything possible to protect education spending and look at the competitive issues, and that's what we're looking at.

And also, if you get in this pessimistic mood, you might remember that we did say our North American Education business is going to grow, we've already said that, in 2009.

And there's the adoption cycle. Even if -- the adoption business in a single year is typically 3%, less than 3% of our turnover. And if the adoption opportunity moves by $100m, that has an impact on our turnover of about 1 -- 0.3%, 0.3%. So don't get too fixated by the adoption cycle, in the same way as don't get too fixated about FT advertising. It has to move a very long way before you see the overall dial start to move.

Sorry, if I could just come back on that, the only reason I mentioned adoption, and I know it is a small percentage of overall revenues, but it seems to me that states tend to -- I mean adoption material funding is what they seem to protect the most, technology less so and early learning, etc., less so. So that is why I was referring to that, that if you are seeing adoption funding -- or I guess you're saying you're not seeing adoption funding and that is more of a process that has been delayed into next year. But if you are seeing pressure on adoption sources that naturally means that your technology or service revenues in education could come under more pressure next year. Would that be a correct assessment or --?

Well, there are different types of technology. As Marjorie said, we weren't a big player on early learning. We have also said, we've acknowledged, that the supplemental market is tough and it is tougher for us and not meeting our expectation. But again, it is a relatively small part.

Where we're very strong are technology and things where you have long-term contracts, with central SIS, eCollege, those areas. It is not the sort of discretionary technology of I can have this little extra simulation that can go with the Basil. That has not been -- that's not a big source of revenue for us. We're talking about technologies, other type of technology, which it would have to be a really big problem for someone to say "I don't want to have my SIS system." Those kind of things. It is a whole difference type of technology.

They can't really cut their SIS funding because the only way the school gets its money is to collect and report out the data about how many students are there, did they attend school, what classes did they take, what grades did they make. So they have to have that information system.

And I do think, though, there is a technology pot and a books pot still. Those things are merging. And most schools that I've had any connection with will pick out of one or the other, simply because both have the same elements. So they'll put into general materials a technology-based product like our enVisionMATH program, for instance. So there is a lot of switching around. And none of those categories are big enough to move the dial for a politician who needs to cut to make the budget. They are going to be very unpopular for parents, but they're not going to solve his financial problem. So I think we are feeling pretty good.

One last -- you get the last question. Congratulations. Make it good, could you please, upbeat, upbeat.

No promises. Two questions, if I can. Very quickly, first of all, FT circulation's holding up great. But I wonder if you could split out the year-to-date circulation trend of the UK edition as opposed to the international editions.

And then, just lastly, a very nebulous question. Does the merger of Thomson/Reuters affect anything in the way FT Group performs or opportunities that may arise in the future?

Okay, Rona.

In terms of the UK, the UK has basically been broadly level year on year. So I think we are happy with the performance and I think it has shown very robust circulation pretty much across the world.

In terms of Thomson/Reuters, I think that what -- where the biggest opportunities, as we see them, are, are from Interactive Data, because as -- when you have a merger of two big companies in the same sector, a lot of customers are looking for a second source. And you've eliminated one of the sources if you were using those two. And therefore, what Interactive Data is finding is more opportunities because people are looking for second sources in another supplier.

I also think that Interactive is going to be set better as Thomson/Reuters potentially look hard and they're working on the integration plans. There are opportunities that will come up that Interactive Data will be able to take up with new products and that is exactly what we are doing.

So I see that Thomson/Reuters, short term, pretty positive for Interactive Data. And that is one of the reasons, as well as the regulatory environment and the absolute focus on how people are getting the prices they're getting, that is allowing us to raise our guidance for this year.

Thank you all very much. I know you have to rush off to Informa or some place like that and I hope you have a good time. But thank you for spending time with us. If you had a question and we didn't get to it and you want to stay behind, that would be great. We'd be happy to try to answer it. Thank you.