Pearson PLC (PSO) 2010 Q2 法說會逐字稿

So hi, everybody. Thanks for coming around to see how we've done in the first six months of the year. Sorry about the weather. Usually it's very sunny here and we thought it would be pleasant.

As you've seen, our numbers are good. And we know that you have a pretty relentless week of earnings announcements, so we're going to try to make this pretty short and pretty simple. We plan to do a few things. I'll talk about the agenda. But first I want to introduce to you who's here. I think you know all of them, but I want to introduce the heads of our four businesses, who are going to talk later. Will Ethridge, who's from North American Education, John Makinson from Penguin, Rona Fairhead from the FT and John Fallon, behind her, from North American Education.

I also want to introduce somebody else special. So I'm -- did I just say North American Education?

You did, yes.

Right. You're the International guy, right?

Not much longer.

Sorry. I hated to tell you this, this way, guys, but --.

I want to introduce one other person, and that is Robin Baliszewski. And I wish you'd stand, Robin, so they can see the full glory. Robin was one of our most successful business people. She pretty much created the career and technical business that we have in higher ed. But she knows that we run on talent in this company, and on culture. And so she bravely took the job of becoming our Director for People some months ago. And she's doing a great job. And I just want you to know her, because she's part of our management team and really important. And in the back, we have our Chairman, Glen Moreno, who'll be here for a while.

So our agenda is what you see up on the screen. I'm going to start with a few general points about the environment and our strategy and our outlook. And then Robin's going to step you through the numbers and our take on the year. And then each of our four heads of business are going to talk about their markets and their priorities a bit. And then we'll be happy to answer your questions if we can. But I'm pretty sure we can.

So first the numbers. They come with the normal health warnings, of course. We still have to climb that high mountain of profit in the second half. But I think this is pretty much as good as that trek gets. It certainly is as good as I've seen. Sales are up 9% in constant exchange rates, with decent organic growth pretty much everywhere around the company. Operating profit and adjusted EPS are both double the level of last year. In fact each one of our major businesses doubled its first half profits over last year, each one. And we're raising our interim dividend 7% to 13p.

We produced these numbers in market conditions which weren't positive and weren't simple. The economic environment really still remains certain. We see that first-hand in the budget deficits that governments are running, particularly in the developed world. And that makes us cautious. We do take confidence, however, from the durability of our business, as these numbers show, and the more than two-thirds of our revenues that are not dependent on public spending.

In addition, we are boosted by some powerful trends that are really changing the whole world that we work in, like the strong demand for learning and information, the kind that helps people succeed in school, or succeed in work. We see that in trends in higher education, we see that in subscribers to our online lessons, or subscribers to FT.com. We see that in registrations for our vocational qualifications and new customers at our language schools in China. All of these businesses are running at all-time highs in Pearson.

Another trend is the urgency and the momentum around educational reform and innovation in developed markets that's driven by the desire to help students do better, to help more students succeed. In the developing world it's increasing, both because they need to increase quality, and mainly because they need to increase the availability of education. Everywhere, everywhere, it's about structural change. It's about structural change in large part fueled by technology trends that we've been investing in for a lot of years now. Personalization, subscription models, services business, devices, particularly mobile devices. You need only hear from Amazon or Apple about their e-book downloads, or the FT about their iPad subscriptions to know that these structural changes are really real. And they really are gathering speed.

We've dealt well, I think, with those changes. We've been able to convert the trends into good performance and I think that's for one simple reason. It's because our strategy was really built for this changing world. We really did create it with this in mind. You know that we've been investing steadily over the long term to make Pearson a company that's richer and more relevant in content and more technology- and service-oriented and exposed to faster growth markets generally in the developing world. And that's more cohesive and efficient. That investment strategy is producing for us a few important results.

First of all, strong growth that you see here. At 9%, sales growth is the fastest we've seen in some years. That growth is in all our businesses too. Education is up 10%. The FT Group is up 10%. Penguin is up 7%. And that growth, we think, is durable. Some of our markets are weak but our major growth markets really are healthy.

Secondly, our strategy continues to produce some long-term share gains. The chart here shows our progress. And we're carrying on through this half in this kind of progress. The US school industry has returned to growth this year. And the higher ed industry is up double digits again. In both we expect to beat that market again over the year, propelled in part by all of our digital materials.

The FT is gaining advertisers and readers, print and digital. And it's becoming the textbook case for how to make your content pay in a digital world. The chart shows the gain over several years, three years I think, because that was all we could get comparable data for on international readership surveys. But it makes the point. And as I said, we're continuing in the first half.

Penguin, thriving in the old world and the new world, up 7%, even though right now its largest markets, which are the US and the UK, are down.

Third, our strategy is helping to create the structural change I mentioned in many of our markets. And that change really shows best in what Pearson is doing. For example, it's moved us to services. In five years, we've doubled our worldwide testing revenues for instance, to $1.6b. And it's moved us to digital. In 2004, less than 15% of our revenues were digital. By the end of this year that proportion will be double that, even without IDC. And it's moved our emphasis to developing markets, where we made sales of $650m last year, well over double what we were five years ago. And it's moved our margins with efficiencies, with the change in our business mix that this has brought, they increased during the five years from just over 9% to 14% last year.

So, our strategy and changes are making a difference. But they aren't only about organic investment. The sale of Interactive Data is the largest single disposal we've made in a decade. And the impact of that is pretty fundamental. One way of looking at it could be only what you see on this chart here that on a pro forma basis, more than 80% of Pearson's profits will come from institutional education, and maybe more of those as we reinvest the sale proceeds from IDC, which will be about $1.6b after tax.

But another way of looking at it, the way we look at it, is that all of Pearson is now helping people make progress in their lives through learning, whether it's formal or informal, it's for work or it's for pleasure, it's in kindergarten or it's in a retirement home. Our definition of learning is a broadening definition, both because we have found that that is much better for our business, and we think that's much better for education. It brings about more effective education.

So our priorities for these interactive data proceeds will follow that definition, focusing our investment where we see the biggest opportunities in growth and returns to make us the world's most effective education. That would be developing economies, workforce and business education, consumer learning and information, technologies and services. We've said all of those things before, and that doesn't change.

You can see the investment process started already in our acquisition of businesses like Melorio, which is a vocational skills training business, and in SEB, the Brazilian school systems business that we just announced last week.

We're confident, I think, in that investment. I know that's going to be something on your mind. But we're pretty sure that we can create value with that investment for shareholders. We have a trusted formula of doing that. If you look at this slide, it may be a little bit too small, but it's in your books. Over the past eight years, we have raised $3.6b in cash through the sale of businesses that were outside our cradle-to-grave education strategy. We've reinvested almost all of that, $3.4b, in bolt-on acquisitions. Consistent with our pretty strict criteria, last year, those acquisitions had a post-tax return on capital of approximately 12%. That's about 1.5 times our weighted average cost of capital.

That formula, acquiring companies we understand well in adjacent markets, adding our scale and technology, with very rapid and effective integration, that model is proven. Clearly, if we can reinvest the Interactive Data proceeds in those historic rates of return, we'll create significant value for shareholders. We'll also extend our long-term leadership position and accelerate our prospects in education in the broadest sense.

So, what does that mean for our outlook? There are three parts to our outlook. First, the economic context. The economic context of our markets is still clearly uncertain. Secondly, the strength and share gains in our business. As you will hear in a few minutes, those carry on. And third, we are basically raising our guidance. In the first half of 2009, we made GBP158m of operating profit with Interactive Data. In this first half, we've made GBP178m without Interactive Data. That momentum puts us on track to cover the earnings dilution from Interactive Data, and to generate EPS, we're saying, of approximately 70p this year.

So I'm going to hand over to Robin. He's going to make that a little bit more clear, and tell you all our other numbers. And then we'll hand over to our Chief Executives.

Thanks very much, Marjorie. Good morning, everyone. As Marjorie said, a feature of the year's first half has been strong sales momentum across the company, totaling 9% of CER. North American Education is up 10%. And we're up in double digits in both US School Curriculum and Higher Education. Growth is slower but still solid in Assessment and Information, which is in the first half our largest US Education business.

International Education is up 11%, with double digit growth in both publishing and testing, the latter helped by earlier marking this year. On a regional basis, Africa, Asia and the Middle East are all delivering double digit growth. In Professional Education testing was again strong, up 9%. But Professional Publishing was down slightly in a challenging market. At the FT Group, we're up 10%, helped by continued strength in subscriptions and renewed advertising growth. And we increased Penguin sales by 7%, the results of a strong half in the US, the UK and Asia, and a threefold increase in e-book downloads.

Our sales growth is primarily organic. Of that GBP193m increase compared to last year, GBP155m is underlying. GBP44m came from acquisitions, mainly in International Education. And the first half FX impact was relatively small at just GBP6m negative.

We increased profits by GBP94m to GBP178m with that faster top line growth and further margin gains. North American Education contributed GBP39m to the increase, with improvements across the business, the largest contribution coming from US School Curriculum.

Profits of International Education were GBP13m higher, with another strong first half margin performance, notably in Testing. Transaction FX was negligible in the first half of 2010 compared to a loss of GBP8m in the first half of 2009.

In Professional Education, we achieved further margin improvements in both publishing and testing. At the FT Group, we doubled profits with strong advertising drop-through, and further contributions from the Economist and FTSE. Penguin also showed significant margin momentum, results of both improved product mix and greater efficiency following last year's restructuring. The lion's share of the profit increase, GBP77m, is organic, with GBP17m coming from FX.

I just wanted to summarize here some of the items which particularly helped our first half performance. We do have good organic momentum. But even so, it would not be sensible to extrapolate these first half results and growth rates for the full year. There are some helpful timing benefits in our first half numbers, as I mentioned. The key factors are earlier ordering in the US School Publishing business, earlier marking in UK Testing, and the phasing of both reorganization costs and benefits at Penguin. In addition, our comparatives get tougher as the year goes on. And we're not expecting conditions to improve further in any of our major markets during the second half.

Going back to the first half numbers, we increased adjusted earnings per share by 8.7p to 16.6p. Our adjusted operating profit increase was the major contributor. However, interest costs were also slightly down, mainly due to a lower average debt level. Our tax rate in the first half was 26%.

Our statutory earnings are reconciled to adjusted earnings in the back of your packs. The discontinued line includes GBP10m of Interactive Data disposal costs incurred during the first half, which have been booked for statutory purposes as now required under IFRS3.

As you'll recall, our free cash flow is always an outflow in the first half as we build stock ahead of the main second half selling season. However, increased operating profits have benefited first half free cash flows which are more than GBP100m ahead of last year. As a result, net debt at the end of June was GBP100m lower than the same point last year, despite unfavorable balance sheet FX effects, which have swung this number upwards by more than GBP100m over last year. Pension liabilities, while up due to reduction in the AA bond rate, remain modest in the context of the Group's capitalization.

We'll receive gross proceeds of $2b from the Interactive Data sale. That will result in a one-off non-operating cash tax payment in quarter four of around $400m. The sale of Interactive Data will benefit our operating cash tax this year by roughly GBP20m, but will put us into a cash tax-paying position in the US from next year as our US tax losses expire.

So to conclude, we still have a long way to go from 16.6p to 70p. But we've made a very good start. And I'll now hand back to Marjorie.

Actually, I'll just invite the guys to come over. I don't think anybody wants to sit there, you're going to hit your head on that [screen]. Maybe a short person would.

So I think we're going to start with Will and North American Education, then John, then Rona, then Makinson. So take it away, Will.

Okay. Thank you, Marjorie. Yes, we look at our business as a whole. But what I want to do to is start off with is just give you some of the components, and then talk about how they all come together around our strategic priorities.

I'm going to start off with School Curriculum. As the chart shows, that makes up about 12% of Pearson's revenues. We think this is a pretty tough market. And it's probably going to stay tough for a while, because of the tax receipts. We said earlier in the year that we would show growth this year after a very tough year for the market last year even though we beat the market. And we're on track to achieve that -- that forecast.

We had an excellent first half, very strong performance in both sales and profits. As Robin said, we are going to see it slow down in the second half. We're up against a very weak comparative in the first half. Things started to pick up in the second half of last year as some of the stimulus money started to flow, and other things. And then we did get some earlier ordering this year.

In new adoption now we did well except for Texas Reading. Did very well in Math, almost 40% share, very well in Science, over 40% share. In fact, we were number one in every major discipline with the exception of reading, and that was brought down by Texas Reading. We're doing well in open territory. And we're doing well in digital supplemental. We brought out a new version of our SuccessMaker product and that plays in markets like Response Intervention is doing well. And we're also starting to get more into services, virtual schools, school improvement.

And I think one of the points is that our traditional basal business, which used to be several years ago a big part of our business, we now with our assessment, our Higher Ed, the things we're doing in the school business, it represents only really about now 3% of Pearson's total revenue. So while we focus on it, we've really reshaped our portfolio.

Our second type of business is what we call the Assessment and Information Group. That's about 12% of Pearson's revenues. Included in those numbers are some newer companies, technology companies like Edustructures, National Transcript Center, Pearson School Systems. I'm going to talk in a minute about our technology, because I think it's a very important point in what we're doing there.

So let me talk just now about our assessment businesses. We are the leader. Traditionally, we've been seen as a state-testing company. We are the leader in state testing. But we have a much broader portfolio than we did a few years ago, which gives us great resilience. In state testing we experienced some issues in Florida. But we renewed our Texas contract, which is our largest contract. We've also scored successfully a record number of tests. Online testing is really taking off now, and online testing scores and number of students taking online testing has gone up 88%. We've seen some descoping and some delays, because people are looking at the common core. But despite that, we've had a resilient year and are in good shape in our state-testing business.

But we're much more than state testing. We have national testing, we have teacher licensure, we have clinical testing, we have formative assessment. And we're now starting to move into higher education assessment. Let me just talk a little bit about some of those parts of our portfolio.

In national assessments we're having -- we're on track, having a good year, even though it's an off NAPE year, the National Assessment for Educational Progress, that's every other year. So this is an off year this year, will help us next year. Despite that, we're on track for our goals. We renewed our SAT contract with College Board for ten years. That's a big deal.

In Clinical, We're Having Just A Great Year. And In Formative Assessment, We Have A Platform Called Aimsweb. Formative Assessment Is The Classroom That's Being Done In The Classroom So It's We Really Try To Inform Learning. We Brought In A Program Called Aimsweb A Few Years Ago, And It's Really Starting To Gain Traction. We Gained Some Big New Contracts With Our Formative Assessment Products In Boston, Duval County.

So overall our assessment business is going well. We're pursuing new business markets, talent assessments [for one]. We've just signed a deal in China with a major Chinese university for [manner] testing. And we're really starting to get some traction in post-secondary assessment. And it's an example of how our companies are working together, in this case with the Higher Ed Group.

And that brings me to Higher Ed. Higher Ed represents 21% of our business. It's our biggest and our most profitable business. Higher Ed has just been storming along as an industry. Pearson's been storming along ahead of the industry for 11 years now. And we think it's a great business, and we think it's going to continue that way.

Again, we had a very strong first half on top of a very strong last year on top of a very strong year before. But we think just the trends are playing to our strengths. More technology, more personalization, all of our Higher Ed businesses are doing well. eCollege, which is another technology company, is doing extremely well. Enrollments are up a great deal. We're the leader in the for-profit space. And now we're branching out into the not-for-profit space. And we're also working with John's Group, with International. So all in all, we're having a great success in Higher Ed.

Moving to our priorities, and how all these companies come together around our priorities. We have three priorities. First, as Marjorie mentioned, we see structural and policy change. And we welcome that change. The Obama administration's reform agenda around college readiness, more connection between K12 and Higher Ed, more technology, more use of data, it really does play to our strengths. And no other company has a great a range of capabilities as we have. And that's what we've really been doing in terms of shaping our portfolio, content, instruction, assessment. And we're using those capabilities to really create integrated solutions.

And I'd really like to point out just how central technology is to our strategy. Marjorie showed you that chart of acquisitions. And really over the last several years we've bought eCollege. Before that we bought Pearson School Systems. We had Edustructures, National Transcript Center. So we have technology that's transforming our content and assessment businesses. But we also have content -- technology companies that are selling platforms and services independent of content. And we think there's great stickiness there. We think that gives us a foundation for great growth. Those companies are growing quite a bit faster than the overall market. And we think it's a very important part of our strategy.

Our second focus is on gaining efficiencies. And the efficiencies are coming from two sources. One, when we brought all of our North American companies together, when we integrated Harcourt with our assessment group, we gained a lot of efficiencies. And we're continuing to gain efficiencies.

And the second source of efficiency is just new operational practices around from print to digital. And you can really see these efficiencies playing out in our numbers. We are a second-half weighted company. And up until two years ago we were basically -- not basically, we were loss-making in the first half. Last year we showed profits of GBP12m, this year GBP51m. And we see these efficiencies carrying forward for the rest of the year. We see the efficiencies helping us going forward. Some of those efficiencies provide ballast against uncertain times. Some of the efficiencies can drive profits. But most importantly we can use those efficiencies to fuel investment and innovation in a time when I think it's really important to be investing in our future.

And our last priority is to support Pearson's global goals. We work very closely with John's Group. Our products and services are used around the world. Increasingly, we're using resources and products and services such as Fronter, from his Group. And it really is a very strong advantage for Pearson to have this scale and this expertise. And really again this range of capabilities carried globally is a big advantage.

So we really do see a lot of change going forward. There are uncertain markets. We think we have a resilient portfolio that protects us, enables us to invest steadily. But we really do believe that we're on the right side of change, and that the structural changes that are happening are playing to Pearson's benefits. Thank you.

Okay. International Education, I think we've made a decent start to the year. The 3% underlying growth for the first six months of this year comes on top of the 10% underlying sales growth we had in the first half of last year. We've a strong, healthy pipeline of new business that will come through in the second half of the year. And we're continuing to make good efficiency gains across the company. As Marjorie and Robin both said, we've still a lot to do this year. And no doubt somewhere in the world in one or two countries the markets will prove to be rather more challenging than we currently expect. But as things stand today I think we're in really very good shape to deliver what in International Education for Pearson would be our eighth straight year of underlying sales and profit growth.

As importantly, perhaps even more importantly, I think we're continuing to shift the balance and change the shape of our international education business really with two goals in mind which together will help us deliver faster, more sustainable longer term growth. The first I think, as Marjorie's already referred to, we are shifting our scope and our scale so that we gain more scope and scale in the world's faster-growing economies. And secondly, we're moving, and I think again Will just referred to this, from selling standalone resources to really trying to play a much more direct role in delivering improved performance in education for people of all ages and all classes and all parts of the world.

Now we've a pie chart here. And I think in the pie chart you can see the split of our sales by region in 2009. And I think to understand the different growth dynamics in International Education, it's probably helpful to think about this in terms of three distinct chunks. First, there are the world's so-called developing economies, which in terms of this pie chart we would define as Africa, Latin America, the Middle East, and a growing slice of Asia, particularly China. Taking account of the acquisitions we made last year, these developing economies now account for around a third of our total international sales. And that proportion of our sales will grow again this year on the back of the strong headline and underlying growth that we're getting in these businesses.

Just to give you a bit of color on that, in Africa we're expecting another strong year in South Africa and Nigeria, building on our publishing successes of recent years. In South Africa we're also going to win our first -- we have just won our first testing contracts, small at this stage, but bodes well for the future in terms of broadening the base of the company. And coming through in the second half of the year we've got some quite significant new contracts in Angola, Ethiopia and Zimbabwe, all driven by that trend to universal education that you've heard us talk about in recent years.

Likewise in the Middle East, we've had a good first half. And we're on track in our publishing and testing businesses to do well in the second half of the year too. I think though what's most encouraging about the Middle East is that particularly in the Gulf region we are now starting to get some really significant growth in our digital and solutions businesses. So, for example, the biggest MyLab adoption that Pearson has anywhere in the world is now at a university in Saudi Arabia. So we're really starting to see the digital and solutions side there take off.

Then, of course, there's Latin America. That's been our fastest-growing region over the last few years, led by Brazil and Mexico, and we're expecting another strong year from those two countries and from the region as a whole in 2010. Like in the Gulf we're making (technical difficulty) a digital and solutions front. We've now got a growing roster of eCollege and Fronter clients across Mexico and Brazil. And that's not just significant in its own right, but it then provides us the platform from which we can deliver the MyLabs and other digital and assessment for learning products.

And then of course the SEB acquisition that we announced last Thursday really does transform the scale of our business in Brazil and across the region, and as importantly enables us to get more directly engaged in playing a bigger role in delivering school improvements. The reason that Sistemas are increasing in popularity is that they do deliver better results for parents and students. So, for example, schools that adopt the SEB Sistemas on the whole perform 20% better in university entrance and high state tests than schools of similar profile that don't.

And for all the growth we've seen in recent years in the adoption of Sistemas, the market is still relatively immature. So only about 25% of private schools, and only 5% of public schools currently adopt a Sistema. So there's lots of growth in the years ahead. Of course, we think from a Pearson point of view, we can bring in our assets and resources to bear, enrich further what is already a very strong offering. And of course in time we also see scope to expand the Sistema idea to other countries in the region, and perhaps in time further afield as well.

I think the other point about it, we see SEB doing for us in Brazil, what Wall Street English is doing for us in China, which is giving us scale, giving us a more direct engagement in education, and of course delivering faster growth. So for example, in the year to date, our like-for-like sales in China are up over 20% on the same period last year. And that's before we see the new centers in these cities opening up, which they will in the second half of the year.

So that's a whistle-stop tour of our developing markets. But I think it gives you a sense of why these are the fastest-growing part of the International Education business, and why they're such an important area of focus for us.

The second chunk of our International Education business is here in the UK. It's not growing as fast as our developing markets but we are actually still seeing some decent growth as we benefit from the country in the world outside North America where we've got the most scale and breadth. So even though over the last 18 months we've seen schools really start to rein in discretionary spending, particularly on resources in anticipation of the fiscal austerity that's now with us, we still actually had good growth in the UK because of the strength of our qualifications business. We've gained some share in GCSEs and GCEs. And most specifically because of the increasing relevance of our applied learning and vocational qualifications in the form of BTECs and apprenticeships.

And I think the other point is that the solution-type deals, I think Marjorie at the prelims talked about the work we're doing with the Milton Keynes Academy, we're seeing a real growth in those sorts of opportunities. And that's why today we're announcing a new school improvement business with a new hire to really help us to focus on and develop that business. I think it's worth stressing that that solutions approach is equally as relevant to the further and higher education markets as it is to schools.

And then the third and final chunk of the International Education business would be what I would describe as the more mature, developed economies of Europe and Asia. So that would be countries such as France, Germany, Spain, Japan. In these countries the secular growth opportunities are much less pronounced. And the impact of the global economic downturn has been more severe than it's been in the developing world. And on the whole we lack the same scale and breadth in these countries as we do in the UK. So it's harder for us to make that shift into playing a more direct role in delivering educational improvement.

So as a result of those impacts, our sales in this part of the business were actually down slightly in 2009, and are down again in the first half of this year. But we are making some significant efficiency gains here. And we do see one or two interesting pockets of growth. So, for example, in Italy, we will grow this year as we move from number three or number four in the secondary market to number one on the back of content adapted from our colleagues in North America, in science, and from taking the lead in our digital offerings. And we will also make our first big wins in Korea, our first big adoptions of My English Lab, which we're all very excited about, because we have high hopes that this is going to do for the teaching and learning of English as a second or foreign language what My Math Lab has done for numeracy rates around the world.

I think that's also, development in Korea is significant for three other reasons, which are relevant to both the developed and the developing world. First, we are now really starting to see universities and schools get the technology infrastructure in place. Second, there's an increasing desire to measure progress in education against global as well as national benchmarks. I think you've seen that here in the UK as elsewhere. And third, the demand to learn English, as English becomes truly global language continues to grow. And all those trends clearly play to our competitive advantage against national and regional competitors.

So I hope that gives you a feel for the shape of the International Education business. Breaking out the business in those three chunks is a little crude, and there's obviously some nuances of play there. But I think it does give you a better sense of how the underlying growth dynamics are at play. And clearly our strategy is to grow more quickly by gaining real scale in the world's fastest-growing economies, by in every country getting much more directly involved in delivering improved educational outcomes in a systematic and scalable way, and I think, coming back to a thing that Will mentioned, by really applying what is our greatest competitive advantage that as the world's leading education and learning company we're able to call on a level of investment and scale of assets and resources and expertise that none of our competitors really can hope to match.

And I think one of the things that I've seen most notably, just in the last couple of years in Pearson, is how with Will and with John and Rona right across Pearson, the real -- so this idea of the network effect, really sharing that great stuff to really enhance the cause of education around the world is helping our customers a huge amount and is a thing that's going to drive our growth not just this year but into the future as well.

So, Rona?

Okay, thanks, John. I'm going to talk about two businesses this morning. The first is the Financial Times Group. And we'll talk a little bit about the markets and how we've been performing in them. And then I'm going to touch on the professional business. As Marjorie said, this we see is a major area of growth for Pearson. And I'll talk about particularly our Pearson View, which is our certification business, as well as our new acquisition, Melorio so you just have a little bit more color about that and our plans.

So if I start with the Financial Times Group. In terms of the market, I think the first half was quite helpful to us. I think there was an increase in the desire and the confidence in the markets so that meant that content sales were up across the industry. And also, as Marjorie and Robin both alluded to, advertising was strong in the first half.

I think though, more importantly as we look at the FT Group, what we are benefiting from is the way that we have pretty much transformed our business towards digital. And we're really starting to see the benefits of that coming through as the world and the digital really changes the structure of our markets. And also that move that we have to become less advertising-dependent. And we're starting to see a real trend of people being prepared to pay for very high-quality information. And that is what our business is based on.

So just touching on how we've performed at the FT. The FT has had a very strong performance in terms of content sales. If we look at our online subscribers - that's both individuals and corporate subscribers - we're up almost 30%. And paying subscribers are now 149,000. We've had fantastic success with new technologies. So for example, we launched our iPad app. We've sold over 0.25m -- no, people have downloaded over a 0.25m of our app since it was launched at the end of May. And that's in addition to the almost 400,000 downloads of our iPhone app. So clearly this is a trend which is building and we're clearly benefiting from.

In terms of print circulation, the entire market has been down, you'll have seen from the ABC results. We were actually down a little bit less than the market. And I think the other encouraging thing for us is that our revenue actually was slightly ahead. And that's true in terms of the revenue we're getting for the online subscription too. In fact, our revenue per online subscriber increased 50% year-on-year. So again, what we're seeing is this trend of people being prepared to pay for that content.

They're also prepared to pay, and people are having a bit more confidence in conferences again. And we have a number of marquee conferences like the Business of Luxury, which is in its sixth year, and they just develop and become stronger. And that's been a great trend for us.

In terms of advertising, I would say it has been strong in the first half. And the first quarter was particularly strong. The second quarter was less strong. And I think if we look across how we fared in the market we think that we're gaining share, not just in content but also in advertising.

In terms of the areas which were particularly strong, industrial was strong, corporate finance we saw coming back. And luxury just had a blowout first half. Not just how to spend it, but we're seeing luxury advertising now in the newspapers.

The other thing that I would say is that the growth was pretty consistent. We grew in every single region, and we grew in print and we grew online. So a strong performance on advertising.

The caution I would put in is that as always, we talk to you in July. July and August are quite quiet periods. And I think there is a bit of a divide in our customer base for advertising. There are some customers who still remain quite confident. There are others who are feeling a sense of heightened uncertainty, which I think you'll read about in any of our newspaper articles. And I think when we look at the second half, it's unclear how people will come back after the summer. And will they place those ads and those campaigns, or will they hold off? So I think we are quite cautious about the second half. But that's just to do with how people come back and whether or not they place that campaign rather than think about it.

In terms of Mergermarket, the markets for Mergermarket improved in the first half, not incredibly powerfully. You'll know the M&A market was up 3% worldwide. But there was particular growth in some markets, like for example, Developing World, while the M&A activity was up over 30%.

Mergermarket performed pretty well in the first half. What we saw, if you remember last year we had a slight dip in the renewals. We are back up over 90% for all of our main products in terms of renewal rates in Mergermarket, which I think is a good testament to the strength of the products. And also we've seen some quite nice new sales starting to come through. They tend to be on the more advisory side, smaller deals. But clearly that will set us up well, we think, for 2011. So Mergermarket, after quite a tough year last year, has come back into a slightly better climate in 2010.

And turning now to the Professional businesses, and particularly Pearson VUE, we had a very strong first half. As Robin said, this business was up 9% underlying. And that probably comes from three main areas. The first is that our big customers are GMAC and our driving license certification and our Nursing certifications, the NCLEX which is for the US -- if you want to practice in the US, so for US nurses as well as for people wanting to enter from outside. And all performed well with good growth.

And I think what we're seeing is a corollary of what Will is seeing in the higher ed and John too, internationally, people are wanting to be certified and wanting to be trained to get on in their life and make progress. So we have the resilience of our existing customers, and as you'll remember, those contracts are all with us until at least 2013.

And the second is that we've had very good renewal rates from our existing customer base.

And I think the third thing, which we're probably the most happy about this year is that we're starting to see progress in emerging markets. So we've started to see a number of very exciting sales in the areas like in the Middle East, in Bahrain, in the Kingdom of Saudi Arabia, in Dubai and also have a very strong pipeline building in Africa. And that is really encouraging for us because that's where we've been starting to focus our energy. And it takes some time to build, but we're starting to see the fruits of that coming through.

In terms of Melorio, Melorio is a business that you will have seen that we bought a few weeks ago and which is in vocational and professional training, focusing on young people, particularly on apprentices. And it's a business that we liked, partly because it focused on the things that Pearson has been talking about for a long time, which we're really focused on. Personalization of learning and we're looking at outcomes rather than inputs.

So if I take just the IT model of Melorio, it's a very specific model, which basically runs the apprenticeships through a very, very intense period. They get trained in terms of how to behave at work and how to behave in terms of punctuality, all of those work skills. And the end result is that in fact more than 90%, about 94% of the children -- or the adults, they're young adults -- not just certify but then move on either to higher education or into full employment. And that compares to an average in the UK for apprentices of less than 40%.

So a very, very effective model that we like and we think we can build on. And our hope is that we will build that out into different market sectors. But significantly, working with John, in particular, we'll be able to move out internationally and expand some of that training where we can offer all those services to customers.

Turning now to our priorities and they're basically three. The first is that we are going to continue to invest to grow organically in our content, in digital and in subscription. The second is that we will continue to expand internationally, take a product from one region and make it global. And the third is we'll continue to add bolt-on acquisitions or fold-in acquisitions, which as Marjorie said, are alongside our existing business and make sense. And that has been a really effective way for us to build the business.

So you know, I think, enough about the third part, so I'll just touch on the first two.

In terms of where we're going to invest, the first is we will continue to invest in the content and digital. So we will continue to be investing in journalists and what helps build our content stronger, so emerging market and adding new product linkages, and in the FT making sure that we have the strongest bench of columnists and writers.

And the second thing that we will continue to do is invest in digital technology. So you've seen our development on the iPad app. Our desire, as the Group, is to make sure that customers can use our product, have access to us anytime, anywhere, anyhow they want to use it. So we're also working -- we want to be device-agnostic. So we're working with all of the other device providers to make sure we have something very special that is an FT app or an FT mobile capability for that. And also, in our professional certification, investing in new technologies that will keep us ahead on the certification game.

And the final area that we will continue to invest is something that sounds very dry, but is really changing the way we do business, which is the whole area of data analytics. And just to give you a flavor of what that means to us, in advertising, for example, we can now -- because it's digital, we can track what people are looking at. We can look at cohorts of people who are always looking at mergers and acquisition type activity. Then we can offer that to advertisers who are looking to have their advertising, who maybe are lawyers or investment managers or banks, who are wanting to target people for those specific services.

And what we are finding is that the click-through rate of those advertising packages are superb, and we are getting real accolades from the customers for doing that.

The second is that we are able to help our whole proposition. So we can go to a corporate for our B2B sales. We can look at internally what their people are actually clicking on, when they're at work, the articles that they find the most useful and rather than have a guess at what they are, we actually have the data now. And we can create products around particular corporate that their staff are looking at and find useful. So again, that's building much more engagement with us.

And the final part is we are able to look and track at how people subscribe. So when they subscribe during the day, what are the sort of articles they subscribe after reading, how they react to subscription offers, when they choose to buy and when they don't. And all of this -- we used to talk a lot about content being king, but what we're now moving to is that contact is king. And this data is really allowing us to understand exactly what our customers are doing.

In terms of the international development, I think we've had some success, with taking products as bolt-ons and then rolling them out globally. So we bought Money-Media in the FT. We rolled out that Ignites product from the US into Europe. We're now going to launch that in Asia in the fall. And we've just bought Medley Global Advisors, for the FT and again we're bringing that to Europe. And we will carry on doing that, as I said with our Professional business, with Melorio and rolling that out and making sure that all of our businesses have a global impact.

So a good first half. I think we are cautious about the second half. But I do think that in terms of the work that we've done to transform our business model, it makes us think that we're in good shape, and we're pretty confident that we have a strategy that can take us forward.

Thanks, Rona. I'd like to talk, with the orange bit up there, about our markets under four chapter headings. Talk firstly about the traditional Penguin physical book market in the UK and the US and in Australia, which still represents, as you know, the significant majority of our total sales. To talk secondly about emerging markets, still small in absolute terms, but of increasing importance to us. To talk thirdly about illustrated reference, the Dorling Kindersley markets, which have been problematic for Penguin over the years and where I think we have some very much more positive news to share with you. And finally, to talk about digital markets, which were immaterial to this Company three years ago, but are now really quite important in relation to our US company.

So taking each of those in turn, Marjorie mentioned at the beginning that the UK and US consumer book markets were down in the first six months of the year. They were. In the UK they were actually down fairly significantly. Our business grew -- our physical book business grew in each of those three markets in the first six months of the year. So we gained share, reasonably material share in each of those three markets. And in the US, despite the growth in the eBook, our physical book business was actually higher.

We grew across territory, but we also grew across format; we grew across genre. So we grew in backlist as well as in frontlist; we grew in non-fiction as well as in fiction. And we grew in children's as well as in adult. We've invested quite significantly in the reorganization of our kids' business over the past two years, and across Penguin, our children's sales were up 9% in a market that was flat or slightly falling in the first six months of the year. So thank you, Percy Jackson; thank you, Peppa Pig; thank you, Wimpy Kid; thank you, across the Atlantic, to John Grisham.

I don't think this is entirely coincidental, this performance. I do think we have developed over the last couple of years, a slightly distinctive publishing model that relies heavily on the way in which we manage and distribute risk across the portfolio, particularly in our frontlist. That relies on sustaining bestseller performance for longer than our competitors and relies on our backlist, on using our brand and our backlist expertise to generate higher sales. So I think there is some luck in this, but also some judgment perhaps.

Secondly, in the emerging markets we grew 8% in India, which is our most prominent emerging market. But we also extended our foreign language classics publishing program, which has been a success for us already in China and Korea, into Brazil. So while our colleague Fallon here was gathering the headlines for SEB over the past couple of weeks, we also had a few little column inches around the launch of Penguin Classics in Portuguese. And we are selling -- we have already taken orders for 18,000 copies of Machiavelli's "The Prince" in Portuguese. That's a lot of copies of Machiavelli in Portuguese, I can tell you. And that's a program which we expect to carry on extending next year into other languages.

Thirdly, DK. We said last year when we talked to you about the reorganization of DK that we would shrink the frontlist of the company by a third over a 12-month period in response to the incursions that the Internet was making into the heartland of general illustrative reference publishing. We've done that, and yet our sales in the first six months of this year were marginally ahead of the first six months of last year.

That is thanks in part to a big success with the DK Star Wars Lego franchise in the US, partly to the success of our travel publishing imprints, against an industry trend and partly to the greater focus that we have brought to the core of our text publishing in DK. So sales roughly maintained, and obviously we've taken our cost base down quite a bit, so DK was handily profitable in the first six months of this year.

And finally, the digital markets. We invested a little ahead of our competitors, a little more aggressively than our competitors perhaps in the development of digital content. We have a slightly higher share of this market than many others. And our eBook sales in the US were three times higher in the first six months of this year than they were in the first six months of last year. So we don't expect that rate of growth to continue ad infinitum. But it is becoming a very material part of our US business altogether.

So let me talk about our priorities. Our first priority is to build on that distinctive publishing model that I talked about earlier in the second six months of the year. We think we have the titles to do that. So in the States we have Tom Clancy, we have Ken Follett, we have Patricia Cornwell. Here in the UK we have Michael McIntyre, we have John Le Carre, we have Stephen Fry. We think we have good lists.

Robin has already talked to you about the phasing issues. We are batting against a sort of tougher comparable in the second six months of last year. But we're feeling pretty good about this year.

Secondly, we are going to continue to invest in our emerging market strategy. We have now put in place a structure around the world, which is unique in the industry, where we have regional CEOs present in New York, in London, in Delhi, in Melbourne across the time zones, with a focused responsibility for the development of our markets in those parts of the world.

We are also extending imprints that have grown up in the UK and the US to other markets, so whether it be Razorbill in young adult or Portfolio in business or Allen Lane in non-fiction, or Hamish Hamilton in literary fiction, those imprints are becoming visible in Canada and Australia and India and other markets. And that is something else which we will continue to develop.

We are investing further in the operating efficiency of the Company. We've talked about the DK move of transitional back-office functions to India. We employ 250 people as of today at the DK office in India. That gives us a big cost advantage. And we are also using digital technology in the same way as Will and John have described to invest in the acceleration of digital content creation and in the automation of publishing workflow. And we are doing that in partnership with other Pearson companies, and learning from them as we do it.

The financial benefits that we will derive from that kind of investment, we will recycle into product innovation and we will recycle into new skills, exactly the sort of skills that Rona was talking about, in relation to consumer pricing, consumer understanding and analytics. So we're investing in products, but we are also investing in platforms and the direct consumer engagement.

And finally, our last and most important priority for the second six months of the year is we will do what we do best, which is celebrate birthdays. It is Penguin's 75th this year and Puffin's 70th. Under each imprint, we will doing a host of different publishing in different areas of the world. Each market has its own idea. But what will link all of that publishing is that it will draw on the heritage of Penguin and the legacy of Penguin and of Puffin. But we'll reinterpret that publishing in ways that are relevant and we hope attractive to 21st century readers. Thanks.

So I said at the beginning that we'd be short and simple. I guess that was 50% a lie because we did go on a little bit. But I hope you got a lot of that and got a lot of feeling for what our businesses are doing. But I think you've had a full rundown now of our first half and what we see ahead.

We did make a good start to the year. We're naturally proud about that. But as we've said before, one earnings statement does not make a year; it does not make long-term performance. That's not the whole store. What matters more to us is the consistency, long-term of our performance and that's what we're really all about. We're proud of that so far. And what we've achieved in the first half makes us pretty confident that we're carrying on along the right path. And so that's what we're going to do -- do more of what we've already done.

So thank you very much for listening. We'll be very happy to answer your questions as long as they are complicated questions for Robin. Otherwise, they're not being answered. So we've got about, I guess, 20 minutes to ask some more questions. So Paul, do you want to start? Yes, we are doing video of this so you've got to --

Great, thank you. It's Paul Sullivan from Barclays Capital. Just could you provide some flavor on margin expectations that underpin the 70p earnings guidance for the year, especially in light of the improving revenue trends?

Well, I'll say a general comment, which is that as you know we never make margin predictions but we are always trying to move our efficiency up, trying to move margins up. And that's what everybody has a little bit echoed. The power of Pearson's central services and our efficiencies helps our margin to carry on moving up. But Robin might want to be more specific.

Not really. But I think you know, Paul, that -- you know what we're trying to do over time is to move the margins up across the business. We've got a very good record of doing that. We take all our restructuring above the line, so you need to look at our margins in that context. And we continue to invest. So we could put a lot of percentage points on the margin tomorrow by stopping doing all the pre-publication expenditure and investment for the future. We're not going to do that.

So I think we're trying to make sure that our margins move ahead. We don't think any of our margins in any of our businesses are at a ceiling. But it won't happen in one year. It will be a grindy process of moving the margin up every year wherever we can, seeing that as a new base and going from there the following year.

Any other questions? Yes. You can be next.

Thanks. It's Alastair Reid from UBS. Two questions if I may. Firstly, could you give some color on your plans for expansion in Indian education and perhaps just a quick update on your links and relationship with Educomp?

And then separately, in the US, can you perhaps give us your views on how the US stimulus spending has been impacting the schools market and how you think that might impact the market going forward? Thanks.

Let me just take the India one because we have several businesses in India. And we have a kind of unique way of taking an emerging market and making it sing, and that is to pick an executive from Pearson who has some business there and get them to be the chairman of the country and to sit down and look at what the aspects of all of the opportunities are. And John Makinson is the Chairman of Pearson in India and he's done a great job of getting his strategy on course.

And that strategy really revolves around not only our good education company we've got and the fact that Penguin is the biggest English language publisher in India. But it revolves around vocational education and that's our venture with Educomp. So that's a joint venture and it is really about skills training and skills qualifications around. So we'll be using some of the qualifications that John Fallon has in BTECs. We'll be using some of the knowledge that we've got from some of our other businesses. So that Educomp joint venture is going to be fairly important. It's called "India Can", and it just started about nine months ago. So we'll see how it goes. We don't have much to report about it yet.

You want to talk about the stimulus, Will?

Yes. The stimulus, as a reminder, as I think you all know, has different components. The major component was what was called the stabilization fund, which we really didn't directly benefit as we told you. It was really used to prop up jobs.

And then the other part of the stimulus is there to seed the ground for innovation. And those monies are now starting to flow. They're coming in, monies for new Common Core assessments. They're coming in, in what are called school improvement grants. There'll be billions of dollars there. And they're coming in for the use of data, for example, the longitudinal data systems grants. This is the area actually where we will start to benefit more directly.

For example, our company, Edustructures, their whole job is getting schools to be able to build the systems, the interoperability to handle the demands and data in the schools who use those data grants.

So obviously, we've been very resilient despite the tough times in the school market and despite the fact that the basic stabilization fund didn't really go to our kinds of businesses. And as these other monies start coming out, we'll be in a better position to tap into those innovation funds because they're funding the kinds of innovation that we believe in.

Colin? I did say you could be next, didn't I?

Thanks. Hi, it's Colin Tennant at Nomura. Just a question on the balance sheet actually. You're getting this, the money; I think it's a short GBP1b in net from IDC. You've spent some already or are in the process of doing that. So I just wondered what -- the combination of the income, the money you're getting in from IDC and the capacity for acquisition that was already in place, what is your acquisition capacity overall? And also just on the gross borrowings that you have, what is the average interest cost of that and the duration? Thanks.

We haven't got the money from IDC yet, (inaudible) yet. So we're not counting it until we've actually got the check in the bank. But clearly it's the -- we talked a little bit about the gross proceeds and the tax that will be payable upon that in quarter four, so net proceeds of about $1.6b as Marjorie said.

That is a useful, big piece of funding for acquisitions that we want to do over time. But we're not going to race in and spend it without making sure that any acquisition we do meets our acquisition criteria. And we've been very strict on that over the past few years. So it does top up some headroom that we had at the start of the year for acquisitions as well because we didn't spend that much last year. I suspect we'll be going into next year with some extra cash on the balance sheet because we're going to be very selective about how we spend it.

In terms of the interest costs that we've got in the first half, it's running about 5.5%. You saw us do a bond, $250m bonds about a month ago or in May time, which was very successful, 4% coupon. And clearly, surplus cash on the balance sheet at the moment is not terribly good from a returns point of view and we recognize that. The interest we're going to get is not going to be very attractive. So reinvesting that money over time will boost the earnings if we can find the right acquisitions to do.

So just to go back, on the balance then, in the slide you showed, you had basically the same outgoings from disposals as -- income from disposals as outgoings from acquisitions. Is that the balance we should expect going forward, or is there a bit more on top of that you can do?

Well, remember that was over eight years.

Yes.

So what we're trying to do is to pick the right choices for our strategy and for the businesses that we think are the highest growth businesses. So I don't think we can predict whether we're going to balance it or not. I think what we can predict is that we're going to apply, as Robin said, those rigorous financial criteria and make sure that we're creating value.

And of course we remain committed to dividend growth too. You saw us up the dividend by 7% in the first half.

Okay. Thanks, Colin.

Thanks, it's Ian Whittaker from --

It's going to be a really good question now.

You're building the pressure on me. It's three questions actually, two on International, one on North America. Just on the International, first of all, underlying growth in the first half, 3%, you mentioned about I think Asia, and the Middle -- or Middle East double-digits, UK solid growth. What does that mean (inaudible) in the first half?

Second of all, just in terms of the UK and their plans for liberating schools from local authority control. I wonder what you think that actually means for your business, where are the opportunities, where are the potential threats as well.

On the North American business, can you remind us what are the market concentrations, both in terms of school publishing, and in terms of higher education? And do you think there are any regulatory risks particularly in the schools market?

Will, you want to start with that North American one, while John thinks up his answer for the other two?

You're talking about competitive market concentrations?

Yes, how much market share do we have?

Yes, market share. Yes, we're number one in both US, and school and we're not the same kind of company as a lot of our competitors. So we've traditionally compared ourselves to Houghton Mifflin, who's really only in school publishing and more in the basal publishing. We compared ourselves to McGraw-Hill, that's in both school and higher ed. But increasingly we have to compare ourselves to the technology companies, Blackboard and services companies. So I think we're in a unique spot in that we cut across these capabilities.

But in a traditional educational material space, we're number one in higher ed and school. Our investments and things like that have been more around technology and services. We haven't been looking to buy other content companies in that space. It's really more about international and US technology and services.

In terms of regulation I don't see -- well, we see the funding around innovation, which is good. I don't see a lot of other regulation except a little bit in the for-profit space around something that's called gainful employment. In fact there were just some regulations that came out on that.

But if you're implying could we buy one of these private equity companies, probably not and probably wouldn't want to.

I think it was more about California, when after Houghton Mifflin last year said the three main school publishers have around 80% of the market between the three of them. And obviously two of them are foreign owned. So is there a risk that other states --?

I haven't seen that, no. I haven't see that. But I think also as people are moving to other models, your definition of a market really expands. So I don't see that as a risk.

So John, how come you're only 3% underlying growth?

I think to deal with a sort of slightly technical issue with the underlying growth in the first half of this year, because remember up 10% in the first half of last year, when we had the benefit of the NCT contract kicking back in. We only owned Wall Street English for six weeks of the first half of last year and we didn't own MML at all in the first half of this year, so that has an impact on the underlying growth rates.

But probably if you -- and this is what I was trying to do in the way I described these -- somewhat inelegantly, these three chunks. If you took a longer term view and looked at what the, the sort of underlying growth rate of the International Education business overall, I think if you can assume that the developing markets are growing significantly faster than the run-rate, the UK is growing broadly in line with the overall rate.

And I think as I said, last year and in the first half of this year, our sales in Continental Europe and Asia, excluding the emerging markets in China, so really I'm looking at Japan, Spain, Germany, France those sorts of countries were -- we were actually down marginally for the full last year and for the first half of this year.

On your second question, I think -- which I think was around do we see the greater freedom for schools in the UK as an opportunity or a threat, I think absolutely an opportunity. If you look at some of the work that we're doing with the academies, one of the -- the school improvement business that we're announcing today, partly grew out of a conversation with a chair with one of the academies, who said it's fantastic that Pearson's providing me with all these additional resources and support and that we're able to join up solutions. But where you could really help me is telling me which is the school most similar to mine either in this country or around the world, that's doing the very best job of teaching math far more effectively than we are. And if you could systematize and codify that, and help me to deliver that, that would be great.

And I think with the abolition of BECTA or the abolition of the QCDA, the reducing power of local authorities, there are other bodies that can still do that, Specialist Schools Trust and people like that who do a great job. But no one else can actually bring the technology and the data to bear in the way that we can. And no one else can make those links up globally with what's happening in -- to learn from what's happening in Finland or a great experience in the States or wherever else it may be.

And I think this is what -- I'm trying to make the point this is part of a broader trend. So if you look at Wall Street English, a proven method of delivering very effective English language training over 30 years, so the system has a proven way of very systematically driving performance standards up year after year. And that's really where we've got to grow, as well as the developing world, to play this much deeper, direct role in actually being able to say, if you apply this methodology in a very consistent, coherent way you get better standards.

So there'll be some issues with the public spending review over the next three years, but the transformational opportunity that exists for us, I think, is far bigger than the short-term issues we'll have to deal with.

Mark.

Thanks. It's Mark Braley at Deutsche. Two questions. First, for Will on Common Core, when should we think about that actually starting to impact the testing and I guess the curriculum businesses?

And then second for John on Penguin, you've pretty much done a 10% margin nearly in the first half. So should we start to think about the 10% as a floor rather than a ceiling at Penguin?

(Multiple Speakers).

And related to that --

What a great question.

Yes, good question, Mark.

And related to that how significant should we think of the issue of author royalties and aggressive agent behavior as being?

Do you want to start first, John, and then Will?

Okay. Mark, as you're probably aware, is referring to principally to an issue involving Andrew Wylie, the literary agent and Random House around royalty rates and also around digital rights. It actually is a very local issue.

There are three kinds of books. There's frontlist books. We're very clear on all frontlist contracts, with Andrew and everybody else that we only acquire physical rights with digital rights. So we won't buy one without the other. There is a second category of books which is backlist, where either the contracts are fairly recent, and therefore the digital rights are clear because they have been reflected in the contract or they might be older contracts where the digital rights have been renegotiated and now are clear.

And then there's a third category of books which is very, very small, which is the subject of this issue between Random House and Andrew Wylie, where the contracts are old and the digital rights position is not clear. And that is what is under discussion here. We are looking at it all very carefully. We are in conversations with the Wylie Agency. I've been in conversations with Random House. I honestly don't think it is going to become an enormous issue.

There is a general question about eBook royalties and in what direction they move. And that is certainly a conversation which we will be continuing to have with agents. But this particular issue I don't think is a cosmic one.

By very, very small, he means small percentage kind of thing not (inaudible) very, very small. So Common Core, Will.

Yes. So the way we think that's going to work, this fall, $350m is being bid by the two consortia of states to create the basic foundation of an assessment system. We think that both consortia will be funded. It's just a question of how much each gets. We're working very closely with both.

Then what will happen is they will then have to send out RFPs to work with various vendors to get the tests written, to think through how you will link formative and summative, think through the technology issues, the -- and that whole process will really take on, we think, most of 2011.

Then from there you have to have ongoing, really through the reauthorization of ESEA monies to make sure the states can maintain this on an ongoing basis, because the $350m is just the starting point of putting in the foundation. So then you've got to field test all of that and that will take some time. So it's really several years, from now when you will see really the new Common Core assessments coming out. You have also in the intervening years, a certain amount of how it all plays out in politics.

But one thing that I do believe we're going to see is people really do see we need to have internationally benchmark standards. They really do believe that the definition of success is that these kids are college and career-ready. They're prepared to do their job well in college. And then we have to really integrate instruction around these standards. We need technology to give us the data to inform instruction. So we're already starting to see that kind of movement around integrated solutions happening and we will really welcome that.

We think this is a better way to do things and we welcome internationally benchmarked standards, being the global publisher. And people really are reaching out to us as they're thinking through this to get our expertise. How are you thinking about it, what's being done around the world, how can you -- you're a leader in technology, you're a leader in instruction. So yes, a lot to work out, but I think this movement around college-ready standards and integrating content and assessment and technology is a good thing and I think we will benefit from it. And most importantly, the students will benefit from it.

Can we have a microphone up here on the front row?

Thank you. It's Paul Gooden from RBS. A couple of questions on North America Education. So Will, I wonder if you can break out the 10% growth in H1 between school, college and assessment. I wonder also if I could get you to give us your best guess of industry growth in school and college this year. We saw McGraw-Hill rein in their forecasts, end of last week. I'd be interested in hearing your view.

And then finally, I appreciate it's early to be looking out to next year, but within school what's your best guess of the adoption opportunity next year? And within college to what extent have you benefited from a countercyclical boom in enrollments that may start to unwind. Is that something we should be concerned about or is it not really an issue?

Well, in terms of growth, first half, Robin basically laid it out for you that we had double-digit growth in higher ed, and school and solid growth in assessment information, but not double-digit.

In terms of '11 and new adoption opportunity we've said that -- in the past that 2010 and 2011 would be roughly similar in attitude with 2011 being somewhat smaller. 2010 has come down. We think 2010 is around [800m to 815m or 820m] and we think '11 will be somewhat smaller than that. But it's still very early days. We've also said that our participation rate in 2011 will be lower. Certain adoptions we've decided not to go after. We didn't think they were good adoptions from a margin point to go after. On higher ed --

Before you leave adoption, let me just make it clear though, I understand that adoptions are a good way to follow the curriculum business. But just so you know, it's about less than 2% of Pearson, just so you keep it in perspective, because it does tend now to be much less important to us. You have to look across our K-12 business at the assessment and the services and all of that. Just so you know. So on to higher ed.

In higher ed, I don't know if there's any question that there's been an increase in the rate of growth in enrollments. And historically if you look back, we know that just one, the law of large numbers, and when the economy comes back that that rate of growth will slow. But we also know that higher ed is from an underlying point of view, a growth business, year after year. Every generation needs to increase their school, their education. President Obama has made it very clear that we have to raise the college graduation rates quite significantly. So we have this surge in enrolments. The growth of higher ed is a trend that will continue.

The second thing that drives revenues is pricing. We have not actually been pricing as high as some of our competitors. We think that's a mistake on their end. We've really been focusing on usage. We've been focusing on the MyLabs, on the integrated solutions. We think the long term success is people are actually using your products and getting better grades, professors getting better information about how to improve their instruction.

And that really influences the third driver of growth is you've got your share of adoptions, you've got your pricing, then how much are the students buying. Are they buying MyLabs integrated solutions or are they buying used books? And as we start to impact that sell-through and change some of those characteristics, we get growth.

So we are in a period of change and we think that, yes, the rate of growth of the enrollments will slow. But some of the structural changes and the strategies we're pursuing should put us in a good position to have a consistent higher ed growth which we've had over 11 years.

Did that hit all your questions?

I'd be interested in your view on the -- to the industry growth rates in college and school.

We've always -- we've never really tended to -- we've always said that we intend to outperform. We've consistently outperformed. We've always said don't read too much into the June numbers. We don't really focus on it, it's too early. There's timing, shipments. And we feel very good about our competitive strength. We've had the most consistent performance in both school and higher ed than anyone else. But we've never really made a practice to comment too much about those numbers in June.

We just generally figure McGraw-Hill is going to be wrong about the growth rate.

Another question? We've got maybe two more questions. Yes.

It's Giasone from Execution Noble. I've got a couple of questions please. First, looking at the fiscal stimulus and looking at July 2011 when some states might face a funding cliff, what are the areas of risk for the Pearson business -- if you have more visibility than we have?

Secondly, looking at how much share you're taking from your competitors, clearly most of them will have started investing and trying to mimic or just produce similar products in the US in particular. What is the time -- how much time do you think you have ahead of them before launch of new products and possibly start competing more evenly with competitors which were left behind in the past?

And lastly, maybe you want to give us a little bit more color on college and school margins development in the US.

(Multiple Speakers).

So what happens when the stimulus if the states start to face a disaster in July 2011?

I would say, first of all, we didn't really benefit. As I said earlier to another question, we really didn't benefit from the stimulus. So we've just shown how resilient we've been. We didn't take, for example, a big hit in '09, when California cancelled the adoption. And I think this was important to see the breadth of the North American portfolio and what Marjorie was just saying that we're not as dependent on those kinds of issues as we would have been in the past.

So the fact that stimulus is falling away is not that meaningful to us because we really haven't benefited from the stabilization, so I guess the the way to answer that.

And what is starting to happen now is these areas around innovation where we could benefit. So it would have been great if we would have gotten more from the stimulus and the stabilization funds. We didn't. We've done well. We have a broad portfolio. We are resilient. We're moving in the faster growing market areas. So I think that's really the answer.

On margin, I think Robin gave the right answer that we are gaining efficiencies and we're using those efficiencies to invest in the future, in technology and all those things that give us a lead. Yes, other people may invest, but we're going to keep pushing hard. And I think especially in areas like technology it's hard to catch up -- it's harder, it's not impossible, if you get some stickiness.

And really, it's the integration of our knowledge around content and technology that gives us I think, a good position. There may be technology companies out there that don't understand education as well. There are going to be companies that understand education, but they haven't made the investments in technology. So that's our goal there.

We will, as Robin also said, continually try to move up margins over time, as we're also investing. And we don't give particular granularity on that. But you do understand the basic trend of how we're using efficiencies to fund both investment and steady margin improvement.

I guess I'd add a couple of things to that. On the margin question, remember education in schools is a publicly funded business and that plus higher ed, you have to keep the public trust in order to keep on being the winner in this kind of an area, which means not targeting very high margins and things like that. So we're careful to balance our investments in our margins as best we can.

And secondly, how far ahead we are in technology, Will's point can't be emphasized enough. It's not about a piece of technology or one program. It's about being able to connect the dots. Only then can you get real effectiveness and can you prove that kids are learning better. So you've got to have the information systems and you've got to have the better teachers and you've got to have good materials. If you don't have that breadth, you can't quite catch up. So that gives us a little bit of a longer lead, I think.

Forgive me to insist on the fiscal stimulus end the middle of next year. But even if there was no direct impact on education and on instructional materials, certainly it was a big relief for states. And from what you say, I understand that you don't fear any one-off cuts coming mid next year, at the end of the fiscal stimulus.

No. As I said, when I was talking earlier, there's an uncertain market out there. And we have -- as Chairman Bernanke said, there's uncertainty. And clearly we've taken some hits that we we've overcome, like the cancellation of California adoption. If there were a lot of cuts, we've seen how 2011 has come down. Yes, new adoption is only 3% or so of our total, 2% to 3%. So if there are a lot of cuts, much more than we planned, yes, that would -- we'd have to factor that in. They would cause some problems.

So I'm not trying to say there's not uncertainty out there. I'm just saying we plan for that uncertainty as much as we can.

Okay. Last question, back there I think. I don't see any more.

Claudio Aspesi, Sanford Bernstein. You received some negative publicity from testing in Florida. Will that affect going forward your competitiveness in other testing contracts?

We obviously regret -- the issue in Florida is we have a -- we are the largest state testing company and we have very proven core systems. But given we're not on a common core approach we have to customize those common core systems that we have to the particular reporting requirements of a state. Florida is a new state and we underestimated the particular needs in their reporting. So the scores were accurate, it was really delivering the information according to the particular reporting requirements of Florida. So what it meant that the scores were delivered a month late.

We take responsibility for that action and we believe in the accuracy of the scores. We factored in the costs of -- we had to pay to Florida into our provisions. And we haven't lost any contracts, we haven't lost Florida. In the middle of this, we renewed Texas.

So I think actually people recognize that it's a situation unique to Florida. Again we regret and take responsibility for what happened, but I think people understand our strength in testing and our ability to handle large scale. We've actually had a record year in terms of the number of tests successfully scored.

Okay, anything else? If not, thank you all. We'll still be around for a cup of coffee. We really appreciate you're thinking hard about us and trying to understand us better and coming out. So thank you.