Pearson PLC (PSO) 2014 Q4 法說會逐字稿

Good morning, everybody. We'll get going. I know this is a busy day, at the end of a very busy week of results, so we very much appreciate you for joining us. I'm John Fallon, here with Robin Freestone, our CFO, and we're joined by the Pearson executive management team.

Just before we get into the results themselves, you'll have seen that we've announced this morning that we've appointed Coram Williams, CFO of Penguin Random House, as Robin's successor. Coram will start with Pearson on July 1, as CFO designate. And he's going to take over then from Robin on August 1, after we've been through the interim results and the round of shareholder meetings that we do immediately after that.

So I can spare Robin's blushes for this morning, because I'll wait until July to take the chance to acknowledge the immense contribution that Robin has made to Pearson.

For today, let me just say that, I think, Coram is going to prove himself a very worthy successor. He was chosen from a really very strong field of both external and internal candidates. He's proved himself in a wide range of finance roles in Pearson over the last 10 years. And he's done a really great job as CFO of Penguin Random House, where he's led an integration which I think has both been operationally difficult and culturally challenging, and, as you can see from the results this morning, is one that is going very well; and also, one where he's very successfully helping the business to be both creatively and commercially successful when Penguin Random House itself is going through a period of great internal and external change.

With that, let's move onto the results. Robin and I are going to try and keep this presentation as brief as we can, so we've got the time to answer your questions.

2014, as you know, was a year of significant policy and cyclical pressures, and big changes to the fabric of Pearson. And in that year, we delivered on the earnings guidance that we set this time last year. And, as you can see, we're recommending an increase in the full-year dividend.

Just before Robin talks you through the details of these numbers and shares with you our outlook for 2015, I just want set out one or two thoughts on what I think were the key headlines from last year. And whilst there's still a lot to do, we are increasingly confident, both about Pearson's future, both this year, 2015, and the years ahead. So these are what I think we would see as the headlines.

First, those cyclical and policy-related forces were as bad as we expected they would be last year, but they shouldn't get any worse this year and they should then start to improve. And you can see the updated trends in the appendix to your pack.

Over the past two years, we have made Pearson into a single operating company. We've accelerated the shift from print to digital and to services from slower to faster-growing markets, and to a more focused product strategy based on learning outcomes.

Over that time we have, for example, more than halved our global warehousing. We've cut more than 5,000 roles across Pearson, mainly relating to print, or in mature markets, whilst adding key talent in technology, in efficacy, education research, and in our faster-growing markets.

We're not letting up on the pace of internal change. There's still a lot we can do to simplify the business, to reduce costs, to scale globally to improve the learner experience, but we think we can now do that, as we've said, within more normalized levels of restructuring charges.

Another major headline from last year is that whilst we did underperform in a couple of areas, US K-12 learning services, sistemas in Brazil, and we're working very hard to put that right in 2015; actually, in most of our biggest businesses, so US higher education, professional certification, US virtual schools, English in China, qualifications in the UK, assessments in the US, K-12 learning services in Italy, as well, as you can see from the results of the Financial Times, in Penguin Random House, we actually did very well competitively and gained share.

We achieved good growth, again, in digital and services, which powered faster organic growth in our deferred revenue bank, which Robin will talk more about. And that, of course, bodes well for the future growth of the Company.

In our growth markets, the work we did last year sets us up for healthy growth in 2015, and future years. In retrospect, of course, we could have chosen a better year to rebrand emerging markets of growth because it was the first year, in many, that they didn't, primarily because of that exceptionally strong 2013 performance in text books in South Africa coming off. But we are very confident that they'll live up to that name in 2015, and the years to come.

As we've reduced the cost of running our mature analog operations, we're investing more behind these faster-growing opportunities, and that's driving a very exciting roster of new products.

Those products are all about combining new technology with great teaching to expand access; to maximize impact; and to improve learnings outcomes at scale. So, access, impact, outcomes. Those are already the hallmarks of our most commercially successful Products. And it's this efficacy agenda, making these the hallmarks of everything that we do, that will make us a stronger, a more sustainable company, with a larger market opportunity and better financial returns.

So let's have Robin talk you through last-year numbers, and our guidance for this year; and then I'll be back to pick up on some of the key trends we see that will drive our future. Robin?

Thank you very much, John. Good morning, all. Just a few words to endorse John's comments about Coram. I've worked with Coram for about 10 years; I'm actually delighted that he will take on the CFO role. And I can assure you, he will be a most brilliant business CFO.

But, just turning to the numbers, so we're going to look back, as ever, before we look forward. And looking at 2014 as a whole, sales in North America improved a little, up 2% at CER, with growth in higher education; in Connections; in VUE; and in our clinical assessment business, offsetting declines in K-12 learning services and state assessments.

As you can see in the appendix, as John mentioned, cyclical and policy-related factors were broadly line with what we thought they were going to be at the start of the year.

In higher education, growth was primarily driven by continued strong performance in our online services business, where enrolments grew more than 20%; as well as share gains in learning services, helped by a stronger new edition year, which provided a modest boost.

And 9% growth in test volumes was the key driver of the growth in Pearson VUE.

Student numbers at Connections were up more than 15%.

And a strong initial demand for Q-Interactive was behind a good performance from our clinical assessment business.

As we flagged at the half year, revenue deferral from blended digital programs and market-share loss, particularly in Texas, were the main causes of decline in our K-12 learning services business.

And in our state assessment business, the impacts of policy change on testing volumes in Texas and California were the primary drivers of lower test volumes and revenues, as we expected.

Revenues in core declined 5%, with modest growth in Australia and Italy more than offset by declines in testing volumes in the UK. As we flagged at the start of last year, and as you can also see in the appendix, these volume declines resulted from policy changes affecting our UK school qualification business.

Partner market revenues were impacted by the move to a distributor model, which we implemented in 2013 in most markets, and some list divestments.

FT Group revenues were broadly level at CER, with growth in subscription offset by declines in advertizing.

Our growth business grew by 11% at CER, but was down 1% in underlying terms, primarily due to a more normal school text book adoption in South Africa. Excluding that, growth revenues would have been up about 4% in underlying terms.

Our English language learning enrolments in China, and college enrolments in Saudi Arabia and South Africa grew well. This was partly offset by a smaller school text book market in South Africa, down almost 40% on 2013; lower revenues in Brazil from private sistemas, higher education, and ELT text books.

And to help you with your modeling, we've included some more detailed revenue splits in the back of your packs.

Looking at the bridge, overall organic growth in the year was flat, held back by the factors that I've mentioned; acquisitions contributed GBP79 million net after small disposals; and FX was a significant negative.

Now, at this point, I'd remind you, once again, as I do every year, that our reported sales numbers don't tell the full story. And we continue to highlight here the value of our deferred revenue, up 10%, excluding currency effects, on 2013.

Deferred revenue represents the amount billed to customers to provide a service in the future which can't be credited to our P&L account immediately.

It shows the faster growth of digital services and revenues, which in 2014 totaled 62% of Pearson's Group revenues. Now, although much of this revenue will be credited in 2015, we expect the balance of deferred revenue to be up again at the end of 2015.

This deferral reduced our reported sales growth by about 2% in 2014. And encouragingly, all of the growth in deferred revenue in 2014 was organic.

Overall, profit was up 5% on 2013, after net restructuring charges of GBP44 million. And I'm going to come back and talk more about restructuring in a minute.

In North America, we saw 5% profit growth, reflecting revenue mix; a lower returns provision; reduced US pension costs; and lower net restructuring charges.

Our core business benefited from the restructuring taken in 2013, and lower restructuring charges in 2014.

Growth profits were up 16% at CER, with good first-year contribution from Grupo Multi offset by drop-through on South African revenues; launch costs associated with our new vocational colleges; and the contract provision in Saudi Arabia; and weaker revenues and restructuring costs in Brazil.

Penguin Random House had a strong publishing performance during 2014 and finished the year very well. The integration process is on track, with an important milestone in consolidating our warehouses passing without incident in the last few weeks.

The contribution from Penguin Random House was a bit better than we indicated at the beginning of the year. About half of this was due to better trading, and the rest results -- the rest reflects a shift in central cost allocations to other businesses as PRH moved off our systems more quickly.

Our exceptional restructuring costs in 2014 were a net GBP44 million, comprising gross expenditure of GBP84 million, offset by GBP40 million of in-year benefits.

During the year, we completed the title rationalization work, started in 2013; rationalized more of our supply chain; starting to simplify our technology landscape; and exited a number of small, non-strategic business lines and lists.

As John said, over the two years this exceptional program has seen about -- over 5,000 people leave the Company, with about 1,300 new hires in growth markets.

As expected, the restructuring will yield nearly a GBP100 million in 2015, after normal restructuring charges of approximately GBP30 million this year.

Part of the two-year restructuring program has been about contraction of our global warehouse capacity from 7.5 million square feet five years ago to 2.9 million square feet at the end of 2014. And this number will reduce further in 2015, and thereafter.

In underlying terms, profit improved by GBP35 million on 2013. This reflects a GBP91 million gain from lower new restructuring charges, GBP135 million down to GBP44 million, offset by the things we flagged at the beginning of 2014: namely, revenue mix; increased investments; cost inflation; and lower revenues and margins, primarily in our US and UK assessment businesses.

Portfolio changes include a first-year contribution from Grupo Multi, offset by the full-year impact of associated accounted for PRH and the disposal of Mergermarket.

FX reduced operating profits by GBP49 million, due to sterling's strength against the dollar, and key emerging market currencies.

Our earnings per share, including Mergermarket, was slightly below 2013 at 66.7p, with a lower interest charge more than offset by a higher tax rate.

Within our 2014 statutory earnings, our operating profit primarily reflects the net impact of a gain from the disposal of our stakes in Safari Books Online and CourseSmart, offset by the loss on the disposal of our stake in Nook Media, and a write-down of our India-based US tutoring business.

Discontinued operations represents the profit on the disposal of Mergermarket in 2014 and a gain from the Penguin disposal in 2013.

Our operating cash conversion of 90% was achieved despite ongoing investment in new digital products, and enabling technology.

Our traditional working capital excluding pre-pub was down again, due to increased deferred revenues.

As expected, in 2014, the receipt of the dividend from Penguin Random House was more closely aligned to the profits reported, reflecting their 95% dividend policy.

Foreign exchange gains, primarily incurred during quarter 4 on cash receipts, amounted to GBP27 million.

And other movements represent the cash we're putting into our defined benefit pension schemes, partly offset by share-based payment charges without a cash impact.

Our free cash flow grew GBP144 million, helped by our cash tax returning to a more normal level in 2014, after an unusually high cash tax charge in 2013.

On our balance sheet, our net debt increased to GBP1.6 billion, mainly due to FX, which added around GBP150 million to 2013 levels; and net acquisition costs of GBP88 million, given the Multi acquisition was greater than the Mergermarket disposal; as well as cash outflows in 2014 associated with the restructuring activity charged to our 2013 accounts.

Despite that net debt increase, our net debt-to-EBITDA ratio at 1.9 times and our interest cover ratio at 11.3 times are well within our covenant limits. And we remain committed to our current debt ratings over the longer term.

Our ROIC percentage, inevitably, continued to suffer in 2014 from lower profitability, post restructuring. We expect this ratio to improve again in 2015, and beyond, through operating profits, which, given the higher level of good will and intangibles, is critical to improving this ratio.

Helped by the demerger of Penguin, our working capital-to-sales ratio improved again in 2014 to 12.3%, despite higher capitalized pre-pub, which reflects our increased investment to deliver future growth. Details of pre-pub are, as usual, in the back of your packs.

We expect the downward trend in traditional working capital to continue, driven by lower inventory levels and higher deferred revenues, and our capitalized pre-pub as a percentage of sales to remain around the current level as revenue growth returns.

This chart supports our view that the capital intensity of the business reduces, as we gain scale in digital and services.

In recognition of our confidence in the future, we propose to, again, increase our dividend by 3p. This represents the 23rd straight year of above-inflation dividend growth.

So now let's turn to the outlook. Firstly, the mechanical factors that will influence our profits in 2014. As I noted earlier, good progress was made in 2014 unplugging Penguin from Pearson's infrastructure and integrating it with Random House. In effect, this leaves some of our enabling functions with less volume going through them now that the deconsolidation is largely complete. And we can reduce this cost over time, and that will be captured through our normal levels of restructuring.

Assuming FX rates stay where they were at the beginning of the year, the weakness of sterling against the US dollar will provide a modest boost to profits, which will in part be offset by strength of sterling against the basket of emerging currencies, the euro, and the Australian dollar.

Given the weighting of our debt to dollars, the stronger dollar obviously increases our average net debt levels and our interest charge.

We'll see a positive swing from our exceptional restructuring program, partly offset by normal restructuring charges, as I mentioned.

And our tax rate on profit before tax, including Penguin Random House, will be approximately 17%.

As you know, we still expect market conditions to stabilize in our largest markets in 2015.

In North American school, although the policy environment remains uncertain in state assessments, we expect greater stability in school learning services, and growth in Connections. In higher ed, we expect growth in online higher education services; and, with more stable college enrollments and a slower new edition year, learning services to be broadly level.

In 2015, our growth business will grow again, led by China, Brazil, and India. We also expect a steady year in our South African business.

In core, we'll see greater stability in our major UK market.

And in summary, we expect to report adjusted earnings per share of between 75p and 80p.

I'll now hand back to John.

Thanks, Robin. As you heard from Robin, this year we expect earnings to grow again, and we then expect to be able to sustain that growth in future years. And we will achieve that growth by meeting what we think is one of the biggest needs in the world today, which is all about equipping more people with the education and training that is increasingly essential to prosper in a global economy that really does value knowledge and skills more than it ever did before.

I'm just going to take a few minutes really to try to do two things: first, to explain how our efficacy strategy helps us to do that by driving access, impact, and outcomes in education, and, as a result, higher financial returns for Pearson; and then, what our priorities are in implementing that strategy, namely, around new digital products and services, a simpler more focused company, a higher-performing culture, and a stronger Pearson brand.

You've seen this image before, it's all about the fact that we know, and our customers know, that technology, yes, it can be an incredibly powerful tool in meeting this need for education, but it's only a tool.

Our strategy is really to try to stand at the intersection of the new technology, which gives us this great ability to engage and personalize and to diagnose, with all that we know and are learning more all the time about the new more effective ways of teaching. If we do that, we can then develop products and services that means we can share the benefits of richer and deeper learning far more widely.

And it means that the bigger our impact, which we define in terms of improving access to good quality education and translating that into better outcomes for far more people, that's the way that we will create a faster growing and more profitable and a more sustainable business.

This is not just theory; we know this approach works. Because it's the Pearson products that most embody this strategy that can best demonstrate those learning outcomes, that are also our most commercially successful and our faster-growing ones. These are the products that are proving most successful in making the transition from analog to digital. And they're the ones that we are embedding most deeply into the workflow of education, which then, in turn, generates greater customer loyalty, and helps to expand our addressable market.

I know that might sound a little bit theoretical, so let me actually give you some practical examples of what that really mans in practice. First example: students using our elementary school enVisionMATH program, which you can see on this chart, achieve very dramatic improvements in both their computational ability and their concept and problem solving.

This combination of good technology, and the research and application of greater teaching practice, which is what enVisionMATH embodies, ensures that by the end of the second year of using the product students' math capabilities for their grade level are similar to children between two years and four years older than them.

That, in turn, helps us to scale. And it explains why enVisionMATH is the largest elementary math program in the United States, and one of our most commercially successful programs of all time.

Another example: students at College Park Academy, which is a blended learning school in Maryland, it uses the Pearson's Connections Education curriculum. As you can see here, it scored significantly higher than its in-state peers in reading and math in the Maryland School assessment for six and seven grades. Actually, they also beat one of the nation's top-performing school districts, which is in the very next door county.

With those sorts of results, you can understand why the school, in only its second year, is already seven times over-subscribed with parents trying to get their kids into the school. But it also helps to explain why Connections Education, which is Pearson's virtual school service, and on which the curriculum is based, was actually the fastest growing product anywhere in Pearson last year.

A third example: Wall Street English in China. What this graph demonstrates is the way that we're now improving design and data capture, which enables us to predict much earlier, and with much greater precision, those students who are on a path to success and those who are more likely to drop out of their course.

That, in turn, provides us the opportunity to intervene, to personalize the tutoring, and to put more of those failing students back on track.

That, obviously, in turn, improves our retention rates. And it improves our customers' completion rates, which obviously is going to help us to sustain and enhance our growth in China, which is the largest market for learning English as a foreign language in the world.

And it actually builds on a process of continuous improvement over the last three years, in which we've raised the average level of completion by our students by over a grade. That's, obviously, helping our learners to progress more quickly. And that, in turn, helps us to perform better commercially, because it reduces attrition rates, and it reduces the cost of acquiring new customers.

Another example: MyLabs. You can see here a bigger impact in terms of increasing retention; reducing the costs of remediation; and, above all, improving learning outcomes. That's what's made MyLabs probably our most enduring Pearson success story.

This example, from California State University at Bakersfield, shows how we're helping to drive achievement in course completion; and also, reduce the average time that it takes a student to complete. And so by improving access, because it's providing support to the students who are most in need of it, it has a real impact, because it helps people to master the skills and the knowledge that they're going to need to go on and progress in their lives.

As a result of doing that, it also helps us to grow. And that's why MyLab registrations have doubled over the last five years, because we're able to deliver results like this. And it's why we expect that growth to continue as we develop the next generation versions of these products, and further demonstrate their efficacy.

And it's also a great example of the point I was making earlier, of it's by combining new technology with new ways of teaching to achieve better outcomes at scale. That's what enables us to navigate this transition from analog to digital far more smoothly.

We showed you this chart for the first time last year; there's now an extra year of data on it, which helps to amplify on that point. On the left, you can see that as print volumes decline the MyLab digital registrations grown.

And you can see, on the right, that while the revenue-adjusted enrolments were down again because we're still at the point in the cycle when enrolments were declining, our revenue per enrolment, as you can see, actually increased, again.

What this tells us is, I think, that where usage is high, because efficacy in terms of access impact outcomes is high, volumes and price points remain firm.

Where the take up is low, which is primarily normally because either the efficacy is low or we're not able to demonstrate it, that's when the volume and price points are under pressure across the whole of the education sector.

And it was that insight, really, that drove the two-year program of restructuring and reinvestment that we've just been through, so that we can put more of our resources into the products that will drive that high usage and drive that high levels of efficacy.

And what it tells us, I think, is that our customers will pay for greater impact as we can make that shift from analog to digital. If we can demonstrate, we extend access and improve outcomes, then they will reward us financially and commercially.

So it does that. But it does something else, because it also helps us to expand the market opportunity for Pearson.

Higher education now, as we have greater capability to offer student enrolment; online services; course design; learning management systems, we've been able to forge now, what, around 200 partnerships with US colleges. And we're now expanding those elsewhere into other markets; [two], most recently, you may have seen that the Financial Times has formed a partnership with IE, one of Europe's leading business schools.

What it means is we shift from supplying products and services to the budgets that comprise 5%, or less, of the total costs of going to college, we think, on your chart, is that the red bar here, the books and supplies; and enables us to expand into activities that relate to 60% of the total cost, which I think is the blue bar on your chart, which includes the tuition and fees.

Now, as Robin said in his presentation, this strategy does require us to invest more upfront, both through the P&L and through the balance sheet. And it does mean that we carry more of the risk as we start up more of these new ventures and partnerships. But the more deeply engaged we are with our partners, and with our learners, the more we mitigate that risk and the more sustainable these new business models become.

And it's the way that we grow more quickly, and will grow by helping our customers and partners to grow, because in this model we're very much co-creating and co-developing new products and services with them. And we both grow by actually helping more students, more learners to be successful in their own studies.

So this strategy's doing two things for us: it's helping us to migrate, make this tricky transition from analog to digital, but it's also expanding our addressable market.

But it's also enabling us to think about another big opportunity in education as well. Because, you'll be familiar with this data, so I'll make it very quickly, in the US, biggest market, college degree, as you can see, has always been a good investment, but it now brings a bigger return than ever before. Why? Because more middle-class jobs now require a degree as an entry-level requirement.

But what we also know, for too many people in the United States the pathway to that better job is blocked by low completion rates and the lack of affordability, as you can see on this chart.

And these issues, I think we would argue, are a symptom of an education system that, unfortunately, in some ways, some important ways, has actually barely changed from the days of the industrial revolution. It's still from an era when manual labor was key and intellectual capital was only valued for an elite.

Obviously, we now live in this era what's often described as the second machine age when the public and private imperative is to equip every young person with this idea of the 21st century skills that they need to be successful.

And what that means is that the education industry, like pretty much every other industry in the world, is going through its own revolution. And, in our case, that revolution must be about what our strategy is, which it's about combining technology with good teaching and to scale in a way that boosts access, boosts achievement, and improves the affordability of higher education.

And so the services that we are co-developing with our customers, and our customers in this world are very much the colleges who are the pioneers, the people who at the moment are at the forefront of reimagining higher education this way, is all about making it more accessible; more adaptable; more relevant; and more productive; and providing a better return on investment for more people. And this is work that, you'll note, we're not now just doing in the US, but in Australia and the UK as well.

There's another leg to it though as well, because I would argue, as you can see from this chart, that in emerging markets the challenge is, actually, is even more fundamental. And it's actually about the chronic lack of capacity relative to this rapidly growing demand.

Just to take one example, in South Africa, the largest five public universities in South Africa can offer about 45,000 places a year; they each receive more than 200,000 applications. And other emerging economies face very similar challenges.

We've, over the last few years, started to nibble away at this demand with encouraging results, successes in UTEL in Mexico, CTI in South Africa, both growing strongly. But it now needs to be a bigger area of focus for us.

As we're organized as one Company, we can better apply the products; the services; the capabilities; the expertise; the lessons that we've learnt in America to help to meet this demand around the world.

But there's two other elements to it as well that I think are worth dwelling on, just briefly. First, this trend also drives up the value of a good school, because parents want to be confident that their 18-year-old is going to leave school career-and-college ready. And so schools, like universities, are going through their own revolution. They also need to reimagine the way that they operate, which is why we think the blended learning model, which College Park Academy is very much at the forefront of, is going to have a very big future over the next decade.

And the other (inaudible) part of it is this new middle class in these emerging markets, faced with these trends, value, more than anything else, an English-speaking university degree. Some of you may have seen the story in the Economist last week that the number of Chinese students enrolling at American universities has grown eleven-fold in just seven years.

And that's one of the big factors that's driving the growth to learn English in countries like China. And they need not just the grammar and the vocabulary; if you talk to vice chancellors around the world, they talk about the speaking and listening skills that they need to be successful.

So the point of that is this; that the world spends today around about $5 trillion dollars each year on education, of which about $700 billion to $800 billion is potentially addressable by the for-profit sector. We're the largest education company in the world, we account for about 1% of those addressable dollars. So the opportunity, as we work away at this over the next decade, I think, is pretty clear.

I hope that explains how our efficacy strategy creates a much bigger opportunity for Pearson. Let's just talk briefly about the priorities for this year in implementing it.

First, as you can see in this chart, we're investing in a smaller number of priority products and services that can address those global opportunities. They each combine new technology with great teaching to expand access, to maximize impact, and to improve outcomes at scale.

Those three things, access, impact, outcomes, they're the hallmarks of the most commercially successful products we have in Pearson today. And the efficacy agenda is about making those the hallmarks of everything that we do as a company, so we can capitalize on that bigger opportunity and deliver better financial returns for shareholders.

Just quickly to give two examples of the sort of products we're talking about, we've taken all that we've learnt over the last decade from our MyLabs, and how adaptive learning and data analytics are transforming the teaching of quantitative subjects, such as math and science, and combing that with wider research findings and applying those insights to more qualitative arts-based subjects.

REVEL, our new immersive learning experience for the humanities and social sciences, is the result of that work. It's adaptable; engaging; it's easy to use; it's designed for a mobile multi-platform world; it's replicable; it's scalable. And the initial response from the customers suggest it's going to be very successful, commercially.

Another example, briefly, would just be TestNav. That's the latest version of our onscreen assessment platform. It assesses those 21st century skills far more effectively. It provides immediate feedback to student and teacher, which, in turn, makes the whole process of learning far more flexible, relevant, and productive.

And it also scales across what, I think everybody now understands, are notoriously complex school hardware and software environments with all the very specific challenges that brings. So, for example, it enabled us to administer 11 million secure high-stakes tests last year; up from 8 million the year before.

The second part of that is we've got to be able to deploy those products in a global and scalable manner. And that's why this simplification agenda is so important.

You may remember, back in July, that we saw really great scope to reduce our technology costs by slimming down the 3,000 applications, the 700 plus technology vendors, the 50 data centers that we currently operate. We made good progress on that last year. We reduced the number of applications by 10%, and we reduced the number of vendors by 20%. And we expect to make similar progress again this year.

But over the next three years, there's an even more significant opportunity to standardize and streamline our core technology platforms. For example, as you can see here, we're currently spread across 94 hosting locations. And across Pearson we use 63 different finance ERP, instances from the likes of SAP and Oracle. Within three years, we expect to be running Pearson on one global platform, supporting all our operations.

So that's why we say that we're not letting up on the pace of change internally, even though we can now sustain that pace with more normal levels of restructuring. Because in our IT, and in our product technology, we've a lot of scope to improve the customer experience, to reduce our operating costs. All with the aim we've also been able to scale more of those products and services globally. And we'll obviously work hard to make the most of it.

Third priority for the year is ensuring that this ongoing program of change operates right -- applies right across the Company. The efficacy program, the focus on access impact and outcomes, is something that we are embedding into everything we do. It shapes the way that we think about our Company portfolio, as you can see from today's announcement regarding PowerSchool. And it also drives the way we now recruit, promote, and reward our employees.

And fourth, and this is very important, it also drives how we project ourselves externally through our market presence and brand.

Public awareness of Pearson as the world's leading learning company is still relatively limited. As you all know, education is quite rightly an issue that attracts much public debate and comment, so, as we grow, we need to ensure that Pearson is both widely known and widely trusted.

That means the major priority for this management team is more public engagement. It means that we need to organize our product marketing, to position Pearson in a much more coherent way. And, most of all, it's about demonstrating that the Pearson's biggest branded products really do help our customers to do more and better.

2014 was a challenging year for Pearson, but we delivered, in the face of some pretty tough market conditions. And we do enter 2015 with those cyclical and policy-related headwinds easing.

We completed that large restructuring, reducing our analog infrastructure, increasing our ability to combine new technology with great teaching to improve learning outcomes of scale. And we're just now just starting to see the benefits of that work in the form of a faster growing, a leaner, and more cash-generative business.

We're driving more costs out of our infrastructure by making our systems and our platforms more efficient and more scalable. This improves the customer experience. It frees up more resources to invest in better digital products and services, all designed to expand access and improve outcomes.

This will, over time, drive a relentlessly high-performance company. It forges a stronger brand for Pearson. And it actually also attracts more partners and customers who share that mission and that purpose around empowering people through learning.

And that all will make Pearson a higher returning company, both to its shareholders and to the communities we serve. And that should enable us to sustain that high return for many years to come.

So that's where we're at. And with that, Robin and myself, helped by the Pearson executive team, who I will introduce as we go along, are now very happy to take your questions.

Sami Kassab, Exane BNP Paribas. Three small questions to start with, please. The first one, market share in K-12, can you help us understand why you think you lost them, and how you think you will regain them? And what outcome would you expect in market share for 2015, please?

Secondly, can you please come back on Brazil; help us understand the drivers of the poor performance there, and how you see 2015 developing for Brazil, and, in particular, Brazilian sistemas?

And lastly, perhaps, could you quantify the impact that moving to a distributor model had on your organic revenue growth?

Okay, Don, do you want to pick up on the K-12 learning services point; and then Tamara will talk about Brazil? And then, I think, the move to the distributor model had the biggest impact in core markets, so, Rod, perhaps you could pick up on that?

Well, clearly, we lost some share in the competitive wars in 2014. I think, in particular, we lost some share in middle school in Texas around our math product and our science product. We also lost a little bit of share in Florida.

I think the underlying reason was we were coming out of a substantial reorganization in 2013 in the sales force, where we went from, I think, eight or nine sales forces down to one. There was some disruption there.

I think, also, we identified in 2014 that we had some product gaps that we are about addressing.

So the good news is the reorganization has bedded down after 2014, moving into 2015. And on the product side, again, we are addressing the issues there. And again, we won share, I think, in 2013; we lost some share in 2014; and we're anticipating that we'll be back to being very competitive in 2015.

Tamara, do you want to pick up on Brazil?

What do you mean? Is it 30%, like your 10-year average?

I'm sorry, what was your question?

What does breakeven mean? Is it 30%, like your 10-year average?

I think what we're saying is that we expect to start to regain our performance. I think overall you can assume that in our US K-12 business a benefit of the deferred revenues coming through, that Robin talked about.

An improved competitive performance offsets the fact that it's a smaller adoption year this year, which should enable us to sustain a similar level of revenues to last year. I think that's broadly the summary of it.

Tamara, do you want to talk about Brazil?

In Brazil sistemas, as we flagged at the half year, that business has stalled out because we were combining. We have three private sistema brands, and we were combining three sales forces that largely called on similar customers together and integrating those.

In addition, we made the decision to accelerate the integration of Multi and our Pearson Brazil business into, last year, a full integration. And those two disruptive forces caused that business to stall out.

But we took the opportunity both to invest in that sales force both the capabilities, as well as increased reach into the market place. We reinvested from that restructure into a further reach into the marketplace in capabilities; as well as invested in new product refresh and digital-blended products for our sistemas. So we fully expect that to come through into growth in 2015, and return to growth.

And then, Rod, do you want to pick up on the question was around impact of distribution -- of moving to distributor model?

Yes, there was some impact, as Robin said, of moving to a distributor model. But I wouldn't want that to be overstated in the context of other changes we were also making. We exited some lists,

some businesses as well.

And, in fact, the move to a distributor model, whilst there is a degree of impact partly through disruption, partly through timing, it also means that as we develop those relationships with those distributors it gives us a sharper focus and an ability to grow, going forwards.

Thank you.

Sarah Simon, Berenberg. Three questions, also. First one is can you -- you talked about greater stability in terms of policy. Can you comment on what the impact would be if there's a major rewrite to the No Child Left Behind, which is going through at the moment?

Second one, in terms of the net restructuring benefits, you've showed us the same numbers, but, obviously, currencies moved a lot. So presumably, the savings that are going to come from that, being dollar-based, are going to be even bigger than they were guided to before.

And then the third one was just about the user or registration numbers for global English and Wall Street English were flat to down. Just a comment on that would be helpful. Thanks.

Okay, so, Doug, do you want to pick up on the political and reauthorization changes to No Child Left Behind, and perhaps talk a little bit more about where you think we are on common core as well?

Sure. As you know, the No Child Left Behind, or Elementary Secondary Education Act, is the US Federal initiative to provide funding, primarily for disadvantaged students across the country. It also is the act that specifies that states need to implement standards and have annual assessments for many of the grades in reading, math, and in science as well.

So we are following the reauthorization quite closely, because that does drive a lot of aspects of our business around assessments and professional development and new curriculum materials.

It's likely that, if it is reauthorized, the major focus will be on the accountability provisions and moving more of the control around accountability back to states. But as far as we can tell right now, there really won't be any major impact on the implementation of standards, or on the annual assessments provisions.

Okay, thanks, Doug. And then, John, do you want to pick up on -- so I think we're looking at the slide in the appendix that's looking at the global English registrations and the Wall Street English registrations pretty much flat year on year; talk a little bit about that. And perhaps also then talk a little bit about some of the new products we've got coming out that gives us good confidence we're going to see some momentum in those registrations this year.

Yes, sure. On Wall Street English, which is our direct-delivery English language business, we saw a slight slip from the 1% down to about 190,000. But we did see good growth. We saw growth in China. We saw a bit of slippage in Europe.

But really, one of the really interesting things going on there is we're completely overhauling and redesigning the Wall Street experience. One of our key projects is a new student experience, which is a fundamental overhaul of really everything from the syllabus to the design of the centers, to the digital community around there and the sort of digital marketing effort. It's all embedded and connected to our global scale of English, which is our proprietary learning scale.

So this is very much in progress. And we start rolling this out in Q4 this year in China, which is obviously our biggest market.

On global English, actually, what we're seeing in global English is quite good activity in new sales and new contracts. And because of the subscription nature of that, that needs to flow through and we'll see the impact of that this year, and ongoing years.

Again, we're in the process of refreshing and upgrading the product, including embedding content from the FT and video from the FT into the courses there.

And, Robin, do you want to pick up on Sarah's question about the impact of exchange rates on the net restructuring benefits?

Yes. You'll recall, in 2013 we had restructuring costs that were a little bit higher than we indicated at the start of the year. In 2014, they've been a little bit lower, actually. So we thought we'd be having net restructuring costs of about GBP50 million; they've come in at GBP44 million.

And I think, on slide 10 we've shown you what we expect to happen in 2015, which is that the gross restructuring charges we took in 2014 of GBP84 million fall away. We get the second half of the benefits from the 2014 restructuring, and then we've got normalized restructuring of about GBP30 million. I think that is the corollary of all the activities we've undertaken in 2014 coming through.

There may be a little bit of exchange movement, but, frankly, the numbers are -- they're our best estimate of what's going to happen in 2015 now from what we've done in 2014.

Okay. Just before we move onto our next question, for those listening on the webcast, I think I was supposed to say at the beginning that if you had a question, if you wanted to email it in, then I will pick it up and make sure it gets answered. I will still try and do that if you want to respond, even though I've done it about 40 minutes later than I was supposed to have done, but anyway.

Nick Dempsey, Barclays. Three questions, please. First of all, on Texas and California testing, we have those contracts coming up for renewal, I think, in the second quarter. I wonder if you could give us a sense of the scale of impact. I know you won't give us numbers, but a sense of the scale of impact, if you were to lose those. And I'm thinking in terms of restructuring charges as well as just losing the profits.

Second question: Houghton Mifflin talked about the K-12 textbook market down 9% in 2015. That doesn't seem to tally very well with the directional comments that you guys have made, so I wonder if you'd comment on that.

And lastly, the stranded costs related to Penguin, I guess, I'd originally thought that those were included in your restructuring program. So is that a change, or did I just misunderstand that in the first place?

On Texas and California, you'll understand that we're in a quiet period in terms of bidding for both those contracts, so obviously we're not in a position to talk about them.

In terms of the guidance for 2015, you can assume that there is minimal impact from any change in contracts there, in the sense that we already have contracts in Texas and California that will last for most of this year, whatever happens to those processes that are currently in place. So that's on the guidance.

On the K-12 market, I think the -- I don't think -- I can ask Don to expand on the answer he gave before. But I think the answer is essentially what I said, which is, yes, the available market will be smaller this year; but a combination of deferred revenues releasing from last year, and what we expect to be an improved competitive performance, explains the guidance that we're giving for the year.

I don't think, Don, there's much more we can add.

Just the fact that some of the reduction in the market -- the only other thing is the reduction in some of the market is on a cash basis, not on a P&L basis, that it becomes deferred revenue next year.

Yes, okay. So there's a -- what the AAP numbers and Houghton Mifflin are quoting is cash spend not recognized revenue spend this year, because it defers over a number of years.

And then on the Penguin stranded costs, I think if you think back when we were in this room two years ago, when we announced that we were doing this major restructuring program, one of the major drivers of it was the demerger of Penguin from Pearson.

We always knew that there would be a stranded cost related to it. In actual fact, the scale of the stranded cost is somewhat lower than we modeled when, as a Board, we were weighing up the option of merging Penguin with Random House. But I think what's happened is, although they're smaller, they've materialized more quickly because Penguin has got off the Pearson systems more quickly than we expected.

We still expect to whittle away at that GBP30 million over the next couple of years, and that will be one of the factors of the further restructuring work that's gone on. But that, I hope, answers that question.

Tom?

I had two questions, on two different subjects. The first one, on K-12 curriculum, I think there had been some hope that after a period of sub-trend level of spend relative to steady-state levels on text books there might be a period of above-trend spend. Should we discount that as very low likelihood? That's the first question.

And then the second one is on Penguin Random House. I recognize there's potentially a lot more good stuff to happen there in terms of restructuring, and that there may be a good economic reason for holding on to that stake, but can you just talk about the strategic value of it? Is there a reason why you need to hold it, from a strategic perspective, now that the warehouses are all separate, and so on, and so forth?

On Penguin Random House, the clear decision that we made was that in a time of great change in the trade publishing industry the best way to secure the creative and commercial future of Penguin was to merge with Random House. I think, so far, that's proving to be the right call.

Clearly, there's a lot of value that's been created. There's still a further significant program of integration going on this year. So, at this point, we are very comfortable with our shareholding in the Company; and the terms in which anything different might happen were clearly set out in the shareholding agreement.

On the K-12 curriculum, again, I'm not sure we can -- I think the first point to remember is that the K-12 learning services business is just one part of a much bigger US K-12 business. And we saw strong growth in Connections last year, and we expect to see good growth in Connections this year. And I think we've included in the appendix to the pack what happened to our testing volumes, which is obviously the single biggest part of our K-12 business last year, were down.

So I think in broad terms you're right to say that the funding environment, because state tax receipts are now in surplus, is more favorable, and as the policy environment becomes that bit clearer you would expect some positive momentum. But we'll see that as much in our virtual schools and our testing business as we will in learning services. I think that's probably the way to think about that.

Andrea Beneventi, Kepler Cheuvreux. Two questions, if I may. The first one is on Wall Street English. You mentioned growth in China, so are you talking about double-digit growth or single-digit growth?

Secondly, South Africa was quite weak in 2014. Do you expect now adoptions to stabilize at the level of 2014, or rather to revert back to 2013, please?

Two questions for Tamara there. So, outlook for textbook publishing in South Africa, and Wall Street English growth in China; you might broaden that out to talk about the test prep business we've got there, and English more generally.

We have two very strong English businesses in China; one is our Wall Street business, which had very strong growth last year; and our business of English test prep for aspiring young students who want that certification in order as a gateway to study abroad.

Both of them had robust growth. The exact growth, I don't think it's appropriate to give out exact numbers on that, but let's just say very strong growth. And we expect that to continue in the future, especially as we layer in new products, more digital blended, engaging, etc.

The second question was South Africa. This was a market correction. And we had anticipated some drop in the market. There were three tranches of curriculum reform in K-12 in the public school system, the last of which took that market in 2013 to an unprecedented high.

We had forecasted a drop. A drop of 40% was not forecasted in that market; for it to drop off in those top-ups quite as much, given there's still probably only seven text books for every 10 children. We expected those top-ups to remain stronger than they did.

We expect that market to stabilize in 2015. And we've taken share over the last few years. We expect to continue to take modest share, but for that market to really stabilize and not go back to those high levels that we've previously seen through curriculum reform.

Paddy?

John, I've got three questions. The first one is really on -- they're all multi-layered questions. The first one's really on US assessment. I wonder if you can elaborate. There's been a lot of negative report in the trade press, backlash against testing, sharing of tests, what's really happening there? How much of it is political posturing? And what does it mean for revenues and profits for you in 2015, and 2016? That's the first question.

Second one is, is Chegg changing its business model in the college market? Is that a positive for the market?

And the third one is really about the Board composition. You're looking for a new Chairman. Do you need to shift it a bit more to having someone with a US political experience, someone to navigate that, or do you think the Board composition is right as it is?

Well, let me take the third one, first, because Glen is still very much the Chairman of Pearson, and very active, so the question is somewhat hypothetical.

But I think it's fair to say that myself, Kate, Don, Doug, Tim, the wider Pearson team, all invest very significant amounts of time into engaging with policymakers in the States, as the whole of the team does around the world. I think we have good relations across the political spectrum. And I think we are widely respected for our ability to take on large complex projects, and do so in the full glare of publicity, and with a lot of political sensitivities around it, and do it effectively.

Clearly, if you're in the business of education, it's one of the most important issues in the world. It's something on which everybody has an opinion, and rightly so. So you've got to be willing to be open, transparent, engaged, and you've got to hold yourself accountable. And that's another reason why I think this whole move to us being focused much more on the impact of what we have and measuring our success by access and outcomes is the best way for us to sustain and grow the business and navigate our way through those issues.

And on that then, Tim, do you want to talk about the changes in the business model and what that means for us in higher education, and why we're excited about that both in the US, and around the world?

And then, Doug, do you want to pick up then on -- bring a bit of context and perspective to the whole debate over assessment? Is that okay? So, Tim, first.

Paddy, to respond to your question about Chegg, Chegg's recent, I think, decisions and announcement were really about focusing on digital and services by outsourcing their rental business, or partnering the rental business, to Ingram.

I think that, actually, that squares pretty well with our -- the product portfolio strategy that John described as applied to higher education, which is we're participating in digital courseware and services. Chegg plays a role in the distribution channel; and insofar as we work with multiple partners, we think that actually supports the movements that are healthy for the business.

And from a portfolio standpoint, we're investing in new digital products and courseware models that John described. If I could give you a sliver of color on the REVEL model that he described, so I can give you some context around that, it does a couple of, I think, really interesting things for learners and for Pearson.

First, to describe the user experience, it combines a reading [text] experience with a suite of learning applications, or applets, in a UX that is super-simple and modern. And it's based on principles of learning design and cognitive research, so that's where John's point about applying what we know about teaching and technology.

It is a fully mobile user experience. It's based on our increasingly modern cloud-based stacks that will bring the efficiencies that he described about. And it provides a kind of dashboard and analytics for faculties, faculty that really give them a predictive and leading indicator of student performance.

From a business perspective, and it's been -- it was launched with some -- less than 20 products, and it's already used it over 100 colleges and universities in the US. The platform is globally deployable. Our product release cycle is tripling in 2015.

And from a portfolio standpoint, John characterized that is getting us into the qualitative areas. It extends the reach of our digital courseware portfolio in some pretty interesting ways.

So, that gives you maybe a little more color on business models, product models, and the tech piece.

Doug, can you just give a bit more perspective on assessment? And, while you're there, can you also deal with a question from Tim Nollen at Macquarie that's come on by e-mail, which is, PowerSchool, I thought this was an important part of your digital services. Is it because you have overlaps with other offerings? Any color?

So just deal with the assessment, and then explain the rationale behind the PowerSchool decision.

Sure. Well, the first thing to note about our assessment business in the US is how diversified we've become.

While the state assessments that are driven by the Federal No Child Left Behind Act are an important part of our business, they are just one part of our business. We have a really strong clinical assessment business, diagnostic testing, teacher certification, language testing, and so on. So, we are not really that exposed, if there are dramatic changes in terms of the Federal legislation.

Now, as I mentioned earlier, we are watching the reauthorization of the No Child Left Behind Act very closely, because that does affect that part of the business. If there is a move which we are anticipating of more control back to states, that's really the environment that we've been operating in under No Child Left Behind from the beginning, so we don't think that, that is at all material.

Moving onto PowerSchool, PowerSchool is an administrative software system. It's a great business; it's a really good brand; it's performing quite well; it's a market leader. But it is an administrative system, and it's about managing customers' data. It's not information or data that we can use, really, in any way.

And we also have to work with the whole market. With all of our learning systems and assessment programs, we have to integrate with every school's student information system product. And while PowerSchool is the leader with about one-quarter of the market, there are three-quarters of the market using other systems. And this will actually help us work with that part of the market, because we'll no longer be a competitor.

And given that we cannot directly measure an impact on student outcomes relative to providing an administrative software system, it's just not a priority for investment. And we think that it'll be better served in -- under another owner.

So, it's much more a sort of back-office administrative system?

Yes.

Okay. Claudio?

Claudio Aspesi, Sanford C. Bernstein. I would like you to step back and think about two broader issues, please. One is the fact that you have been describing now, both you and your predecessor, the efficacy of digital education tools for a long time, but the sceptics abound and don't seem to be any less vocal.

Can you give investors a sense of whether you are making tangible progress or not in allaying concerns? Or, if not, is there a strategy -- a different strategy that you can deploy, going forward?

Second question, can you please draw a distinction between your strategy on data protection and data usage compared to some of the other competitors? And do you see this as a competitive advantage? And why?

Okay, two good questions. I think on the first question, clearly, I think we are making significant progress. I think that progress has been clouded by the very significant cyclical and policy-related issues we've had to deal with over the last couple of years.

Just take one example. If you just look at the appendix at the back and look what's happened to BTEC qualification volumes over the last couple of years, and you compound that with what's happening with college enrolments at this point in the cycle, that, I think, is clouding the very significant progress we are making; the growth in digital services as a percentage of revenues; the growth in deferred revenue, which is the equivalent of two points of organic revenue growth. So, I think those helped to provide some evidence of it.

And I think that whilst efficacy is something that we've been talking about for some years, it really does take a while for this to really deepen and get traction across the Company. I think it's really now over the next three to five years that you will really see very significant benefits of that coming through.

I think the other data point I could provide is if -- when we were having this conversation two years ago, when I was new to the job, the whole -- virtually all of your questions were about analog to digital and how we were going to see significant seepage of value in that transition. Well, I think we can now say, clearly, that we are sustaining the value in that transition.

So, I think there's quite a lot of points there, if you look, that should already give shareholders confidence, but there's a lot more still to do.

On the data analytics point, Tim, do you want to pick this up? Because this is something that works across the whole of the lines of business, so it's something that Doug, Tim, and John are all working on collectively across the Company. But we do think this is a significant source of competitive advantage.

And actually, the very reason for us to get out of the business like PowerSchool is because we free-up resources and time and focus to really focus on the front end, where we think we really can bring value and expertise. So, Tim, do you want to summarize some of the work that we're doing in that area?

Sure. I think that Pearson has very strong opportunities for competitive advantage as it pertains to applying data and data analytics in predictive fashions that can have learner impact; and, by doing so, provide business growth for us.

The moves that we're making to a simplified technology platform, which perhaps Albert can elaborate on that, will allow us to get the benefits of that at scale from the consistency of the architecture and the application in our customer reach.

I think at an in-principle level there is a fair agreement about at least directional potential, the application of data on impact of learning. And, therefore, John's made, I think, the connection of what that could do from a business standpoint for us. And perhaps I could ask Albert to talk about how we're approaching that from a technology architectural standpoint, to elaborate a bit on that.

Albert, and so I think it would be helpful just to talk a bit more generally, because this is a really fundamental driver of opportunity for us over the next three years, this opportunity to really simplify our technology platforms.

Good morning, everyone. So, yes, there's a huge opportunity, largely, I think, driven through some of Pearson's history. We acquired a lot of companies over a long time. We had a very fragmented structure, and to some extent the technology architecture reflects that fragmentation over many years.

So, the strategy, really, is to dramatically simplify the technology environment and to create what we're calling a set of core platforms for the Company; effectively, core assets that underpin both the customer and learner experience, but also enable us to run an effective business. And John mentioned about going from 63 ERP systems down to one, and we've got a program for that.

We're doing the same thing for CRM. We have many CRM systems across the Company. We want to get to one over the next few years. And really create what I call a 360-degree view of customer so all of our customer data sits in one place, so we can see every customer interaction that the Company has, and create a very personalized way of dealing with customers. Of course, that then cascades up to the product layer and how we actually touch product and customer experience.

And so when we think about big data and customer and learner analytics, the intention is to have, again, one platform that does that. So, today, we have many fragmented views of customer data. By getting to one platform then we can really start to look at customer lifecycle across the whole learning continuum, wherever a learner sits in the world, and then start to get to, as Tim says, a very predictive view of customer behavior so we can understand customer trends.

We both have a historical view of what the customer has done with us, but increasingly, like with a number of other industries, get to this predictive view. And ultimately, the nirvana of that is can we actually change the learning process and the content in real time to suit an individual's personality and behavior.

So that's where we increasingly want to spend our R&D dollar, is how we get into that really adaptive learning cycle that continuously learns and continuously improves around a personalized learning experience.

And just linking that back to you first question then, of course, the reason we know that this efficacy strategy is a commercially successful strategy, it's what's driven our most successfully commercial products over the last five years.

The issue is it's not every product in Pearson yet. So we need to make all of Pearson like the best of Pearson already is, and that's what's going to drive the growth of the Company.

Giasone Salati, Redburn. I have three questions, please. Can you give us the split of for-profit college and K-12 testing as a percentage of profit now?

Second, how is Pearson College going in London? I think it's been running for two years and a bit. Is that a model that you are ready to roll out elsewhere?

And picking up on the last answer, I'm looking at slide 38 with all of those datacenters, it is reminiscent of Reuters coming out of the 90s, after a long period of acquisitions never integrated, and, unfortunately, they failed consistently, year after year, to integrate those data centers. Is technology much easier now? Or is Pearson a totally different beast from Reuters?

Clearly, there is no live -- or maybe there is live, testing is maybe live at this point, which makes you more confident that you can actually combine these different data centers in one? And what time horizon?

Okay, thank you for that question. Robin, do you want -- I suspect the answer is we can't provide a lot more guidance, but do you want to try and answer the first question?

I can help a little bit. I think if you look on 44, we put in the appendix something which helps you split out, within our North American business, how much of it is in various parts.

Clearly, the for-profit colleges you reference is part of the higher education blue bar in that business. And we've always said that (inaudible) for-profit colleges are only about, today, 7% of the US higher education market. But we are somewhat more highly weighted into the for-profit colleges because MyLab center have greater penetration in that space.

So that gives you some degree of clue as to how much of that blue area is for-profit colleges. It certainly isn't the majority of it, but it's an important part of it.

The testing business that you referenced, and I think Doug covered this earlier, is part of the green bar in school; but remembering that state testing is only part of our testing business, because we've got national testing and clinical, which is one of our highest margin businesses in there as well. So it's important, but it is, again, not life changing in itself.

Okay. Rod, do you want to pick up on Pearson College, which is, obviously, still very much in pilot phase, isn't it?

Yes, it's still very much in early days. We're pleased with the progress that we're making with Pearson College. The proposition, the reason why students that come to Pearson College choose Pearson College is because, if you want to get a job working for a FTSE 100 company, then if you come to get your degree from a FTSE 100 company you may get some direct first-hand experience that's going to be valuable to you. And indeed, that is what the students are telling us, that come to Pearson College.

The reason we decided to make the commitment to build Pearson College is a couple of reasons. First of all, so that it would give us much more first-hand direct experience to prove out some of the things we are working with other higher education partners on, so that we can better develop partnerships with other higher education institutions, and develop the kind of partnerships outside of North America that we've been very successful at in North America, for example, with Arizona State University.

So to build out our expertise. And also, to be able to acquire degree-awarding powers, so that, ultimately, with our own degree-awarding powers, we will be able to take our degree programs to other institutions, in particular outside of the UK.

So it's a very good future growth opportunity. Early days, but so far on track.

Okay. And then Albert, I don't think either of us can help very much with the Reuters historical analogy. But another company that grew very rapidly through acquisition was Vodafone, and that's one where you bring direct experience, so perhaps you can apply that to this question.

Yes, a good question. I would say, the data center landscape directly reflects the complexity and the application environment. As we reduce the number of applications and the number of digital products into a much more standardized set, that enables us to collapse the data centers, so there's a direct linkage there.

I think there are many examples of companies who have failed on this journey; there are also many examples of companies that have been successful at it. And I did the same thing at Vodafone and did a lot of technology consolidation, and I did also the same job at Nortel networks when I was CIO there as well.

It's a leadership challenge. It's not a technology challenge per se. And we're assembling a very high-caliber professional technological organization to better work the journey here, both in terms of the process rationalization and simplification. Because, clearly, applications are there to support business processes.

So we've got to do two things. We've got to simplify the business model, simplify the processes of the Company; move to standardized platforms. And as we do that journey, the consolidation of the underlying infrastructure data centers and networks follows that continuum.

So, yes, it's a multi-year journey. But we've made some good start on the journey, and we've got a lot to do, but we're making good progress.

I think that's a really important point, because I think it's the organizational changes that we've made over the last two years, to start to run Pearson as a single operating company, three geographies, three lines of business, that actually enables this program to have much greater success, rather than trying to integrate what are hundreds of still vertically integrated P&Ls.

So I think this is as much a leadership and culture issue as it is a technology challenge, and that's really important, and I think we've made huge progress on that.

Mary Pollock, CreditSights. My first question is on your uses of discretionary free cash flow. Your dividend's increasing, your free cash flow's better, but you don't have a huge amount of headroom. So if you could add some color there, particularly regarding M&A.

And second is on your credit ratings. Last year, you said you were comfortable being mid-BBB. This year, you're high BBB in the long term. How are you thinking about your ratings? And is there a leverage level where Pearson will be more proactive shoring up its balance sheet?

Robin, do you want to take both of those?

Yes. Two related, clearly. I think that we've always been clear that the uses of cash, the first one is organic investment, and you've seen us actually reprioritize even higher up this tree, organic investment, over the last couple of years. And that's where that great pipeline of 16 new products, or whatever it is on John's chart, putting all the 16, is actually going to come from, it's from that organic investment.

We then said dividends. We then said M&A. And you've seen us cut back a little bit on the M&A activity in recent times, although Grupo Multi last year was one of the largest acquisitions we've done. And I think, at the moment, you won't see us do that many very significant acquisitions, because the prioritization has gone into organic.

Just on the debt rating, we've always been very clear that we're committed to BBB+, BAA1, and that is what is, in some ways, constraining our acquisition activity. We're still committed to those ratings.

I had thought there might be a chance, a year ago, that we might get downgraded, we are still on negative watch with Moody's, but we weren't. I think the ratios are very similar now as they were a year ago, so in the extensive discussions we'll have with the rating agencies in March, I'm kind of hopeful that we get through those again with the ratings intact. But we've always committed to BBB+, BAA1, as our ratings.

Okay. Patrick?

Patrick Wellington, Morgan Stanley. A very quick one: the UK, where are we in terms of BTEC qualifications? When can we expect the UK business to start picking up again?

Second one, Robin, if you look at some of the other education companies, they would stick deferred income in as a sort of revenue, so shall I cross out your zero organic Group revenue growth and put plus 2% in? And why don't you put an extra column in, or encourage your successor to do (laughter)?

And then thirdly, John, I think Paddy touched on this, does everybody hate Pearson? Does that really matter in the US, because you do get a lot of very negative publicity? And a lot of it relates to the fact that the system is changing rather than person, but you're the whipping boy for that. But you're a British company. Are you losing business because everybody hates Pearson?

Okay, thank you. Rod, do you want to pick on BTEC, first?

Yes. Yes, we did see a contraction in the markets last year, the size of market for qualifications, as a result of the changes that were made to school-accountability measures; in other words, the league table points, if you like, that get applied to different qualifications. And also, the degree to which schools are incentivized now to ensure that there are much fewer re-sits of qualifications.

So we saw a decline last year. We will see some follow through of that in 2015, but much, much less than what we saw last year. And we will see stabilization in 2016.

And we have a record of growing our market share in qualifications in the UK; we expect to be able to continue to do that, and so to be able to grow beyond that. We've been investing in the last couple of years in a new suite of qualifications, including BTEC, but also including our GCSE and A level qualifications, our world-class qualifications program. We're very proud of the work that we've done there, and we expect to be very successful when those new qualifications get launched into the market in the next couple of years.

Robin, do you want to pick up on the deferred revenue and billings point?

I'd love to. Patrick, I like to think of myself as a traditionalist, you may think I'm a dinosaur, and I do quite like a sales numbers which reflects the sort of statutory sales number that we have in the accounts.

I think what you're going to see under new accounting standards is quite a lot of companies moving to billings, or some other word, billings is not a great word, I think, but the concept of what do we actually invoice to customers. And you're absolutely right; were we to do it that way, you would be looking at higher levels of declared billings than we currently show in our sales line, because that deferred revenue increase would come back into this year's revenues.

Being a traditionalist, we've chosen -- I've chosen, for the last few years, to show you the sales which are aligned with the statutory number, and then the deferred revenue. And if you wish to make that adjustment, I've allowed you to do that with the data we provide.

And my successor may very well choose to do it differently, and the word billings may appear in a future presentation, but that will be for others.

A very diplomatic and thoughtful answer for your successor.

On your third point, I think Pearson is a global company with a long and proud American history and tradition. Over half of the people who work for Pearson work in America. It generates 60% of our revenues. Over one-quarter of our shareholders are registered in the US. So I think we are every bit an American company, as we are a British company, or anything else.

I don't think that we are losing business as a result of some of the headlines that you talk about. And some of those headlines, as you've implied, are a direct result of our willingness and ability to take on difficult, politically controversial issues and not get distracted by the headlines and the noise, but do what needs to be done in a thoroughly professional way, and always with great concern for the people that we work with.

And I think the other point I would make is not just that we're a global company, but we're also a company that is very significantly made up of former educators. And all of us who work for Pearson are here because we care deeply about the power of education to transform peoples' lives, and the importance that has, and the opportunities that it opens up for people.

I think that there are times when, frankly, we need to do a better job of telling that story, and some of the appointments, for example, with Kate James joining us, is doing that. And the number of people who've -- number of customers, partners, parents at a recent event who say, actually, the Pearson we know is the company that everyone who works for Pearson recognizes as a company that's very committed to doing the best that it can.

And so transparency, accountability, absolute focus on outcomes, and improving access, that's the way that we will work our way through these. But we're never not going to be in a position -- you can't be the world's largest education company and not find yourselves at the heart, sometimes, of a lot of political controversy and heat.

So it's not for the faint-hearted. But nor is it for people who aren't always trying to act in the best interests of learners, and that's what I think every single person in Pearson tries to do every day.

I think we're done. Thanks, everybody, for coming. And I'm sure Simon will be around to help, and Tom will be around to help, with follow up.