John Fallon - CEO Robin Freestone - Executive Director Glen Moreno - Chairman Coram Williams - CFO.

Sami Kassab - Exane Ruchi Malaiya - Bank of America Merrill Lynch Ian Whittaker - Liberum Matthew Walker - Nomura Nick Dempsey - Barclays Chris Collett - Deutsche.

Good morning, everybody. Thanks for taking the time to join us on what I know is a busy day at the end of what's been a busy week for all of us. So we'll keep the presentation as brief as we possibly can so we have time to answer all your questions. I'm John Fallon. I'm here with Robin Freestone, our CFO.

This time we've left the executive team out in the field. As you know, July is one of our biggest trading months in the year. They will be with us for the full-year results in February. But we do have with us, sitting next to our Chairman, Glen Moreno; Coram Williams who as you know, takes over from Robin next week as our CFO.

Before we get into the half-year results, just a quick word on the Financial Times, whenever I've been asked that question over the last few years I've always said we will ask ourselves on a regular basis for the Financial Times as we would for any other part of the Company, are we still the best owner of the asset? About a year ago, as we were asking ourselves that question I think a few things became clear.

First, Pearson had great reason to be incredibly proud of its 58th year ownership of the Financial Times.

We have supported its global expansion, its digital expansion, we've stick with it and invested in it through good times and not so good times and we have been rewarded with world's leading business newspaper that's made a very successful digital transformation of its own.

But it was also clear to us that -- I know this is an over use and hackneyed phrase, but I really do think this is now an inflection point for journalism around the world. The rapid growth in mobile, the rapid take up of social media more and more people now accessing news analysis comments through social media and alike.

This was both a great opportunity for the FT because it was chance for its journalism to reach more people than ever before, but actually a very-very significant commercial challenge as well, both to the next stage of the digital growth and to its remaining still quite significant analog business.

And it would require the FT to continue even more rapidly to re-invent and re-think how it makes and sells journalism every day.

And faced with that challenge we thought the FT's best chance of doing that successfully, making the most of the opportunity was to be part of a company that is absolutely focused in everything it does on its journalism and that’s the central thing it does each and every day.

That's not to say that there aren't some synergies between the FT and Pearson and actually I'd say that those ironically in some ways the synergies between the FT and Pearson are greater now than they've probably been at any point in my time with the company.

But those synergies are not compelling enough given that big a challenge and actually those synergies can actually be a achieved through partnership as we have proved with our relationship with Nikkei in Japan over the last two years, which had in itself giving us the chance and giving me the chance to get to know Nikkei as a company and its senior management and leadership quiet well.

So, I am very confident that we have found a really good home for the Financial Times, the one that secures the on-going commercial and journalistic success of the FT in a great global and iconic brand. But at the same time also achieve what I think would be widely recognized as a pretty fast fair price for Pearson and its shareholders as well.

And off course, that also enables us to focus even more intensely on what we see as our great growth opportunity which is in global education and so let's now move on to do just that.

As we say every year, our first half usually contribute around about 40% of our sales and very significantly less of our profits so it's not always a reliable indicator of our full year performance. So let me share with you what I think is the one sentence summary you should take from today's results, to its best.

A good competitive performance in most parts of the company means that although in the round, the policy and cyclical factors are somewhat worse than we thought six months ago, we're still able to reiterate our earnings guidance for the year.

In terms of those cyclical and policy related pressures, mixed picture, so let's just take a minute or two to go through them. First, UK curriculum reform is playing out much as we thought, declines in registration to sit our qualifications now tailing off. They should start to grow again in 2016. Spring U.S.

college enrollments were softer than we would like, but the full figures are far more significant as that's when the big public universities enroll their students. And state and local tax receipts to fund U.S. schools are actually looking pretty healthy.

But the policy debate around the new college and career readiness standards in the United States has been more uncertain and even more fractious than even we expected it to be. As you know we've been at the forefront of helping states to develop assessments that measure these new standards.

And, initially at least, the teacher evaluation that’s linked to these new standards is proving unpopular with teachers, primarily because they're worried that they should be given more time to adjust to the higher expectations that are now being placed on them.

Some parents, as you may have seen in some of the press coverage are worrying that do they drive a culture of teaching to the test? And, perhaps most significantly you seen state governors and local politicians concerned about federal overreach.

In the political fallout from all that we've lost as you've known and would have seen a number of high profile testing contracts worth towards around £100 million in sales this year that we won't have in 2016. Obviously, we hate losing any business in any circumstances, but context here is important.

First point, the state and assessment services, which this related to account for around 7% of Pearson's total annual sales, we will still lead the market in state -- a national assessment service next year with a share of around 30%, that’s slightly lower, but only slightly lower than it was before we started the shift from no child left behind to common core back in 2012.

New bipartisan legislation passed last week by the senate reaffirms a commitment to annual assessments as a means of promoting the quality in education, so we can expect annual assessment to continue to be an important part of the U.S. policy landscape for the foreseeable future.

The biggest contract we've lost in Texas is still largely paper based and we've announced plans last week that some many of you may have seen to halve our print based test processing facilities nationwide. The costs of doing that, the one-off cost of that restructuring are included in the guidance we have reiterated today for 2015.

And that work freezes up actually to take much more of a lead in developing the next generation of better, smarter digitally lead assessments which meet the understandable concerns of parents and teachers that I referred to earlier. And I'll say a bit more on that later in the presentation.

But an equally important key headline from this morning is that overall our competitive performance is pretty good. We bounced back strongly in U.S. school with a market leading 31% share of new adoptions that we've competed in and we're doing particularly well this year in Texas. We're gaining share yet again in U.S.

College and we're performing equally strongly in most of our major markets around the world. And whist the post elections spending hangover in South Africa is taking longer than we hoped to clear, we're performing really well in other growth markets, especially in China and Brazil where we've got our private Sistema’s business growing again.

We have taken a hit from terminating a loss making contract in the Gulf region, but we do see other more profitable ways to grow there. That strong competitive performance combined with tight control of costs means that in spite of those pressures we are reiterating our earnings guidance for 2015 and we are increasing our interim dividend by 6%.

For all the policy challenges we still see a very big growth opportunity in education for Pearson in the years ahead and with the progress we're making on our priorities for the year, we're increasingly confident in our ability to capitalize on it.

So let Robin talk you through the number in more details, flush out that full year guidance, then I'll be back to talk about our progress on our key priorities this year on our confidence in 2016 and future years.

So, Robin?.

Thank you very much John, good morning everybody. So as John said despite tough trading in some markets, overall we have had a pretty decent first half and we remain on track to land within the EPS guidance range of 75% to 80% based upon the assumptions that we set out at the full year results on the 27th of February.

But let start the quick rundown for the first half and then we'll come back to guidance in a bit. So sales were up 1% underlying and we're seeing good growth in North America, in Brazil and in China, as well as strength in digital and services, Connections Education and Penguin online university services.

This is partly offset by the smaller new adoption market in the U.S schools, later phasing of school textbook purchasing in the U.S. and UK and lower college enrollments in South Africa.

Portfolio changes relates mainly to an additional months contribution from Grupo Multi and FX was positive to the tune of £96 million or 4% due to a weaker first half sterling against the dollar compared to the first half last year, although the scale of the currency benefit is running a little bit behind the guidance that we gave at the start of the year.

Following a very significant jump up in first half last year, differed revenues grew 3% at CER compared to the same point last year. With good growth in our U.S school business partly offset by lower deferrals in the U.S and UK testing and in South Africa due to lower enrollments at CTI. Our sales in North America were up 3% underlying. In U.S.

schools good growth in Connections Education, assessments and view was offset by a smaller new adoption market opportunity and continued market softness in open territories. Encouragingly we’re putting a strong competitive performance in the textbook adoption market with our 31% win rate that John mentioned up from just 25% last year. In U.S.

Higher Education, learning services was resilient despite soft spring enrollment numbers and continued policy related disruption in the career channel. We benefitted from new product launches including REVEL and overall we gain some market-share again.

Our online university service manage business continued to grow strongly with course registrations up 24% year-on-year boosted by ASU’s online partnership with Starbucks.

In professional VUE global test volumes grew 10% year-on-year boosted by continued growth in IT, professional certifications and GED, with increased volumes from Microsoft Certified Professional Program. Our sales in core were down 5% underlying in part due to phasing.

In the UK revenues decline 3% with general qualification stabilizing as expected, the vocational qualification BTEC’s still feeling the tail end of curriculum change. Our UK school and services business declined due to the phasing of purchase this year compared to last year.

In Australia revenues declined with strong growth in Pearson online services and the Pearson test of academic English offset by tough market and phasing in Higher Education learning services.

Italy grew in the first-half boosted by another strong adoption performance in phasing and while FT revenues were up slightly overall this comprised good growth in North America offset by declines in core primarily due to print declines in the UK and weakness in Continental Europe. Our sales and growth were flat.

In China our revenues grew strongly and continued growth in our English language schools. In Brazil revenues increased with our private Sistema’s and private English language schools growing well. In South Africa our revenues declined with our learning services business continuing to feel this effects of the strong 2013, ’14 textbook adoption.

Enrollments in CTI/MGI fell primarily due to a 13% decline in qualified students graduating from high school. And to help with your modeling we again included and some more detail including a rather smart pie chart in the back of your pack to give you some more sales analysis. In underlying terms profit was down 5% on 2014.

This reflected the net benefit of restructuring that we undertook in 2014 offset by fixed cost inflation, the impact of stranded costs as Penguin rapidly integrates with Random House, so margin pressured in South Africa from the lower sales I mentioned, a contract termination charge arising from the transition of our three Saudi Arabian Colleges of Excellence to new providers and an unfavorable mix in North America.

But in North America projects were level at CER despite the unfavorable sales mix. Our core business hasn’t [ph] benefitted from the restructuring, activity taken in ’14 and lower restructuring charges in ’15.

In growth down by £80 million at CER, about half of this decline relates to that contract termination charge in Saudi Arabia I mentioned and most of the rest results from drop through on lower revenues in South Africa.

Penguin-Random House had a good publishing performance in the first half of ’15 and benefitted from integration work done in ’14, partly offset by significantly higher first half integration charges.

Our EPS was slightly below 2014 at 4.4%, primarily due to the absence of emerging market which contributed £2 million last year and a slightly higher interest charge offset by lower tax rate. On a statutory basis, 2014 EPS was significantly bolstered by net profit on the sale of Mergermarket of £196 million.

But 2015 was the depress by first half balance sheet write-down related to the disposal of PowerSchool, which will be charged against the gain on disposal from PowerSchool on completion during the third quarter.

This write-down reflects of reduced market opportunity for software including Pearson System of Courses and Schoolnet which was to be integrated with PowerSchool and the recognition and adoption of such software in U.S. schools is now unlikely to occur at the rates originally envisaged.

Overall, the disposal of PowerSchool is expected to deliver a profit on sale of around $50 million pre-tax. After additional free cash outflow was a little higher in the first-half compared to last year in part effects and impart of later sales phasing in U.S.

and UK school learning services which I talked about earlier, but also reflecting adverse deferred revenue movements in U.S. testing which again is partly phasing higher physical returns in U.S. higher education market and U.S. dollar exchange rate movements.

Increased capital expenditure on our technology enabling program and our one CRM program was phased more to the first half. And we still expect cash conversion this year to be similar to last year.

Our average working capital of sales ratio picked up a little in the first-half primarily due to the absence of Mergermarket which was working capital negative and this added about 0.5 percentage point. The benefit of lower average inventory levels was offset by higher capitalized pre-publication expenditure.

On our balance sheet, our net debt increased by £261 million mainly due to FX and the working capital movements I discussed earlier. FX compared to the end of June last year added £186 million due to the dollar denomination of much of our debt.

Now we have sustained our BBB+ and BAA1 ratings but recognized the need to reduce our net debt level a little. And the PowerSchool and FT disposals will help do that. So I thought it would be worth just reminding you of our policy on uses of cash.

Firstly, to maintain our strong balance sheet, secondly to invest organically to accelerate and sustain future growth, thirdly to fund our progressive dividend policy and Pearson has returned £1.7 billion to shareholders through our dividends over the last five years alone and has increased our dividend above inflation for 23 straight years.

And fourthly, to acquire education companies with a strong strategic fit and return on capital employed potential and in line with best practice we'll continue to assess all of the above against alternative uses of cash.

Based on the assumptions that we set out at our full year results on 27th February, we remain on track to hit out guidance of 75% to 80%. That guidance assumed ownership of PowerSchool for all of 2015 and exchange rates as of 21st January. As you know on 17th of June we announced the disposal of PowerSchool to Vista Equity Partners for $350 million.

The absence of PowerSchool for most of the second half 2015 is likely to knock up to $0.01 off our guidance range. Our guidance was also based on sterling exchange rates on the 21st of January.

Exchange rates have been up and down quite a bit since then but if sterling stays at current rate through the end of the year, it would knock about 2% of our guidance range mainly due to relative strength of sterling against the U.S. dollar and the Brazilian real.

Our estimate of shared service costs that stay with Pearson as Penguin rapidly integrates into Random House is unchanged at £30 million. We remain on track for net restructuring charges of approximately £30 million for the full year. The restructuring of our U.S.

school testing business following the down scaling of the Texas contract does not add materially to that number. As John said cyclical and policy pressures are slightly worse overall than we expected at the start of the year, there are ups and downs within that U.S.

state budgets and UK policy environment are on balance a bit better than we might have expected, whereas U.S. college enrollments and the U.S. policy environment looks a little bit worse. But our competitive performance in the first half has been very good, particularly in much of North America.

In the emerging markets, we expect China, India and private education in Brazil to do well. Public facing education in Brazil is tough given government constrains. And South Africa will likely remain challenging this year, but we still expect our growth business to grow.

In core we continue to expect to see greater stability in our major UK education market and as I always remind you at this time of year, the first half represents a very small proportion of our full year earnings.

But market trends and our competitive performance main we remain confidence that we will land we know our guidance range for the full year. Back to John..

Thanks Robin. So back in February I explained how our efficacy strategy having a bigger impact in education by expanding access and improving outcomes increases our addressable market and brings higher financial returns to Pearson.

As we see again in these results the product and services that already best embody that strategy are also our fastest growing ones. For example, virtual school enrollments up 15%, college online service enrollments up 24%.

So let's take a quick look at the progress we are make in our key priorities in implementing that strategy across the whole company in terms of new digital products and services, a simpler more focus company, a higher performing culture and a stronger Pearson brand.

First, we are making really good progress in developing the priority products and services that address our biggest global opportunities.

What each of these products illustrate is our ability to combine the potential of new technology, to engaged, to personalize, to diagnose with our own deep knowledge and experience about the most effective ways of teaching.

It's that combination that allows us to develop these products and services that drive richer deeper learning and scale far more widely. For this morning, let's us give two examples and updates on them from the preliminary results.

In the last six months over 24 million assessments have been taken online on our TestNav platform that is up 170% on last year. In terms of operations, technology, psychometrics, this is a major achievement and it is widely recognized as such by our customers.

but it also brings into sharp relief the technology gap that still exists between how teaching -- most teaching is still done in many schools in America, traditional direct instruction, relatively little technology support and however as you can see the assessments are now being carried out which is primarily online using tools with many kids are still unfamiliar.

We're going to have bridge back gap. As we wind down our analog testing operations more quickly through the restructurings that I mentioned earlier, were freer now to up and go faster from the next generation of assessment.

We’ll still provide states for the performance day-to-day required to ensure accountability and equality, a need reaffirmed by that Senate bill I mentioned earlier. But it's more deeply embedded now into the daily teaching flow of the school with the richer more immediate feedback, much more helpful to teacher, parent, student.

It does it in a much more balanced and less stressful way too for the student and less stressful for their parents as well because it provides a more rounded and holistic view which is less dependent on a single high states moment.

For reason this is important is because we think that this is the future assessment that wins wide spreads support and speaks directly to the concerns of parents, teachers and students and over the next five years we are going to be at the forefront of making that a reality.

This more integrated approach can also be seen in REVEL, which is shaping up to be one of our fastest growing product launches of the last decade.

It's increasing our markets share and this is vital it's increasing our average revenue per enrollment, in college, humanities and social sciences were traditionally as you know our sale through has been lowest and our exposure to second hand books sales on open education resources is highest and it's the first of a next generation of digital course where because it's an emerging mobile learning tool.

To put that in context whereas the MyLabs started life a decade ago as an add-on to the course all-be-it an increasingly important one, REVEL integrate digital course ware assistance from the outset and so it’s most more central to delivery of the course.

This helps students to be better prepared, to complete the course and again it helps our sale through rate too.

The early efficacy studies are also very encouraging, example the University of Dallas, Irving and Texas average exam scores increased from 75% to almost 90% after implementing REVEL and, as one teacher said, REVEL makes it much easier for my students to keep up with their work.

We can tell a similar story of the progress we’re making with every single one of these priority products and services listed here and the difference that they are already making to our customers around in the world and what they have in common is this.

one they all start with the same insight, that the bigger our impacts in improving access to good quality education and translating that into better learning outcomes for more people, the more we create a faster growing a more profitable and more sustainable company.

Second, they begin to capitalize on the promise of adapt learning to apply advances in scientific data-driven approaches to personalize learning far more effectively.

But they also recognize it to be effective you also need to scale and you also need the services, the capabilities that implement that adaptive learning at the end surprise [ph] level to ensure the benefits of these new digital tools can be widely shared.

And three they are increasing being built using the same core technology and instructional design.

So for example the new identity and access management capability in REVEL which we’re rolling out this year with our new global customer relationship management system will also be common to the next generation of MyLab and mastering products that we will launch over the next year or so.

And that's just one example of how our second priority, simplifying our platforms helps us to develop much better digital product and crucially address what we know because they tell us every day are our customers biggest pain points.

So it's the best user experience because it's a single [indiscernible] for teachers and students it enables more personalized learning because for the first time it recognizes the same individual across different courses it improves performance reliability and availability and it provides not just much better data analytics which is vital for the strategy I was talking about early, but also greatly improve security and privacy too, which is obviously a huge issue particularly in education.

And it’s just one example of the fact but we're continuing to make really good progress, on many fronts in simplifying our platforms as we slim down from the 3,000 applications to 700 plus technology vendors to 50 or more datacenters we talked about last year.

So, we are on track to reduce the number of those applications by more than 10% again this year.

We are consolidating our technology development and delivery previously spread across 94 different locations with global service centers being established in India and Sri Lanka and were working hard to roll out the first phase of our new global human resources and finance systems which will streamline all our operations across Pearson over the next few years.

Overtime this work is going to very significantly reduce our technology cost, it will free up resources to invest in products and services that drive faster organic growth and can reach global scale. And it will contribute as well to margin improvement.

And it helps to embed the efficacy program, this focus on excess, impact and outcomes into everything we do as a company because our third priority, a higher performing culture, means that for every new product we invest in we track systematically each month the senior levels of the company, the clarity of the learning of outcome we aim to achieve, the evidence we’re gathering to measure our success, how we use that evidence to further improve our products and services and increasingly now, how we build our sales and marketing around this outcomes based approach.

Culturally, this is a major change in how we do business and we aim to approach it in an open transparent and accountable way, for example with appointing auditors to independently assess our progress on efficacy, every single executive now has a specific goal as part of their annual incentive plan.

And crucially whilst it’s early days we’re confident now the higher performing products translate into higher sales. One example, we had a large institutional customer recently who swapped out their own proprietary math program which they had acquired at significant expense in favor of MyMathLab.

This multi-million dollar deal was a direct result of a yearlong research program, with evidence of student improvement so compelling, the customer fell they have little choice but to switch to the Pearson product.

In terms of our fourth priority for the year, in February we talked about the fact, that education’s an issue that quite rightly generates much public debate and it arouses strong opinions and feelings, we’ve seen that in the debate around testing in the United States in recent months.

And we know that 15 years after we made our first big moves into education, public awareness of Pearson as the world’s leading learning company is still relatively limited. We can’t change that overnight. What we know, that we can and indeed we must change it overtime.

So we are now engaging much more publicly, working with parents and teachers, listening to employers, helping learners of all ages. The defining characteristics of Pearson, love of learning, deep desire to help people acquire the knowledge and skills to be successful in their careers, we know are widely shared around the world.

For us to win hearts and minds as we must, we have to ensure we tell that story more effectively. So you’ll start to see that work publicly as we build the Pearson brand much more proactively and consistently over the next few years and starting later this year.

So to recap, the policy factors are somewhat worse than we thought six months ago, but it effects a relatively small parts of Pearson and is manageable. Overall competitively as we enter our key selling season, we’re shaping up to have another strong year.

And this gives us the confidence to sustain our full year earnings guidance and increase the interim dividend by 6%. Looking beyond this year as I have just explained, we’re making good progress in developing better digital products and services and building a more focused company with a higher performing culture and a stronger brand.

This will make Pearson a higher returning company both to our shareholders and as importantly to the communities and students we serve for many years to come.

And finally, as you all know this is Robin Freestone’s final Pearson result meeting, after 11 years with the company, nine CFO, Robin’s intelligence, his integrity, his decency means he is widely respected by his colleagues, by our shareholders, by his peers and if I maybe so bold even I think by the analyst who follow the company on a daily basis.

And he has also played a key role in the growth and transformation of Pearson and the value that’s been created over more than a decade. And so we wish Robin every future success. We welcome Coram to his new role and with that I and for one last time Robin are very happy to take your questions. Thank you..

It's Sami Kassab with Exane. Three questions and, first of all, thank you very much, Robin, for the last few years and enjoy the next. First of all, school testing. You presumably have better technology than your peers. At least that's what you have said in the past.

Pricing seems to be better, at least from California we've seen you underprice your competitors. And yet you've been losing all these contracts.

So what's the rationale in holding to an asset in a market where, despite being the best offer at the lowest price point, you still lose contracts to not-for-profit competitors? Secondly, can you remind us of your strategic thinking behind your stake in Penguin-Random House? And lastly, can you quantify the financial times organic revenue decline in 2015 [ph] and perhaps the last year as well?.

So I'll take the first two and then as Robin to pick up on the third one.

I would repeat again what I said just to put it in context we’re talking about less 7% or about 7% of our revenues, we have very successful testing in assessment businesses here in the UK in Pearson view in our clinical assessment you can work now with the percentages in the pie chart we provided at the back, they are not part of the 7% they are all doing well, but they all share and benefit from common systems and technology and support.

Secondly, to remind you we’re still the market leader with a 30% share, and we’re essentially back to where we started the transition from Common Core to No Child Left Behind.

And the way I would think about it is those hundred million pounds of revenues next year that I talked about, you've got -- we lost an RFP in Texas, we gained a contract in Indiana those are the sort of ups and downs of high-stakes RFP process that you would expect in any normal year.

And the lion’s share of the 100 million is really a number of states who signed for Common Core through the through the PARCC consortia and then for the political reasons I mentioned have then reverted back, in one case to a joint partnership with Pearson called ACT Aspire and the other case is they've reverted back to their own local state test they had previously.

We think that is -- there is still some political uncertainty but we think that as mostly flowed through now and we should see greater stability, and we think that whilst the implication of your question might be that the easy expedient thing would be to cut and run, this is still a good profitable business for Pearson, we believe absolutely in the value of these assessments in improving learning outcomes for young people and putting them better prepared for the future.

And so consistent with our purpose as a company, we’re going to stick with it, and we’re going to develop the next generation of products and services which as I say we think we’ll do very well. So that’s the answer for first question. .

The 100 million you gave, is that a net number including Indiana and other contract gains or is that gross number just what you lost?.

That’s the value of the contracts that we've lost. It's about the net impact of overall effect. .

And it will remain positive after the loss of the 100 million?.

It will remain significantly profitable, it contributed to Pearson margins and as I mentioned that’s helped by the fact that because we've taken the restructuring cost this year and that is factored into our guidance that will obviously help to mitigate the profit impact next year. On Penguin Random House we own 47% of the company.

As you can see is on a creative and commercial role, the bestselling performance continues to be exceptionally strong, the integration process is still working through, it’s providing a good economic return to Pearson and its shareholders, clearly that’s something that we will review and consider on a regular basis.

But as things stand at the moment it's not really till 2016-2017 that you see the full benefits of the integration savings coming through.

And Robin do you want to talk about organic growth?.

Yes, delighted to.

So what you've seen Sami is a same trend in the first half as you’ve seen now for some time, which is digital subscriptions to ft.com actually rising very nicely, readership of the print newspaper declining as you would expect, as you see cannibalization by ft.com subscription and then print advertising coming down a little bit as well.

Now the effects of that on a global basis pretty flat, okay, but when you start to carve it up across our three territories, which we do for external reporting purposes, what you find is that the subscription growth is a bit faster in places like North America and when you look at print advertising then which is one of the declining areas, then quite of that actually goes into core because is book through, that’s a global package, it's book through our London people.

So it's a couple of percentage points that affect just had on Core in the first half. .

Thank you. It's Ruchi Malaiya, Bank of America Merrill Lynch. Just the question on the share gains and the new adoptions at U.S. schools.

Is there any more color you can us in terms of where you were gaining share? Have you fixed some of the problems you had in the middle school math programs from last year or is it just a mix of subjects you are competing for this year.

And then just any further that you can give us on -- any further color on open territories, where you’ve met with some weakness.

Just the stronger new year’s options should that give you any confidence going into the second half of the year in open territory?.

Very good question.

The performance this year as a combination of two factors, one the changes to the sales force that we made backend of 2013, are now settling down and were starting to see the benefits of the new more integrated approach so I think that's improving our competitive position, but you’ve alluded to the other major reason, the investments that we've made for example in the new Elementary Social Studies program, it has performed exceptionally well in that helps us to do really well in Texas.

We had a very-very strong competitive performance in Texas. We are fixing the middle school math product mix but truth it’s probably next year before we start to see the benefits is that coming and to markets.

I think in terms of the open territories a similar a story would apply the consolidation of the sales force improved capacity performance it starting to feed through, but it takes a little longer to see the full benefits of that and obviously because in open territory schools are all buying across the whole range of subjects rather than focusing in one area, you don’t get such a figures swing from one year to the next.

But so I think in essence I'd say I think our competitive performance in open territories is improving, but it doesn’t improve quite as swiftly as it has in the adoption states.

Okay?.

Thank you..

Ian Whittaker, Liberum and three questions first of all just in terms of picking up on the comment that Rob mentioned about the high returns in the higher education physical market.

Could you just explain what's driving that, we know you had a very strong relative performance last year in higher education to physical sales, was it related to that? Are there any other factors? And then could you just reminder us again from and accounting perspective, how does returns are treated in terms of the P&L? The second thing is just in terms of your cash flow it's been amount increase in the CapEx.

How should how should we think about CapEx for the full year, and I guess also more generally just in terms of cash flow generation and the cash flow conversion rate. And the third question just coming back on the guidance, I mean we had in 2012, 2013 first half filtration of guidance, then we had profit warnings and so forth.

Looking forwards into the second half of the year what's going to be the single most important factor asked as to whether you meet your guidance or not? Is it going to be around the U.S.

higher education market in terms of enrollment, or are they going to be in any another factors, is it going to be testing tested in Common Core? If you just give just an explanation of that that would be great as well. Thank you..

Okay thanks Ian.

Robin do you want to pick from the first two point?.

Yes. So on the higher physical returns and these do sort of trend up occasionally and down occasionally depending on what books stores are doing and their philosophy to working capital management. This is a market trend and actually our returns have been less than the market in the first half.

But you have seen the market trend increase somewhat because Follett have returned quite a lot of books in the first half and to ask them what they have been up to frankly, so that is not just us. We can see the trend across the entire market and actually our returns have been very reasonable within the context by market.

We have to make provision returns when we sale stuff, so that is all reflected in our P&L accounts.

In terms of your CapEx question if you look at back to last year the CapEx, fixed capital, spend of 170 million, we've said that while we go through this phase of investing in the enabling program is the new Oracle ERP global rollout, and the 1CRM program using Salesforce.com consistent approach to the use of that around the world, our fix capital would go up a slight amount and you are probably talking somewhere around £20 million, what you saw facing 170 last year.

What you are seeing this year is that that’s more evenly phased between the first half and second half because those programs are often running and ongoing..

So Just I mean just picking up on the -- just trying to add a bit of color to the competitive performance in U.S. college that probably might help to answer the question as well. We’re able on a monthly basis to track our performance and competitive performance of both at the gross and net basis against the industry as a whole.

On a rolling 12 months average basis market share is higher now than it has been any point that we've seen in recent times and clearly that’s just flow through into the growth sales that are coming through, so we’re feeling very confident about that.

And that probably leads to your into your third question, I mean Robin gave you the basis on which our guidance is we've seen a very strong competitive performance right across the company especially in most parts of North America and that gives us good confidence and as that flows through, as we see the adoption gains that we're tracking flow through in actual to received orders in Q3.

That gives us good confidence to reaffirm the guidance in the way that we have this morning..

Can I just sorry follow up on something Robins said, you said higher physical returns have been a feature across the market, in terms of that again sort of what exactly is driving that? I mean is it that essentially there's a change of bookstores that need physical, is something else you think is a temporary factor? A more structural change that's coming through?.

It’s very difficult for us to understand the buying patterns of our customers including Amazon and some of the other big bookstores. What we have seen in recent years, is they try to manage their working capital down very-very tightly.

So they are buying later and later and later, if suddenly they were to outcome September, we’ve still got demand through our book stores. We haven’t got any stock and they’ll ring us and say can you send books now. And our response will be, well we haven’t got either. So you should have planned this a bit better.

So what you see overtime is book stores and the major distribution channel kind of contract and contract and contract, and then they’ll suddenly find they haven’t got enough stock, so they’re buy a bit more and they’re trying to continue to manage that desire for stock to meet a peak up in demand.

Imagine all the demand that comes through their door is largely factored on two seasons; one is September season and the other one is December-January season. Managing that working capital on their part is actually pretty hard. And sometimes they get a bit wrong and then they buy bit more and maybe they overdo it and then cut got back again.

So this is a trend that that, it concertinas all the time. Exactly what’s happening, your visibility in asking them is just as good as my visibility. .

The returns in the first half of this year are not out of kilter with any sort of trend or pattern if you went back to ‘11, ‘12, ‘13, essentially. So you got to see it through the context.

Paddy?.

Its Paddy [ph] from Goldman Sachs I’ve got three questions actually. I was interested John you talked about the Pearson brand, do you think these testing issues in the U.S.

has tainted the brand? And would you consider maybe not selling the testing but white labeling it or doing -- powering other people’s business that way with the testing? And have you -- you clearly haven’t in the first half seen any impact, but is it a danger from that? The second question is again on the 100 million loss of revenues next year, what sort of margin should we factoring for that? And then third question Robin I think we’re running on 30 million standard Penguin cost for this year.

Are you on track for that and are there any -- is there likelihood of stranded FT cost for next year?.

Okay. So Robin if you pick the margins on 100 million and cost the FT and then I’ll come back and talk the brand name..

So I reiterated I think, Paddy, the 30 million for this year is still the right number on Penguin Random House and I also try to make sure you understood. Quite a lot of that integration has going through Penguin Random Houses’ numbers in the first half.

So these numbers in Penguin Random House are really looking very, very good for the year which is very heartening. The standard cost concepts on the FT, we’re kind of ignoring because there is quite a few -- kind of upsize and downsize and we’ve given you guidance on the EBIT that will come out for the full year, it’s 24 million.

I think that’s the best number to use and ignore the standard cost, a bit of rental income from property that might all set that. So I’d say that those two things are pretty much awash and its best just ignore it, frankly.

On the margin side in testing I think we said to you before that in our assessment business the margins in state and national testing particularly state testing are not as strong as the margins in all the parts of our testing business in the U.S.

and certainly margins in the UK on certain is also pretty strong, that’s not the case in most of our state based testing in United States it tends to be slightly lower than average margin business. I think we don’t want to give you any more on that..

And then on your brand point, I think you answered your own question by saying clearly you can see by the very strong competitive performance that we’ve had in the first half of the year what the impact has been and take taxes as an example, wherein since 2012-2013 the political debate around testing has been the highest profile.

I’ve spent a lot of time in Texas in the last couple of months, whether you speak with a higher education commissioner who is really thrilled about the work that we’re doing to help make the transition from high school to community colleagues.

The work we’re doing down at places like Texas Southmost College, the relationship we just found with the Dana project, which is about transforming foundational math. The wider relationship in the state like Texas in spite of the political noise around testing I think has never been deeper or stronger for Pearson.

But we need to build that ever more and the reality is the familiarity with Pearson as the world’s biggest education company and leading learning company is relatively low in the public eyes compared to the impact we have and that’s not something that we should be happy about particularly as we are all about building a business that is more directly about engaging with students and their patterns.

So it’s a positive reason why we need to build the Pearson brand because it’s fundamental to the strategy that we develop over the next few years. I think one of the things that we’ve learnt on the testing front is that we need to be more proactive and preemptive.

So probably in the past we’ve honestly felt well, our customer, the state testing agency it’s for them to lead the public debate on testing and we’ll serve them. And I don’t think that has always served Pearson’s public reputation as well as it should and we’re not going to do that anymore. So we’re going to be much clearer about our strategy.

What we will do, the work that we won’t do and the work that we will do in the assessment work that we will take on we will be -- we are clear is unambiguously a good thing for education and the learner.

And that to me is a real test of our efficacy structures because it mean we’re going to be driven by the things that really we believe the research and the data and the evidence tell us will have the best impact on outcomes.

But I think that’s the strategy that wins because it will sustain growth over the longer term and frankly I think it puts us on the right side of the argument in terms of teachers, parents and the wider public.

So it is a big thing that we got to learn from and build on and we’re all over it, right on top of it and I am very confident we’ll get there over the next few years..

It's Matthew Walker from Nomura. Two questions please. The first one is on the FT and PowerSchool proceeds. You suggested I think that you might use those for lowering the debt.

How much of the FT proceeds if any of the net 700 million are going to put into education acquisitions? That’s the first question, second question is on, you clearly Penguin Random House is having a strong year, what kind of -- should we take the percentage increase in operating profit PRH to put that into the full year? That’s the second question because you also got some popular titles..

Robin do you want to just highlight and recap on use of capital and cash and also talk on the Penguin Random House profits question?.

Yes I think it's a little bit premature to be really expressive about how this cash is going to be used and what I tried to do this morning, we just lay out the kind of approaches that we’ve always laid out actually, they are not new, they are exactly the ones that I must have talked about the 19 times I’ve stood here.

So, I think it's really about organic investment, we’re not looking to increase that significantly we’ve don’t that over the last couple of years, it given us a great pipeline of products and we’ll continue to invest organically.

You heard we talk about the dividend which we’ll be very consistent on, we would like to do a bit more M&A activity than we’ve done so far this year given that’s been nil that would be difficult.

But also we recognize that our rating with Moody's is under some pressure and therefore we like to get back to stable rating as oppose to having a negative outlook on that. So exactly how that will pans out, I think is for another day frankly given the proceeds won’t actually be here from the FT into later in the year in any case.

On PRH again the bulk of the season is yet to come at PRH and I think what you’ve seen in the first-half is some really big titles.

You've not yet really seen the Harper Lee prequel -- sequel, call it what you will, affect those numbers and therefore I think that will for our UK we don’t have that in U.S., but we do have that in UK could be quite exciting in this and some other good titles to come.

So maybe we want to give some specific guidance each segment-by-segment, but certainly looks like PRH is going to have pretty good year. .

I’ll come to you in a minute, there is a couple of questions that are coming online which I think that should take, there is rather interesting one from Alex DeGroote at Peel Hunt. Why is growth so cold, it is not growing, will it grow? So, Alex, I'm glad you asked that question, thank you.

Even with the slowdown last year the compound annual growth rate for Pearson over the last five years for the geographies that make up growth have grown by a compound annual rate of about 10% certainly in the 8% to 10% range, per year on an underlying basis over the last five years.

This year in those growth markets almost by their very nature is that growth is not even necessarily from one year to the next. So let me give you an example of that, in South Africa our revenues in 2013 were 80% higher than they were in 2011.

They have fallen back since then and that’s been the biggest single factor on why growth collectively given growth last year and why it's been flat in the first-half of this year.

However to put that in context, our sales in South Africa this year still look like -- they will be something like 60% higher than they were back in 2011 and just to add some extra context to that, if you take CTI, the acquisition we made a few years ago, where enrolments have slipped back a little bit.

Even with the slip back in enrollments our revenues in CTI this year will be 70% higher than when we made the acquisition in the last full year before we made the acquisitions.

So growth are called growth because they have grown in an compound rate of 10% a year for the last five years and I am very confident that as we were this through with all the work that we’ve got going on we can sustain certainly high single-digit growth on a compound basis over the next five years it just will not be a steady sequential growth each and every year.

Related to that, there is a question around how we’re doing in Brazil which I think I should -- I will pick up specifically here and that was from Andrea Kepler, Cheuvreux. So I think as I mentioned earlier really pleased to see that our private Sistema’s are growing again in the first half of this year.

You’re all aware of how difficult the macroeconomic environment is in Brazil and the impact that’s having on public spending.

However, from the Multi acquisition from a profit point of view we’re actually very much in track with the expectations that we had at the time that we made the acquisition, that’s because we’ve gotten out a really strong management team that came with Multi. They’ve taken the leading role in integrating Multi on Sistemas bringing it all together.

And that means we’re confident that we’re going to see good growth from that business at a bottom line basis even in this difficult economic environment and obviously in turn that puts us in great shape to capitalize on what we still think a good long term trends in Brazil over the next five years or more..

Hi. It’s Nick Dempsey from Barclays.

Just to take back at £100 million can I just check is that a year-on-year effect on next year, so £100 million you got this year, that drops down next year, i.e., it’s a two point drag on organic growth next year, right?.

Yes, that is it. And that is obviously a headwind -- £100 million headwind that we face as we think into 2016, but it relates to relatively small part of the company and as I’ve just described we’re getting good growth inversely every other part of North America good growth into the part of the company around the world.

So my job and that of the senior team is to make sure that we’re pushing hard on all the other things and other opportunities that we’ve got available to us so we can get as much growth as we can next year and obviously we’ll update you on that in February..

And just a follow-up. You mentioned the FCAT in Florida. I thought that was lost to AIR in 2014 at the beginning and it kicks in ’16. .

There is sort of lag effect, so we’re still being doing the [indiscernible].

In terms of looking forward, that’s factored into next year’s number compared to this year’s number. [Multiple speakers].

Just two very quick ones as well. Firstly, FT coming out, the impact that will have on the deferred revenue balance and working capital as a percentage of sales, is that -- are we going to have another sort of step up in the working capital intensity, if that’s the right way of putting it.

And the second one on the Penguin Random House, I appreciate you're not necessarily going to walk away from it while the integration process is halfway through and there is still a lot of good growth, but there was an opportunity to recapitalize that and potentially take some cash out, is that something we should expect in the second half?.

So I’ll deal with that and then Robin with the FT deferred revenue. Just to be precise about the way the shareholder agreement works is we have the [indiscernible], we have the right to put our shares to Bertelsmann. They don't have to take that part, but as they don’t take the part that that than triggers the recapitalization.

So it’s not completely in our control to say, we’ll sell them or we'll force a recapitalization. You can only get the recapitalization to go if you do the former. If that makes sense? Robin do you want to pick up on the deferred revenue. Can we get a microphone down here and then pass it over..

Yes, deferred revenue will come down if we do the disposal in quarter four as we expect. You could have worked with a probably £50 million, £60 million number, that sort of level and that’s obviously just disposal events.

Working capital sales again that maybe somewhat negative to us but remember this is an average over 12 month, so that will take time to come through the numbers and may not be there in the year-end numbers frankly given the averaging won’t be fully effective until it falls out of the equation.

Patrick?.

Yes it's a growth question. You've had flat organic growth probably speaking for last three years, you are kind of flat this year. And next question you got 2% headwind next year, so I guess the question is, how do you see that profile of returning to a respectable organic growth..

Yes, as we’re expecting the company to return to growth this year. We have got two percentage point tailwind that we face in 2016, but as I say lots of great things happening across the company really strong competitive performance.

The cyclical and policy related factors that I’ve mentioned earlier do start to ease next year; for example, here in the UK the qualification enrollment will start to grow again.

So, clearly we’ll give our guidance when we get to February next year and the whole of the management team, all investment that we’re making in the new product and services are all completely focused on getting this company growing again on the line term assuming as quickly as we can..

And just on deferred income it was up 10% last year. It’s up 3% now.

Is that anything --?.

I think it’s shown on the graph that we showed, actually last year was the outlier in many ways that was such a significant increase up and this year we've gone back to trend. So I think the direction is still the same. .

And there is some seasonal impact from half year to half year so let see how it look to the full year as well. Can you pass that microphone over here? This is the last question then we’ll wrap up. Thank you..

Thanks. It’s Chris Collett from Deutsche. Just one question also on growth but on the profits in the growth division. Back in 2013 you’re doing about £35 million of profits since then you've bought Grupo Multi, which is making time also about £35 million, made obviously some challenges to profitability in start of this year.

When should we think of that business delivering around £70 million or so of profitability or was that so impacted by the South Africa boost that that was really an anomaly in term of profitability?.

So Simon is showing enormous self-restraint sitting next to you. But I think he's about to say I answered that question, I'm giving future profit guidance that is above and beyond [indiscernible]. So I mean the position in 2013 clearly we had that very-very strong performance in South Africa and that's obviously a high margin business.

Robin you mentioned that fact that we've taken a hit that we took from the termination of the contract in the first half of this year, that clearly unwinds in the second half and just as surely as we expect to get good underlying revenue growth going in growth, as those businesses scale and we start to see significant scale then we would expect the margins to improve as well..

Okay. On that note thanks very much everybody for joining us. Have a good summer and see you all soon..