Good morning, everybody. Thank you for joining us. For those of you who are joining us by webcast, just to say that you can, as usual, ask questions online and I'll make sure that we get to them in the course of the presentation. For those of you who are joining us in person, you'll see new CFO, new format, two rostrums not one. But don't worry, Coram and I are not going to engage in a primary debate or something like that. It's just a more collaborative approach to the presentation. I'm here with Coram Williams, our CFO, also really pleased to be able to welcome our new Chairman, Sidney Taurel, who's joining us for his first results meeting. As you'll have seen, we're reporting today 2015 operating profits of £723 million and earnings per share of 70.3p. That is in line with the revised guidance we gave back in October and then reiterated in January. 2015 was a tough year for the Company. Market conditions were much more challenging than we expected and we fell some way short of the goals that we set for ourselves at the start of the year and, looking back five years, where we would, by now, have expected to be. But the Board is holding the final dividend which means a 2% increase for the full year to 52p per share and we're planning to sustain that dividend at that level. That reflects our confidence in the future of the Company and I think is borne out by the key headlines from the 2015 results, because overall, our competitive performance remains strong. We held or gained, share in all our major markets last year, as you can see from the details that we've set out in this morning's press release. The cyclical and policy-related challenges we face in our major markets are persisting for longer than we expected and they are having a bigger impact on profits than we foresaw. But they will start to stabilize by the end of this year and should then provide a modest tailwind. We're making good progress in ensuring Pearson can capitalize on the big structural growth opportunities we see in education, whilst mitigating the threats and managing our way through the transitional disruption they also bring. We're acting decisively to implement that strategy and to simplify the Company, for example, we're already, as you'll hear from Coram a little later, a quarter of the way through the growth and simplification plan that we announced last month. Our strategy should help many millions more people to acquire their learnings they need to achieve their aspirations in work and in life. And this, in turn, will generate good returns for our shareholders. So let's have Coram take you through the financials and then we'll do a bit of a double act in terms of talking more about our strategy and the path to 2018. So, Coram, over to you.

Thanks, John. Let me start with some context on those financials. Cyclical and policy-related forces have been the key drivers of revenue and profits over the last few years. The biggest cyclical factor for Pearson is the rate of change in U.S. unemployment which correlates very closely with college enrolment. As John will discuss, in the long term, U.S. college enrolment will likely continue to rise but, in the short term, as you know and can see here, when unemployment is falling, college enrolment also falls. The key question is whether those cyclical pressures are disguising some other potentially structural changes in our business. So it's interesting to see whether declines in our revenues have been greater than you might expect, given those cyclical forces. The data here is pretty clear. Our U.S. college revenues have almost exactly matched total college enrolment declines. And that's despite our weighting towards community colleges and for-profits in 2010. The same is true in our UK qualifications business. So although in retrospect we did overestimate how quickly both markets would stabilize, we don't think there are symptoms of structural pressure. Both effects have largely played out by now and we think that both markets will have stabilized by the end of 2017. With those factors explained, let's look at our 2015 sales performance. While I do this, it might be useful to keep an eye on the detailed pie charts in the appendix to your packs. In North America, revenues grew 1% in headline terms, due to the depreciation of sterling against the U.S. dollar, but fell by 5% at constant exchange and 1% in underlying terms. In school, strong enrolment growth in connections education, good growth in clinical assessment and market share gains in courseware, were offset by a smaller adoption market, weakness…

Thanks, Coram. Well, as Coram said, the challenges that we faced over the last few years have been largely cyclical. But that's not to say that there aren't some big structural trends at work in education, because there are and we lay them out here. What it is to say is that we're moving quickly and decisively to seize the big growth opportunities that they offer, to minimize the risks they could pose to our analog businesses if we didn't act quickly and to manage that transition from analog to digital in services effectively. So let me just take a few minutes to explain how we're doing this in the context of our U.S. higher education. It's our single biggest business, although the strategy that we're deploying applies across the whole of the Company. As you can see here, around the world the economic value of an education has never been higher. In the United States, for example, the real lifetime earnings premium to a college education is greater than ever. A college educated household earns on average, as you can see, $58,000 a year more than a high school educated one and the value of a post-graduate degree has risen even faster. This is actually a social as well as an economic issue. If you look at it, the increase in education wage premium actually accounts for as much as 70% of the dramatic rise in income and equality that you've seen in the United States over the last decade or so. At the same time, as we know from newspaper headlines, the cost of education is also going up faster than inflation. And, with austerity and other factors, public funding for education is also under real pressure. And yet, the rising cost of education has not, if you…

Thanks, John. As we announced in January, we're implementing a very significant restructuring program in 2016 which will cost around £320 million and deliver in-year benefits of £250 million. The program is consistent with our strategy and aims to simplify the Company further and respond to the challenges that we've faced already. We've made real progress already in implementing our plans and more 1000 staff have been notified of redundancy since we announced the program in January. In courseware, we've already moved to create a single global product organization and 370 people will be leaving the Company over the next month or so. In assessments, we've implemented a first wave of restructuring and reduced headcount by 110 people. We're reducing exposure to direct delivery services, either by running more efficient operations or exiting completely from loss-making businesses and contracts, specifically to respond swiftly to the profit pressure that we're seeing in our growth segment. 150 people have already left our South African CTI business. And our efforts in driving efficiency improvements across our enabling functions are moving swiftly. We've transferred 300 roles to a technology delivery center in Sri Lanka and reduced a further 150 roles from our core technology operations. This is on top of the 600 roles we've already outsourced to RR Donnelley in our North American supply chain which was announced in early January. This clearly demonstrates the pace at which we're implementing our plans and gives you confidence that we can deliver our full-year targets. In January, we committed to giving you more insight into how our guidance for 2016 and our 2018 goals are built. So I want to set out some of the key factors that determine our outlook. One critical input is U.S. higher education enrolments. We've done a lot of work looking…

Thanks, Coram. And finally, as we work towards our 2018 goals, these are the milestones that we'll report against to help you track our progress. As always, we'll update you on our key financial metrics and our operational progress, as we've done this morning, as we move through our restructuring and simplification work this year. We'll also report regularly on our competitive performance in our key businesses. We'll give greater detail on the assumptions underpinning our guidance and greater transparency around the underlying drivers of growth and profitability, as Coram has done today and as we've tried to do in the appendix to your pack. And we'll also report on Pearson's reach and impact on educational outcomes, because increasing our efficacy is a vital part of seizing the structural opportunities that we see ahead of us. So as I said at the start, this has been a challenging time for everybody in the Company and for all of our shareholders, but we're very confident that we will emerge from it as a more powerful Company. We continue to build strong market positions with real competitive advantage. We're acting to optimize Pearson to focus on operational execution, tight cost management, sharper strategy to return to growth. We will be faster, leaner, more agile. We'll have a more resilient business with a clearer set of growth prospects and we do see a significant growth opportunity for Pearson to provide high quality, affordable, accessible education that leads people to a better job and a better life. That's a compelling prospect for the students and parents we serve, but it's an equally compelling prospect for our employees and our shareholders as we continue to build Pearson into the world's learning Company. And we're very confident that we can achieve our 2018 goals and build from there. And with that, Coram and I will be very happy to take your questions.

[Operator Instructions]

Sami, Exane BNP Paribas. I have the usual three questions to start with, please. Can you elaborate on the market share assumptions that you have in your guidance, both for 2016, given the market share losses you recorded during the last round of restructuring in 2014, especially in K12? So are you assuming any market share decline or not in 2016? And likewise, in 2018, you talked about market share increases, improvements, can you quantify exactly how much is baked into the guidance, please? Secondly, Wall Street English enrolment growth in China looks disappointing to me, can you comment on why is that? And, you talked about refocusing in China, so please would you be refocusing in China. And lastly, Coram, you talked about connections education and its change in accounting revenue recognition, what impact did it have on the North American organic revenue growth report in 2015, please?

Let me take the first two questions and then Coram can pick up on the third. I think, as you saw, we're actually really pleased with the competitive performance of the business in 2015. In every market we held or gained share, so very, very strong competitive performance. I think we've learnt a lot from the restructuring that we did a couple of years ago. This phase of restructuring is much more focused towards back office, technology, operations and the like. We've got it planned very carefully through the year to minimize the impact of disruption on operations and major sales season. But I think we should say that, whilst there's always implementation risk in a major restructuring, I think we have a high degree of confidence that we can minimize the impact on market share. But, if you like, as a sort of countervailing check on that, whilst we've got some really fantastic new products coming to market, in our guidance we're not actually assuming any market share gains. So I think that that's a relatively cautious approach that we're taking. I think in Wall Street and actually in China, we're seeing the phenomenon that Coram talked about, that actually in our direct-to-consumer businesses we're still seeing good underlying revenue growth. But that's been offset by real declines in revenues from our government customers who are facing challenges with austerity and other measures and the like. As Coram mentioned, we've put a lot of focus and a lot of investment into something called the New Student Experience. The purpose of this to enable us to do more blended and virtual learning. So previously in China, we could only expand as quickly as we opened a new physical center. So for the last year or so, we've switched investment from opening new centers into developing a new technology platform which will then enable us to scale. So the growth in enrolments in the last year has been held back, to some extent, by the fact that we've been opening fewer new centers because we wanted to wait to introduce the new platform. The other thing the new platform does is it increases the yield per center because we need less real estate footage for the same number of students, because more of the learning and studying is done online. In spite of that, we've still been enjoying good, high single-digit growth in revenue terms in Wall Street English. And, of course, the cash revenues grow more quickly than the revenues you take through the P&L. Coram, do you want to pick up on the connections?

You didn't address the 2018 market share assumption.

I think I said that we're not assuming any significant gains in market share over the next three years. We're assuming very much that we will hold share. Coram?

And on connections, so the issue here is revenue which is effectively us billing the schools at no extra margin, so it's things like salaries for teachers. It has no profit drop-through. As that industry has evolved, we think that the best way to account for that is to take it out of revenue and effectively offset it against the costs. It's worth about £90 million year on year, so if you look at the difference in North America between the 5% CER decline and the 1% underlying decline, it's the lion's share of that.

Matthew Walker, Nomura. I'll just read something from the College Bookstores Association which says that student per capita spending on learning content, both print and digital, is in decline. Going back to your point about revenue per enrolment, can you provide that on a net basis and also purely for courseware, because clearly, net sales were down significantly given the returns? So it'd be great to see what exactly is in that definition and to get it on a net basis. The second question is, why stay in places like Italy, South Africa, Australia, what's the point, when you're trying to simplify the organization, of remaining in those businesses? And the final point is on the R-squared about the enrolments and employment. Is it not slightly going to change based on trends in affordability? So does the fact that college is becoming increasingly unaffordable put some pressure on that relationship between enrolments and employment?

Let me take the third of your questions first. That data that I showed was the net economic value. So basically, it took full account of the cost of college tuition and the increased revenue that that brings. And what it tells you is, in spite of the rises in the cost of college tuition, the return on investment with a college degree in America is greater now than it has been at any point in the last 50 years. So the return on investment with a college degree, even with high tuition fees, is greater than ever but I think affordability, as I was trying to explain in the presentation, is a big structural opportunity for us because, if we can help people to achieve the economic gain of a college degree, but not having to spend quite as much on tuition because we offer an opportunity of an online degree which they can do more flexibly, they can avoid the costs of halls of residence fees and the like, they can study alongside working and the like, then I think that's a huge benefit to them and to society and one that we can benefit from. On the college bookstores, I think you've got to take into account the Amazon effect, because clearly, what you seeing, is a lot of students switching from buying through college bookstores to buying through Amazon. So it'd be a bit like looking what was going on in trade publishing just by seeing what was happening to Barnes & Noble and not was looking at trade publishing through Amazon. So I think if you look at the whole which is what the AAP data gives you, you will see that, as I said, our gross revenues last year were down about 1.5% which is in line with enrolments. I showed you the revenue per enrolment data on a gross basis. If we had shown it on a net basis because of the exceptional returns we had one retailer, it would depress the 2015 number a little bit and push up the 2014 number, but the trend which is over the four-year period that revenue enrolment is growing, would be unchanged. I don't know if, Coram, you wanted to add anything to that?

Yes, we look at average revenue per enrolment on a print and digital basis for obvious reasons, there are blended products in there and actually courseware is both a print and a digital service and we're very clear on that. John's point is absolutely spot on, we chose to show it in a gross basis because that tracks the enrolments most clearly and that's what we were trying to demonstrate, but the trend will be exactly the same on a net basis. 2014 slightly higher, 2015 slightly lower, but still an upward trajectory.

And then on your questions around Italy, South Africa, Australia, if you look at one of the two areas of growth in Australia this year, one is around the rapid adoption of the Pearson test of English as the major test that's been used for migrants looking to get Australian citizenship. That's obviously a global product that we're able to deploy in Australia at minimum cost. Likewise, we've exported very successfully the Arizona State ASU online program management model to Australia with Monash and Griffith. So that's two examples where there's good synergies between our UK and American and Australian businesses. And likewise, in Italy in recent years, adoption of the MyLabs and the like has bought significant benefit. But clearly, if you're asking more generally about the portfolio, our strategy is an active living thing. We're constantly reviewing the portfolio, seeing how we're matched up of where we think the opportunities and the threats are. And so all the time, we're saying, on all the businesses, that we own, do we remain the best owner of this business, might it be worth more to somebody else. I think we've had a pretty good track record of doing that over the last decade and that will continue.

Nick Dempsey, Barclays. I've got two questions. So first, just to dig a bit more into this gross and net issue, am I right in thinking that your gross sales growth really is about what you predict for enrolments and, therefore, the fact that they track together it's not that surprising? But then you find out, when you get your returns, how the students have been behaving in terms of whether they've bought more second-hand books, more rental, whether they've not bought the books at all. Therefore, it doesn't make a lot of sense for me to track gross and going forward, if we're going to see any structural pressures there wouldn't they pop up in the net number and not the gross number? So that's question number one. And then on enrolments, you've talked a lot about how first-year enrolments are important to you, you've talked about your footprint being a bit more weighted to community colleges and for-profit. So in the event that you're right and the enrolments for the whole market are flat, where would your footprint be approximately?

Let me start on the gross versus net, I think it's a bit more sophisticated than you've just described it. So gross is a good predictor of demand, it's a predictor of what we think the demand will be. But that's also done in conjunction with our retailers, who have a pretty good handle on the ground and our sales reps, who understand what adoptions are being made and, therefore, how many students are going to be at the courses. You have to look at both, because gross is a sophisticated predictor of demand, net is, at the end of the day, the demand that's come through. And I think the point that we were trying to make on the ARPU is that whichever way you look at it, whether you're tracking it on gross as we have chosen to do here or you're tracking it on net, the fundamental point is still the same, that that ARPU is actually growing. I think that demonstrates clearly that the structural pressures are not evidenced either at a gross or a net level.

I'll just pick up on your second point on the -- it's true that, if we look back to the late 2000s, Pearson was more weighted to the community colleges and the for-profit sector. I think one of the really good things about our competitive performance is actually we've managed to rebalance that. And we've managed to increase revenue per enrolment, in spite of the fact that we started with that overweighting to those parts of the market that were most badly affected. And one of the reasons we've been able to have such a good competitive performance last year is the launch of products like REVEL has enabled us to take some pretty significant share in the traditional four-year not for profit and public university sector. And our particular success in the STEM subjects, science, technology, engineering, math, the share we've taken in business and economics, has been really impressive. And that's enabled us to counter the historical weighting we did have in those other sectors. Obviously, the traditional 18 to 24-year-olds going into those public universities, those enrolments have remained pretty steady through the cycle.

Tom Singlehurst, Citigroup. I had a handful of questions.

You don't have to have a handful of questions, Tom. You could just ask one.

Okay. It's one question with three completely separate answers. The first one is on the political cycle, if we look at what's going on in the primaries both for democrats and republicans, if we can sum it up, it looks like you've got at least one republican candidate who wants to axe for the Department of Education. And then if we look on the other side of it, you've got the democratic candidates talking in broad terms about trying to increase enrolment in community college by potentially subsidizing. Can you just talk about the potential impact of either scenario on your business and how that would work through in terms of the higher ed business particularly?

First point to remember, Tom, as I know you know, is that over 90% of public spending on education in America is actually driven by state or local decision. So federal decisions set the general environment, attract a lot of heat and noise, but the real decision making sits at what's happening at the state and local level. Which is why, back to the point I made earlier, the breadth of Pearson's contacts, networks, partnerships, distribution is so important because it's what's happening on a state-by-state level. It's interesting to know that actually bipartisan support saw every student succeeds at past, that is very consistent with the Pearson philosophy around testing which is fewer, smarter assessments. I think it goes a long way to meeting the concerns of teachers because it gives states greater flexibility as to how they use accountability when applying tests. It means fewer tests, but it does mean there is still annual testing for grades 3 to 8, so that means that there will still be a vibrant testing market for some years to come. We talked about this on the January call, it is a usually unpredictable environment around K12, particularly around the implementation of common core or certainly the noise around common core, because in reality most states are implementing higher college and career ready standards. And in the guidance we've given, we've said it's possible that we could see some more contract losses in 2017. It shouldn't affect 2016, but it's possible that is could affect 2017. That's in our guidance, so I think we've taken a pretty cautious view from a K12 perspective. On the higher education side, as I think I signaled, I think it's what's happening on a state-by-state basis is actually much more important than what's happening in federal level. And there, for example we'll be in Austin a week on Monday at the Dana Center, where we're doing some really interesting work to help community colleges improve employability and build much better relationships with employers. That's a huge issue and it's one of the big opportunities that we see. So we've got some quite interesting things going on there. So I think, in a headline, pretty bearish about the political environment in K12. I think we've reflected that in our guidance. And feeling quite optimistic that there should be potentially some bigger opportunities than the current assuming on higher education if we can make those work.

So 1b--

Go on, okay. There's not a 1c, though, is there?

Yes, there's going to be a 1c as well. 1b is disposals and, in particular, you talk about reducing exposure to managed services. Is that you indicating you want to get out of actually running schools and universities full stop? Or is this just small tweaks like the Saudi contract?

I think, if you look in the appendix in the back of the pack, we've tried to give you, on four measures, attractiveness of the market, our competitive position, the capital implications and the relative profitability compared to the Group margins. And you'll see that in managed services in the growth markets we would like the profit characteristics of franchise type operations. And our experiences with South Africa and in Saudi Arabia is that models where we have high fixed costs and you can't flex to change in demand, is something that we feel less comfortable with. So it's a tweak to the model, where you'll see, as we build out direct-to-consumer businesses, we're much more focused on blended, flexible franchise, rather than fixed bricks and mortar models.

And 1c is CapEx. Last year I know you were talking about £170 million to £180 million so it's quite a lot higher and you've decided to keep it higher. Is that just because you're taking advantage of the fact that you've got more cost saves coming through and it's not something we're not likely to focus on? Or is it because you're accelerating something there?

The primary driver of the increase in CapEx which is about just over £60 million year on year, is the platform simplification program, so what we call the enabling program which is about moving from the 63 ERP and associated systems that we've got to a single Oracle system. So that, plus a couple of our other system simplification programs, are driving all of the CapEx. The reason I'm indicating that it will stay at those levels in 2016, is that this is a three-year project. So the majority of the CapEx happens 2015 and 2016 and there will be a little bit of flow through into 2017. We do think there's a very significant payback on that investment, for obvious reasons. And, in my mind, this is foundational to a lot of what we're trying to do in terms of this simplification and streamlining of the Company. So it's got a good ROI.

David Reynolds, Jefferies. Just two quick-fire questions. Just to help back test the model, I think your North American underlying growth was negative 1% for the full year and, if my memory serves me correctly, it was plus 3% at the half-year point. Coram, are you able to tell us what the Q3/Q4 numbers were?

Well, we don't disclose the growth by quarter. But mathematically, you can figure out that it was significantly down for reasons that we've talked about. So U.S. college was primarily the enrolment pressures which we saw and flagged in October, as well as the additional returns. The key point is, it didn't get any worse in Q4. So it was exactly in line with the expectations that we set out in Q3.

And secondly, this may be a bit retentive, I just wondered if you could share with us, perhaps, how many higher education students in the United States paid for a digital product from you in 2015 or a blend with a digital component in it.

How many students? That's a very good question. John, do want to take that one?

I was buying myself some time to refer you to, I think it's page 54 in the appendix, where if you see that the MyLab/Mastering user registrations were 13 million last year. I'm looking at Simon, I think the split between North America and international is roughly 10:3 or something like that, 11:2, so around 11 million MyLab and Mastering. And then Simon, does that include the REVEL registrations, the start of REVEL, so that's got REVEL in it as well. I think we only launched REVEL last year, I think we're up to about 150,000 digital users in REVEL. But we've only launched it on about 70 products so far and that will go much more in the years to come.

Chris Collett, Deutsche. Just got two questions. One, John, you said that you have to be a leader in personalized adaptive learning. I'm just wondering to what extent are you reliant on partners like [indiscernible] to deliver that adaptive learning? And to what extent you actually have built the capabilities yourselves? And then second, more of a financial question, it looks like, Coram, you said the effect of disposals for next year is going to be £90 million, but the profit from discontinued operations is £50 million. And you also said that the effect of saving the bonus in 2015 was £70 million, but it's going to be £110 million next year. So have you padded both of those numbers out by £40 million for your 2016 expectations?

Shall I take a run at the first? So taking the disposals first, you've got to remember that the discontinued is only the FT and the Economist and there's also PowerSchool. But because that isn't a separate cash generating unit, that's actually up in our numbers. So the total effect from the portfolio disposals is £65 million year on year. The £25 million difference is driven by list disposals. This is part of our ongoing strategy of streamlining our higher education business and getting out of lists or disciplines or subjects which don't have the growth potential that we think. That £25 million is the proceeds from the list disposals. The actual annual profit relating to those is only £5 million. We record the proceeds above the line, we always have done on list disposals because, effectively it's a pull forwards of the profit that we would have earned. So this is completely consistent accounting treatment that we've always undertaken. On the bonus, the reason for the difference is that we didn't make target in 2014, so £70 million is not the target payout, whereas the £110 million that's going back in, it assumes an on-target payout. In other words, a performance in line with budget. Clearly, if we don't make our targets, then it's lower, if we exceed our targets it's higher.

On the second point or on your first question, I think you can assume that we've got a range of approaches. So yes, we work with Newton, just as we work with a number of other third-party vendors. But it's also an area where, in our priority products, a major source of organic investment is going into developing our own in-house personalized adaptive capabilities. We're also looking at a range of potentially exciting partnerships with other players as well and I think that's something that we'll talk about in more detail when we have the investor seminar in June. I think we've got a question from Tim Nollen from Macquarie which is, could you please speak about educational institutions' willingness and ability, financial or otherwise, to make or complete the transition to digital content and new digital services and would you characterize it as eagerness or resistance? I think I talked quite a lot about this in the presentation. I think there's a spectrum -- I think there's a number of institutions, I've already mentioned one of them, Arizona State University, who are real pioneers and are driving it hard and are leaders in it. And then there's a very significant part of mainstream education where there's a greater degree of caution. There is an interesting dynamic between the leadership of universities and faculty, so quite often it requires really to get the faculty fully on board. And I think one of our great benefits as a Company, the size and scale and the distribution and reach, if you take somewhere like Arizona State University, we both have very good strategic relationships at the president level, but then we have large numbers of sales reps visiting every college professor on campus every day. And I think it's the ability to work right across the range at each level which gives us an inherent competitive advantage and actually does make it harder for new entrants to come in, particularly with the lack of an advertising former model, you can't easily launch an advertising platform-led approach. So that's the way we would see it.

Alastair Reid, Berenberg. One question, but two related parts. Firstly, you mentioned some possibility of further testing contract losses, can you talk about operating leverage in the U.S. testing business? What costs would naturally come out of the business if those losses were to come through and equally, if growth as and when then returned in that business, what incremental margins you might expect? And then in a similar way, you talk about operating leverage in the U.S. higher education business. If you did start to see revenue per student fall, what costs, if any, would start to come out with that as well?

On the testing business, we've said that it has a margin around the same as the general Pearson business, so obviously not as high as some of our high margin businesses like UK qualifications or North American college. We do try and structure it so that the cost base mirrors the length of the contracts as far as they can. So we take out property leases that reflect the length of the contract which means if you do lose a contract, there is a natural step-down. But nevertheless, you lose gross margin if those contracts go away and it's one of the reasons why, if you step back and look at the way that we've framed the restructuring, it's one of the key planks is to right-size that business and make sure it is fit for fewer, better testing contracts. On North American higher ed, we've always said this is a high margin business. That is very clear from our description of the profits that we've lost as a result of the cyclical pressures. So we quantified that at £230 million which was U.S. higher ed, UK qualifications and South Africa, U.S. higher ed was a big chunk of that. It's significantly geared both on the down and the up.

And then just on a bit more visibility on the testing contracts, clearly the key thing that we're watching most closely is the nine states that are still part of PARCC consortium, given the sort of breakaways that we saw last year. We're just about to enter the operational running of the test. There's 16, so they're all secure for this year. The one to watch for next year is Massachusetts which has been half running PARCC, half running its own test. And they're going to continue that hybrid approach, but putting a new contract out for tender which obviously we will be part of the process for them and we'll see how that plays out.

Two quick ones--

Maybe we could crowd source the questions. Yes, go on.

If I could put you guys on a balance sheet a little bit, you have a lot of cash on the balance sheet, you're going to have less after you pay the dividend, then you need to take into account working capital, do you think you plan to -- obviously you've committed to paying down debt, but keep some more of that cash on balance sheet or if there's attractive and organic opportunities you'll pursue those when you see them? And second, if you could provide any update on your view of Penguin Random House.

Coram, do you want to take balance sheet and I'll talk a little bit about Penguin?

Absolutely. Obviously, the cash has helped our net debt position which is about £1 billion lower than it was at the end of 2014. Free cash flow in 2016 is going to be tight because, after the restructuring costs, it's going to be in the £100 million to £150 million range. And after we've paid the dividend, then obviously that means we will eat into the cash a little bit, so net debt will rise. At this stage, we think that it is best to keep that cash and make sure that it is underpinning our commitment to our dividend and giving us a strong balance sheet while we work our way through some of the pressures that we're dealing with and I was very clear as I described our capital allocation policies, we're not going to be making acquisitions in the short term. We have got a lot to deliver. We're very focused on delivering that and we think that's the right way to approach the capital allocation.

Okay. On Penguin Random House, you're all familiar with the terms of the shareholder agreement going back to 2012. The next sort of window would be in 2017. Just to remind you, we can put our shares to Bertelsmann, they don't have to take the put, but if they don't it triggers a recapitalization of the PRH balance sheet at their expense and a special dividend paid to shareholders proportionately. So it's not an issue until 2017 and, in the meantime, I think as you saw, the business is performing well, partly due to the efforts of my new colleague in terms of the brilliance of the implementation and restructuring, the integration of the two businesses, that's gone very well. We'll see further benefits of that come through this year, although it will be some offset, I think as Coram said, by the new pricing agreement with Amazon around digital which will have an effect in the opposite direction. So we're pleased with the competitive performance. We've got an option in 2017 and we've got plenty of time to work out what to do.

Steve Liechti, Investec. Just on your organic investment you said was £700 million, so I'm presuming we've got the £250 million which is the CapEx and the rest is OpEx. That's the best way to think about that, is that right?

Not quite, actually. So you have got, as you will see from the pre-pub reconciliation at the back, there's a significant amount of cash that goes into our pre-pub spend which is sort of £350 million to £400 million, you've got the £250 million on CapEx, just under and then the rest is effectively OpEx. So that's the split of the £700 million.

Right. And I'm just trying to figure out why £700 million is the right number, given you're a business that's got a growth problem, there's lots of talk about the cycle and stuff. I still feel, if I was you, I would be thinking a lot more carefully about putting more money into organic investment.

To be fair, the rate of organic investment has been ticking up slightly over the past couple of years and that's because we've identified the opportunities that we want to go for and we've invested in them. We're trying to scale back so that we invest, as I said, on fewer, bigger opportunities and we don't feel constrained by the £700 million figure. If there is an opportunity that would take us above that, then we'll go for it. And to an extent, that's what the balance sheet strength and flexibility allows us to do.

We expect to get a better return on that organic investment. For example, by bringing the three lines of business together into one global product organization, we could invest once in things like learning analytics, adaptive learning capabilities and get greater benefits across the whole of the Group. So it's not just how much we put in, it's expanding what we get out of what we put in which is going to be the key part of what we think we can achieve.

Just one question, please, can you give us another split of your revenues by public spending and private spending and maybe how is that evolving? We had a view that private spending would pick up a lot of the slack from public austerity. Is that happening, was that related to the emerging markets or--?

I don't think we'd give a split of public and private, partly because it moves around. What we're seeing is in, for example, our emerging markets there is quite a clear division between the buoyancy of the private spend, driven by the demand of the middle classes, people who want to learn English and become more educated and the public spend which is under pressure. There are different characteristics around the Pearson business on that.

Crudely, if you went to page 48 and just use that as a basis, school courseware is all public funding, the top right segment, North America school courseware would all be public. Higher education and ELT is individual spending. It's an adoption model, so it's professor recommendation, but it's a student purchase. Core and growth courseware would be an even mix, pretty much the public and parental spending. In assessment, core, North America student assessment and clinical is state. Professional certification is primarily individuals. And in growth, as Coram said, the majority would be towards private individual spend and the balance from the state. So you can work that out from that.

Ian Whittaker, Liberum. Apologies, two questions, one is actually coming back to Nick's question before in terms of the gross sales and also as well, you had some sight, Coram. You said that in terms of the booksellers are usually pretty good at estimating demand, but obviously in 2014/2015, they weren't because you had one bookseller that essentially seems to have overestimated demand and returns. One of the more cynical explanations I've heard within the industry is, essentially, the booksellers are doing the publishers a favor by buying their product in 2014 and then returning it in 2015, so as it were to help the 2014 numbers. I'm sure that's not correct, but can you explain why that particular bookseller actually seems to have got it so wrong in 2014, when none of the other booksellers actually did? Then the second thing is just in terms of the write-downs and what's happening within the expectations there. There's a line in the statement that talks about management's expectations of future returns that were revised down in the course of 2015. Now you've talked a lot about the cyclical and positive factors and so forth that have driven down the write-downs. That sounds more like a reduction in long term growth rates that are coming through. If that's the case, can you just explain by how much you've actually taken down those expectations? Then it also as well looks as though in North American software there's been another reduction in the longer term assumptions there.

If I pick up on why the major campus bookstore chain did what they did on returns and then you pick up on the second. Essentially, new management came in, I think it was late 2013. They brought in some external consultants to try to understand how could they arrest the decline that we were talking about earlier, where the shift from students buying on campus to going to Amazon. The recommendation was that the key thing was to increase product and stock availability at the start of term and ensure that they were never out of stock. That was the approach that they took. They didn't adjust their pricing as much as they needed to, so although the students came in the store, they still worked out they could get it more cheaply online. That's, essentially, what happened. What gives us confidence that that is much more a specific customer issue rather than a generic industry trend is that, if you look at returns last year and strip out that one player, actually returns year on year for the rest of the industry were down. Well, for us they were down on the prior year. So that explains, I think, what was happening with that specific retailer.

On the write-downs, this is a mechanical accounting adjustment. What we have done, what John asked me to do when I came in, was to do a bottom-up review of all of our financial plans and our markets and our businesses. That underpins the guidance that we've given for 2016 which I hope you agree is more comprehensive and it underpins the £800 million goal for 2018. Now what we've then done is taken those same forecasts, those forecasts that underpin the £800 million goal, we've flowed them through our impairment models and it's given us the outcome that we've got. If I step back, it makes perfect sense because, effectively, what we've seen is changes in the macroeconomic environments in the emerging markets which has led to trading pressures which brings down short term expectations. We've also quantified the effect on our North American college business of the pressure on enrolments. So there's a consistency to all of this and it is all underpinned by £800 million goal that we've set.

Just outside the gross number, I think on the footnote on slide 31, it says adjusted for 2012 revenue mix, when you talk about the gross net sales. What is that? Is that just a fancy way of saying you've rebased it at £100 or is there something else that you've adjusted?

It's two things. It's about us basing it at £100 and it's effectively about us making sure that it's reflective of our weight in the channels in 2012 and flowing through to 2015. So actually, this is even stronger because what we've done here is adjusted the numbers to reflect what you would expect to have happened, given that the channels that we were strongest in, community college and for-profits, have actually declined. That's all that footnote means.

Katherine Tait, Goldman Sachs. Just on your 2018 goals, I was wondering if you could unpack the assumptions, particularly around the £100 million increase in operating profit that you're expecting between 2016 and 2018 above and beyond the cost savings. How much of that is underpinned by improving organic revenue growth trends, etcetera? Just any color you can add would be really helpful.

Just to step back for a moment, the £600 million to £800 million, as you rightly said £100 million of that comes from the incremental benefit on the restructuring which, provided we execute effectively this year, we will deliver. The additional £100 million is organic revenue growth. Given the gearing in our business, given the gross margin drop-through in our business, it's only a couple of points of revenue growth per year and it's really driven by five things. Firstly, we're expecting that the cyclical pressures that we've seen in U.S. college and UK qualifications will stabilize during 2017 and then pick up a little bit, we've explained why. Coming to the end of policy change in the UK. We think that U.S. unemployment which is the main driver of college enrolments, will actually bottom out in 2016, to pretty close to full employment, frankly, in 2016. The second thing, as John mentioned, is that we're taking a conservative view of North American testing, so we're assuming we lose further contracts in 2017 and that stabilizes in 2018. We do think there will be a bit of growth in our clinical assessments and our professional certification business, but the main assumption is around North American state testing. In the emerging markets, we're not banking on any significant macroeconomic growth. We get modest growth from new products and market share gains. And a good example of that is the New Student Experience in our Wall Street English business. And then the final piece is really around the growth businesses that we've got in the shape of virtual skills and online program management in higher ed. Both of those are growing in double-digits right now and we're and have been for some time. We're expecting that growth to continue. So those are the drivers of how you get that £100 million of profit relating to the organic revenue growth.

Okay. I don't know how this happens, but yet again the final question is with Mr. Wellington.

A couple of questions, Katherine's is the one I was going to ask which was the 2018 thing, but how quickly do you think that turns around in 2017? You could have presuming this year is minus 2% on testing, minus 2% on the rest, you'll be minus 4%, you could get quite a dramatic 500 basis points organic growth turnaround in 2017, is that what you're saying?

What I'm saying is it will stabilize during 2017 and I think at this stage we're calling it year on year. I'm not about to make a forecast about when it turns during 2017.

And secondly, just to clear up on book list sales, are there any further book list sales assumed 2016 to 2018 to contribute to the numbers--?

There is nothing built into our guidance, but this is a strategy that we have been pursuing for a period of time. But there is nothing assumed in the numbers that we've given you.

And just to give you a bit of a context on that, because I have talked about this previously, as you make the shift from analog to digital, not all textbooks work in a digital world. And where we have a long tail of low selling textbooks, normally around second and third year subjects, normally in the arts and humanities, there's not going to be a compelling digital offering. They are the courses that are actually most vulnerable to OER because there's the less value added and as I've talked about in previous presentations, in the spirit of focusing on fewer bigger opportunities, it makes more sense from our point of view to sell those titles so we can focus on the bigger areas and the bigger disciplines wherever there is a compelling digital play.

And finally, it would be a shame to have your new Chairman here and not have him say anything. Sidney, what have you found since you've been at the business, what do you think of what you've seen at Pearson so far?

Thank you. First, I think I have found an organization where there is a very strong sense of purpose. I've been very impressed by the quality of the people that I've found, particularly in the leadership. I've also found an organization which is probably too large, too complex. I think it's the result of history, this Company has grown a lot through acquisitions and those acquisitions very often were left to their own devices or rather they were run as independent businesses. And as the Company moved from this conglomerate approach to an operating company approach, it has not completely simplified and streamlined the organization to the degree that it can. So we have operating expenses, especially in the G&A area, in IT, etc., as a percentage of sales which are very high and provide really opportunities for better efficiency, going forward. The Company is very involved in the enabling program which will take another three years, so it's a very, if you want, unglamorous difficult task, but vital, fundamental, as was said earlier to the future running of the Company. At the same time, I think there are more opportunities to simplify, as John indicated, as we constantly do, the portfolio to make sure that the units are synergistic, that we're the best owners of each part of the business, that we move from products to platforms that can be leveraged across businesses and globally. And all of this effort will continue, going forward. I've joined at an interesting time, to say the least, I think an inflection point for the Company. It's clear that this good management team inherited a complex business and was faced with a trifecta of issues. We've talked at length about some of the cyclical challenges that it faced in the last few years.…

Thanks, Sidney. So I think that draws it to a close for today. As ever, Simon and Tom are here if you have any follow-up questions or anything you want to take up. As I mentioned earlier, we have our annual general meeting at the end of April and then our next scheduled event will be the investor seminar which will be around global higher education and will be on a date to be announced in June. Okay, thanks, everybody. Good to see you. Thanks.