Good afternoon ladies and gentlemen and welcome to the Pearson Interim Results Conference Call. My name is Wendy and I will be your coordinator for this call. During the presentation, you will be on listen-only. However, at the end of the call, there will be an opportunity to ask a question. [Operator Instructions]. I will now hand you over to your host, Marjorie Scardino CEO to begin today's call.

Good morning everybody. Thank you for joining us. I would like to start by picking out a few points from our results announcement, and then I have with me Robin Freestone, our CFO, and we will take any questions that you would like to ask us. As you know, we are bound always to tell you that we make almost all of our profits in the second half, but even so, we are very pleased with the set of results we have announced today. We are raising our guidance in a couple of areas and we are well set, we think, for another good year. Our sales are up 6% in total, we have gains in every one of our divisions. Penguin, where we have emphasized profits and cash is up 1% on the top line with good growth in online sales in emerging markets and great books from the likes of Khaled Hosseini who wrote The Kite Runner, Kim Edward and Al Gore. In Education, we are up 7% in total. Highlights here are School, up 8%; Professional, which is up 9%. In Professional, we are really going great guns in our Testing business. Our Testing business is for people like nurses, securities dealers, technology professionals, business school applicants. And we are raising our full year guidance on that business from broadly flat to 5% to 7% growth. The FT Group is up 8%. Sales at FT Publishing were up 7% with advertising revenues also up 7%, which is very pleasing performance. Our financial information business IDC is up 9%, and here we are also raising our full year guidance from 6% to 9% to 10% to 12% sales growth. Our profits overall are up 48%, and here again it's a story of all-round progress. In education, we have…

Thank you. [Operator Instructions]. I do have a question now from the line of Peter Stensland [ph] from Allianz Bernstein. Please go ahead.

Yes, thank you for taking my call. I have two small questions. One is pertaining to your market share in Testing and also, I am curious if the current working capital trend that you are seeing right now is expected to continue through '07 and '08. And then I have a follow-up question upon that.

Okay, I'll let Robin talk to you about the working capital, then I'll come back and talk about Testing.

Yes.

Yes, Peter, we saw working capital to sales come down again as a percentage in the first half of this year. It was down to 26.1%. So the trend, which we have now seen for about 5, 6 straight years has continued. I mean some things that are driving that, not only are we focused at this area and the bonus structures throughout the company are very focused on working capital to sales, average working capital to sales as well as cash too. But also there are some structural things which are happening which kind of help these numbers. And part of that is the fact that we are moving more of our business in our faster growing parts of our business like Assessment and Testing having better working capital profiles. So some of our subscription businesses like Mergermarket, for example, has cash upfront; Assessment and Testing tends to be schools booking test and paying near the front end of the process. If you look at the sort of older style analog parts of our company, the book businesses, the profile there is not quite so strong because we have books in warehouses, books printed often in Asia on the water too [ph]. Of course, those books can go out to customers and then come back in the form of returns. So there is a real shift in terms of the structure. So to answer your specific question, do we expect to see working capital to sales improve for the full year this year, the answer to that would be yes. I don't think I would give you specific guidance on '08, but I see no reason why the sort of a trend we have seen for the past few years shouldn't continue.

In your question, if you're meaning market share in U.S. state testing, that's one thing.

That's right. That's the one.

Okay. Well, I would say that it's somewhere in the area of 35 to 40% in state [ph] assessment. We have won more than half of the contracts that we bid for this past year. Obviously, the Harcourt acquisition will change our picture a little bit, but we are fairly strong in that. But we do do a lot of other kind of testing, and the first I would like to mention I think is our online testing. We mark 2.3 million online tests in the first half. So we have been the pioneer in online testing, and it is growing among the states in preferability and we also have a lot of international opportunities. We are a big testing, school testing company in the UK where we have about a third of the market.

Okay, thank you. And then this is more on a high level basis. I'm looking at your company. You've performed extremely well across the board in the educational area, and some people could argue that you have probably the best educational assets in the U.S.

Thank you.

Following that, you look to private equity transactions that put excessive value, and also the Dow Jones bid, values suggesting enormous kind of conglomerate discountability [ph] to your company. I am just curious as to how do you work about to address this, because I mean it seems like it must be frustrating from your end to you're your stock only rising on some of these type of merger speculations, but while you actually are performing quite nicely from an operating perspective. So I just think, if you can walk... how do you think about a, addressing that in the longer term and b, just from a balance sheet perspective, your financial strategy going forward, you feel that you are properly aligned right now in terms of returning value to shareholders or... that will be very helpful. Thanks.

Thank you for that question, I think. I have to say it is frustrating sometimes, but our approach has been to we don't see ourselves as a conglomerate at all. Obviously, we see ourselves as a rifle shot of focus, because one of our great successes in Pearson has been to take three companies, our education company, the Penguin company and business information company headlined by the Financial Times and to make them into one company which share strategies and share costs. And we have been working on that for seven or eight years and we have made enormous progress. We really now are a cohesive company. Every single one of our businesses shares the same strategy. Every part of our business is about taking content, adding... using technology, using services, adding value to that content. Every one of our businesses is about having international opportunities, international markets, international outlook. Every part of our company is about efficiency. It's about taking our big central operations organization and using that to make the most efficient operator, and not only the low cost provider but the high quality provider in our market. And that is why we are market leaders. We also have looked at how we spend our working capital and we feel that in education in particular, but anywhere where you are trying to keep on innovating in content and services terms, you've got to invest. And so in good times and bad, we have consistently invested and that's kept us growing ahead of the higher ed market for eight years, it's kept us growing ahead of the school market for about four years now, about four years, it's kept our FT Group ahead of its peers. I don't know of very many newspapers and online business information companies right now that are growing the way we are. So those strategies make us a cohesive company as well. Robin, you may want to say something about the balance sheet and our attention to.

Yes, I mean I think we obviously look at the other leverage question. And I have to say that we strive to maintain our current ratings, BBB+, Baa, A1, and whereas almost you can go back three or six months, that looks slightly old fashioned. I actually think and one of our philosophies has been that ratings once again would matter sooner or later. And I think you are starting to see the beginning of a period when the value of the rating will be seen [ph] to us. So we have been pretty clear that we want to strive to maintain our ratings. The way that we are using spare cash is reinvesting back in the business, as Marjorie said, and we invest around about 7.5 to 8% of education and sales back in new prepublication programs to give ourselves a very strong pipeline that's the research and development of this industry. We have also been very active in the bolt-on acquisition market in 2000... well, 3 or 4 years frankly, but obviously with two pretty sizable bolt-ons this year in Harcourt and eCollege that we've talked about. And then we have a very progressive dividend policy. The dividend yield at the moment is around 3.8%. So we have raised our dividend now for every year for the last 15 years and we believe that's a good way of giving money back to shareholders. So we would seek to continue to do that.

I think just to take up on Robin's point as well about acquisitions. Over 2002 to 2006, we have disposed of about $3 billion worth of companies or assets and we have acquired about $1.4 billion. So we have used about half of that money. We have taken our capital out of organizations that didn't suit our strategy and organizations that don't... aren't digital, aren't geographically spread and aren't content plus services companies, and we have moved them into companies that are. So we have sold our Government Solutions business, which ran big contracts for the U.S. government; we sold our Spanish business, which had a fundamentally national strategy. And we bought eCollege, which allows us to have an online platform for teaching and learning not just in college but in school; we brought Harcourt International; we bought Harcourt Assessment and Testing. All of those fit our strategy. So every move we are making with our capital is taking us closer and closer to a cohesive company. And we are pretty religious about financial goals and we are pretty religious about looking at every part of our company on a rolling basis to make sure that we are making the very most of it we can for our shareholders.

Thank you. That was very helpful.

Thank you. There are currently no further questions. [Operator Instructions]. We seem to have no further questions, so I will hand you back to your host to wrap up the conference call.

Thank you all very much. I am sorry we couldn't provoke any questions from you. But if you do come up with some, you can always call us here at Pearson. Call Simon Mays-Smith or Jeff Taylor in the U.S. and they'll be happy to try to help you with what you need to know. But thank you for being interested. Good bye.