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Pearson plc (NYSE:PSO)

Deutsche Bank's DbAccess 21st Annual Media and Telecom Conference

March 04, 2013 3:40 pm ET

Executives

Robin Freestone - Chief Financial Officer and Executive Director

Analysts

Mark Braley - Deutsche Bank AG, Research Division

Mark Braley - Deutsche Bank AG, Research Division

Okay. Thank you for joining us. My name is Mark Braley from Deutsche Bank's London Media Research Team. It's my pleasure to introduce Pearson this afternoon. Robin Freestone, the CFO, has joined us.

Question-and-Answer Session

Mark Braley - Deutsche Bank AG, Research Division

Pearson announced results last week. And with that, a big acceleration of its strategic development, a big restructuring plan, a big investment plan. I suppose my opening question, Robin, is kind of why now? Why push ahead now?

Robin Freestone

Okay. I think that's a fair question. Just to characterize this, I think what we've really understood over the last couple of years is that there are 2 kind of mega trends, if you like, happening in global education, and they are very different. So in the developed markets of the world, what you're seeing is governments under pressure, really no more money to spend on education, and yet results coming out from PISA league tables not reflecting the sort of money that's being spent and a real concern that the results are not good enough compared to the Fins and the South Koreans and the Chinese. So a desire there to do something about productivity, if you like, and I'll come back to some of the answers to that. In the developing world, it's a very different set of circumstances. There you've got much less state-based education and more private education. So if you look at Brazil or India, you've got about 15% of the market in those countries which is privately-educated children. And this is because as the global middle-class grows, we know that parents will spend money first on accommodation, housing, travel, in other words getting a car, and then they want to educate their children. And so one of the great global trends -- and other companies I know are talking about this, whether it's Burberry or Diageo, are looking at is that every year, you are seeing another 100 million people globally join that middle-class cadre, and every year, you are seeing spending by the middle-class globally go up by $1 trillion. And because education is such a fundamental part of what they want to do when they get wealthy enough to afford to do it, that's a trend which we are also tapping into. Now if you look at what we're doing in developed markets, therefore, it's about efficacy. It's about trying to improve the outcomes with less money. And in the developing markets, it's about direct-to-consumer, where we're selling educational resources and actually education itself through our own colleges or through other people's colleges to that global middle-class. And I think those 2 trends now are becoming very well-established. And now is the point, I think, at which to look at our organization and say, we've really got to focus on those 2 trends. We're still selling books, and I suspect we'll be selling books for a long time to come, but that is clearly not the growth path of the market. It is going to be about selling a bundle of things or indeed opening schools. And so our cost base still reflects the old organization, if you like, to an extent, and we've got too many people, I'm afraid, who are designing beautiful books, ready to put them into the market and too few people designing software and running schools. So it's really been about looking at the cost base. And actually, more or less following with the cost base, what we've been doing with our acquisition capital and putting that into digital and services and emerging markets. And those are the 3 focus for our capital -- for our capital allocation for acquisitions. And increasingly, we're thinking about our overheads in the same way and trying to make sure we've got the right balance between people who do design books, and we still need quite a few of those and content certainly is still absolutely key to the offering, but probably rather fewer of them.

Mark Braley - Deutsche Bank AG, Research Division

Okay. I'll come to the, if you like, the great parts of the story in a moment.

Robin Freestone

Sure.

Mark Braley - Deutsche Bank AG, Research Division

Just to address that issue of the books business and the kind of static or even declining nature of that over time. How much is this a specific issue within your North American college business? That's -- it's your largest single business. It has been performing extremely strong before over the last sort of 5 to 7 years. How much of this is dealing with a slow down in the college business that's enrollment led, that's down to textbook rentals coming back, and that's down to digital being most penetrated within the college space?

Robin Freestone

Yes, certainly. Just to give you a few stats there. So we know that when the U.S. economy picks up, that enrollments into college go down because more students go into jobs rather than go to college, and you're seeing that phenomenon at the moment. It's a well-known counter-cyclical phenomenon and enrollments probably contracted by about 2% last year, and they're probably likely to be down this year as well. So that is not a new phenomenon. If you look at the overall higher education market for books last year, it was down about 6% according to the AAP. So that's a pretty tough market to be in. Fortunately, with things like MyLabs, which again grew double digits last year, through our online university offerings, such as the deal we've done with Arizona State University, the new deal which starts up shortly with Cal State University, which has got the potential to be rather bigger over time, we've managed to beat the market again for the 14th consecutive year. So we don't see quite the same level of decline as the market has declined by. And again, we'd hope to achieve that this year, but it's a pretty tough market to be in. So I think some of the restructuring that we talked about will inevitably affect that college business, but it's across the board. It's not a simple as saying, "Okay, this is a U.S. college issue" at all. I think U.S. college will suffer no more and no less. They're a proportion of the sorts of reductions in people that we're going to see elsewhere in the world.

Mark Braley - Deutsche Bank AG, Research Division

And turning to your next single biggest business, U.S. School. How do you think about that in terms of an eventual cyclical upswing as the fiscal situation at the state level improves and Common Core? We've been asking questions on Common Core for a few years now, and it always seems to be next year or the year after that it's going to start to benefit the business. When you now say it's a 2014, '15 story, how much confidence do you have that, that will actually now come through to help the K-12 business?

Robin Freestone

Yes, and it's difficult to judge. It certainly feels like next year or the year after, frankly. And I think this is an arena again where at the moment the market is very tough. And again, AAP data that people saw last year, down 15% in School. Some of that about the adoption market falling from 650 to below 400, and I think that's about the lowest number of adoption I can recall since I've been with the company. So I don't think it's going to go a lot lower than that. And therefore, I don't think we'll see the market down 15% again this year, I think it will be relatively flat. But we're still facing the headwinds associated with uncertainty, and that uncertainty is at 2 levels, it's the sort of fiscal cliff and now the sequestration issue, and of course, it's the whole Common Core implementation and how -- will that be funded, if at all, by central government. And I think our feeling is, this is not No Child Left Behind Phase 2, whereby you saw a sizable chunk of federal money going in to finance No Child Left Behind, which stimulated the market for testing and which we benefited from as did others. This is going to be funded, I think, by state budgets, which are improving as you quite rightly say, Mark, and over a prolonged timeframe. So you've got some very brave souls who have decided to go early and are implementing Common Core, and we talked about that the other day. Kentucky has clearly tested its students and found that about 30% fewer students are proficient under the new standards, in math, reading and science compared to the old standard. And I think that will sweep across America, which is slightly worrying, but on the other hand, it is the reality. So once you measure students against international standards rather than state-based standards, you get a surprise as to how many truly are proficient. But that I hope will be a stimulus for action, and I think that's what we've seen in Kentucky. It's what we've seen in Huntsville, Alabama. It's what we've seen in Mooresville, North Carolina, is some very dynamic individuals saying, let's change this system. And I think when that system changes, it won't come back in the guise of books. It will come back in the guise of software, and what we will be trying to do is to sell an effect. In other words, rather than selling a product, a book, and saying "good luck with it, we think it's a wonderful book," but actually we really don't know whether it's really better than anybody else's book. What we're now going to be saying is, "we want you to get better examination grades. We've got a range of stuff here, mostly software, that will help you do that. And we're here with you to try and get your examination grades up, and if you implement it in this way, we can show you other customers who got that effect," and that's exactly what we're now trying offer into the market. But you're not going to see a sudden surge and everybody wanting to implement that software tomorrow. I hope you don't because we couldn't resource it anyway, and I think the financial situation is such that it will take time and people want to see it working across a broad range of fronts before the demand really picks up. So I think 2013 is going to be -- certainly, not a worse year than 2012. I think it will be a slightly better year and then I hope after that we will see Common Core headwinds removed and more customers feeling confident this is the right way to go and adopting the sorts of offerings that we can make into the market.

Mark Braley - Deutsche Bank AG, Research Division

Okay. And you kind of touched on some of the issues there around, if you like, the gap between where the state-of-the-art is in education technology, education efficacy, and the reality of what most schools and colleges do on a day-to-day basis, and there's customer behavior, teacher resistance to change, technology barriers, the funding situation. Can you sort of talk about how fast, using college as an example, how fast that business has moved say, in the last 5 years and how much further do you think it can move in the next 5 years? And then maybe compare schools to that.

Robin Freestone

Yes, I mean, it's always difficult to draw parallels because, of course, the funding model is very different between college and school, and the funding arena in school has been that much more difficult in the recent past. But if you look at the college world that we've been in, we launched the first MyLabs in 2005, and they are still growing. They grew double digits in the United States still last year, 7 years on, and they grew 20% outside the United States. So there's a product with proven efficacy. If you have been using MyMathLab then you had probably doubled your chances of passing the course. Intriguingly now, and we're now trying to work out why it is that it's having the effect it's having in terms of pass rates and trying to isolate the effect, and there's 2 schools of thought. One is that, this is very credible [ph] software, which undoubtedly is, which coaches the students through and gets their examination grades up because it just explains things a lot better. The second school of thought is because professors no longer have to mark any homework, they're selling a lot more homework, and it's actually that, that's having the effect. So I mean, who knows, but anyway, it's clear that MyLabs are working in that arena, and they're still growing. And we all know that in a software sale, when you get through the breakeven point, the drop-through to profit is very significant and the variable cost associated with these programs is pretty low or very low. And so it's a traditional software-type arena, and that's one of the reasons that you saw our margin in North America go up last year even though the top line was really under pressure. We grew actually in constant exchange rate terms with acquisitions, but the underlying numbers were down, and yet the margin was up 110 bps. So there were some extenuating circumstances there, some one-offs as well, which helped, but it's quite clear that software when you get through the breakeven point has a pretty sizable margin improvement, and the cash dynamics are that much better. Anything involving books, frankly, from a working capital perspective is truly horrible. And when I first joined the company in 2004, we had a working capital to sales ratio of over 30%. And last year, excluding Penguin, it was 11%. And I think we are now seeing our way through a situation in a few years time when the working capital to sales ratio will be negative, where there wont be any, which is I think a nice place to be. Inventory fell 7% last year. That's a symptom of how we're managing stock down, but it's also a symptom of less demand for books and more demand for software.

Mark Braley - Deutsche Bank AG, Research Division

So shifting gears to where you want the business to be in the future. Can you talk a bit more about the direct-to-consumer and also, if you like, the broad operation of schools in that model? So whether that's actual universities, whether it's virtual schools, whether it's language schools in China. Sort of how, first of all, how should we think about the operating leverage characteristics of that shift?

Robin Freestone

Yes, I mean, the objective that we've set ourselves is for our emerging market sales, digital and services, to be 70% of our turnover by 2015. And today it's 56%. So that's an improvement, but it's not a crazy level of expectation compared to where we've come from. And certainly, you're right, the margin dynamics of that scenario are somewhat different from the margin dynamics of books. We talked about software. That has a distinctly different profile to it. And in the direct-to-consumer market, where we own bricks and mortar, there's a different profile again there. It's a lower gross margin business than the software business, and it's a business, which requires a little bit more upfront fixed capital to go on the ground. If we open another school in China, there's $1 million worth of set-up costs to do that. Actually, it pays back from a cash perspective in 1 year. The earnings takes longer because we are deferring revenue, and we mustn't ever forget that everything we're doing now involving software and services involves usually some deferral of revenue. So have a look at the deferred revenue on the balance sheet, up very sizably again last year because of the nature of what we're doing. That drags then our reported growth as well. So there is a different dynamic there, and certainly, if you look at the South African universities we are running, we've got 10,000 students today in our universities in South Africa, and in a very quick timeframe, we hope that will be 20,000. I wont give you the year because I don't quite believe they can achieve it. But there's certainly a plan there to make that 20,000 students relatively quickly. What's intriguing in that arena is that we just, last September, given out to every first-year student in our university Samsung GALAXY with all the curriculum loaded up. So the digital dimension isn't just a feature of developed markets, that digital dimension is a feature also of the emerging markets, too. In Brazil, we don't actually own any bricks and mortar at all, we're providing all of the educational resources that are needed in our schools to the school owner, whether it's the bricks for the 5-year old to play with, all the way out to software in later -- in the later years. So that's a great model. That's the Pearson Inside model whereby we don't have to own the bricks and mortar, but we do provide everything that school needs. And again, the margin profile of that is actually pretty strong, too. But you have to look at every single country, each country has a slightly different -- sit in a different place on the development curve and the margin dynamics are slightly different too and the deferral is slightly different. And in China, we get paid in advance. So we will have students who pay us GBP 5,000 -- USD 5,000 for that course, but we'll have to defer some of that revenue if it's a 2-year course.

Mark Braley - Deutsche Bank AG, Research Division

And one of the things that John, your CEO, highlighted in the presentation last week was the sort of 4 buckets of competition: the traditional publishers, startups, education services companies and sort of technology companies. Within 3 of those buckets, startups, services companies and technology, there's elements of not-for-profit or at least extremely disruptive business models, people who really don't care whether they actually make money from this in some cases. You've actually been quite active about partnering with a number of the sort of open platforms and the not-for-profits, which, I guess, in part so that you can see which way the wind is blowing and think about how you position the business, but when you look at that, how do you actually appraise whether it's right or not to be committing incremental capital to the different parts of your growth strategy when you think about how disruptive change could be?

Robin Freestone

Yes, I mean, I think it's a complicated question, but the generic feature of the book industry is that you're sort of going head-to-head with the competition. And if we can sell a book, which means that McGraw don't sell a book or Cengage don't sell a book or Houghton Mifflin don't sell a book, that's kind of victory. So it's a bit of a binary situation in that arena. When you get into the software arena, there's much more scope for our software to work with other people's software and to act in a sort of more collaborative way, and I'll give you one example of that. Where we've got software in the school, a great teacher will want to supplement the curriculum with their own content or something they've found on the web, and you're seeing now some quite interesting lectures the Kahn [ph] ACademy will do a good lecture on something that they'll put up. We need to be able to say, if you want to take something that's out there for free and bring it into your classroom, we will accommodate that because we want the same effect as the school wants, which is to see the kids get better grades. If that's going to help, absolutely do that. So it's a different philosophy I think in those parts of the market. Clearly, the MOOCs are going to be quite interesting as well, and we're wanting that trend. And the MOOCs are having quite an interesting effect on the traditional marketplace, the college marketplace, because the college markets -- the college not-for-profits have got a real issue here. They've got actually enough demand and the government imperative, certainly in the U.K. and the U.S. for more kids to go to college, but they've also a situation where the tuition fees are already very high. The U.K. is GBP 9,000. That's pretty light by U.S. standards as we know. But really there isn't much scope of bringing tuition fees up much further. Government subsidies are going down, and that probably isn't going to change given the austerity situation that the developed markets are in, and the cost base keeps going up. So what is the solution? And one of the solutions that we've come up with is to say, go online and we'll provide you with the assistance in doing that. So the deal that we did with Arizona State University 2.5 years ago is about provision of software, which allows them to teach 10,000 students online. And for that, we take a share of the tuition fees. That allows them to recruit another 10,000 students on top of the 50,000 who already attend the university, to charge those university students something, but not to have to build new football pitches and new accommodations. So that's a really interesting model. And that model, which is now followed by the Cal State deal, a deal we did with Rutgers a month ago, and deal we've done in other counties as well is the answer to many not-for-profit university situations. And that I think is probably the answer to the MOOCs as well. The MOOCs is going to be an interesting stimulus for change in the not-for-profits, because the issue with the MOOCs is that there's no interactivity and there's no credentialization of it. There's no saying, well done, you passed, and the dropout rates are startling high. So it's difficult to see how that MOOC, which is a free offering really gets itself a revenue stream, unless it can bring in some form of credentialing, which we will offer to them and say, we can probably help with that a little bit. But actually the interactivity is key because learning is not a passive art. It's not something you just listen to and absorb like music. It's something you have to do to really ingrain it and repeat and ask questions about. That's how kids learn. So you need interactivity, which is what we're providing through our online offering with Arizona State University, and without that, you're not going to get the retention levels we believe up to a suitable level.

Mark Braley - Deutsche Bank AG, Research Division

And the other sort of change last week was a degree of geographic refocusing. So categorizing your many, many geographic markets, more clearly focusing on the top 8, if I can use the word, harvesting, some others -- a kind of watch strategy I think was the expression of some others. Is this about limited capital or is it about a sort of more fundamental view about actually where the growth is?

Robin Freestone

Yes, it's more of the latter. If you look at our network, I think we're in 70 countries with warehouses and people, sales forces, selling, actually mainly long-wind [ph] content, many going back to the old English language teaching business, although we've develop in many countries away from that into more institutional sales of other curricular products as well and a little bit of software coming through to with MyLabs now in many of those countries, too. But the truth is that, we've got too much, too many people again. Really doing local publishing where we're not that good at competing. So what I think we're focusing in on is those products of a more global nature with some local customization, which is where we can really supersede the competition. We can't really compete any better on local publishing in Malaysia or Spain than some very good local publishers there. And so that is not where we want really to put our resources. And therefore, you will see us not coming out of those markets because what we'll do is we'll put it in the hands of distributors. We will still sell global products into those markets with some localization to them, but just reducing again the number of people we've got operating in those markets, which are slow growth, and the margins are pretty low and where we're trying to compete in a way which doesn't actually look like we're going to be successful. So it is a change of tack. And as always, when you look at the markets we're in, the top 8 markets or 10 markets account for 90% of the sales and more of the profit. And therefore, not only are you going to see a significant reduction in sales, in fact, where we piloted this and said to the sales force, just sell the global products, we've actually sold more because the local products take a lot of time to develop, a lot of time to sell, and they're usually channel 15% or 20% of what's being offered into the market, whereas, the rest of what we're offering into that market are global products, and if you just put those in the hands of the sales force, you rationalize the range down to a few products and say, just try and sell these. They put all their effort into it, and you tend to see the sales at least sustain themselves without those local products in the market.

Mark Braley - Deutsche Bank AG, Research Division

Okay. Just sort of shifting to a more directly financial question. With the restructuring plan that's in place over the the next couple of years, fairly significant charges associated with that, kind of rebase downwards of earnings because you're taking those charges above the line. Sort of 2 questions. I mean, you've been very explicit that the dividend progressive policy remains in place, but presumably we need to think about a slightly slower version of progressive over the next couple of years to get the cover back towards 2x and then the second one is, should we also think about less M&A, not just because there's less free cash flow, but also because there's execution risk in this restructuring plan and limited management bandwidth?

Robin Freestone

Yes, okay, it's 2 fair questions. I think that we feel very confident in this restructuring that we'll come out the other side of it, and you're right, there's a couple of years of work to do on this, but we'll come out the other side of it with a business with lower cost, but also a faster growing business. And while we fill that, we will try and maintain the progressive dividend policy that we have. You're right that we'll see some erosion of the dividend cover to 1.7, 1.8x in the short term, but provided we can see it going back up to 2, our objective is to maintain 2 over the longer term. And I recall the first year I joined the company, 2004, we were at 1x, so there's still plenty of scope to invest behind products and take restructuring cost and retain that progressive dividend policy without feeling we've got to compromise it at all. So that would be the objective, and I think the only thing that would cause us to rethink that would be some worry about the market, which was really unrelated to restructuring. And today, we can we feel very confident that we can get through this phase and that the printing [ph] markets will pick up a little bit as well. So I think that is clear. On the M&A front, we've got today about GBP 500 million that we could spend on M&A, if we can find the right targets. Last year, we spent GBP 760 million. So that's a slightly or less reduced pot compared to what we've had really for the last couple of years, unless of course we dispose of something, which we have done previously. And I don't think we're changing our philosophy. It's very much about our digital products, which can be found anywhere in the world. We bought software [indiscernible] in Hobart, Australia and in Oslo, in the last couple of years, but the West Coast of America still provides some very interesting software. So I think the U.S. tends to be an area where great software is developed particular in the education space, particularly at the moment with a lot of venture capital going to at startup. So we'll watch that quite carefully. The first question we always ask ourselves when we spot some really clever software is, how come we didn't develop that, but that's a valid question to ask, and that means that we're pretty selective about what we buy. And then emerging markets, and despite making a lot of noise, about 25% growth in emerging markets for us last year, helped by acquisitions, we're still too small. And if you look at some markets of the world, we've done very well, but we're still not as big as we would aspire to be and for all the reasons we talked about earlier about the middle-class growth, we would want to try and get a better presence and bigger presence in those markets. So I think the focus will be the same. I think -- I can't -- you may not see immediately as many as you saw in the past. These things happen like buses. You don't see one for ages and then 3 come along at once. And I think it will always be that way, but we haven't changed our focus. We maybe sharpened our focus slightly to be very much software, very much emerging markets, probably not going to buy apprenticeship companies in the U.K. again, because it wasn't a great success for us, but we're not changing the acquisition criteria and therefore, there's no reason why that should slow down in itself.

Mark Braley - Deutsche Bank AG, Research Division

Last couple for me and then I'll open it up. You referred to the possibility of selling something. I thought we actually got a very clear answer last week that the FT is probably not for sale.

Robin Freestone

Probably. Where did that come from?

Mark Braley - Deutsche Bank AG, Research Division

Well, I think it's still a valued and valuable part of the business, which presumably leaves the door open for -- if the price were high enough, you would have considered it. But I suppose my question on the FT would be, can you actually get the margin in that business or rather in the wholly-owned FT Group businesses, can you get that to a respectable level and sort of is the immediate trading environment there -- we saw quite a weak advertising market through 2012 -- is the immediate trading environment, meaning that, that's not something that's realistic for the next couple of years?

Robin Freestone

I think the FT is doing a fantastic job. I mean, if you look at its portfolio of income, if you like, then content revenue is now 60% and advertising is 40%. So you're right, last year, advertising was down. Actually, not down on the online environment, but down in the print environment and that does move it out a bit. But what it made last year, and it made money for us last year, the FT newspaper, it will make more money for us this year because it was restructuring -- about GBP 5 million of restructuring cost through last year, and I think the trajectory is upwards. Your question there, can it -- what's it going to make? Is it going to make reliably 10% margin, could it make 15% margin, I think we're looking at that. I mean, John Ridding, who runs the paper is very keen to have a really close look at that and say, now what could this do in the future? But it's a remarkably robust model now. The FT.com subscriber is now more prevalent than the FT reader by quite a size. So we've migrated very successfully onto paying subscribers for FT.com. I know you worry about the price quite a lot, not everybody does, thank goodness. And now it's continuing to grow double digits. So while we get our FT.com subscribers to grow faster than our readership contracts, we're taking taking cost out, we're not going to be printing in as many locations as we print today. I think we're still in about 18 or 19 locations are printing today, and that number will come down. I suspect there will always be or for a long time there will be a hard copy print of the newspaper in certain major conurbations where business is well read New York, London, Shanghai, Hong Kong, who knows. But over time, you're going to see more FT.com readers and provided that rate goes up faster than the print comes down, we're kind of happy because we're agnostic as to how you read it. So that's a really great position to be in. I'm not sure what margin it can reach. I think John is going to try -- John Ridding and John Fallon -- we're going to look at that and say, where can this vehicle really get to? But I think it's only upward trajectory, and it's very robust, so what it can do is suddenly causes a lot damage, and that's the critical thing.

Mark Braley - Deutsche Bank AG, Research Division

Okay, I open it up to the floor. Any questions?

Why don't you just wait for the mic, so everybody can hear.

Unknown Analyst

Maybe if you could talk about monetization of FT.com a bit as it moves to tablet and just now that your subscriptions are higher, digital than print, how much of that is now in tablet form and how are your ad sales in that area? Is there anything exciting about that in terms of either greater CPMs and is it making up for the decline on desktop well enough yet?

Robin Freestone

Yes. So one of the things that's been a real stimulus for FT.com subscriber growth has been the tablet itself, and you've seen that we've kind of moved to our own HTML5 offering rather than having to go through any other third party and pay them some form of commission. So that has been a significant growth factor behind FT.com subscription, particularly I'd say in North America, and that's happening elsewhere as well. And it's not just about pure substitution. It's not just about people dropping the newspaper and going to FT.com. We are clearly reaching people with the tablet version who we can never reach cost effectively with a print version. It just isn't really cost-effective to fly a few copies of the newspaper into a North American city every morning. As much as we'd love to do that, the distribution cost just get prohibitive to do that and so with the tablet version, you open up a whole new market of people who are interested in reading, but are not going to get a hard copy, and I think that growth is going to continue to happen, both in North America, but actually in other parts of the world. And what you're looking with the FT uniquely is a truly global newspaper because the circulation split both FT.com and the readership of the physical newspaper is roughly 30% the United States or North America, 30% U.K., 30% Europe and 10% Asia. And as an Asian market there, as we teach more people to read English, people will also I think grow -- and actually one of the things we do every morning in our Wall Street English branch in China is to spend an hour showing them the FT and then learning to read the FT. So that brand is used very, very heavily in our Wall Street English schools in China to try and promote them to learn not just English, but business English as well. So we're agnostic now as to whether you buy an FT.com subscription or you buy a print subscription. There are some people who do both. They're not easy to track because certainly, in the U.K. you've actually got people buying it off the newsstand, so you can't really track that.

Unknown Analyst

And how are ad CPMs on tablet comparing to desktop and how is sell-through going?

Robin Freestone

Completely agnostic. So we really don't care which way you read it.

Unknown Analyst

To ad CPMs?

Robin Freestone

Oh, ad CPMs, so the ad rev on the tablet or the online offering is far more robust. So last year, you saw print down quite considerably. I think that will oscillate about, whereas the online advertising is, there was some growth there even though there was no growth in print, but you're getting tiny amounts of money for that compared to what you're getting for print. So you're never going to supply print advertising with digital advertising, it's not going to happen. That's why you got to charge for content.

Mark Braley - Deutsche Bank AG, Research Division

Okay, I think that pretty much puts us right on time. So Robin, thank you very much. Much appreciate it.

Robin Freestone

Thank you, Mark.

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Source: Pearson's Management Presents at Deutsche Bank's DbAccess 21st Annual Media and Telecom Conference (Transcript)

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