Pearson 4 Merrill Lynch TMT Conference

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Pearson 4 Merrill Lynch TMT Conference
Rona Fairhead 3 June 2003
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Professional 19
FT Group 17
Higher Education 18
Penguin 19
School 27
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Financial priorities

• Deliver steady earnings growth
• Improve cash generation
• Improve return on invested capital

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Return on invested capital
Net Sales 4.3bn
Operating Profit 0.5bn
Returns(NOPLAT) 0.4bn
Operating Margin 11
less
Cash Tax Effect 0.1bn 15
ROIC 6.0
divided by
Working Capital 0.8bn
Operating Assets 1.3bn
Invested Capital 7bn
Net Fixed Assets 0.5bn
plus
Goodwill 5.7bn
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Return on invested capital
Net Sales 4.3bn
Operating Profit 0.5bn
Returns(NOPLAT) 0.4bn
Operating Margin 11
less
Cash Tax Effect 0.1bn 15
ROIC 6.0
divided by
Working Capital 0.8bn
Operating Assets1.3bn
Invested Capital 7bn
Net Fixed Assets 0.5bn
plus
Goodwill 5.7bn
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Average working capital2002
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Return on invested capital
Net Sales 4.3bn
Operating Profit 0.5bn
Returns(NOPLAT) 0.4bn
Operating Margin 11
less
Cash Tax Effect 0.1bn 15
ROIC 6.0
divided by
Working Capital 0.8bn
Operating Assets 1.3bn
Invested Capital 7bn
Net Fixed Assets 0.5bn
plus
Goodwill 5.7bn
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Cash flow through transformation
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Our position
2002 revenues 726m

• The worlds most international business newspaper
  and website
• Leading national business newspapers in France,
  Germany, Spain, South Africa
• 50 stake in The Economist
• Leading provider of financial data

FT and FT.com31
Recoletos20
IDC34
Otherpublishing14
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Industry drivers

• Short-term
• corporate confidence earnings
• job losses in financial community
• Long-term
• appetite for high quality, international business
  information
• connections between political, economic
  business news
• value in niche audience of leaders in business,
  finance, politics

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Agenda

• Modest investment in UK, US, Asia
• Tight cost controls, lower internet losses
• Further progress at IDC and Recoletos

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Agenda

• Modest investment in UK, US, Asia
• Tight cost controls, lower internet losses
• Further progress at IDC and Recoletos

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Our position
2002 revenues 838m

• The worlds pre-eminent English language
  publisher
• 1 or 2 in the US, UK, Australia, NZ, India and
  Canada
• The leading illustrated reference publisher
• With Pearson Education, the worlds largest book
  publisher

Dorling Kindersley19
Penguin US 57
Penguin UK ROW24
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Industry drivers

• Steady growth
• Bestseller performance
• Faster-growing categories
• Benefits of scale

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The worlds largest book company
Estimated 2001 book revenues (m)
Pearson
McGraw Hill
Bertelsmann
Scholastic
Holtzbrinck
New Corp(HarperCollins)
Houghton Mifflin
Harcourt / Reed
SOURCE ANNUAL REPORTS, ANALYST REPORTS NOTE
2001 MEDIAN GBP / USD EXCHANGE RATE 1.45
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Agenda

• Sales growth ahead of the market
• Margin improvement as DKs progress continues
• Further scale opportunities with Pearson
  Education

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Our position
2002 revenues 2,756m

• The worlds leading education company
• 1 in US School, US Higher Education and outside
  the US
• Leading in publishing, testing and technology

Professional30
School 42
Higher Education 28
FTK revenues included in Professional
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School industry drivers

• Short-term
• the adoption cycle
• state budgets
• Long-term
• standards movement drives spending on
• textbooks
• testing
• student information

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Estimates of FY 2004 budget shortfalls, m
0-400 401-800
801-1,500 1,501-3,000
3,000-10,000 10,001-20,000
As of April 2003 Most state fiscal years
end June 30th
Source National Conference of State Legislatures
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School industry drivers

• Short-term
• the adoption cycle
• state budgets
• Long-term
• The knowledge economy
• standards movement drives spending on
• curriculum
• testing
• student information

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ELHI spending1981 100
Instructionalmaterial
GDP
Enrolment
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School our position
2002 revenues 1,151m

• 1 US school publisher
• The integrated school company 1 in publishing,
  testing and technology
• Worlds 1 publisher in English Language Teaching
  

US Testing and Software27
US Publishing 50
International and ELT 23
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2002 revenues 1,151m
Adoption States
New Adoptions
Residual Sales
Residual Sales
New Adoptions
Open Territories
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School agenda

• Grow ahead of the market in 03 protect margins
  in 04
• Prepare for rebound in adoption cycle in 05/ 06
• Use testing and software to help states meet NCLB
  requirements

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Higher Education our position
2002 revenues 775m
International Higher Education 20

• 34 US market share
• 20 US margins

US Higher Education 80
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Higher education industry drivers

• Short-term
• authors
• publication cycle
• Long-term
• the value of a college education
• demographics
• integration of technology
• customisation
• benefits of scale

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Higher Education agenda

• Further share gains
• Build on lead in technology
• Increase lead in custom publishing

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Professional our position
2002 revenues 784m

• 1 technology publisher worldwide
• Leading provider of testing and HR services to US
  federal government
• Developing business in professional testing and
  certification

Government Solutions44
Technology Publishing 20
Other 22
Professional Assessment14
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Professional industry drivers

• Short-term
• technology downturn
• government contracts can be spiky (e.g. TSA
  contract in 02)
• start-up costs in professional testing business
• Long-term
• licensing/ accreditation of professionals
• US federal government outsourcing
• technology recovery

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Professional agenda

• Develop pipeline of government contracts
• Maintain margins in technology publishing
• Build professional testing business

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The fundamentals

• Attractive markets
• Leading positions
• Valuable brands
• Benefits of scale
• . . . annual progress in earnings, cash and
  returns