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UBS Warburg Conference
New York City
December 10, 2002
International14%
US School23%
US College14%
Penguin19%
FT19%
US Professional11%
December 1998:$4.2 bn Simon & Schuster acquisition
September 2000:$2.5 bn NCS acquisition
December 1998:$4.2 bn Simon & Schuster acquisition
#1 in educational publishing (school & college)– Sustained market leadership
Benefits of scale– Integrated benefits delivered; now working across book
publishing
Cash generative– Consistent cash conversion; scope on working capital
Value creation– Earning our cost of capital
#1 in Assessment & Training– All major contracts renewed; new business won
#1 in Enterprise & Curriculum software– Strong competitive position; new products launched
Benefits of scale– In products and markets
Good cash profile– Lite working capital
Value creation– 15% CAGR in Revenues; 20%+ CAGR in operating income
September 2000:
$2.5 bn NCS acquisition
Software9%
Testing & Assessment
10%
Publishing70%
Services11%
2002: breadth & depth of products and customers
School & ELT42%
Federal18%
College29%
Professional11%
Products Customers
Shaded Areas Indicate Domestic
Note: Estimate of ’02 revenue breakdown
What is Government solutions?
How fast can educational publishing grow?
Does “Integrated Learning” still apply?
What is Government Solutions?
What do we do?
Is it a good business to be in?
How does it change the revenue/margin/cash mix?
We do for federal agencies what we do for state education boards and local school districts
Manage data
Score applications/tests
Enable them to share information
Support education and training
and …
Deal with public inquiries
Government Solutions: What do we do?
“[President Bush] has laid out a plan to transfer as many as 850,000 government jobs – nearly half the federal civilian workforce – to private companies as a way to save money and improve performance.”
Government may make private nearly half of its
civilian jobs
The New York Times, November 15, 2002
Government Solutions: Is it a good business to be in?
Strong revenue growth– Can come in spurts– Broader contract portfolio being built
12%+ margins– Scope for improvement
Cash– Modest capital investment– A good customer
Government Solutions: the revenue/margin/cash mix?
What is Government solutions?
How fast can educational publishing grow?
Does “Integrated Learning” still apply?
How fast can educational publishing grow?
School: Increased federal funding or lower state and local tax revenues?
College: Market-wide growth or Pearson-specific?
School & College: 1990s’ growth levels sustainable in the 2000s?
School: Increased federal funding or lower state & local tax revenues?
No benefit from new federal funding
A quieter adoption year
Open territory spending down on ‘01
2002
School: Increased federal funding or lower state & local tax revenues?
Pearson competing for more adoption dollars– 65% in ’02; 85% in ’03-’04
School spending lags recession
Reading First
What gets tested, gets taught, gets bought
2003 - 2004
College: market-wide or Pearson-specific?
Strong market-wide growth– Demographics– Jobs market
And Pearson out-performance– Full benefits of integration– Addison Wesley matching Prentice Hall
performance– Technology and Custom Publishing
leadership
School & College: 1990s’ growth levels sustainable in 2000s?
Some cyclicality in K-12 markets– Adoptions schedules– State and local budgets
For 20 years, K-16 markets have grown faster than:– Enrollments– GDP– Overall education spending
This trend should continue:– Standards-based learning– No Child Left Behind– Economic value of a degree
What is Government solutions?
How fast can educational publishing grow?
Does “Integrated Learning” still apply?
Does “Integrated Learning” still apply?– Will schools pay for online content &
services?– Is there demand for “integrated
learning”
Will customers pay for online content and services?
$140m in curriculum software sales
$100m in enterprise software sales
Is there a demand for “integrated learning”?
No Child Left Behind creates the demand – Test– Report– Remediate
E-rate funding has created the platform
Where students, parents, teachers, and administrators harmonize their efforts for maximum student
achievement.
A comprehensive, integrated family of Web-based applications that:– Revolutionizes K-12 education with a new category of
technology: the online education community– Meets NCLB requirements with integrated standards-
aligned content, assessment, student performance management, and parent communication
– Helps all members of the education communitystudents, parents, teachers, and administratorsachieve success
What is Government solutions?
How fast can educational publishing grow?
Does “Integrated Learning” still apply?
We like working for the federal government
The future of educational publishing still looks pretty bright
Integrated Learning is coming fairly soon to a school near you