Pearson Interim Results
31 July 2000
Interim results
to 30 June 2000
Acquisition
Announcement
Record performances
Investing for growth
Delivering on the internet
Record performances
Investing faster
Delivering faster
Record performances
£m
2000
Half year
Sales
1,545
+ 18%
Operating profit*
156
+ 17%
Pre-tax profit
123
n/a
Earnings per share (p)
- pre internet enterprises
- post internet enterprises
10.0
(0.6)
+ 41%
n/a
9.2
+ 7%
Dividend per share (p)
*before
goodwill, internet enterprises and other items
Internet at the heart of Pearson
£m
H1
2000
H1
1999
Full year
1999
Online delivery
60
35
90
Online channels
30
15
50
Composite
education products
140
110
375
Investing faster…
… delivering faster
Net H1 investment £84m
FT internet enterprises
– stable costs, rising revenues
– profit two years ahead of plan
Learning Network
– speed, reach, depth
– launch in September
The integrated learning company
Results
Profit & Loss
£m
2000
Half year
1999
Half year
1,545
1,306
156
133
Internet enterprises
Goodwill
Other items
(84)
(72)
(11)
(7)
(63)
(17)
Total operating profit/(loss)
(11)
46
Sales
Operating profit
before
Sales growth
Continuing operations before internet
enterprises
£m
17%
54
10
12%
225
161
Total
growth
Portfolio
changes
Foreign
exchange
Underlying
growth
Outstanding sales growth
£m
2000
Half year
1999
Half year
Underlying
Change
FT Group
408
330
+ 24%
Pearson Education
647
554
+ 10%
Penguin
326
263
+ 9%
Pearson TV
164
159
+ 3%
1,545
1,306
+ 12%
Continuing operations
Operating profit growth
Continuing operations
£m
33%
32%
4
6
3
37
36
Total
growth
Portfolio
changes
Foreign
exchange
Other
Underlying
growth
Underlying profits rise by a third
£m
2000
Half year
1999
Half year
Underlying
Change
FT Group
Pearson Education
Penguin
Pearson TV
109
(26)
33
32
86
(38)
31
33
29%
27%
16%
- 3%
Continuing operations
Discontinued operations
148
8
112
21
33%
Total operating profit*
156
133
33%
*before
goodwill, internet enterprises and other items
Accelerated internet investment
Six months to June 2000
£m
Sales
Net
Investment
16
64
Learning Network
-
19
Pearson Television
-
1
16
84
FT Group
Profit enhanced by Lazard sale
£m
2000
Half year
1999
Half year
Operating profit/(loss)
Non-operating items
(11)
218
46
5
Profit before interest
Net finance costs
207
(84)
51
(71)
Profit/(loss) before tax
Taxation
123
(32)
(20)
(18)
Profit/(loss) after tax
Minorities
91
(3)
(38)
(3)
Profit/(loss) for the half year
88
(41)
NCS tax opportunity
Tax rate held at 25%
Likely benefit from NCS transaction
Pre internet eps up 41%
pence per share
2000
Half year
1999
Half year
Adjusted earnings
Pre internet enterprises
10.0
7.1
After internet enterprises
(0.6)
6.3
9.2
8.6
Interim dividend
Before goodwill, exceptional and non operating items
Working capital phasing
£m
Operating profit
2000
Half year
1999
Half year
156
133
29
(286)
(2)
(129)
(58)
42
13
(37)
41
(14)
(104)
(8)
(pre goodwill and other items)
Partnerships and associates
Working capital increase
Net tangible fixed assets
Depreciation
Other movements
Operating cash flow*
*before effect of integration costs
Performance
Sales
half year
2000
1999
1998
£m
392
328
335
Operating profit
half year
2000
1999
1998
Pre internet enterprises
109
86
69
Operating profits
£m
2000
Half year
1999
Half year
Change
FT Newspaper
FT Interactive Data
FT Business
Les Echos
FT joint ventures
Associates
50
26
3
16
(9)
4
34
15
(1)
13
(1)
8
+ 47%
+ 73%
Recoletos
90
19
68
18
+ 32%
+ 6%
109
86
+ 27%
Pre internet enterprises
+ 23%
- 50%
Growing circulation
June sales (thousands)
462
396
362
327
1997
1998
1999
2000
Increasing ad revenues
£m
118
84
71
61
1997
1998
1999
Jan - June
2000
FT.com growth
H1 revenue growth 300%
75% visit at least twice per week
Averages 8 pages per user per day
CPM ad rates of £40 – £100
FT business portals
100
Million page views
per month
75
50
25
0
6/99
6/00
FT business portals
100
Million page views
per month
75
50
25
0
6/99
6/00
FT Group internet revenues
e-commerce
Syndication/licensing
Subscriptions
Advertising
Generating returns
FT.com
£
Revenues
Costs
0
1999
2000
2001
2002
2003
Strong performance in local
currency
– sales up 18%
– operating profit up 12%
#2 Spanish internet portal
Flotation planned
Sales
half year
294
£m
i
2000
1999
263
232
1998
Operating profit
half year
2000
1999
1998
Pre Dorling Kindersley
37
i
31
16
More Bestsellers
New York Times
Sunday Times
2000
Half year
1999
Half year
58
31
34
22
Sales
half year
£m
2000
326
263
232
1999
1998
Operating profit
half year
2000
1999
1998
Post Dorling Kindersley
33
31
16
DK integration
DK integration
Brand group established to
exploit content across Pearson
New DK
Operating
Board
Combined
UK Sales &
Marketing
DKFL
closure
Finance
systems
merged
DEAL
CLOSED
Offer
accepted
March
00
Warehousing
reorganised
Consolidated
supply chain
April
00
May
00
Office
integration
June
00
July
00
Oct
00
Nov
00
Jan
01
May
01
May
02
London listed company
worth £16 bn
€
200 -
London listing

150 -
100 -

Deal announced
50 0Jan
Feb
Mar
Apr
2000
May
Jun
Jul
The value of television
Net value
created
£3.8 bn
£3.5bn
£0.3bn
Net realisation
since 1990
Value of
RTL stake
Sales
half year
£m
2000
647
554
180
1999
1998
Losses
half year
(26)
(38)
(19)
Pre internet enterprises
2000
1999
1998
Pearson Education
£m
2000
Half year
1999
Half year
US School
222
187
+19%
Higher Ed & Professional
215
178
+21%
International
197
169
+17%
Discontinued
2
12
636
546
11
8
647
554
Sales
Pearson Education
FT Knowledge
Change
+16%
On track for full year
% of Total Year
100%
75%
Revenue
50%
25%
0%
Operating
Profit
-25%
-50%
Cash Flow
-75%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Launch
Acquisition
The vision
The integrated learning company
The vision
Creates the “intelligent” classroom
Connects schools and homes
The vision
The company
Accreditati0n
Data
management
Assessmen
t
K-12
applications
Projects for
education
customers
Education +25% growth
#1 in assessment
Scores, processes and reports 40%
of all K-12 standardised tests
Leads in internet-based tests,
delivery systems
Leader in assessment technology
#1 in school applications
Software and systems to manage schools,
students, curricula and teaching
40,000 schools out of 100,000
10,000 hours of on-line content
Bank of 40,000 questions
#1 in key data management
niches
Leveraging education skills and
equipment
Leader in moving paper processes to web
Leading supplier to US Dept of Education
20% compound revenue growth
$m
750
630
505
406
301
1995
*market
estimates
331
1996
1997
1998
1999
00e*
25% compound earnings growth
EPS($)
1.50
1.24
1.00
0.80
0.67
0.53
1995
*market
estimates
1996
1997
1998
1999
00e*
The combination
Customised school learning products
Larger sales force
Greater international reach
The combination
Professional accreditation products
Larger sales force
Greater international reach
The combination
The school home connection
Transaction
Deal highlights
Cash tender offer at $73 per share
– 26% premium over Friday’s closing price
Values NCS at $2.5 bn
$98m break-up fee
Completion expected early September
Valuation
Multiples of:
Revenue
EBITDA
EPS
*consensus of analysts estimates
2000*
1999
3.3
20.3
49
3.9
23.6
61
Added value
Revenue opportunities
Cost reductions of $50m by 2002
Integration costs of $50m
Impact on Pearson
Enhances adjusted earnings in first
year
Strengthens earnings quality and
visibility
Superior cash conversion
Financial ratios protected by funding
The rights issue
3 for 11 at £10 to meet acquisition cost
Discount structure will
– reduce issue costs
– create bonus element
Backstop underwriting to ensure
completion
Synchronised with US listing process
Pro forma balance sheet
£m
2000
Half year
Post
Acquisition*
Goodwill
Fixed assets
Working capital
Other net assets
3,018
453
1,160
86
4,529
500
1,101
701
Net trading assets
4,717
6,831
Shareholders’ funds
Provisions and minorities
Net debt
1,831
343
2,543
3,963
300
2,568
Capital employed
4,717
6,831
*post NCS and RTL transactions
The next “new new thing”
Transforming Pearson Education