Pearson Merrill Lynch TMT Conference Pearson  Merrill Lynch TMT Conference Rona Fairhead 3 June 2003

School 27% Higher Education 18% Professional 19% FT Group 17% Penguin 19%

Financial priorities  Deliver steady earnings growth  Improve cash generation  Improve return on invested capital

Working Capital £0.8bn Working Capital £0.8bn Net Fixed Assets £0.5bn Net Fixed Assets £0.5bn divided by Operating Margin 11% Operating Margin 11% Net Sales £4.3bn Net Sales £4.3bn Cash Tax Effect £0.1bn 15% Cash Tax Effect £0.1bn 15% less Goodwill £5.7bn Goodwill £5.7bn Return on invested capital plus Returns (NOPLAT) £0.4bn Returns (NOPLAT) £0.4bn ROIC 6.0% ROIC 6.0% Invested Capital £7bn Operating Assets £1.3bn Operating Assets £1.3bn Operating Profit £0.5bn Operating Profit £0.5bn

Working Capital £0.8bn Working Capital £0.8bn Net Fixed Assets £0.5bn Net Fixed Assets £0.5bn divided by Operating Margin 11% Operating Margin 11% Net Sales £4.3bn Net Sales £4.3bn Cash Tax Effect £0.1bn 15% Cash Tax Effect £0.1bn 15% less plus Goodwill £5.7bn Goodwill £5.7bn Return on invested capital Returns (NOPLAT) £0.4bn Returns (NOPLAT) £0.4bn ROIC 6.0% ROIC 6.0% Invested Capital £7bn £1.3bn Operating Assets £1.3bn Operating Profit£0.5bn £0.5bn

Average working capital 2002 av w/c at constant sales improvement £m £m£m£m£m% penguin / pearson ed % sales 1, %1, %1,039535% ft group % sales (35)(4.4)%(38)(5.2)%(41)617% group 1, %1, %1,029283%

Return on invested capital Working Capital £0.8bn Working Capital £0.8bn Net Fixed Assets £0.5bn Net Fixed Assets £0.5bn divided by Operating Margin 11% Operating Margin 11% Net Sales £4.3bn Net Sales £4.3bn Cash Tax Effect £0.1bn 15% Cash Tax Effect £0.1bn 15% less plus Goodwill £5.7bn Goodwill £5.7bn Operating Assets £1.3bn Operating Assets £1.3bn Returns (NOPLAT) £0.4bn Returns (NOPLAT) £0.4bn ROIC 6.0% ROIC 6.0% Invested Capital £7bn Operating Profit£0.5bn £0.5bn

Cash flow through transformation £m operating free cash flow non-operating(46)(27)(79)(93)(11)(21) acquisitions & disposals 806(23)(2,017)361(2,020)(182) Integration(44)(69)(61)(110)(23)— dividends * (182)(183)(144)(133)(119)(116) equity6201, other(5)(7)(6)(8)(6)(6) net movement of funds 840(53)(189)333(1,566)(255) *includes dividends to minorities

Our position  The world’s 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.com 31% Other publishing 14% IDC 34% Recoletos 20% 2002 revenues : £726m

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

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

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

Our position  The world’s 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 world’s largest book publisher Penguin US 57% Penguin UK & ROW 24% Dorling Kindersley 19% 2002 revenues : £838m

Industry drivers  Steady growth  Bestseller performance  Faster-growing categories  Benefits of scale

The world’s largest book company SOURCE: ANNUAL REPORTS, ANALYST REPORTS NOTE: 2001 MEDIAN GBP / USD EXCHANGE RATE = 1.45 Estimated 2001 book revenues ($m) Harcourt / Reed New Corp (Harper Collins) Holtzbrinck Scholastic Bertelsmann McGraw Hill Pearson Houghton Mifflin

Agenda  Sales growth ahead of the market  Margin improvement as DK’s progress continues  Further scale opportunities with Pearson Education

Our position  The world’s leading education company  #1 in US School, US Higher Education and outside the US  Leading in publishing, testing and technology School 42% Professional * 30% Higher Educatio n 28% 2002 revenues : £2,756m * FTK revenues included in Professional

School: industry drivers  Short-term: –the adoption cycle –state budgets  Long-term: –standards movement drives spending on: textbookstextbooks testingtesting student informationstudent information

Source: National Conference of State Legislatures Estimates * of FY 2004 ** budget shortfalls, $m ,500 1,501-3,000 3,000-10,000 10,001-20,000 *As of April 2003 **Most state fiscal years end June 30th

School: industry drivers  Short-term: –the adoption cycle –state budgets  Long-term: –The knowledge economy –standards movement drives spending on: curriculumcurriculum testingtesting student informationstudent information

ELHI spending 1981 = 100 Instructional material GDP Enrolment

School: our position US Publishing 50% US Testing and Software 27% International and ELT 23% 2002 revenues : £1,151m  #1 US school publisher  The integrated school company: #1 in publishing, testing and technology  World’s #1 publisher in English Language Teaching

2002 revenues : £1,151m Adoption States Open Territories Residual Sales New Adoptions

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

Higher Education: our position  34% US market share  20%+ US margins US Higher Education 80% International Higher Education 20% 2002 revenues : £775m

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

Higher Education: agenda  Further share gains  Build on lead in technology  Increase lead in custom publishing

Professional: our position Technology Publishing 20% 2002 revenues : £784m Government Solutions 44% Other 22% Professional Assessment 14%  #1 technology publisher worldwide  Leading provider of testing and HR services to US federal government  Developing business in professional testing and certification

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

Professional: agenda  Develop pipeline of government contracts  Maintain margins in technology publishing  Build professional testing business

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