Pearson results presentation Pearson  results presentation 3 March 2003

Financial highlights £m headline change underlyin g change Sales4,3204, % + 6% Operating profit %+18% Operating free cash flow % Adjusted earnings per share 30.3p21.4p+42%  Made earnings, cash, ROIC goals  Gained market share  Expect annual progress

2003 Further significant growth  earnings  cash  returns Annual progress beyond

Pearson financial performance Pearson  financial performance

Financial headlines  Underlying sales growth despite FT downturn  Margins improved  Good progress on cash and returns  Balance sheet strengthened

Financial reporting Improved clarity  Portfolio changes largely complete  Post-internet basis  Reconciliation pack  Improved segmental analysis

Sales £m headline change underlying change Education2,7562,604+6%+11% FT group % - 8% Penguin %+5% Total sales 4,3204,225+2%+6%

Operating profits £m headline change underlying change Education %+22% FT group % + 8% Penguin % +11% Continuing operations %+18% Televisionsold37—— Operating profits % +18% BEFORE GOODWILL, INTEGRATION COSTS AND NON-OPERATING ITEMS

Education £m headline change underlying change Sales School1,1511, % - 5% Higher Education % + 13% Professional % + 48% Total2,7102,545+6% + 11% FTK % - 18% Total2,7562,604+6% + 11%

Education £m headline change underlying change Operating profit School % - 15% Higher Education %+17% Professional8180+1%+8% Sub total % 0% FTK(12)(23)—— Internet(25)(77)—— Total %+22%

Education Segmental sales & margin mix % 28% 22% 2002 School Higher Ed Professional 42% 29% 13% 17% 14% 12% 18% 10% School Professional Higher Ed Note: 2002 includes £20m of back office costs and £11m additional pension charge Operating profit margins

FT Group £m headline change underlying change Sales FT newspaper % Other FT publishing (Les Echos & FT Business) % - 14% Recoletos % - 4% IDC %+7% Internet enterprises % - 5% Total % - 8%

FT Group £m headline change underlying change Operating profit FT newspaper % - 92% Other FT publishing (Les Echos & FT Business) % - 39% Associates & joint ventures (3)(10)—— Recoletos %+21% IDC %+12% Internet enterprises (34)(60)—— Total %+8%

Penguin Group £m headline change underlying change Sales %5% Operating profit 87809%11%

Adjusted earnings per share £m var Headline change Operating profit (incl RTL for ’01) % Interest(94)(169)+75— Taxation(131)(100) - 31 — Profit after tax % Minorities(27)(24) - 3 — Adjusted profit % Adjusted earnings per share 30.3p21.4p+8.9p+42% Dividend per share 23.4p22.3p+1.1p+5% 2001 restated for frs19 before goodwill, integration costs and non-operating items

$ sensitivity 5¢ change for full year = approximately 1p EPS impact Average full year rate

P&L - statutory £m var Operating profit (incl RTL for ’01) Goodwill(340)(436)+96 Integration costs (10)(74)+64 Total operating profit / (loss) 143(47)+190 Non-operating items (37)(220)+183 Finance costs (131)(169)+38 Taxation(64) Minorities(22)(20) Loss(111)(423)+312 Loss per share (13.9)p(53.2)p+39.3p 2001 RESTATED FOR FRS19

Falling integration costs £m Simon & Schuster ——995 NCS7294— DK34527— Total Cash impact

Operating free cash flow £m var Operating profit Working capital (4)(7)+3 Net tangible fixed assets (124)(136)+12 Depreciation Other movements (32)(8) - 24 Operating cash flow * Cash conversion % 92%94% - 2% Operating tax paid (46)(44) - 2 Operating finance charges (104)(157)+53 Operating free cash flow * operations before integration costs

Average working capital 2002 av w/c at constant sales improvement £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%

Balance sheet £m var Intangible assets 3,6104, Tangible assets Operating working capital Other net assets Net trading assets 4,9296, ,390 Shareholders’ funds 3,3383, Deferred tax (174)(272)+98 Provisions Minorities Net debt 1,4082, Capital employed 4,9296, , RESTATED FOR FRS19

Current pension position Actuarial Status – Funded Schemes  UK £1bn defined benefit £43m surplus in % contribution level agreed  RoW mainly US and Canada £60m defined benefit

Current pension position Actuarial Status e £mUKRoWTotalUKRoWTotalUKRoWTotal Regular charge (surplus)/ deficit amort. (5)(5)0055 Full P&L impact Cash impact — The P&L charge excludes the cost of post retirement benefit costs (2002 : £5m, 2001 : £4m)

Impact of pension accounting E 2003E £m SSAP24FRS17SSAP24FRS17 Operating charge (54)(53)(63)(58) Interest benefit / (charge) -4-(5) Profit before tax (54)(49)(63)(63) £m Net liability after tax (frs 17) UK51149 RoW (mainly us) 2225 Total net liability after tax (frs 17) 73174

Return on invested capital Operating profit less Cash tax Net operating assets plus Gross goodwill

Return on invested capital £m Return: Operating profit Less cash tax (15%) 493 (74) 463 (69) Invested capital:Goodwill Intangibles (net) Amortisation / reserves 3,642 2,029 4,850 2,227 5,6717,077 Operating assets Tangible fixed assets Operating working capital Other (9) ,3051,507 Total invested capital 6,9768,584 Return on invested capital 6.0%4.6%

2003 financial priorities  Deliver steady earnings growth  Improve cash generation  Maintain balance sheet strength  Improve return on invested capital

Pearson  Agenda  Outlook

Total sales £4,320m School 27% Higher Education 18% Professional 19% AgendaOutlook

 Grow share across our markets pre-school through professional  AGENDA  OUTLOOK  Expand our range of products content and services £m underlying % Sales School1,1511,266(5)% Professional % Higher education % Total2,7102,54511%

School 27% Higher Education 18% Professional 19%  AGENDA  OUTLOOK FT Group 17% Penguin 19%

School  AGENDA  OUTLOOK£m U/L change Sales1,1511, % Profit %  Gain share profitably in publishing  Make leadership in online learning pay  Build on leadership in testing

Adoption opportunities Change in value of new adoptions ’o2/’03 $m Pearson estimates of changes in: a) value of adoption opportunities b) value of adoptions in which Pearson is competing School  AGENDA  OUTLOOK Pearson Total

 Gain share profitably in publishing ’02: Sustained share in open territories; gained in adoption $ competed for 0.5% dip in total market share; 18% margins ’03: Competitive in more subjects; targeting more adoption $ Hold ground in open territories Strong showing in key adoptions School  AGENDA  OUTLOOK

 Make our leadership in online learning pay ’02: Sales down 10%; losses reduced Software development sustained; operating costs cut ’03: Concert launched; first sales made business profitable School  AGENDA  OUTLOOK

 Build on leadership in testing ’02: 3% growth (after 13% in ’01) Major contracts renewed; new contracts signed ’03: Benefits of new contracts start to kick in winning our share of NCLB revenues School  AGENDA  OUTLOOK

 Protect margins in technology publishing  Make corporate training profitable  Expand certification contracts  Exploit surge in government spending Professional  AGENDA  OUTLOOK£M U/L change Sales % Profit8180+8%

 Protect margins in technology publishing ’02: US revenues down 12%; 20% decline in ’01 Double-digit margins held; 1% market share gain ’03: Hold margins Consider prospects Professional  AGENDA  OUTLOOK

 Make corporate training profitable ’02: Unprofitable operations sold ’03: Other divisions integrated Within FT & Government Solutions Professional  AGENDA  OUTLOOK

 Expand certification contracts ’02: Investment in testing centres ’03: First full year of centres, new contracts Professional  AGENDA  OUTLOOK

 Exploit surge in federal testing and training ’02: TSA contract won; task complete in 6 months further $300m new contracts signed ’03: $1 billion contracted through 2007 strong pipeline Professional  AGENDA  OUTLOOK

Driving NCS ahead of acquisition model NCS Pearson profits $ million  AGENDA  OUTLOOK

 Keep growing market share  Use technology to increase adoptions and sell-through  Widen lead in custom publishing Higher Education  AGENDA  OUTLOOK£m U/L change Sales % Profit %

’02:Pearson up 14%; industry up 8% No integration activity; Addison Wesley revamp paying off ’03:Another strong publishing schedule; further share gains Technology improving retention rates Further growth in custom publishing Higher Education  AGENDA  OUTLOOK

2003:  US school grows again  Professional faces tough revenue comparisons  Higher Ed outperforms its market  Margins benefit from revenue mix and management action  AGENDA  OUTLOOK

FT Group 17% AgendaOutlook

£m U/L change Sales % Profit8072+8%  Control costs  Make online investments pay  Build the FT’s reach and brand  Develop Recoletos and IDC  AGENDA  OUTLOOK

 Control costs ’02:FT costs down £80m lower than 2000 ’03:Cost savings fund modest investment  AGENDA  OUTLOOK

 Make on-line investments pay ’02:FT.com revenues up 9%; broke even in Q4 On-line businesses fully integrated ’03:Subscriptions add revenue Users add reach  AGENDA  OUTLOOK

 Build our reach and brand ’02:Circulation down 5% Readership, ad share and quality maintained FT.com audience up 30% to 3.5 million ’03:Defend and extend leadership in UK and Europe Add subscribers in US Establish ourselves in Asia  AGENDA  OUTLOOK

 Develop Recoletos ’02:Tight cost control Successful revamp of Marca ’03:Focus on core markets Sustain profit momentum  AGENDA  OUTLOOK

 Develop IDC ’02:95% customer renewal rates MLSPS integrated New products launched ’03:Tend the business Make the most of Comstock - integration - real-time pricing  AGENDA  OUTLOOK IDC 31% FT Group revenues

2003:  No sign of an advertising recovery  Tight cost controls  Phased, incremental investment planned  Further profits growth at Recoletos  IDC to deliver double digit revenue and earnings growth  AGENDA  OUTLOOK

AgendaOutlook Penguin 19%

£m U/L change Sales % Profit878011%  AGENDA  OUTLOOK  Sustain bestseller performance  Make DK profitable  Consolidate functions  Work capital harder

 Sustain bestseller performance ’02:Most #1’s in US; 10 year best in UK ’03:New and old books, new imprints  AGENDA  OUTLOOK

 Make DK profitable ’02:£15m profit improvement, 5% margin ’03:Further benefits from integration Publishing revitalised Major education programmes  AGENDA  OUTLOOK

 Consolidate functions  AGENDA  OUTLOOK

Pearson: 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) Harcourst / Reed New Corp (Harper Collins) Holtzbrinck Scholastic Bertelsmann McGraw Hill Pearson  AGENDA  OUTLOOK Houghton Mifflin

 Consolidate functions ’02:Integration in Australia, Canada US business services, IT operations UK, US data centres ’03:UK business services Global software and IT outsourcing £30m in ’02 £20m in ’03 Break even in ’04 £20m annual cost savings from ’05  AGENDA  OUTLOOK

 Ahead of our market Sales growth Margin growth  AGENDA  OUTLOOK 2003:

2003:  Significant earnings growth  Further progress in free cash flow  Improved return on invested capital