Pearson  interim results

Financial highlights £m 2002 half year 2001 half year change sales1,8131, % operating profit % pre-tax profit 26(28) adjusted earnings per share 0.5p(1.5)p dividend per share 9.1p8.7p + 5% CONTINUING OPERATIONS AFTER INTERNET ENTERPRISES; BEFORE INTEGRATION COSTS, GOODWILL AND NON-OPERATING ITEMS 2001 RESTATED FOR FRS19

Headlines  Earnings rebound on track  Competitive performances strong  Cash and returns a major focus

Pearson financial performance Pearson  financial performance

Financial priorities for 2002  Protect margins  Maintain balance sheet strength  Increase cash flow

Sales £m H H total growth underlying growth education1,0491,045 0% 0%0% ft group % - 12% penguin % - 2% - 1% total sales 1,8131, %

Operating profits £m H H total growth underlying growth education0(27)-- ft group % - 26% penguin % + 3% + 1% continuing operations % + 10% televisionsold33- operating profits % + 10% BEFORE GOODWILL, INTEGRATION COSTS AND NON-OPERATING ITEMS

Operating profits £m H H variance headline growth education pearson education % ftk(9)(12) + 25% internet(13)(43) % total education 0(27) ft group news % idc % internet(24)(38) % total ft group % total penguin group % total operating profit %

Internet enterprises – losses FT Group Education

Deferred taxation P&L impact 2002e2001 tax rate pre frs19 26%31% tax rate post frs19 34%34% ON ADJUSTED EARNINGS POST INTERNET ENTERPRISES

Adjusted earnings per share H H operating profit 7693 finance cost (50)(88) taxation(9)(2) profit (loss) after tax 173 minorities(13)(15) adjusted profit (loss) 4(12) adjusted earnings per share 0.5p(1.5)p dividend per share 9.1p8.7p 2001 RESTATED FOR FRS19

P&L £m H H operating profit (including TV for ’01) 7693 goodwill(182)(184) integration costs (5)(28) total operating (loss) / profit (111)(119) non-operating items 10(22) finance costs (87)(88) taxation(6)124 minorities(13)(13) (loss)/profit(207)(118)

Balance sheet £m H H intangible assets 3,9394,568 tangible assets operating working capital 1,1291,213 other net assets / (liabilities) (47)900 net trading assets 5,5497,238 shareholders’ funds 3,5094,299 deferred tax / provisions / minorities 8367 net debt 1,9572,872 capital employed 5,5497, RESTATED FOR FRS19

Balance sheet – key ratios £m H H debt / equity 60%71% net debt / ebitda (rolling 12 months) * interest cover (rolling 12 months) * AFTER INTERNET ENTERPRISES

Cash flow £m H H operating profit 7660 working capital (269)(312) net tangible fixed assets (73)(98) depreciation6364 other movements (26)48 operating cash flow * (229)(238) tax paid (19)(28) finance charges (56)(79) free cash flow (304)(345) * CONTINUING OPERATIONS BEFORE INTEGRATION COSTS

Average annual working capital Pre-publication/ authors’ advances Inventory Receivables/payables Education Penguin FT by value 2002 by business % £1.1bn

Average annual working capital Pre-publication/ authors’ advances Inventory Receivables/Payables £1,115m £1,098m £48m £(61)m £(4)m £(17)m

Progress on 2002 financial priorities  Protect margins –Lower cost base in all businesses offsets advertising downturn at profit line  Maintain balance sheet strength –Improvements on all key ratios  Increase cash flow –Good cash generation and reduced working capital

Pearson  First half performance  Management agenda  Full-year outlook

Business priorities for 2002  Secure earnings rebound  Drive performance in future years  Benefit from more cohesive company

19%

Operating profits £m 2002 half year 2001 half year ft newspaper 732 les echos 615 recoletos1413 interactive data 3732 joint ventures and associates (3)(6) ft business internet enterprises (24)(38) total3850 h1 performance  management agenda  fy outlook

FT Newspaper Long term trends H1 02 worldwide circulation, 000s 1987 = 100 advertising revenues (at constant prices) advertising volumes

FT display advertising volumes 2001 by category International business titles volumes, 4 months to April 2002 h1 performance  management agenda  fy outlook Technology- 40% Corporate finance- 37% Business to business- 35% Technology 29% Corporate finance 28% 15% 12% 16% B2B Personal finance Other SOURCE: CMR

 Manage the cost base  Build the FT’s reach and brand  Make online investments pay  Develop Interactive Data  Broaden into education and books h1 performance  management agenda  fy outlook

FT NEWSPAPER Index: H2 00 = 100 Manage the cost base h1 performance  management agenda  fy outlook circulation 469,000 circulation 486,000

SOURCE: ABC/ FT.COM FT.COM UNIQUE USERS 2.8m JAN 247,743 Build the FT’s reach and brand h1 performance  management agenda  fy outlook FT CIRCULATION six months to June (000’s)

h1 performance  management agenda  fy outlook Make online investments pay FT.com revenue sources subscriptions 5% content sales 45% advertising 50% content sales 15% advertising85% E

Develop Interactive Data  Subscription based ‘must-have’ premium services –fixed income as well as equities –95% renewal rates  Integration on plan  Set for double digit profit growth h1 performance  management agenda  fy outlook

Broaden into education and books  Linking up on campus  Creating new publishing franchises h1 performance  management agenda  fy outlook

 No sign of an advertising recovery  Benefits of a lower cost base  FT.com to meet breakeven target  Double digit growth at Interactive Data h1 performance  management agenda  fy outlook Outlook 2002

19%

h1 performance  management agenda  fy outlook£m H H FY 2001 sales profit Operating results

 Work capital harder  Make Dorling Kindersley profitable  Sustain bestseller performance  Deliver back-office savings h1 performance  management agenda  fy outlook

Make DK profitable h1 performance  management agenda  fy outlook £m H H FY 2001 sales profit0(5)(7)

Deliver back office savings  Operating as one company in Australia and Canada  Combining back offices in US and UK h1 performance  management agenda  fy outlook

Outlook 2002  Revenue growth ahead of market  DK on track for 5% margin this year  Growth in double digits across Penguin h1 performance  management agenda  fy outlook

14% 23% 11% 14% US School US College US Professional International

Sales£m 2002 half year 2001 half year underlying change us school % us college % us professional % international % pearson education 1,0251, % ft knowledge % internet enterprises % 1,0491,0450% h1 performance  management agenda  fy outlook

International  Restore profitability in Latin America –$25m benefit in ’02  Capitalise on demand to learn English –good growth outside the US  Grow in College and School publishing –strong in Asia and Europe; very strong in Canada and Australia  Enlarge global testing business –UK, Canada and Australia the major priorities h1 performance  management agenda  fy outlook

US Professional  Protect margins in technology publishing –cost management sustains margins  Make corporate training profitable –losses falling in ’02  Expand certification contracts –sales up 20% at H1 –new testing centers open; more professions moving online  Exploit surge in federal testing and training –$150m in new contracts in ’02 –new opportunities in ’03 h1 performance  management agenda  fy outlook

US College  Keep growing market share –on track to outperform industry  Use technology to increase adoptions and sell-through –CourseCompass driving sales  Increase lead in custom publishing –20%+ growth is achievable h1 performance  management agenda  fy outlook

Our US School business  Basal & supplemental publishing  Testing & assessment  Software & online learning h1 performance  management agenda  fy outlook

Our US School business  Market growth through the cycle?  Market prospects for ’02 and ’03?  Our performance? h1 performance  management agenda  fy outlook

US School market Spending per student on instructional materials $34$49$51$69 $ per $1,000 of US School spending on instructional materials $7.4$8.7$9$11 sources: association of american publishers, us dept of education Standards movement drives school spending h1 performance  management agenda  fy outlook

US School market 2002 – 2003  The adoption cycle  Budgets under pressure  Education remains the #1 priority  Services that deliver results being protected: –curriculum –testing –assessment and learning tools h1 performance  management agenda  fy outlook

US School  Gain share profitably in publishing  Build on leadership in testing  Target early learning revenues  Make leadership in online learning pay h1 performance  management agenda  fy outlook

US School Gain share profitably in publishing – ’02  Match market growth in open territories  Stronger growth in supplemental publishing  35%+ share of adoption dollars competed for h1 performance  management agenda  fy outlook

SubjectOpportunity Market share secondary science $130m 35% + elementary reading $120m35% secondary literature $80m40% elementary / secondary math $40m25% secondary social studies $35m30% other$25m40% h1 performance  management agenda  fy outlook

US School Gain share profitably in publishing – ’03  More adoption opportunities  New federal funding  New markets h1 performance  management agenda  fy outlook

US School Extend leadership in testing  50% + share of $400m market  California contract renewed  Leadership in online testing extended  All set to meet doubling in demand over next five years h1 performance  management agenda  fy outlook

US School  Target Early Learning revenues –on track for double digit growth in ’02 –targeting new federal dollars in ’03  Make leadership in online learning pay –new products now launched –profitable in ’02; double-digit revenue growth in ’03 h1 performance  management agenda  fy outlook

Outlook 2002  3-5% underlying revenue growth  Margins maintained

Headlines  Earnings rebound on track  Competitive performances strong  Cash and returns a major focus