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 Sales1,545+18% Operating profit * % Pre-tax profit123n/a Earnings per share (p) - pre internet enterprises % - post internet enterprises(0.6)n/a Dividend per share (p)9.2+7% 2000 Half year * before goodwill, internet enterprises and other items

Internet at the heart of Pearson £m H1H1Full year Online delivery Online channels Composite education products

Investing 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 … delivering faster

The integrated learning company

Results

Profit & Loss £m Sales1,5451,306 Operating profit before Internet enterprises(84)(7) Goodwill(72)(63) Other items(11)(17) Total operating profit/(loss)(11) Half year 1999 Half year

Sales growth Continuing operations before internet enterprises £m Total growth Portfolio changes Foreign exchange Underlying growth 17% 12%

FT Group % Pearson Education % Penguin % Pearson TV % Continuing operations1,5451,306+12% 2000 Half year 1999 Half year Underlying Change Outstanding sales growth £m

Operating profit growth Continuing operations £m Total growth Portfolio changes Foreign exchange Other Underlying growth 32% 33%

FT Group % Pearson Education(26)(38)27% Penguin % Pearson TV % Continuing operations % Discontinued operations8 21 Total operating profit * % * before goodwill, internet enterprises and other items 2000 Half year 1999 Half year Underlying Change Underlying profits rise by a third £m

Accelerated internet investment Six months to June 2000 £m FT Group1664 Learning Network-19 Pearson Television Sales Net Investment

Profit enhanced by Lazard sale £m Operating profit/(loss)(11) 46 Non-operating items218 5 Profit before interest Net finance costs(84)(71) Profit/(loss) before tax123(20) Taxation(32)(18) Profit/(loss) after tax91(38) Minorities(3)(3) Profit/(loss) for the half year88(41) 2000 Half year 1999 Half year

NCS tax opportunity Tax rate held at 25% Likely benefit from NCS transaction

Adjusted earnings Pre internet enterprises After internet enterprises(0.6)6.3 Interim dividend Half year 1999 Half year Before goodwill, exceptional and non operating items Pre internet eps up 41% pence per share

Working capital phasing £m Operating profit (pre goodwill and other items) Partnerships and associates29(2) Working capital increase(286)(129) Net tangible fixed assets(58)(37) Depreciation42 41 Other movements13(14) Operating cash flow * (104)(8) *before effect of integration costs 2000 Half year 1999 Half year

Performance

Operating profit half year Sales half year £m Pre internet enterprises

Operating profits £m FT Newspaper % FT Interactive Data % FT Business3(1) Les Echos % FT joint ventures(9)(1) Associates48-50% % Recoletos1918+6% % 2000 Half year 1999 Half year Change Pre internet enterprises

Growing circulation June sales (thousands)

Increasing ad revenues £m Jan - June

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

6/996/ Million page views per month FT business portals

6/996/ Million page views per month FT business portals

FT Group internet revenues Advertising Subscriptions Syndication/licensing e-commerce

Generating returns FT.com Revenues Costs £

Strong performance in local currency –sales up 18% –operating profit up 12% #2 Spanish internet portal Flotation planned

£m 294 i Operating profit half year Sales half year Pre Dorling Kindersley 37 i

New York Times5834 Sunday Times3122 More Bestsellers 2000 Half year 1999 Half year

£m Operating profit half year Sales half year Post Dorling Kindersley

DK integration

March 00 April 00 May 00 June 00 July 00 Oct 00 Nov 00 Jan 01 May 01 Offer accepted Warehousing reorganised Brand group established to exploit content across Pearson New DK Operating Board DKFL closure Combined UK Sales & Marketing Finance systems merged Office integration DEAL CLOSED May 02 Consolidated supply chain

London listed company worth £16 bn Jan London listing  FebMarApr 2000 MayJunJul  Deal announced €

The value of television £0.3bn £3.5bn Net value created £3.8 bn Net realisation since 1990 Value of RTL stake Net value created £3.8 bn Net realisation since 1990 Value of RTL stake

(26) 1999 (38) 1998 (19) £m Losses half year Sales half year Pre internet enterprises

Pearson Education £m Sales US School % Higher Ed & Professional % International % Discontinued212 Pearson Education % FT Knowledge Half year 1999 Half year Change

On track for full year JanFebMarAprMayJunJulAugSepOctNovDec % of Total Year 0% 25% 75% 50% 100% -25% -50% -75% Revenue Operating Profit Cash Flow

Launch

Acquisition

The vision The integrated learning company

The vision Creates the “intelligent” classroom Connects schools and homes

The vision

The company Education +25% growth Assessmen t K-12applications Projects for education customers Accreditati0n Data management

#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 * market estimates

25% compound earnings growth EPS($) * market estimates

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 2000 * 1999 Multiples of: Revenue EBITDA EPS4961 *consensus of analysts estimates

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 Goodwill3,0184,529 Fixed assets Working capital1,1601,101 Other net assets86701 Net trading assets4,7176,831 Shareholders’ funds1,8313,963 Provisions and minorities Net debt2,5432,568 Capital employed4,7176, Half year Post Acquisition * *post NCS and RTL transactions

The next “new new thing” Transforming Pearson Education

£m 294 * i 37 * i Operating profit half year Sales half year * pre Dorling Kindersley Print only