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UBS Warburg Conference New York City December 10, 2002
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December 1998:$4.2 bn Simon & Schuster acquisition September 2000:$2.5 bn NCS acquisition
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December 1998:$4.2 bn Simon & Schuster acquisition #1 in educational publishing (school & college) –Sustained market leadership Benefits of scale –Integrated benefits delivered; now working across book publishing Cash generative –Consistent cash conversion; scope on working capital Value creation –Earning our cost of capital
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#1 in Assessment & Training –All major contracts renewed; new business won #1 in Enterprise & Curriculum software –Strong competitive position; new products launched Benefits of scale –In products and markets Good cash profile –Lite working capital Value creation –15% CAGR in Revenues; 20%+ CAGR in operating income September 2000:$2.5 bn NCS acquisition
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2002: breadth & depth of products and customers School & ELT 42% Federal 18% College 29% Professional 11% ProductsCustomers Shaded Areas Indicate Domestic Note: Estimate of ’02 revenue breakdown
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What is Government solutions? How fast can educational publishing grow? Does “Integrated Learning” still apply?
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What is Government Solutions? What do we do? Is it a good business to be in? How does it change the revenue/margin/cash mix?
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We do for federal agencies what we do for state education boards and local school districts Manage data Score applications/tests Enable them to share information Support education and training and … Deal with public inquiries Government Solutions: What do we do?
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“[President Bush] has laid out a plan to transfer as many as 850,000 government jobs – nearly half the federal civilian workforce – to private companies as a way to save money and improve performance.” Government may make private nearly half of its civilian jobs The New York Times, November 15, 2002 Government Solutions: Is it a good business to be in?
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Strong revenue growth –Can come in spurts –Broader contract portfolio being built 12%+ margins –Scope for improvement Cash –Modest capital investment –A good customer Government Solutions: the revenue/margin/cash mix?
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What is Government solutions? How fast can educational publishing grow? Does “Integrated Learning” still apply?
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How fast can educational publishing grow? School:Increased federal funding or lower state and local tax revenues? College:Market-wide growth or Pearson- specific? School & College:1990s’ growth levels sustainable in the 2000s?
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School: Increased federal funding or lower state & local tax revenues? No benefit from new federal funding A quieter adoption year Open territory spending down on ‘01 2002
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School: Increased federal funding or lower state & local tax revenues? Pearson competing for more adoption dollars –65% in ’02; 85% in ’03-’04 School spending lags recession Reading First What gets tested, gets taught, gets bought 2003 - 2004
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College: market-wide or Pearson-specific? Strong market-wide growth –Demographics –Jobs market And Pearson out-performance –Full benefits of integration –Addison Wesley matching Prentice Hall performance –Technology and Custom Publishing leadership
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School & College: 1990s’ growth levels sustainable in 2000s? Some cyclicality in K-12 markets –Adoptions schedules –State and local budgets For 20 years, K-16 markets have grown faster than: –Enrollments –GDP –Overall education spending This trend should continue: –Standards-based learning –No Child Left Behind –Economic value of a degree
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What is Government solutions? How fast can educational publishing grow? Does “Integrated Learning” still apply?
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–Will schools pay for online content & services? –Is there demand for “integrated learning”
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Will customers pay for online content and services? $140m in curriculum software sales $100m in enterprise software sales
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Is there a demand for “integrated learning”? No Child Left Behind creates the demand –Test –Report –Remediate E-rate funding has created the platform
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Where students, parents, teachers, and administrators harmonize their efforts for maximum student achievement. A comprehensive, integrated family of Web-based applications that: –Revolutionizes K-12 education with a new category of technology: the online education community –Meets NCLB requirements with integrated standards-aligned content, assessment, student performance management, and parent communication –Helps all members of the education communitystudents, parents, teachers, and administratorsachieve success
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What is Government solutions? How fast can educational publishing grow? Does “Integrated Learning” still apply?
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We like working for the federal government The future of educational publishing still looks pretty bright Integrated Learning is coming fairly soon to a school near you
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