Higher Education seminar 10 June 2003. Will Ethridge President Higher Education and International.

Higher Education seminarHigher Education seminar

10 June 200310 June 2003

Will EthridgeWill EthridgePresidentPresident

Higher Education and InternationalHigher Education and International

ThemesThemes

US Higher Education is a growing and stable US Higher Education is a growing and stable businessbusiness

Pearson is the clear leaderPearson is the clear leader– breadth and quality of productsbreadth and quality of products– strength of sales forcestrength of sales force– leadership in use of technologyleadership in use of technology– cost advantagescost advantages

Industry trendsIndustry trends

Knowledge economy fuels demand Knowledge economy fuels demand

Strong enrollment growth at community collegesStrong enrollment growth at community collegesand proprietary schoolsand proprietary schools

Stable industry, mildly counter-cyclicalStable industry, mildly counter-cyclical

Benefits from favorable demographicsBenefits from favorable demographics

Steady 5 – 7% growthSteady 5 – 7% growth

2.65 2.752.90

3.20

1999 2000 2001 2002

2.65 2.752.90

3.20

1999 2000 2001 2002

US Higher Education marketUS Higher Education marketTotal gross sales, $bnTotal gross sales, $bn

Source: Management Practice DataSource: Management Practice Data

Sales Rep

The sales process (US)The sales process (US)

Professor Student

Collegebook store

US Higher Education US Higher Education textbook markettextbook market

Source: SIMBA, The College Publishing MarketSource: SIMBA, The College Publishing Market

New textbooksNew textbooks(includes Custom)(includes Custom)62%62%

Trade booksTrade books1%1%

Course packsCourse packs6%6%MultimediaMultimedia

6%6%

Used textbooksUsed textbooks25%25%

Pearson US Higher Education Pearson US Higher Education overviewoverview

Net revenue increased Net revenue increased from $277m in ’98 to from $277m in ’98 to $940m in ’02$940m in ’02

Underlying CAGR of 8.0%Underlying CAGR of 8.0%

14% revenue growth in ’02 14% revenue growth in ’02 vs. industry growth of 8% vs. industry growth of 8%

Pearson is the market leaderPearson is the market leader

US Higher Education Sales Source: Monument Information Resources (MIR)US Higher Education Sales Source: Monument Information Resources (MIR)

OthersOthers10%10%McGraw-Hill (#3)McGraw-Hill (#3)

20%20%

Thomson (#2)Thomson (#2)25%25%

Houghton Mifflin (#4) Houghton Mifflin (#4) 6%6%

Wiley (#5) Wiley (#5) 5%5%

(#1)(#1)Pearson Pearson EducationEducation34%34%

0%

2%

4%

6%

8%

10%

12%

14%

1999 2000 2001 2002

Pearson EducationRest of industry

0%

2%

4%

6%

8%

10%

12%

14%

1999 2000 2001 2002

Pearson EducationRest of industry

% change in gross sales vs. prior year% change in gross sales vs. prior year

Growing ahead of the marketGrowing ahead of the market

Source: Management Practice DataSource: Management Practice Data

Two great companiesTwo great companies

Prentice HallPrentice Hall

BusinessBusiness

Science and technicalScience and technical

Liberal ArtsLiberal Arts

Career and technologyCareer and technology

Addison Wesley Higher EdAddison Wesley Higher Ed

Addison Wesley: Addison Wesley: quantitative sciencesquantitative sciences

Benjamin Cummings:Benjamin Cummings:life and physical sciences life and physical sciences

Allyn & Bacon: Allyn & Bacon: education and social scienceseducation and social sciences

Longman: Longman: humanitieshumanities

$0

$100

$200

$300

$400

$500

Science SocialScience

Math Humanities English Education Trades &Tech

Rest of industryPearson Education

$0

$100

$200

$300

$400

$500

Science SocialScience

Math Humanities English Education Trades &Tech

Rest of industryPearson Education

Est. 2002 retail sales, new + used, through college bookstoresEst. 2002 retail sales, new + used, through college bookstores

##11 in key disciplines in key disciplines

38% 35% 46% 30% 36% 63%54%

Source: Monument Information Resources dataSource: Monument Information Resources data

Professors are the centre Professors are the centre of Pearson’s focusof Pearson’s focus

ProfessorCustom Competition

AWHE Pearson resourcesPearson resources

543543 repsreps4040 custom repscustom reps6161 sales specialistssales specialists

208208 marketingmarketing

Prentice Hall

The Pearson advantageThe Pearson advantage

Drive share and improve retention Drive share and improve retention – custom, technology and value pack programscustom, technology and value pack programs

Increase sales through multi-market reachIncrease sales through multi-market reach

Drive down costs through scale advantagesDrive down costs through scale advantages

Superior organizational expertise and talentSuperior organizational expertise and talent– share best practicesshare best practices

Custom publishingCustom publishing

AdvantagesAdvantages

Drive share gainDrive share gain

Good retentionGood retention

Low returnsLow returns

Strong marginsStrong margins

Types of customTypes of custom

Original materialOriginal material

Database customDatabase custom

Derivative custom Derivative custom blend blend

18

35

45

62

85

1998 1999 2000 2001 2002

18

35

45

62

85

1998 1999 2000 2001 2002

Growth in custom Growth in custom Sales $mSales $m

Value pack advantagesValue pack advantages

Integrates print and technologyIntegrates print and technology Enables course management, Enables course management,

testing, researchtesting, research Replaces used booksReplaces used books

Course CompassCourse Compass

203

255

353

424

1999 2000 2001 2002

203

255

353

424

1999 2000 2001 2002

Growth in value packsGrowth in value packsSales $mSales $m

Increase sales throughIncrease sales throughmulti-market reachmulti-market reach

Leading international

publisher

Leading retail

publisher

Leading advanced

placement high school publisher

Leading in advanced placementLeading in advanced placementand High School and High School

65% of all university biology students 65% of all university biology students purchase Campbellpurchase Campbell

Over 500,000 books sold every yearOver 500,000 books sold every year

Reaching into high schools with Reaching into high schools with the leading AP textthe leading AP text

New basal High School programNew basal High School program

Leading in professional / retailLeading in professional / retail

Harvey and Paul DeitelHarvey and Paul DeitelCo-authors of the best-selling Co-authors of the best-selling introductory programming introductory programming languages bookslanguages books

Over 2.5m copies sold worldwideOver 2.5m copies sold worldwide

Bestsellers in the professional / retail channelBestsellers in the professional / retail channel

Translated into 11 languages Translated into 11 languages

Leading global publisherLeading global publisher

Kotler’s Marketing Kotler’s Marketing Management has taught Management has taught generations of business generations of business students students

250,000 copies sold each year250,000 copies sold each year

Country-specific adaptationsCountry-specific adaptations

Translated into 23 languages Translated into 23 languages

Driving down costsDriving down costs

Use of shared services to improve marginsUse of shared services to improve margins

Apply purchasing power to gain savings Apply purchasing power to gain savings – especially in printing and paper costs– especially in printing and paper costs

Efficiencies from content management Efficiencies from content management and distributionand distribution

OpportunitiesOpportunities

##11 in fast-growing basic skills areas (English and in fast-growing basic skills areas (English and Math)Math)

Growing share in vocational publishingGrowing share in vocational publishing

Delivering more value through content, Delivering more value through content, technology technology and customizationand customization

SummarySummary

Good demographicsGood demographics

Predictable growth; defensible positionPredictable growth; defensible position

Outperform the industry in sales growthOutperform the industry in sales growth

Grow profits at a higher rate than sales Grow profits at a higher rate than sales due to scale economiesdue to scale economies

Higher Education seminarHigher Education seminar