ubs warburg conference new york city december 10, 2002
TRANSCRIPT
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UBS Warburg Conference
New York City
December 10, 2002
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International14%
US School23%
US College14%
Penguin19%
FT19%
US Professional11%
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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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Software9%
Testing & Assessment
10%
Publishing70%
Services11%
2002: breadth & depth of products and customers
School & ELT42%
Federal18%
College29%
Professional11%
Products Customers
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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Does “Integrated Learning” still apply?– 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