Chairman's statement

It is worth recalling that, only a decade ago, Pearson was a completely different company. We were the publisher of general interest and sports newspapers in Spain; we were the TV production company behind The Price is Right and Baywatch; we were a part-owner of the Lazard banking houses. Marjorie and her colleagues had just begun the major move into the global education industry, but had barely articulated the strategy of investing in testing and technology to make learning more personal and more effective.

That year, a 'boom' period in the industry, our operating profits were £490m and our education revenues a little over £2bn; last year, in a deep recession, our operating profits were £858m and our education revenues approaching £4bn. The scale of our transformation is striking. It shows that sometimes it pays to take a long-term view.

But more important than our scale alone, we have once again demonstrated our credentials as both a durable company and a growth company. The financial results for 2009 that are set out elsewhere in this report paint a picture of remarkable performance and resilience in an extremely difficult economic environment.

There is evidence that those qualities were recognised by the market over the course of the past year, and that those who held their Pearson shares through a turbulent period were rewarded. Our shares began 2009 at 641p, and ended the year 39% higher, at close to nine pounds. That increase was well ahead of both the major market indices (the FTSE 100 was up 22%) and the media sector (FTSE All-Share Media index up 29% and DJ Stoxx 600 Media up 20%).

The second element of our return to shareholders – the dividend – was further increased in 2009. So our total shareholder return (which combines both the share price movement and dividends paid) was up 46%. Again, this was significantly ahead of the FTSE 100 (up 27%), the DJ Stoxx 600 Media (up 26%) and the FTSE media sector (up 34%).

Our decade-long transformation was partly the result of some extensive portfolio changes. Over those ten years, we made $4.1bn of disposals and $6.3bn of acquisitions. But underneath those very visible changes, there were some deeply held principles at work. Those are important to understand, because they tell you as much about our future as they do about our past.

First, every part of Pearson has a relentless focus on the value we provide to our customers – the learner, the teacher, the reader, the investor, the business person. We know that the ultimate measure of our performance is shareholder value; but we understand we can best deliver shareholder value through helping our customers make progress in their lives.

Second, one driver of our transformation has been to make Pearson a reliable and resilient company. Proud as we are of our performance in 2009, what's even more important to us is the long-term consistency of our growth. For each of the past six years, we have delivered growth in sales, earnings and cash, through both good markets and bad.

Third, companies can sometimes be defined by what they don't do: by what they choose to avoid. Because our strategy is about long-term value creation for customers and shareholders, Pearson did not engage in short-term financial engineering. During the credit bubble, we resisted calls to load up our balance sheet with cheap debt and reduce our equity capital. I believe you can attribute a good deal of our financial stability and competitive strength to our determination to stick to the fundamentals and to take a long-term view.

Fourth, that long-term view is accompanied by a commitment to constant innovation and change. As you'll read elsewhere in this report, Pearson has become a major innovator and investor in digital technologies – new reading experiences, new learning platforms, applications for new devices, new ways of communicating with and selling to our customers. This represents a profound and disruptive structural change in all our industries; we are encouraged by our progress so far but if we are to remain successful in this new world, we will need to continue to transform ourselves. And we will.

So, the story of 2009 is of a strong business, resolutely pursuing a successful strategy through tough markets and disruptive change.

My personal view is that the prospects for a sustained economic recovery remain fragile. We have to expect a prolonged period of severely restrained government and consumer spending. It's going to be a battle, but one we intend to keep fighting and winning. Pearson is prepared for it, and ready to help people carry on learning whatever the economic weather.

For that, I have to thank our people for their dedication and ingenuity; and our investors for their commitment to the company. As always, I look forward to seeing many of you at our annual meeting.

Glen Moreno Chairman