Chief executive's strategic overview

Our approach to 2009 and the global economic downturn was aggressive. We saw an opportunity, not to ease off the gas but to accelerate, to invest both money and imagination in the fast-growing digital, services and international markets that have given us our impetus. We reckoned that in the short term we could pull further away from our competitors, and that in the long term we simply could not afford to pause for rest on the journey from publisher to digital services company that has been our goal for some years now.

I'm happy to say that, though we did not by any means get everything exactly right, that reckoning was true. It showed up in our financial results:

• Sales of £5.6bn, against £4.8bn in 2008, an increase of 4% at constant exchange rates;
• Profits of £858m, up 4% from £762m in 2008;
• Adjusted earnings per share of 65.4p, up from 57.7p in 2008 and well ahead of our expectations at the start of the year;
• A dividend increase of 5%, underlining our conviction that the dividend is both a reliable cash distribution to shareholders and a signal of the board's confidence and determination about the future.

The lessons of our strategy also showed in some remarkably strong competitive performances:

In North America, we pulled further away from our traditional education competitors. In School and Higher Education we grew 5%, a full five percentage points faster than the industry. In testing, we won 60% of the state and national contracts that were up for bid during the year.

In International education, we chalked up another year of good growth and at the same time built the foundations for faster progress in dynamic markets like China, India and Southern Africa.

At the FT Group, we produced healthy profits in spite of a precipitous fall in business advertising. This was possible because of our continued shift towards subscription and digital revenues.

And in Penguin we had another solid year of financial results and of great books while doing the things that will allow the publisher who invented the paperback to take its rightful place as a leader in the age of digital readers – both people and devices.

(In some ways, those competitive performances are even more important than the financial results they make possible. They show that our customers are choosing Pearson's products and services – finding something more valuable or compelling or alluring in what we do. Those customers are the ultimate arbiters of whether our strategy is working.)

Last year we faced down tougher markets – in some cases, much tougher. And we expect many to remain tough through this year. Some of our markets have 'cyclical challenges', and all our industries are going through a period of significant structural change.

So naturally, the question we've asked ourselves is: "Can we continue our record of performance in unpredictable markets and contracting economies?" To answer, we've had to stop and review our assumptions and revisit our plans. But our conclusion is a simple truth about demand: No matter what, people will still go to school; still need information about markets; still want to escape from their present into someone else's story. Those are the things we do.

And there is still much to do to further them. There are still 72 million children who don't go to school at all; still 30 million people who will enter university this year and not ever graduate; still a complex world of business, finance and politics to illuminate and explain; still buyers for some $70bn worth of books this year (and less than 2% of those are eBooks). So much to do.

Our approach to the task and our business is to stick with our strategy and to take a long-term view.

That may seem obvious, but don't take it as a 'business as usual' approach. We're making it ambitious and aggressive at every level.

Our goal is unchanged: To help people make progress in their lives and to thrive in a brain-based economy through learning. We're reaching for a wide definition of 'learning', though: one not constrained by age or circumstance or confined to a classroom. We think learning never stops: it's happening all the time, all around us. And we're setting out to prove it.

Our basic strategy to achieve that grand goal is pursued by all Pearson's businesses in some shape or form and has four fundamental parts:

1. To develop high-quality, compelling, trustworthy content that customers deem worth paying for;

2. To serve it up not just naked, but with services, mostly delivered by technology, to make it more useful, more valuable, more personal;

3. To work in selected geographic markets that are growing and have strong demand for our services;

4. To reap cost savings and competitive advantages from Pearson's global scale and the similarities of its businesses and processes through efficiencies in our central services.

Based on that goal and strategy, you should look out for many things that will continue to change in Pearson: our focus on consumers; our participation in more links of the chain of formal learning; our interest in training not only the minds of citizens, but also the skills of 21st-Century workers; our take-up of opportunities all over the world.

The 2009 results written up in this report are already just footnotes to history. Perhaps more important to you as you think about Pearson's future should be those things that are changing, because I believe Pearson today may not be quite the company that you think we are.

We're still a publishing company – and convinced that quality content is valuable. But today we're also a digital services company, and that change is responsible for our market share and efficiency as well as our growth opportunities.

In 2009, about a third of our sales came from digital products and services. Over the past five years, our digital revenues have grown at an average annual rate of 19%. Seven years ago, our testing and qualifications businesses (a good example of our providing education services, rather than 'products') had sales of less than £200m. This past year, they produced more than £1bn.

We're still proud to have strong roots in the UK, our historic 'home' market, and in North America, home to our largest concentration of business and people. But Pearson is becoming an ever more international company – in our mix of business and (maybe more importantly) in our attitude. Even though we've been growing well in the US, over the past five years Pearson's sales outside America have grown 11% per year on average and our profits outside America now amount to more than £250m, one-third of our operating profit.

For some years now, our strategy has been yielding a virtuous circle of competitive advantage, strong financial results and heavy investment in new products. For now we believe that circle is spinning, but we can't count on its continuing. That's why we have to keep making changes of emphasis.

We're certainly proud of 2009, but we're much more pleased about the foundations we've laid out for our next chapter. Our approach to that next chapter is based on a fundamental truth: We're always learning. But the experience of learning is different for every person. That's why we've been talking about and working on 'personalizing learning' long enough for it to become a buzz word.

So now we're trying to take it to a new level that still uses our strategy of content + services + internationalism + efficiency but is:

• more thoroughly involved in the whole process of education;
• more service-oriented than ever;
• more indifferent to medium;
• as interested in informal, consumer learning as in institutional learning and
• moving more deeply into the developing world.

We've made a good start on building the world's leading learning company. Our financial results say we're making progress. But we know that, to make more and faster progress, more and more of our customers have to see that we are also helping them make progress in their lives. That's our goal.

As we plunge out into 2010, we're clear that in macroeconomic terms the world is by no means a slick superhighway. We're expecting many of our markets to remain slow and subdued this year, and perhaps into the next one as well.

But we're anything but subdued. We have a successful strategy, one that's been producing consistent growth and high performance for some years now. We believe in it, and we're pushing ahead with it – with some bold changes.

Our strong performance – both financial and competitive – is largely the result of our having had the strategy and made the investment over the last decade to make Pearson a unified, digital, services based, global education company. That strategy and investment will help us remain the innovator and the scale player in our industries, and remain both a durable company, and a long-term growth company, but not if we don't keep changing, keep learning.

That's why this 160-year-old company tries to be always learning. Like many students, we're finding that the learning itself can be as stimulating as the results. And all the time, that's making this company – one I hope you'd like to continue to call "your company" – stronger and stronger.