: chairman's letter :

It has taken three years of hard work to turn Pearson from an attractive collection of diverse businesses into one company with a coherent strategy single-mindedly pursued by every part of Pearson. If you want to read not just about Pearson’s future strategy but also an unusually down-to-earth and insightful view of the changing commercial environment, you should turn to Marjorie’s report on page 5. I sum up that strategy in two simple statements:

• we want to make outstanding returns for our shareholders by creating, owning, applying and exploiting intellectual property;
  
  
• we want to do this in a way that is brave, imaginative and decent.

Last year we made a number of moves – the acquisitions of National Computer Systems (NCS) and Dorling Kindersley, the sale of Lazard, a major investment in our internet enterprises – that we knew, taken together, would suppress our earnings in 2000. We did so because we believe they put us in better shape to deliver longer-term growth across all our businesses. And we did so safe in the knowledge that we would continue to deliver on our key financial goals – sales, margins and cash – at the operating level.

As Marjorie makes clear, this focus on performance is at the heart of all we do. It matters not to us whether the activity could be described as ‘old’ or ‘new’ economy; what is important is what works in helping to deliver our strategy. Nothing is certain in this life but I am as confident as I can be that:

• we have a simple strategy that we all understand and believe in;
  
  
• we will steadily increase value for Pearson’s shareholders.

My confidence stems from the conviction that our colleagues – and the way they feel about being part of Pearson – are the key to creating more value. Yes, competitive material rewards are crucial to motivating the people who work in our businesses. That is why, at this year’s annual general meeting, we will be asking for your approval of a new long-term incentive plan. The plan is designed to ensure that our global business – anchored as it is, more than ever, in the United States of America – is able to compete worldwide for the very best talent.

But material rewards are only part of the answer. We are fortunate to be part of a company where many of our colleagues choose to make their careers with Pearson when (even following the implementation of our new long-term incentive plan) they could earn greater rewards elsewhere. One of the reasons they stay is because of the second part of our strategy – in every part of Pearson, in everything we do, we aspire to be brave, imaginative and decent (and we expect everyone who works with us to share those aspirations).

In the past year we have also been pleased to see a steady increase in the number of highly talented people – at all levels – who seek to join us. They are excited by our reputation and impressed by the quality of what we do.

I believe that, over the years, our values have ensured that, while being far from perfect, we have lived by ethical and environmental codes of which we can be proud. This year, for the first time, we include in the directors’ report formal statements on labour standards, human rights and environmental policy. We will, in future years, report our performance against these policies. But we are also determined to ensure that we won’t confuse our ability to ‘tick the right box’ in terms of our policies with the bigger task of ensuring that we remain true to the values and principles that have been at the heart of Pearson throughout its life.

Pearson is in the happy position of being able to draw on the experience and energy of a very committed group of non-executive directors, whom I thank wholeheartedly for their contribution to our many successes. After nine years as a non-executive director and nearly four years as Chairman of our Personnel Committee, Gill Lewis has decided to step down from the board of Pearson at the AGM. On behalf of the board I want to give particular thanks to Gill for the enormous contribution she has made.

Over the last few years we have been working hard to make Pearson a great place to work. The record performance we are reporting this year is built on the abilities and the creativity of 25,000 people across Pearson, led by a quite out-of-the-ordinary senior management corps. The board is enormously grateful to everyone in Pearson for their commitment, their talent and their hard work. They make this a very special company to work in and to invest in.