e20vf

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON March 31, 2010

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 20-F


(Mark One)
o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
or
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2009
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to
or
o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		Date of event requiring this shell company report

Commission file number 1-16055

PEARSON PLC

(Exact name of Registrant as specified in its charter)

England and Wales

(Jurisdiction of incorporation or organization)

80 Strand

London, England WC2R 0RL

(Address of principal executive offices)

Stephen Jones

Telephone: +44 20 7010 2000

Fax: +44 20 7010 6060

80 Strand

London, England WC2R 0RL

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of Class		Name of Each Exchange on Which Registered

*Ordinary Shares, 25p par value American Depositary Shares, each Representing One Ordinary Share, 25p per Ordinary Share		New York Stock Exchange New York Stock Exchange

* Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the SEC.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock at the close of the period covered by the annual report:


Ordinary Shares, 25p par value			810,799,351

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated file” and “large accelerated filer”, in Rule 12b-2 of the Exchange Act. (Check one):


þ Large accelerated filer		o Accelerated filer		o Non-accelerated filer

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing


o US GAAP		þ International financial Reporting Standards as Issued by the International Accounting Standards Board		o Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:


Item 17 o		Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):


Yes o		No þ

INTRODUCTION

In this Annual Report on Form 20-F (the “Annual Report”) references to “Pearson”, the “Company” or the “Group” are references to Pearson plc, its predecessors and its consolidated subsidiaries, except as the context otherwise requires. “Ordinary Shares” refer to the ordinary share capital of Pearson of par value 25p each. “ADSs” refer to American Depositary Shares which are Ordinary Shares deposited pursuant to the Deposit Agreement dated March 21, 1995, amended and restated as of August 8, 2000 among Pearson, The Bank of New York as depositary (the “Depositary”) and owners and holders of ADSs (the “Deposit Agreement”). ADSs are represented by American Depositary Receipts (“ADRs”) delivered by the Depositary under the terms of the Deposit Agreement.

We have prepared the financial information contained in this Annual Report in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) which in respect of the accounting standards applicable to the Group do not differ from IFRS as adopted by the European Union (“EU”). Unless we indicate otherwise, any reference in this Annual Report to our consolidated financial statements is to the consolidated financial statements and the related notes, included elsewhere in this Annual Report.

We publish our consolidated financial statements in sterling. We have included, however, references to other currencies. In this Annual Report:


	•	references to “sterling”, “pounds”, “pence” or “£” are to the lawful currency of the United Kingdom,

	•	references to “euro” or “€” are to the euro, the lawful currency of the participating Member States in the Third Stage of the European Economic and Monetary Union of the Treaty Establishing the European Commission, and

	•	references to “US dollars”, “dollars”, “cents” or “$” are to the lawful currency of the United States.

For convenience and except where we specify otherwise, we have translated some sterling figures into US dollars at the rate of £1.00 = $1.62, the noon buying rate in The City of New York for cable transfers and foreign currencies as certified by the Federal Reserve Bank of New York for customs purposes on December 31, 2009, the last business day of 2009. We do not make any representation that the amounts of sterling have been, could have been or could be converted into dollars at the rates indicated. On February 28, 2010 the noon buying rate for sterling was £1.00 = $1.52.

The Group consists of three major world wide businesses, Pearson Education, The FT Group (“FT”) and the Penguin Group (“Penguin”). See “Item 4. Information on the Company — Overview of operating divisions”.

FORWARD-LOOKING STATEMENTS

You should not rely unduly on forward-looking statements in this Annual Report. This Annual Report, including the sections entitled “Item 3. Key Information — Risk Factors”, “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects”, contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terms such as “may”, “will”, “should”, “expect”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue” or the negative of these terms or other comparable terminology. Examples of these forward-looking statements include, but are not limited to, statements regarding the following:


	•	operations and prospects,

	•	growth strategy,

	•	funding needs and financing resources,

	•	expected financial position,

	•	market risk,

	•	currency risk,


	•	US federal and state spending patterns,

	•	debt levels, and

	•	general market and economic conditions.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. In evaluating them, you should consider various factors, including the risks outlined under “Item 3. Key Information — Risk Factors”, which may cause actual events or our industry’s results to differ materially from those expressed or implied by any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

PART I


ITEM 1.	*IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS*

Not applicable.


ITEM 2.	*OFFER STATISTICS AND EXPECTED TIMETABLE*

Not applicable.


ITEM 3.	*KEY INFORMATION*

Selected consolidated financial data

Following the publication of SEC Release No 33-8879 “Acceptance From Foreign Private Issuers of Financial Statements Prepared in Accordance With International Financial Reporting Standards Without Reconciliation to U.S. GAAP”, the Group no longer provides a reconciliation between IFRS and U.S. GAAP.

The table below shows selected consolidated financial data under IFRS as issued by the IASB. The selected consolidated profit and loss account data for the years ended December 31, 2009, 2008 and 2007 and the selected consolidated balance sheet data as at December 31, 2009 and 2008 have been derived from our audited consolidated financial statements included in “Item 18. Financial Statements” in this Annual Report.

The selected consolidated financial information should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements and the related notes appearing elsewhere in this Annual Report. The information provided below is not necessarily indicative of the results that may be expected from future operations.

For convenience, we have translated the 2009 amounts into US dollars at the rate of £1.00 = $1.62, the noon buying rate in The City of New York for cable transfers and foreign currencies as certified by the Federal Reserve Bank of New York for customs purposes on December 31, 2009.


	Year Ended December 31
	2009			2009			2008			2007			2006			2005
	$			£			£			£			£			£
	(In millions, except for per share amounts)

IFRS information:
Consolidated Income Statement data
Total sales		9,111			5,624			4,811			4,162			3,990			3,662
Total operating profit		1,223			755			676			574			522			497
Profit after taxation from continuing operations		748			462			413			337			444			319
Profit for the financial year		748			462			323			310			469			644
Consolidated Earnings data per share
Basic earnings per equity share(1)	$	0.86			53.2p			36.6p			35.6p			55.9p			78.2p
Diluted earnings per equity share(2)	$	0.86			53.1p			36.6p			35.6p			55.8p			78.1p
Basic earnings from continuing operations per equity share(1)	$	0.86			53.2p			47.9p			39.0p			52.7p			37.5p
Diluted earnings from continuing operations per equity share(2)	$	0.86			53.1p			47.9p			39.0p			52.6p			37.4p
Dividends per ordinary share	$	0.58			35.5p			33.8p			31.6p			29.3p			27.0p
Consolidated Balance Sheet data at period end
Total assets (non-current assets plus current assets)		15,247			9,412			9,896			7,292			7,213			7,600
Net assets		7,510			4,636			5,024			3,874			3,644			3,733
Long-term obligations(3)		(4,943	)		(3,051	)		(2,902	)		(1,681	)		(1,853	)		(2,500	)
Capital stock		329			203			202			202			202			201
Number of equity shares outstanding (millions of ordinary shares)		810			810			809			808			806			804

Notes:


(1)		Basic earnings per equity share is based on profit for the financial period and the weighted average number of ordinary shares in issue during the period.

(2)		Diluted earnings per equity share is based on diluted earnings for the financial period and the diluted weighted average number of ordinary shares in issue during the period. Diluted earnings comprise earnings adjusted for the tax benefit on the conversion of share options by employees and the weighted average number of ordinary shares adjusted for the dilutive effect of share options.

(3)		Long-term obligations comprise any liabilities with a maturity of more than one year, including medium and long-term borrowings, derivative financial instruments, pension obligations and deferred income tax liabilities.

(4)		The results of the Data Management business (disposed in February 2008) have been included in discontinued operations for all years to 2008. The results of Government Solutions (disposed in February 2007) and Les Echos (disposed in December 2007) have been included in discontinued operations for all the years to 2007.

Dividend information

We pay dividends to holders of ordinary shares on dates that are fixed in accordance with the guidelines of the London Stock Exchange. Our board of directors normally declares an interim dividend in July or August of each year to be paid in September or October. Our board of directors normally recommends a final dividend following the end of the fiscal year to which it relates, to be paid in the following May or June, subject to shareholders’ approval at our annual general meeting. At our annual general meeting on April 30, 2010 our shareholders will be asked to approve a final dividend of 23.3p per ordinary share for the year ended December 31, 2009.

The table below sets forth the amounts of interim, final and total dividends paid in respect of each fiscal year indicated, and is translated into cents per ordinary share at the noon buying rate in The City of New York on each of the respective payment dates for interim and final dividends. The final dividend for the 2009 fiscal year will be paid on May 7, 2010.


Fiscal year	Interim		Final		Total		Interim		Final			Total
	(Pence per ordinary share)						(Cents per ordinary share)

2009		12.2		23.3		35.5		19.8		37.7	*		57.5
2008		11.8		22.0		33.8		21.6		33.2			54.8
2007		11.1		20.5		31.6		22.4		39.9			62.3
2006		10.5		18.8		29.3		20.0		31.4			51.4
2005		10.0		17.0		27.0		17.8		29.8			47.6


*		As the 2009 final dividend had not been paid by the filing date, the dividend has been translated into cents using the noon buying rate for sterling at December 31, 2009.

Future dividends will be dependent on our future earnings, financial condition and cash flow, as well as other factors affecting the Group.

Exchange rate information

The following table sets forth, for the periods indicated, information concerning the noon buying rate for sterling, expressed in dollars per pound sterling. The average rate is calculated by using the average of the noon buying rates in The City of New York on each day during a monthly period and on the last day of each month during an annual period. On December 31, 2009 the noon buying rate for cable transfers and foreign currencies as certified by the Federal Reserve Bank of New York for customs purposes for sterling was £1.00 = $1.62. On February 28, 2010 the noon buying rate for sterling was £1.00 = $1.52.


Month	High		Low

February 2010	$	1.60	$	1.52
January 2010	$	1.64	$	1.59
December 2009	$	1.66	$	1.59
November 2009	$	1.68	$	1.64
October 2009	$	1.66	$	1.59
September 2009	$	1.67	$	1.59


Year Ended December 31	Average rate

2009	$	1.57
2008	$	1.84
2007	$	2.01
2006	$	1.84
2005	$	1.81

Risk factors

You should carefully consider the risk factors described below, as well as the other information included in this Annual Report. Our business, financial condition or results from operations could be materially adversely affected by any or all of these risks, or by other risks that we presently cannot identify.

Global economic conditions may adversely impact our financial performance.

As the current economic environment remains dynamic and challenging, the risk of weak trading conditions continues in 2010 which could adversely impact our financial performance. The effect of a continued deterioration in the global economy will vary across our different businesses and will depend on the depth, length and severity of any economic downturn. Specific economic risks by business are described more fully in the other risk factors below.

A significant deterioration in Group profitability and/or cash flow caused by a severe economic depression could reduce our liquidity and/or impair our financial ratios, and trigger a need to raise additional funds from the capital markets and/or renegotiate our banking covenants.

A prolonged and severe economic depression could significantly reduce the Group’s revenues, profitability and cash flows as customers would be unable to purchase products and services in the expected quantities and/or pay for them within normal agreed terms. A liquidity shortfall may delay certain development initiatives or may expose the Group to a need to negotiate further funding. If there was a steep decline in operating profit the Group might breach its banking covenants, creating (or exacerbating) a need for further funding (or a renegotiation of the terms of the bank credit agreement) to maintain operations. The current fragile state of the credit markets could expose the Group to a risk that it could neither re-negotiate its existing banking facilities, nor raise enough new funding, at a cost level that was sustainable for the business. Were this to occur, the inability to raise funding would likely lead to a curtailment in investment and growth plans, potential asset disposals (if possible), reduction or elimination in the dividend and in an extreme case a need to restructure the Group’s debt, business model and terms of trade. In such event, the value of the Group’s equity could not be assured.

Our US educational solutions and assessment businesses may be adversely affected by changes in state and local educational funding resulting from either general economic conditions, changes in government educational funding, programs and legislation (both at the federal and state level), and/or changes in the state procurement process.

The results and growth of our US educational solutions and assessment businesses is dependent on the level of federal and state educational funding, which in turn is dependent on the robustness of state finances and the level of funding allocated to educational programs. State, local and municipal finances have been adversely affected by the US recession. In response to budget shortfalls, states and districts may reduce educational spending as they seek cost savings to mitigate budget deficits. The American Recovery and Reinvestment Act provided additional federal funding for education; the potential impact of this new money on our markets remains uncertain.

Federal and/or state legislative changes can also affect the funding available for educational expenditure, which include changes in assessment policy, the reauthorization of the Elementary and Secondary Education Act, along with the movement to a common core of skills and knowledge. Similarly changes in the state procurement process for textbooks, learning material and student tests, particularly in the adoptions market can also affect our markets. For example, changes in curricula, delays in the timing of the adoptions and changes in the student testing process can all affect these programs and therefore the size of our market in any given year.

There are multiple competing demands for educational funds and there is no guarantee that states will fund new textbooks or testing programs, or that we will win this business.

We generate a substantial proportion of our revenue in foreign currencies particularly the US dollar, and foreign exchange rate fluctuations could adversely affect our earnings and the strength of our balance sheet.

As with any international business our earnings can be materially affected by exchange rate movements. We are particularly exposed to movements in the US dollar to sterling exchange rate as approximately 60% of our revenue is generated in US dollars. Sales for 2009, translated at 2008 average rates, would have been £4,984m or 11% lower.

This is primarily a currency translation risk that only arises on consolidation and is the result of translating entities into sterling for reporting purposes (i.e. non-cash flow item), and not a trading risk (i.e. cash flow item) as our foreign currency trading cash flows in individual operating companies are relatively limited. See “Item 5. Operating and Financial Review and Prospects — General Overview, Exchange rate fluctuations”.

Pearson currently generates approximately 60% of its sales in US dollars and each 5¢ change in the average £:$ exchange rate for the full year (which in 2009 was £1:$1.57) has a translation impact of approximately 1.3p on reported earnings per share and affect shareholders’ funds by approximately £120m.

Our intellectual property and proprietary rights may not be adequately protected under current laws in some jurisdictions and that may adversely affect our results and our ability to grow.

Our products and services largely comprise intellectual property delivered through a variety of media, including newspapers, books, the internet and other growing delivery platforms. We rely on trademark, copyright and other intellectual property laws to establish and protect our proprietary rights in these products and services.

We cannot be sure that our proprietary rights will not be challenged, invalidated or circumvented. Our intellectual property rights in countries such as the US and UK, jurisdictions covering the largest proportion of our operations, are well established. However, we also conduct business in other countries where the extent of effective legal protection for intellectual property rights is uncertain, and this uncertainty could affect our future growth. Moreover, despite trademark and copyright protection, third parties may copy, infringe or otherwise profit from our proprietary rights without our authorization.

These unauthorized activities may be more easily facilitated by the internet. The lack of internet-specific legislation relating to trademark and copyright protection creates an additional challenge for us in protecting our proprietary rights relating to our online business processes and other digital technology rights. The loss or

diminution in value of these proprietary rights or our intellectual property could have a material adverse effect on our business and financial performance.

In that regard, Google reached a tentative settlement in 2008 with the Author’s Guild and the Association of American Publishers over Google’s plans to copy the full text of all books ever published without permission of the copyright owners, including Pearson. The agreement was revised in 2009 to narrow the definition of books covered under the settlement agreement to those registered with the US Copyright Office by January 2009 or published in Australia, UK, Canada or US. Subject to final court approvals, the settlement would allow copyright owners of books covered by it to control the online display of those books by Google, with a sharing of revenues derived from that display.

Our reported earnings and cash flows may be adversely affected by changes in our pension costs and funding requirements.

We operate a number of pension plans throughout the world, the principal ones being in the UK and US. The major plans are self-administered with the plans’ assets held independently of the Group. Regular valuations, conducted by independent qualified actuaries, are used to determine pension costs and funding requirements. As these assets are invested in the capital markets, which are often volatile, the plans may require additional funding from us, which could have an adverse impact on our results.

It is our policy to ensure that each pension plan is adequately funded, over time, to meet its ongoing and future liabilities. Our earnings and cash flows may be adversely affected by the need to provide additional funding to eliminate pension fund deficits in our defined benefit plans. Our greatest exposure relates to our UK defined benefit pension plan, which is valued once every three years. Pension fund deficits may arise because of inadequate investment returns, increased member life expectancy, changes in actuarial assumptions and changes in pension regulations, including accounting rules and minimum funding requirements.

The plan trustees and the company finalised the latest triennial valuation for funding purposes (as at January 1, 2009) on March 22, 2010.

We operate in a highly competitive environment that is subject to rapid change and we must continue to invest and adapt to remain competitive.

Our education, business information and book publishing businesses all operate in highly competitive markets, which are constantly changing in response to competition, technological innovations and other factors. We may be required to invest significant resources to further adapt to the changing competitive environment. A common trend facing all our businesses is the digitization of content and proliferation of distribution channels, either over the internet, or via other electronic means, replacing traditional print formats. If we do not adapt rapidly to these changes we may lose business to ‘faster’ more “agile’ competitors, who increasingly are non-traditional competitors, i.e. technology companies, making their identification all the more difficult.

Illustrations of the competitive threats we face at present include:


	—	Students seeking cheaper sources of content, e.g. online discounters, file sharing, use of pirated copies, used books or re-imported textbooks, along with the open source initiative are causing us to lose sales and putting downward pressure on textbook prices in our major markets.

	—	Competition from major publishers, technology companies and other educational material and service providers, including not for profit organizations, in our US educational solutions and assessment businesses.

	—	Penguin: the digital migration brings the need for change in product distribution, consumers’ perception of value and the publisher’s position between retailers and authors, which affects managing stock levels.

	—	FT: we face competitive threats both from large media players and from smaller businesses, online and mobile portals and news redistributors operating in the digital arena and providing alternative sources of news and information.


	—	People: the investments we make in our employees, combined with our employment policies and practices, we believe are critical factors enabling us to recruit and retain the very best people in our business sectors.

	—	Financial Systems and Processes: we are embarking on a substantial transformation programme based around shared and common processes and services, which is expected to result in significant cost savings in future years. The programme may take longer than planned, cost more than planned, and may cause disruption to our business. We cannot be certain that we will realise the anticipated savings in full.

A major data privacy breach may cause reputational damage to our brands and financial loss.

Across our businesses we hold large volumes of personal data including that of employees, customers and, in our assessment businesses, students and citizens. Failure to adequately protect personal data could lead to penalties, significant remediation costs, reputational damage, potential cancellation of some existing contracts and inability to compete for future business.

At Penguin, changes in product distribution channel and/or customer bankruptcy may restrict our ability to grow and affect our profitability.

New distribution channels, e.g. digital format, the internet, online retailers, growing delivery platforms (e.g. e-readers), combined with the concentration of retailer power pose both threats and opportunities to our traditional consumer publishing models, potentially impacting both sales volumes and pricing.

Penguin’s financial performance could also be negatively affected by the bankruptcy of a major retail customer which disrupts short-term product supply to the market as well as results in a large debt write off. The economic slowdown has increased this risk in the short term.

Reductions in advertising revenues and/or circulation will adversely affect the profitability of our newspaper business.

Our newspaper business has diversified its revenue streams but remains dependent on advertising income. The business has high operational gearing; relatively small changes in revenue, positive or negative, have a disproportionate effect on profitability. Any downturn in corporate and financial advertising spend due to the economic slowdown will negatively impact the results of the Financial Times newspaper. The outlook for advertising markets, which remain subject to macroeconomic conditions, is not clear and visibility is low.

Our customers can increasingly access their information through different channels and from alternative suppliers. This allows our newspaper businesses to distribute and monetize their content in new ways. Our ability to offer a range of content channels provides some protection against the risk of decline of any one format. For example, we might see a decline in print circulation in our more mature markets as readers migrate online or via mobile platforms, although we see further opportunities for growth in our less mature markets. However, if the migration of readers to new digital formats occurs more quickly than we expect, this is likely to adversely affect print advertising and our newspaper’s profitability.

Operational disruption to our business caused by a major disaster and/or external threats could restrict our ability to supply products and services to our customers.

Across all our businesses, we manage complex operational and logistical arrangements including distribution centers, data centers and large office facilities as well as relationships with third party print sites. We have also outsourced some support functions, including information technology, to third party providers. Failure to recover from a major disaster, (e.g. fire, flood etc) at a key facility or the disruption of supply from a key third party vendor or partner (e.g. due to bankruptcy) could restrict our ability to service our customers. Similarly external threats, such as a flu pandemic, terrorist attacks, strikes, weather etc, could all affect our business and employees, disrupting our daily business activities.

A control breakdown or service failure in our school assessment businesses could result in financial loss and reputational damage.

There are inherent risks associated with our school assessment businesses, both in the US and the UK. A service failure caused by a breakdown in our testing and assessment processes could lead to a mis-grading of student tests and/or late delivery of test results to students and their schools. In either event we may be subject to legal claims, penalty charges under our contracts, non-renewal of contracts and/or the suspension or withdrawal of our accreditation to conduct tests. It is also possible that such events would result in adverse publicity, which may affect our ability to retain existing contracts and/or obtain new customers.

Failure to generate anticipated revenue growth, synergies and/or cost savings from acquisitions could lead to goodwill and intangible asset impairments.

We continually acquire and dispose of businesses to achieve our strategic objectives. In 2009 we acquired Wall Street English, China’s leading provider of premium English language training to adults, for £101m. In South Africa, the company received regulatory approval for the acquisition of the majority stake in Maskew Miller Longman (MML) which we intend to integrate with Heinemann South Africa.

Acquired goodwill and intangible assets could be impaired if we are unable to generate the anticipated revenue growth, synergies and/or cost savings associated with these or other acquisitions.

Changes in our tax position can significantly affect our reported earnings and cash flows.

Changes in corporate tax rates and/or other relevant tax laws in the UK and/or the US could have a material impact on our future reported tax rate and/or our future tax payments.

Our professional services and school assessment businesses involve complex contractual relationships with both government agencies and commercial customers for the provision of various testing services. Our financial results, growth prospects and/or reputation may be adversely affected if these contracts and relationships are poorly managed.

These businesses are characterized by multi-million pound sterling contracts spread over several years. As in any contracting business, there are inherent risks associated with the bidding process, start-up, operational performance and contract compliance (including penalty clauses) which could adversely affect our financial performance and/or reputation. Failure to retain these contracts at the end of the contract term could adversely impact our future revenue growth.

At Edexcel, our UK Examination board and testing business, any change in UK Government policy to examination marking (e.g., price capping) could have a significant impact on our present business model.

We operate in markets which are dependent on Information Technology (IT) systems and technological change.

All our businesses, to a greater or lesser extent, are dependent on information technology. We either provide software and/or internet services to our customers or we use complex IT systems and products to support our business activities, particularly in Interactive Data and business information publishing, back-office processing and infrastructure.

We face several technological risks associated with software product development and service delivery in our educational businesses, information technology security (including virus and hacker attacks), e-commerce, enterprise resource planning system implementations and upgrades. The failure to recruit and retain staff with relevant skills may constrain our ability to grow as we combine traditional publishing products with online and service offerings.

Investment returns outside our traditional core US and UK markets may be lower than anticipated.

To take advantage of international growth opportunities and to reduce our reliance on our core US and UK markets we are increasing our investments in a number of emerging markets, some of which are inherently more risky than our traditional markets. Political, economic, currency, reputational and corporate governance risks (including fraud) as well as unmanaged expansion are all factors which could limit our returns on investments made in these markets.


ITEM 4.	*INFORMATION ON THE COMPANY*

Pearson

Pearson is an international media and education company with its principal operations in the education, business information and consumer publishing markets. We create and manage intellectual property, which we promote and sell to our customers under well-known brand names, to inform, educate and entertain. We deliver our content in a variety of forms and through a variety of channels, including books, newspapers and online services. We increasingly offer services as well as content, from test creation, administration and processing to teacher development and school software. Though we operate in more than 60 countries around the world, today our largest markets are the US (62% of sales) and Europe (22% of sales) on a continuing basis.

Pearson was incorporated and registered in 1897 under the laws of England and Wales as a limited company and re-registered under the UK Companies Act as a public limited company in 1981. We conduct our operations primarily through our subsidiaries and other affiliates. Our principal executive offices are located at 80 Strand, London WC2R 0RL, United Kingdom (telephone: +44 (0) 20 7010 2000).

Overview of operating divisions

Pearson consists of three major worldwide businesses:

Pearson Education is the world’s leading education company, providing educational materials, technologies, assessments and services to teachers and students of all ages. It is also a leading provider of electronic learning programmes and of test development, processing and scoring services to educational institutions, corporations and professional bodies around the world. In 2009, Pearson Education operated through three worldwide segments, which we refer to as “North American Education”, “International Education” and “Professional”:

The FT Group provides business and financial news, data, comment and analysis, in print and online, to the international business community. It has two major parts:


	•	FT Publishing includes the globally focused Financial Times newspaper and FT.com website, a range of specialist financial magazines and online services, and Mergermarket, which provides proprietary forward-looking insights and intelligence to businesses and financial institutions.

	•	Interactive Data provides specialist financial data to financial institutions and retail investors. Pearson owns a 61% interest in Interactive Data, which is publicly listed on the New York Stock Exchange (NYSE:IDC).

The FT Group also has a 50% ownership stake in both The Economist Group and FTSE International.

The Penguin Group is one of the world’s leading consumer publishing businesses and an iconic global brand. We publish the works of many authors in an extensive portfolio of fiction, non-fiction and reference titles under imprints including Penguin, Hamish Hamilton, Putnam, Berkley, and Dorling Kindersley.

Our strategy

Our goal is to be the world’s leading ‘education’ company, and to help people make progress in their lives through learning, wherever and whenever they are learning — young or old; at home, school or at work; and through whatever medium and style of learning is most effective.

We aim to produce consistent growth on three key financial measures — earnings per share, cash flow and return on invested capital — which we believe are, together, good indicators that we are building long-term value of Pearson.

To achieve this goal, our strategy has four parts, common to all our businesses:


	•	Long-term organic investment in content: We invest steadily in content such as new education programmes, new and established authors for Penguin and the FT’s journalism. We believe that this constant investment is critical to the quality and effectiveness of our products and services.

	•	Digital and services businesses: Our strategy centers on adding services to our content, usually enabled by technology, to make the content more useful, personal and valuable. These digital and services businesses give us access to new sources of revenues to sustain growth. We now receive close to one-third of our annual sales from digital products and services which is more than double the total five years ago.

	•	International markets: Pearson has market leading positions in major developed economies, particularly the US, UK and Western Europe. We are already present in more than 60 countries and we are investing to become a much larger global education company, with particular emphasis on emerging markets, such as China, India, Africa and Latin America. Over the past 5 years our ‘international’ (meaning ‘outside North America’) education business has grown sales at an average annual rate of 17%.

	•	Efficiency: The businesses of Pearson have a lot in common, in costs, assets, and activities. Pooling those makes the company stronger and more efficient. It also allows our businesses to learn from each other and to collaborate to save money. On that basis we have invested for efficiency through savings in our individual businesses and through a strong centralized operations structure. We are integrated in many areas where our businesses share the same needs — purchasing, warehousing, distribution, facilities and real estate, project management, people resources, finance and accounting, and transactions. Over the past five years, we have increased our adjusted operating profit margins from 12.8% to 15.3% and reduced average working capital as a percentage of sales from 27.4% to 25.1%. Adjusted operating profit is a key financial measure used by management to evaluate performance and allocate resources to our business segments. See “Item 5. Operating and Financial Review”.

Operating divisions

Pearson Education

Pearson Education is one of the largest publishers of textbooks and online teaching materials. It serves the growing demands of teachers, students, parents and professionals throughout the world for stimulating and effective education programs in print and online.

We report Pearson Education’s performance in the three segments: North American Education, International Education, and Professional. In 2009, Pearson Education had sales of £3,780m or 67% (65% in 2008) of Pearson’s total. Pearson Education generated 67% of Pearson’s operating profit.

North American Education

Our North American business serves educators and students in the USA and Canada from early education through elementary, middle and high schools and into higher education with a wide range of products and services: curriculum textbooks and other learning materials; student assessments and testing services; and education technologies. Pearson has a leading position in each of these areas and a distinctive strategy of connecting those parts to support institutions and personalize learning. In 2008 we began to integrate our North American School and Higher Education companies, which we believe will bring significant opportunities to develop growth businesses, to share investments and technologies and to gain further efficiencies.

Our North American School business contains a unique mix of publishing, testing and technology products for the elementary and secondary school markets, which are increasingly integrated. The major customers of this business are state education boards and local school districts. The business publishes high quality curriculum programmes for school students, at both elementary and secondary level, under a number of imprints including Scott Foresman and Prentice Hall.

Our school testing business is the leading provider of test development, processing and scoring services to US states and the federal government. Its capabilities have been further enhanced through the integration of the Harcourt Assessment business. We are also a leading provider of electronic learning programs for schools, and of ‘Student Information Systems’ technology which enables elementary and secondary schools and school districts to record and manage information about student attendance and performance.

Our North American Higher Education business is the largest publisher of textbooks and related course materials for colleges and universities in the US. We publish across all of the main fields of study with imprints such as Prentice Hall, Addison Wesley, Allyn & Bacon and Benjamin Cummings. Typically, professors or other instructors select or ‘adopt’ the textbooks and online resources they recommend for their students, which students then purchase either in a bookstore or online. Today the majority of our textbooks are accompanied by online services which include homework and assessment tools, study guides and course management systems that enable professors to create online courses. We have also introduced new formats such as downloadable audio study guides and electronic textbooks which are sold on subscription. In addition, we have a fast-growing custom publishing business which works with professors to produce textbooks and online resources specifically adapted for their particular course.

See “Item 5 Operating and Financial Review and Prospects — Results of Operations — Year ended December 31, 2009 compared to year ended December 31, 2008 — Sales and operating profit by division — North American Education” for a discussion of developments during 2009 with respect to this division.

International Education

Our International Education business covers all educational publishing and related services outside North America.

Our International schools business publishes educational materials in local languages in a number of countries. We are one of the world’s leading providers of English Language Teaching (ELT) materials for children and adults, published under the well-known Longman imprint. In 2008 we strengthened our position further in international markets through the acquisition of the Harcourt Education International business, and in 2009 through the acquisition of Wall Street English, a chain of premium English language schools in China, and investment in vocational training and online learning in India.

Outside North America, our International higher education business adapts our textbooks and technology services for individual markets, and we have a growing local publishing program, with our key markets including the UK, Benelux, Mexico, Germany, Hong Kong, Korea, Taiwan, Singapore, Japan and Malaysia.

We are also a leading provider of testing, assessment and qualification services in a number of key markets including, the UK under the brand name Edexcel, Australia, New Zealand, South Africa, Hong Kong and the Middle East.

See “Item 5 Operating and Financial Review and Prospects — Results of Operations — Year ended December 31, 2009 compared to year ended December 31, 2008 — Sales and operating profit by division — International Education” for a discussion of developments during 2009 with respect to this division.

Professional

Following the disposal of Government Solutions in 2007 and Data Management in 2008, our Professional education business is focused on publishing and other learning programmes for professionals in business and technology, and on testing and certifying adults to become professionals. Over the past five years we have significantly re-orientated our professional publishing business towards long-term growth markets and built professional testing into a profitable industry leader.

Our Professional education business publishes under the following imprints: Addison Wesley Professional, Prentice Hall PTR and Cisco Press (for IT professionals); Peachpit Press and New Riders Press (for graphics and design professionals); Que/Sams (consumer and professional imprint); and Prentice Hall-Financial Times and Wharton School Publishing (for the business education market).

Our professional testing business, Pearson VUE, manages major long-term contracts to provide qualification and assessment services through its network of test centers around the world. Key customers include major technology companies, the Graduate Management Admissions Council, NCLEX, the Financial Industry Regulatory Authority and the UK’s Driving Standards Agency.

See “Item 5 Operating and Financial Review and Prospects — Results of Operations — Year ended December 31, 2009 compared to year ended December 31, 2008 — Sales and operating profit by division — Professional” for a discussion of developments during 2009 with respect to this division.

The FT Group

The FT Group provides a broad range of data, analysis and services to an audience of internationally-minded business people and financial institutions. In 2009, the FT Group had sales of £842m, or 15% of Pearson’s total sales (16% in 2008), and contributed 22% of Pearson’s operating profit.

It has two major parts: FT Publishing, a combination of the Financial Times, FT.com website, and a portfolio of financial magazines and online financial information companies; and Interactive Data, our 61%-owned financial information company. In recent years the FT Group has significantly shifted its business towards digital and subscription revenues.

FT Publishing

The Financial Times is one of the world’s leading international daily business newspapers, with five editions in the UK, Europe, Middle East and Africa, the US and Asia.

Its main sources of revenue are from sales of the newspaper, advertising and conferences. The Financial Times is complemented by FT.com which sells content and advertising online, and which charges subscribers for detailed industry news, comment and analysis, while providing general news and market data to a wider audience.

FT Business publishes specialist information on the retail, personal and institutional finance industries through titles including Investors Chronicle, Money Management, Financial Adviser and The Banker.

Mergermarket, our online financial data and intelligence provider, provides early stage proprietary intelligence to financial institutions and corporates. Its key products include Mergermarket, Debtwire, dealReporter, Wealthmonitor and Pharmawire.

See “Item 5 Operating and Financial Review and Prospects — Results of Operations — Year ended December 31, 2009 compared to year ended December 31, 2008 — Sales and operating profit by division — FT Publishing” for a discussion of developments during 2009 with respect to this division.

Interactive Data

Interactive Data is a leading provider of financial market data, analytics and related services to financial institutions, active traders and individual investors. The company’s customers use its offerings to support their portfolio management and valuation, research and analysis, trading, sales and marketing, and client service activities. We own 61% of Interactive Data; the remaining 39% is publicly traded on the NYSE (for more information see NYSE:IDC).

During January 2010, the Group announced that Interactive Data was undertaking a preliminary review of strategic alternatives for its business. At the date of this report, the outcome of the review is still uncertain.

See “Item 5 Operating and Financial Review and Prospects — Results of Operations — Year ended December 31, 2009 compared to year ended December 31, 2008 — Sales and operating profit by division — Interactive Data” for a discussion of developments during 2009 with respect to this division.

Joint Ventures and Associates

The FT Group also has a number of associates and joint ventures, including:


	•	50% interest in The Economist Group, publisher of one of the world’s leading weekly business and current affairs magazines.

	•	50% interest in FTSE International, a joint venture with the London Stock Exchange, which publishes a wide range of global indices, including the FTSE index.

	•	50% interest in Business Day and Financial Mail, publishers of one of South Africa’s leading financial newspapers and magazines.

	•	33% interest in Vedomosti, a leading Russian business newspaper.

On March 27, 2008, Financial Times International Publishing Ltd sold its 50% partnership interest in Financial Times Deutschland GmbH & Co KG to Gruner & Jahr AG & Co KG.

The Penguin Group

Penguin is one of the most famous brands in book publishing. It publishes over 4,000 fiction and non-fiction books each year, on paper, screens and in audio formats for readers of all ages, and has an extensive range of backlist and frontlist titles including top literary prize winners, classics, reference volumes and children’s titles.

Penguin operates around the world through a series of connected national publishing houses. It publishes under a number of well known imprints including Putnam, Viking, Allen Lane, Hamish Hamilton, Berkley, the Penguin Press, Puffin and Dorling Kindersley. Penguin combines a longstanding commitment to local publishing with a determination to benefit from its worldwide scale, a globally recognized brand and growing demand for books in emerging markets. Its largest businesses are in the US, the UK, Australia, Canada, Ireland, India, South Africa and New Zealand.

In 2009, Penguin had sales of £1,002m, representing 18% of Pearson’s total sales (19% in 2008) and contributed 11% of Pearson’s operating profit. Its largest market is the US, which generated around 59% of Penguin’s sales in 2009. The Penguin Group earns around 97% of its revenues from the sale of hard cover and paperback books. The balance comes from audio books and e-books.

Penguin sells directly to bookshops and through wholesalers. Retail bookshops normally maintain relationships with both publishers and wholesalers and use the channel that best serves the specific requirements of an order. It also sells through online retailers such as Amazon.com, as well as Penguin’s own website.

See “Item 5 Operating and Financial Review and Prospects — Results of Operations — Year ended December 31, 2009 compared to year ended December 31, 2008 — Sales and operating profit by division — The Penguin Group” for a discussion of developments during 2009 with respect to this division.

Operating cycles

Pearson determines a normal operating cycle separately for each entity/cash generating unit within the Group with distinct economic characteristics. The “normal operating cycle” for each of the Group’s education businesses is primarily based on the expected period over which the educational programs and titles will generate cash flows, and also takes account of the time it takes to produce the educational programs.

Particularly for the North American Education businesses, there are well established cycles operating in the market:


	•	The School market is primarily driven by an adoption cycle in which major state education boards ‘adopt’ programs and provide funding to schools for the purchase of these programs. There is an established and published adoption cycle with new adoptions taking place on average every 5 years for a particular subject. Once adopted, a program will typically sell over the course of the subsequent 5 years. The Company renews its pre-publication assets to meet the market adoption cycles. Therefore the operating cycle naturally follows the market cycle.


	•	The Higher Education market has a similar pattern, with colleges and professors typically refreshing their courses and selecting revised programs on a regular basis, often in line with the release of new editions or new technology offerings. The Company renews its pre-publication assets to meet the typical demand for new editions of, or revisions to, educational programs. Analysis of historical data shows that the average life cycle of Higher Education content is up to 5 years. Again the operating cycle mirrors the market cycle.

A development phase of typically 12 to 18 months for Higher Education and up to 24 months for School precedes the period during which the Company receives and delivers against orders for the products it has developed for the program.

The International Education markets operate in a similar way although often with less formal ‘adoption’ processes.

The operating cycles in respect of Professional and the Penguin segment are more specialized in nature as they relate to educational or heavy reference products released into smaller markets (e.g. the financial training, IT and travel sectors). Nevertheless, in these markets, there is still a regular cycle of product renewal, in line with demand which management monitor. Typically the life cycle is 5 years for Professional content and up to 4 years for Penguin content.

Competition

All of Pearson’s businesses operate in highly competitive environments.

Pearson Education competes with other publishers and creators of educational materials and services. These companies include large international companies, such as McGraw-Hill and Houghton Mifflin Harcourt, alongside smaller niche players that specialize in a particular academic discipline or focus on a learning technology. Competition is based on the ability to deliver quality products and services that address the specified curriculum needs and appeal to the school boards, educators and government officials making purchasing decisions.

FT Publishing competes with newspapers and other information sources, such as The Wall Street Journal, by offering timely and expert journalism and market intelligence. It competes for advertisers with other forms of media based on the ability to offer an effective means for advertisers to reach their target audience. Interactive Data competes with Bloomberg and Thomson Reuters on a global basis for the provision of financial data to the back office of financial institutions. In Europe, Telekurs is also a direct competitor for these services. Smaller, more specialized vendors also compete with Interactive Data in certain market segments and in certain geographic areas.

The Penguin Group competes with other publishers of fiction and non-fiction books. Principal competitors include Random House, HarperCollins, and Hachette Group. Publishers compete by developing a portfolio of books by established authors and by seeking out and promoting talented new writers.

Intellectual property

Our principal intellectual property assets consist of our trademarks and other rights in our brand names, particularly the Financial Times and the various imprints of Penguin and Pearson Education, as well as all copyrights for our content and our patents held in the testing business in the name of Pearson NCS. We believe we have taken all appropriate available legal steps to protect our intellectual property in all relevant jurisdictions.

Raw materials

Paper is the principal raw material used by each of Pearson Education, the FT Group and the Penguin Group. We purchase most of our paper through our Global Sourcing department located in the United States. We have not experienced and do not anticipate difficulty in obtaining adequate supplies of paper for our operations, with sourcing available from numerous suppliers. While local prices fluctuate depending upon local market conditions, we have not experienced extensive volatility in fulfilling paper requirements. In the event of a sharp increase in paper prices, we have a number of alternatives to minimize the impact on our operating margins, including modifying the grades of paper used in production.

Government regulation

The manufacture of certain of our products in various markets is subject to governmental regulation relating to the discharge of materials into the environment. Our operations are also subject to the risks and uncertainties attendant to doing business in numerous countries. Some of the countries in which we conduct these operations maintain controls on the repatriation of earnings and capital and restrict the means available to us for hedging potential currency fluctuation risks. The operations that are affected by these controls, however, are not material to us. Accordingly, these controls have not significantly affected our international operations. Regulatory authorities may have enforcement powers that could have an impact on us. We believe, however, that in light of the nature of our business the risk of these sanctions does not represent a material threat to us.

Licenses, patents and contracts

We are not dependent upon any particular licenses, patents or new manufacturing processes that are material to our business or profitability. Likewise, we are not materially dependent upon any contracts with suppliers or customers, including contracts of an industrial, commercial or financial nature.

Legal Proceedings

We and our subsidiaries are from time to time the subject of legal proceedings incidental to the nature of our and their operations. These may include private litigation or arbitrations, governmental proceedings and investigations by regulatory bodies. We do not currently expect that the outcome of pending proceedings or investigations, either individually or in aggregate, will have a significant effect on our financial position or profitability nor have any such proceedings had such effect in the recent past. To our knowledge, there are no material proceedings in which any member of senior management or any of our affiliates is a party adverse to us or any of our subsidiaries or in respect of which any of those persons has a material interest adverse to us or any of our subsidiaries.

Recent developments

On 3 February 2010 the FT Publishing business announced the acquisition of Medley Global Advisors LLC, a provider of macro policy intelligence to the world’s top investment banks, hedge funds and asset managers for $15.5m.

Organizational structure

Pearson plc is a holding company which conducts its business primarily through subsidiaries and other affiliates throughout the world. Below is a list of our significant subsidiaries as at December 31, 2009, including name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held.


		Percentage
		interest/voting
Name	Country of incorporation/residence	power

Pearson Education
Pearson Education Inc.	United States (Delaware)		100	%
Pearson Education Ltd.	England and Wales		100	%
Edexcel Ltd.	England and Wales		100	%
NCS Pearson Inc.	United States (Minnesota)		100	%
FT Group
The Financial Times Limited	England and Wales		100	%
Mergermarket Ltd.	England and Wales		100	%
Interactive Data Corporation	United States (Delaware)		61	%
The Penguin Group
Penguin Group (USA) Inc.	United States (Delaware)		100	%
The Penguin Publishing Co Ltd.	England and Wales		100	%
Dorling Kindersley Holdings Ltd	England and Wales		100	%

Property, plant and equipment

Our headquarters are located at leasehold premises in London, England. We own or lease approximately 1,000 properties, including approximately 500 testing/teaching centers in more than 60 countries worldwide, the majority of which are located in the United Kingdom and the United States.

The properties owned and leased by us consist mainly of offices, distribution centers and computer testing/teaching centers.

The vast majority of our printing is carried out by third party suppliers. We operate two small digital print operations as part of our Pearson Assessment & Testing businesses, one of which was sold as part of the February 2008 Data Management sale. These operations provide short-run and print-on-demand products, typically custom client applications.

We own the following principal properties at December 31, 2009:


General use of property	Location	Area in square feet

Warehouse/Office	Kirkwood, New York, USA		524,000
Warehouse/Office	Pittston, Pennsylvania, USA		406,000
Office	Iowa City, Iowa, USA		310,000
Warehouse/Office	Old Tappan, New Jersey, USA		210,112
Warehouse/Office	Cedar Rapids, Iowa, USA		205,000
Office	Southwark, London, UK		155,000
Office	Hadley, Massachusetts, USA		136,570
Printing	Owatonna, Minnesota, USA		128,000

We lease the following principal properties at December 31, 2009:


General use of property	Location	Area in square feet

Warehouse/Office	Lebanon, Indiana, USA		1,091,435
Warehouse/Office	Cranbury, New Jersey, USA		886,747
Warehouse/Office	Indianapolis, Indiana, USA		737,850
Warehouse/Office	San Antonio, Texas, USA		559,258
Office	Upper Saddle River, New Jersey, USA		474,801
Warehouse/Office	Rugby, UK		446,077
Office	New York City, New York, USA		430,738
Office	London, UK		282,917
Warehouse/Office	Newmarket, Ontario, Canada		278,912
Warehouse/Office	Austin, Texas, USA		226,076
Office	Boston, Massachusetts, USA		225,299
Warehouse	Scoresby, Victoria, Australia		197,255
Office	Glenview, Illinois, USA		187,500
Warehouse/Office	Bedfordshire, UK		186,570
Office	Bloomington, Minnesota, USA		153,240
Office	Boston, Massachusetts, USA		138,112
Office	Harlow, UK		137,851
Office	Chandler, Arizona, USA		135,460
Warehouse/Office	Cedar Rapids, Iowa, USA		119,682
Office	New York City, New York, USA		116,039
Warehouse	San Antonio Zomeyucan, Mexico		113,638
Office	London, UK		112,000
Call Center	Lawrence, Kansas, USA		105,000

Capital Expenditures

See Item 5. “Operating and Financial Review and Prospects — Liquidity and Capital Resources” for description of the Company’s capital expenditure.


ITEM 4A.	*UNRESOLVED STAFF COMMENTS*

The Company has not received, 180 days or more before the end of the 2009 fiscal year, any written comments from the Securities and Exchange Commission staff regarding its periodic reports under the Exchange Act which remain unresolved.


ITEM 5.	*OPERATING AND FINANCIAL REVIEW AND PROSPECTS*

The following discussion and analysis is based on and should be read in conjunction with the consolidated financial statements, including the related notes, appearing elsewhere in this Annual Report. The financial statements have been prepared in accordance with IFRS as issued by the IASB.

Where this discussion refers to constant currency comparisons, these are estimated by re-calculating the current year results using the exchange rates prevailing for the prior period. The increase or reduction in the value calculated is the estimate of impact of exchange rates. We believe this presentation provides a more useful period to period comparison as changes due solely to changes in exchange rates are eliminated.

General overview

Introduction

Sales from continuing operations increased from £4,811m in 2008 to £5,624m in 2009, an increase of 17%. The year on year growth was significantly impacted by exchange rates, in particular the US dollar. The average US dollar exchange rate strengthened in comparison to sterling in 2008, which had the effect of increasing reported sales in 2009 by £640m when compared to the equivalent figure at constant 2008 rates. When measured at constant

2008 exchange rates, the main contributors to growth were the North American and International Education businesses with the International Education business in particular, benefitting from acquisitions made in 2009.

Reported operating profit increased by 12% from £676m in 2008 to £755m in 2009. The relative strength of the US dollar contributed to this increase and operating profit would have been approximately £57m lower if translated at constant 2008 exchange rates. When measured at constant rates, the main contributors to the increase were the North American and International Education businesses which benefitted from the improved sales performance.

Profit before taxation in 2009 of £660m compares to a profit before taxation of £585m in 2008. The increase of £75m reflects the improved operating performance offset by a small increase in net finance costs. Net finance costs increased from £91m in 2008 to £95m in 2009. The Group’s net interest payable decreased by £4m in 2009 as we benefitted from a fall in average interest rates on our floating-rate US dollar debt and a decrease in our overall level of average net debt. Exchange losses of £7m in 2009 compare to a net exchange loss of £11m in 2008. The losses in 2008 mainly relate to the retranslation of foreign currency bank accounts together with other net losses on inter-company items. In 2009 the loss mainly relates to losses on cross currency swaps. The benefit from reduced interest and lower exchange losses in 2009 is offset by a finance charge relating to post retirement plans of £12m which compares to finance income from post retirement plans of £8m in 2008. The increase in finance charges relating to post retirement plans is largely due to lower expected returns on plan assets.

On February 22, 2008 the Group completed the sale of its Data Management business and this business has been included in discontinued operations for the period to February 22 in 2008, and the full year in 2007. In 2007, the Group completed the sale of its French newspaper business, Les Echos and its Government contracting business, Government Solutions. The results of Les Echos and Government Solutions have been shown as discontinued operations in the consolidated income statement for 2007.

Net cash generated from operations increased to £1,012m in 2009 from £894m in 2008. The improved cash generation in 2009 was due to strong cash collections, particularly in our education businesses. On an average basis, the ratio of working capital to sales improved from 26.1% to 25.1%, reflecting tight working capital management and the favourable working capital profile of 2009 acquisitions. Average working capital comprises the average of the monthly carrying values over the relevant 12 month period for inventory, pre-publication costs, debtors and creditors. Net interest paid at £87m in 2009 was £11m above the previous year, purely due to the timing of interest payments on the bond portfolio. Tax paid in 2009 increased to £103m compared to £89m in 2008. Net capital expenditure on property, plant and equipment after proceeds from sales decreased to £61m in 2009 from £73m in 2008. The net cash outflow in respect of businesses acquired decreased from £395m in 2008 to £208m in 2009 whilst net proceeds from the disposal of businesses decreased from £111m in 2008 to £14m in 2009. Dividends from joint ventures and associates were broadly flat year on year at £22m in 2009 against £23m in 2008. Dividends paid of £293m in 2009 (including £20m paid to minority interests) compares to £285m in 2008. After a favorable currency movement of £164m, overall net borrowings decreased by 25% from £1,460m at the end of 2008 to £1,092m at the end of 2009.

Outlook

Pearson reported growth in sales and operating profit in 2009, in spite of the exceptionally difficult macroeconomic environment and against record 2008 results. We achieved strong profit growth in education, helping us to make good financial progress even though our markets in US school publishing, financial advertising and consumer books were especially challenging.

Trading conditions in those tough markets began to ease towards the end of the year, but we are planning on the basis that some of our markets remain subdued throughout 2010. Even so, we expect Pearson to produce another year of profit growth assuming exchange rates remain constant, helped by the overall resilience of our company and good growth prospects for our businesses in digital, services and emerging markets.

Pearson Education

In Education, we believe that our sustained investment in content and our leadership position in learning services and technologies will enable us to build on our strong market positions. We expect to gain further share in

the US School market which will benefit from a stronger adoption opportunity ($850m — $900m) and new federal funds, broadly offset by continued pressure on education funding at the state level. In Higher Education and International Education, we expect to produce further underlying growth and share gains.

FT Group

At FT Publishing, we expect to sustain good renewal rates in our subscription businesses and healthy margins. Advertising revenues (which in 2009 accounted for less than 3% of total Pearson revenues) remain highly unpredictable but we expect to see some stabilisation after the sharp declines across the industry in 2009. Interactive Data Corporation expects 2010 revenues to range between $810m to $830m and healthy margins in the 25% to 26% range (guidance under US GAAP). As previously announced, the Board of Interactive Data Corporation is currently undertaking a preliminary review of strategic alternatives for the company.

The Penguin Group

We expect Penguin to post another good competitive performance in the context of a consumer books market that we expect to remain broadly level in 2010. Penguin will benefit from its leading position in the emerging market for eBooks and from the efficiency actions taken in 2009.

Sales information by operating division

The following table shows sales information for each of the past three years by operating division:


	Year Ended December 31
	2009		2008		2007
	£m		£m		£m

Education:
North American		2,470		2,002		1,667
International		1,035		866		735
Professional		275		244		226
FT Group:
FT Publishing		358		390		344
Interactive Data		484		406		344
Penguin		1,002		903		846

Total		5,624		4,811		4,162

Sales information by geographic market supplied

The following table shows sales information for each of the past three years by geographic region:


	Year Ended December 31
	2009		2008		2007
	£m		£m		£m

European countries		1,222		1,217		1,102
North America		3,663		3,028		2,591
Asia Pacific		519		415		351
Other countries		220		151		118

Total		5,624		4,811		4,162

Exchange rate fluctuations

We earn a significant proportion of our sales and profits in overseas currencies, principally the US dollar. Sales and profits are translated into sterling in the consolidated financial statements using average rates. The average rate used for the US dollar was £1:$1.57 in 2009, £1:$1.85 in 2008 and £1:$2.00 in 2007. Fluctuations in exchange rates

can have a significant impact on our reported sales and profits. In 2009, Pearson generated 62% of its sales in the US (2008: 59%; 2007: 59%). In 2009 we estimate that a five cent change in the average exchange rate between the US dollar and sterling would have had an impact on our reported earnings per share of 1.3p and a five per cent change in the closing exchange rate between the US dollar and sterling would have had an impact on shareholders’ funds of approximately £120m. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk” for more information. The year-end US dollar rate for 2009 was £1:$1.61 compared to £1:$1.44 for 2008. In terms of the year end rate, the strengthening of sterling in comparison to the US dollar in 2009 was less significant than in the previous year and the relatively weak value of the US dollar had the effect of reducing shareholders’ funds. The net effect of movement in all currencies in 2009 was a reduction in our shareholders’ funds of £388m. The year-end rate for the US dollar in 2008 was £1:$1.44 compared to £1:$1.99 for 2007. The comparative strength of the US dollar was more significant in 2008 and the increase in shareholders funds due to the US dollar contributed to an overall increase in shareholders’ funds due to exchange movements of £1,125m in 2008.

Critical accounting policies

Our consolidated financial statements, included in “Item 18. Financial Statements”, are prepared based on the accounting policies described in note 1 to the consolidated financial statements.

Certain of our accounting policies require the application of management judgment in selecting assumptions when making significant estimates about matters that are inherently uncertain. Management bases its estimates on historical experience and other assumptions that it believes are reasonable. These policies are described in note 1a(3) in “Item 18. Financial Statements”.

Results of operations

Year ended December 31, 2009 compared to year ended December 31, 2008

Consolidated results of operations

Sales

Our total sales from continuing operations increased by £813m, or 17%, to £5,624m in 2009, from £4,811m in 2008. The increase reflected growth, on a constant exchange rate basis, at our North American Education, International Education and Interactive Data businesses together with additional contributions from acquisitions made in both 2008 and 2009. The year on year growth was impacted by movements in exchange rates, particularly in the US dollar. 2009 sales, translated at 2008 average exchange rates, would have been £4,984m.

Pearson Education increased sales by £668m or 21% from £3,112m to £3,780m. The North American business was the major contributor to the increase although a high proportion of that increase was due to exchange. We estimate that after excluding acquisitions, Pearson Education saw sales growth of 4% at constant last year exchange rates. The North American Education business grew ahead of the market in its US Curriculum and Higher Education businesses which together grew at 5% compared to the industry which remained flat according to the Association of American Publishers. There was also a strong performance in the US Assessment and Information division which benefitted from the successful integration of the Harcourt Assessment business acquired at the start of 2008. In International Education sales also benefitted from exchange and a contribution from the acquisitions of Wall Street English and Fronter (a European online learning company based in Oslo) and the increased shares of Longman Nigeria and Maskew Miller Longman (MML), our publishing businesses in South Africa and West Africa respectively, which were all acquired in 2009. After excluding the effect of acquisitions we estimate that there was growth of 4% at constant last year exchange rates in the International Education business. Professional sales increased in 2009 by 13% although all of this increase was due to exchange and in terms of constant last year exchange rates there was a small decline in sales of 1%. This decline was entirely due to weakness in the professional publishing market which has offset growth in the professional testing and certification businesses.

FT Group sales were 6% ahead of last year with growth at Interactive Data offsetting adverse variances at FT Publishing. FT Publishing sales were down by 8% or 12% after excluding the effect of exchange rates. FT Publishing’s sales decline mainly reflects tough market conditions for financial and corporate advertising. The impact of advertising revenue declines was partially mitigated by growth in content revenues, the resilience of our

subscription businesses and an increase in paying online subscribers at FT.com. Interactive Data sales were up by 19% (2% at constant last year exchange rates and before the contribution from acquisitions). Sales growth was driven by Interactive Data’s Institutional Services segment which performed well despite difficult conditions in the financial services industry.

Penguin’s sales were up 11% in 2009 but this represents a 2% decline at constant last year exchange rates and before the effect of portfolio changes. Much of the underlying decline was due to a fall in sales of illustrated reference books which offset good performances in other categories.

Pearson Education, our largest business sector, accounted for 67% of our continuing business sales in 2009 compared to 65% in 2008. North America continued to be the most significant source of our sales and as a proportion of total continuing sales contributed 65% in 2009 and 63% in 2008.

Cost of goods sold and operating expenses

The following table summarizes our cost of sales and net operating expenses:


	Year Ended December 31
	2009			2008
	£m			£m

Cost of goods sold		2,539			2,174
Distribution costs		274			235
Administration and other expenses		2,206			1,853
Other operating income		(120	)		(102	)

Total		2,360			1,986

Cost of goods sold. Cost of sales consists of costs for raw materials, primarily paper, printing and binding costs, amortization of pre-publication costs and royalty charges. Our cost of sales increased by £365m, or 17%, to £2,539m in 2009, from £2,174m in 2008. The increase corresponds to the increase in sales with cost of sales at 45.1% of sales in 2009 compared to 45.2% in 2008.

Distribution costs. Distribution costs consist primarily of shipping costs, postage and packing and remain a fairly constant percentage of sales.

Administration and other expenses. Our administration and other expenses increased by £353m, or 19%, to £2,206m in 2009, from £1,853m in 2008. As a percentage of sales they remained consistent at 39% in 2008 and 2009.

Other operating income. Other operating income mainly consists of freight recharges, sub-rights and licensing income and distribution commissions together with income from sale of assets. Other operating income increased to £120m in 2009 compared to £102m in 2008 although much of this increase can be ascribed to exchange.

Share of results of joint ventures and associates

The contribution from our joint ventures and associates increased from £25m in 2008 to £30m in 2009. The majority of the profit comes from our 50% interest in the Economist.

Operating profit

The total operating profit increased by £79m, or 12%, to £755m in 2009 from £676m in 2008. 2009 operating profit, translated at 2008 average exchange rates, would have been £57m lower.

Operating profit attributable to Pearson Education increased by £99m, or 24%, to £505m in 2009, from £406m in 2008. The increase was attributable to strong performances in the US Higher Education business and both the US and International Assessments businesses and due to the positive impact of exchange. Operating profit attributable to the FT Group decreased by £12m, or 7%, to £167m in 2009, from £179m in 2008. The decrease reflects the

decline in profitability at FT Publishing, as they faced tough conditions in the advertising market, coupled with an increased charge for intangible amortization which offsets a positive performance from Interactive Data. Operating profit attributable to the Penguin Group decreased by £8m, or 9%, to £83m in 2009, from £91m in 2008. This decrease was principally due to charges relating to reorganisation of the business in the UK.

Net finance costs

Net finance costs increased from £91m in 2008 to £95m in 2009. Net interest payable in 2009 was £85m, down from £89m in 2008. The Group’s net interest payable decreased by £4m in 2009 as we benefitted from a fall in average interest rates on our floating US dollar debt and a decrease in our overall level of average net debt. Year on year, average three month LIBOR (weighted for the Group’s net borrowings in US dollars and sterling at each year end) fell by 2.4% to 0.7%. This reduction in floating market interest rates was partially offset by higher fixed bond coupons prevailing at the time of our 2009 bond issue. The overall result was a decrease in the Group’s average net interest rate payable by 0.6% to 5.3%. In 2009 the net finance income relating to post-retirement plans was a charge of £12m compared to an income of £8m in the previous year reflecting lower returns on plan assets.

Other net finance costs relating to foreign exchange and short-term fluctuations in the market value of financial instruments included a net foreign exchange loss of £7m in 2009 compared to a loss of £11m in 2008. The losses in 2008 mainly relate to the retranslation of foreign currency bank accounts together with other net losses on inter-company items. In 2009 the loss mainly relates to losses on cross currency swaps. For a more detailed discussion of our borrowings and interest expenses see “— Liquidity and Capital Resources — Capital Resources” and “— Borrowings” below and “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.

Taxation

The total tax charge in 2009 of £198m represents 30% of pre-tax profits compared to a charge of £172m or 29% of pre-tax profits in 2008. Our overseas profits, which arise mainly in the US are largely subject to tax at higher rates than the UK corporation tax rate (28% in 2009 compared to 28.5% in 2008). Higher tax rates were partly offset by releases from provisions reflecting continuing progress in agreeing our tax affairs with the authorities.

Minority interests

This comprises mainly the minority share in Interactive Data. Our share of Interactive Data was 61% in 2009, compared to 62% in 2008.

Discontinued operations

Discontinued operations in 2008 relate to the disposal of the Data Management business (in February 2008). The results of the Data Management business were included in discontinued operations to the date of disposal in 2008. The loss before tax on disposal in 2008 was £53m, mainly relating to the cumulative translation adjustment. There was a tax charge of £37m on the sale. There were no discontinued operations in 2009.

Profit for the year

The profit for the financial year in 2009 was £462m compared to a profit in 2008 of £323m. The overall increase of £139m was mainly due to the absence of the loss on discontinued operations in 2009 but also benefitted from the improved operating performance offset by a small increase in net finance costs.

Earnings per ordinary share

The basic earnings per ordinary share, which is defined as the profit for the financial year divided by the weighted average number of shares in issue, was 53.2p in 2009 compared to 36.6p in 2008 based on a weighted average number of shares in issue of 799.3m in 2009 and 797.0m in 2008. The increase in earnings per share was due to the increase in profit for 2009 described above and was not significantly affected by the movement in the weighted average number of shares.

The diluted earnings per ordinary share of 53.1p in 2009 and 36.6p in 2008 was not significantly different from the basic earnings per share in those years as the effect of dilutive share options was again not significant.

Exchange rate fluctuations

The strengthening of the US dollar and other currencies against sterling on an average basis had a positive impact on reported sales and profits in 2009 compared to 2008. 2009 sales, translated at 2008 average exchange rates, would have been lower by £640m and operating profit, translated at 2008 average exchange rates, would have been lower by £57m. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk” for a discussion regarding our management of exchange rate risks.

Sales and operating profit by division

The following tables summarize our sales and operating profit for each of Pearson’s divisions. Adjusted operating profit is a non-GAAP financial measure and is included as it is a key financial measure used by management to evaluate performance and allocate resources to business segments. See also note 2 of “Item 18. Financial Statements”.

In our adjusted operating profit we have excluded amortization of acquired intangibles. The amortization of acquired intangibles is the amortization of intangible assets acquired through business combinations. The charge is not considered to be fully reflective of the underlying performance of the Group.

Adjusted operating profit enables management to more easily track the underlying operational performance of the Group. A reconciliation of operating profit to adjusted operating profit for continuing operations is included in the tables below:


	Year Ended December 31, 2009
	North American		International				FT		Interactive
£m	Education		Education		Professional		Publishing		Data		Penguin		Total

Sales		2,470		1,035		275		358		484		1,002		5,624
		44%		18%		5%		6%		9%		18%		100%
Total operating profit		354		109		42		31		136		83		755
		47%		14%		6%		4%		18%		11%		100%
Add back:
Amortization of acquired Intangibles		49		32		1		8		12		1		103

Adjusted operating profit: continuing Operations		403		141		43		39		148		84		858
Adjusted operating profit: discontinued Operations		—		—		—		—		—		—		—

Total adjusted operating profit		403		141		43		39		148		84		858

		47%		16%		5%		5%		17%		10%		100%


	Year Ended December 31, 2008
	North American		International				FT		Interactive
£m	Education		Education		Professional		Publishing		Data		Penguin		Total

Sales		2,002		866		244		390		406		903		4,811
		42%		18%		5%		8%		8%		19%		100%
Total operating profit		258		113		35		67		112		91		676
		38%		17%		5%		10%		17%		13%		100%
Add back:
Amortization of acquired Intangibles		45		22		1		7		9		2		86

Adjusted operating profit: continuing Operations		303		135		36		74		121		93		762
Adjusted operating profit: discontinued Operations		—		—		—		—		—		—		—

Total adjusted operating profit		303		135		36		74		121		93		762

		40%		17%		5%		10%		16%		12%		100%

North American Education

North American Education sales increased by £468m, or 23%, to £2,470m in 2009, from £2,002m in 2008 and adjusted operating profit increased by £100m, or 33%, to £403m in 2009 from £303m in 2008. The results were significantly affected by the relative strength of the US dollar, which we estimate increased sales by £365m and adjusted operating profit by £60m when compared to the equivalent figures at constant 2008 exchange rates. At constant exchange and after taking account of the contribution from acquisitions there was underlying growth in sales of 5% and profits of 13%. Although the contribution from the US school curriculum business declined due to State budget pressures and a fall in the adoption market there were strong contributions from the US Higher Education, US Assessment and Information and Canadian businesses.

In the US school market, the Association of American Publishers’ estimate that there was an overall decrease for the industry of 13.8% as state budget pressures and a slower new adoption year caused particular weakness in the basal publishing market. Though Pearson’s US School publishing sales declined we attained an estimated 37% of new adoptions we competed for (our highest market share for a decade) and 32% of the total new adoption market. Pearson’s enVisionMATH (www.envisionmath.com), an integrated print-and-digital program, was the top-selling basal program in the United States in 2009. It helped the School Curriculum business to an estimated 46% share of all math adoptions and sold strongly across the open territories. Successnet, the online learning platform for teachers and students which supports all Pearson’s digital instruction, assessment and remedial programs, also grew strongly achieving more than 4 million registrations in 2009.

The US Assessment and Information business saw significant profit improvement in 2009, benefitting from the successful integration of the Harcourt Assessment business acquired in 2008. Our National Services assessment business renewed its contract with the College Board, worth $210m over 10 years, to process and score the SAT and contracts to support the College Board’s new Readi-Step and ACCUPLACER diagnostics programs. Our State Services business won a number of significant new contracts including new programs in Florida and Arizona. We continue to gain share, winning 60% of the contracts bid for by value, and to be a leader in online testing, delivering 9 million secure online assessments in 2009, up more than 100% on 2008. Our Evaluation Systems teacher certification business secured contract extensions in California, Illinois, Arizona and Washington; won re-bids in Michigan and New York, each for five years; and added new contracts in California and Minnesota. In Clinical Assessments, our AIMSWeb response-to-intervention data management and progress monitoring service for children who are having difficulty learning, continued to grow and now has more than 3 million students on the system. Our Edustructures business, which provides interoperable systems to support data collection and reporting between school districts and state governments, doubled the number of students served to 8 million. Our Student Information Systems (SIS) business continued to grow strongly, benefiting from strong demand for its services that

help teachers automate and manage student attendance records, gradebooks, timetables and the like. It supports more than 12 million students — 8 million of them through its flagship PowerSchool product which is now available in more than 50 countries. In 2009 it won contracts for new school districts including Nova Scotia Department of Education (133,000 students), Newark, NJ (45,000 students), and the Hamilton County DOE, TN (40,000 students).

The US Higher Education publishing market grew 11.5% in 2009, according to the Association of American Publishers, benefiting from strong enrolment growth and federal government action to support student funding. Our US Higher Education business grew faster than the industry and outperformed the market for the eleventh straight year, continuing to see strong demand for instructional materials enhanced by technology and customization. Our sustained investment in content and technology continues to grow existing franchises and build new ones. In Engineering Mechanics, our market leading textbook, Hibbeler’s Statistics and Dynamics 12th Edition, gained an additional four percentage points of market share with the addition of our newly launched MasteringEngineering digital learning and assessment platform. Pearson became market leader in psychology supported by the recently launched textbook Psychology 2nd Edition by Cicarelli with MyPsychLab. The ‘MyLab’ digital learning, homework and assessment programs again grew strongly. Our MyLab products saw more than 6 million student registrations globally, 39% higher than in 2008. In North America, student registrations grew 37% to more than 5.6m. Custom Solutions grew strongly across both bespoke books and customized services including content creation, technology, curriculum, assessments and courseware. We partnered with the Kentucky Virtual Learning Initiative, for example, to deliver personalized mathematics instruction mapped to state college entry standards and have begun to extend this program into transitional English and Reading. eCollege, our platform for fully-online distance learning in higher education, increased online enrolments by 36% to 3.5m and benefited from continued strong renewal rates of 95% by value, new contract wins and strong growth in the usage of the platform, particularly by US for-profit colleges. Thirteen Pearson higher education and school products in ten categories were nominated as America’s best educational software products in the Software & Information Industry Association’s 25th Annual CODiE Awards. They include MyMathLab, Miller & Levine Biology, PowerSchool, Prentice Hall Literature, myWorld Geography, MyWritingLab, CourseConnect and eCollege.

Overall adjusted operating margins in the North American Education business were higher at 16.3% in 2009 compared to 15.1% in 2008 with the majority of the increase attributable to the Harcourt Assessment integration costs that were charged in 2008.

International Education

International Education sales increased by £169m, or 20%, to £1,035m in 2009, from £866m in 2008 and adjusted operating profit increased by £6m, or 4%, to £141m in 2009 from £135m in 2008. The sales results benefit from exchange gains and a full year contribution from acquisitions made in 2009. At the adjusted operating profit level the 2008 results benefitted from transactional exchange gains that were not repeated in 2009.

In the UK, we received over 3.7 million registrations for vocational assessment and general qualifications. We marked 4.5 million ’A’-level and GCSE scripts on-screen and successfully delivered the 2009 National Curriculum test series and were awarded the contract to administer the 2010 National Curriculum Tests at Key Stage 2. We made significant investments in supporting the new Diploma qualification for 14-19 year-olds; the IGCSE qualifications to meet the needs of International schools and colleges; and BTEC, our flagship vocational qualification. BTEC registrations totalled more than 1 million for the first time and were up almost 30% on 2008. Our UK Higher Education business grew strongly, helped by the success of new first editions, the rapid take up of MyLabs adapted to meet local requirements, and the growing popularity of custom publishing. Sales of UK primary resources fell, on the back of minimal curriculum change and some signs of schools managing their budgets more tightly.

In Continental Europe, the launch of our digi libre (Content Plus) products helped us to gain share in the lower and upper secondary markets in Italy and positions us well for major curriculum reforms planned for 2010. In Spain, our sales were down sharply with pressures on central and regional government spending and a worsening retail environment. Our ELT sales continued to grow in Poland, and across central and Eastern Europe we saw good demand for our publishing and digital resources and our fledgling Language Learning Solutions activities. The

Fronter learning management system continued to grow very strongly with more than 6 million students in more than 8,000 schools, colleges and Universities around the world.

In the Middle East we successfully implemented the Abu Dhabi Education Council’s (ADEC) External Measurement of Student Achievement (EMSA) program covering English, Arabic, Math and Science in April 2009 and was also contracted by the United Arab Emirates Ministry of Education to deliver the program in the northern emirates. In South Africa, we launched Platinum, the first blended print and online course developed for the South African National Curriculum. In addition 7,000 students registered for MyMathLab+ at the University of Witwatersrand.

In China, we acquired Wall Street English, the leading provider of premium English language training to adults, for £101m. The combination of Longman Schools and Wall Street English gives Pearson a leading position in the English language teaching market in China, serving students from elementary school to professional levels. We stepped up our presence in the Indian education market with two investments totalling $30m: a 50:50 joint-venture with Educomp, called IndiaCan, to offer vocational and skills training through 120 training centres across the country; and a 17.2% stake in TutorVista, which provides online tutoring for K-12 and college students.

New editions of the proven bestsellers, BackPack and Pockets, along with the successful launch of two new courses, CornerStone and KeyStone, helped to deliver strong growth in the sales of ELT materials across Latin America. In Brazil, which has one of Latin America’s largest and fastest-growing university populations, our virtual library now supports 30 post-secondary institutions. And, in Panama, 75,000 high school students are now learning Biology and Chemistry, using Prentice Hall Virtual Labs.

On a global basis our ‘MyLab’ digital learning, homework and assessment programmes were used by more than 470,000 students, up almost 60% on 2008, and are now sold in more than 200 countries. In 2009, we launched the Pearson Test of English, our new test of Academic English which will be delivered in up to 200 Pearson VUE testing centers in 37 countries. Approximately 1,000 academic programs worldwide now recognise, or are in the process of recognising, the Pearson Test of English. Our eCollege learning management system is growing rapidly in international markets, winning new contracts in Australia, Brazil, Mexico, Colombia, Puerto Rico and Saudi Arabia. Our new Pearson Learning Solutions business won its first contracts in the UK, the Gulf and Africa. It combines a broad range of products and services from across Pearson to deliver a systematic approach to improving student performance.

International Education adjusted operating margins declined from 15.6% in 2008 to 13.6% in 2009 as the benefit from transactional exchange gains at the profit level in 2008 weren’t repeated in 2009.

Professional

Professional sales increased by £31m, or 13%, to £275m in 2009 from £244m in 2008. Adjusted operating profit increased by £7m or 19% to £43m in 2009, from £36m in 2008. The sales growth was entirely due to exchange rates which increased sales by £33m when compared to the equivalent figures at constant 2008 exchange rates.

In Professional testing and certification in the UK, we extended our contract with the Driving Standards Agency to deliver the UK drivers theory test until 2014. With the Graduate Management Admissions Test and the recent contract extension for the NCLEX nursing examination, our three largest professional testing contracts now run to 2013 or after. More than seven million secure online tests were delivered in more than 4,000 test centers worldwide in 2009, an increase of 9% over 2008. Registration volumes for the Graduate Management Admissions Council test rose 8% worldwide in 2009, including a 16% increase outside the US. In the US, Pearson VUE won a number of new contracts with organizations including Oracle, Citrix, Novell, VMWare, and Adobe, the National Registry of Food Safety Professionals and the National Institute for Certification in Engineering Technologies. Pearson VUE extended its international reach, signing an agreement with the Dubai Road and Transport Authority to deliver a new, high-tech Driver Testing System and launching the Law School Admission Test in India.

Our Professional education business experienced tough trading conditions in the retail market but benefited from the increased breadth of its publishing and range of revenue streams, from online retail through digital subscriptions. A best-selling product in 2009 was CCNA Network Simulator, which are digital networking labs designed, developed and published by Pearson, to help candidates successfully pass the Cisco CCNA certification

exam. Pearson launched new learning solutions for IT Professionals preparing for certification accreditation. Cert Flash Card applications were launched for students studying for Cisco CCNA, CompTIA and Microsoft certification exams and are accessible through web browsers and iPhone and iPod Touch devices. FT Press launched a new e-publishing imprint, FT Press Delivers, providing essential insights from some of its leading business authors including Jim Champy, Brian Solis, Mark Zandi, Jon M. Huntsman, John Kao, Michael Abrashoff, and Seth Goldman.

Overall adjusted operating margins in the Professional business continued to improve and were higher at 15.6% in 2009 compared to 14.8% in 2008 as margins improved again in both the testing and professional publishing businesses.

FT Publishing

Sales at FT Publishing decreased by £32m or 8%, from £390m in 2008 to £358m in 2009. Adjusted operating profit decreased by £35m, from £74m in 2008 to £39m in 2009. The sales and profit decrease is mainly from the FT Newspaper business which faced tough market conditions for financial and corporate advertising. The impact of advertising revenue declines was partially mitigated by growth in content revenues, the resilience of our subscription businesses and early actions to manage our cost base tightly.

We continued to see good demand for high-quality analysis of global business, finance, politics and economics which resulted in a 15% increase in paying online subscribers to more than 126,000 with registered users on FT.com up 85% to 1.8 million and users up 12% to 1.4 million on FTChinese.com. Financial Times worldwide newspaper circulation was 7% lower at 402,799 (for the July-December 2009 ABC period) although subscription circulation grew modestly. We continued to invest in fast-growing digital formats. We launched a new luxury lifestyle website, to complement our existing How To Spend It magazine; a new iPhone application which has received more than 200,000 downloads; and, in association with Longman, Lexicon, an online glossary of economic, financial and business terms.

Mergermarket faced challenging conditions in some of its markets with reduced Mergers and Acquisition activity impacting the merger arbitrage sector serviced by dealReporter whilst Debtwire benefited from an increased focus on distressed debt. Mergermarket continued to launch new products and expand globally. Our newest product, MergerID, launched in September 2009, provides a secure online environment for principals and professionals to post and view M&A opportunities globally and has secured over 1,500 active users in more than 450 companies across the globe.

The Economist, in which Pearson owns a 50% stake, increased global weekly circulation by 2.2% to 1.42 million (for the July — December 2009 ABC period). FTSE, our 50% owned joint-venture with the London Stock Exchange, increased revenues 17% and made a strong improvement in profits.

Overall adjusted operating margins at FT Publishing decreased from 19.0% in 2008 to 10.9% in 2009 as lost advertising revenue fell through to the bottom line.

Interactive Data

Interactive Data grew its sales by 19% from £406m in 2008 to £484m in 2009. Adjusted operating profit grew by 22% from £121m in 2008 to £148m in 2009. Interactive Data margins increased from 29.8% in 2008 to 30.6% in 2009. Both sales and adjusted operating profit were affected by the relative strength of the US dollar, which we estimate increased sales by £58m and adjusted operating profit by £19m when compared to the equivalent figures at constant 2008 exchange rates.

Interactive Data’s revenue growth was driven by its Institutional Services segment, despite difficult market conditions in the financial services industry. In the fourth quarter we began to see continued signs of trading conditions easing in certain markets that were difficult earlier in the year, principally in our new sales. Interactive Data continued to benefit from growth trends including: heightened scrutiny around the valuation of securities; increasing regulation and related investment in compliance and risk management processes; increasing adoption of low latency data for algorithmic trading; and continuing need to cost effectively differentiate wealth management offerings with bespoke web-based client solutions.

Pricing and Reference Data (66% of Interactive Data revenues) continued to generate good growth in North America and Europe. Growth was primarily organic and also benefited from bolt-on acquisitions, most recently NDF, a leading provider of financial pricing and services in Japan, and Kler’s Financial Data Service, a leading provider of reference data to the Italian financial industry. Real-Time Services (19% of Interactive Data revenues) faced challenging market conditions as solid demand for web-based Managed Solutions was more than offset by higher cancellations of real-time market data services. In December 2009, we formed the Real-Time Market Data and Trading Solutions Group which combines the resources of our eSignal, Managed Solutions and Real-Time Services businesses into a single organization. This initiative supports plans to integrate the company’s suite of real-time market data and innovative, hosted technology services and solutions to more effectively capitalize on opportunities in the wealth management and electronic trading sectors. In addition, Interactive Data recently completed two acquisitions, 7ticks and the data and tools assets of Dow Jones’ Online Financial Solutions business, that help further strengthen its real-time capabilities in the wealth management and electronic trading sectors. Interactive Data continued to invest in expanding the breadth and depth of the data covered and products offered. Pricing and Reference Data added new information resources, transparency tools, and broader coverage of hard-to-value instruments. It also introduced new services such as the Business Entity Service and Options Volatility Service aimed at helping firms address risk management and compliance challenges. In Real-Time Services, investments were aimed at expanding market coverage to include a broader range of emerging markets, level 2 data for a variety of global exchanges, and multi-lateral trading facilities. New product launches in this business included PlusBook^tm, a new consolidated order book service for the European financial industry, and enhancements to the PrimePortal product, which are used to create customised Web solutions for wealth management and infomedia applications. eSignal introduced new services and enhanced existing offerings such as its Market-Q browser-based workstation, which has been well received in the North American wealth management market.

Interactive Data made a number of bolt-on acquisitions in late 2009 and into early 2010 including: the data and tools assets of Dow Jones and Company’s OFS business, which expands the growing web-based solutions business in North America; Dubai-based Telerate Systems Limited (completed on 14 January 2010), a long-time eSignal sales agent; and 7ticks (completed on 15 January 2010), an innovative provider of very fast electronic trading networks and managed services.

The Penguin Group

Penguin Group sales increased to £1,002m in 2009 from £903m in 2008 but adjusted operating profit was down 10% to £84m in 2009 from £93m in 2008. Both sales and adjusted operating profit were affected by the stronger US dollar which we estimate increased sales by £109m and adjusted operating profit by £7m when compared to the equivalent figures at constant 2008 exchange rates. In 2009, Penguin implemented a series of organisational changes in the UK designed to strengthen its publishing, reduce costs and accelerate the transition to digital production, sales channels and formats and to lower cost markets for design and production. Penguin’s 2009 results include approximately £9m of charges relating to these organisational changes.

In the US, Penguin had 30 number 1 New York Times bestsellers, Penguin’s most ever, and placed 243 bestsellers on New York Times lists. Bestsellers included works from debut novels such as Kathryn Stockett’s The Help and Janice Y.K. Lee’s The Piano Teacher, along with books by established authors such as Charlaine Harris and Nora Roberts.

In the UK, top-selling titles included Marian Keyes’ This Charming Man, Malcolm Gladwell’s Outliers, Ant and Dec’s Ooh! What a Lovely Pair and Antony Beevor’s D-Day. Penguin Children’s list had a very strong year with standout performances from brands such as The Very Hungry Caterpillar (which celebrated its 40th anniversary) and Peppa Pig. Through an iPhone app, consumers were offered a try-before-you buy model of Paul Hoffman’s The Left Hand of God, providing free downloads of the first three chapters.

In Australia, Penguin was named Publisher of the Year for the second year running at the Australian Book Industry Awards. Number 1 bestselling authors included Bryce Courtenay, Tom Winton, Clive Cussler and Richelle

Mead. In Canada, top-selling local authors included Joseph Boyden and Alice Munro, who was awarded the International Man Booker prize, and our international authors Greg Mortenson and Elizabeth Gilbert led the paperback non-fiction category. In India, Penguin is the largest English language trade publisher, with bestselling authors in 2009 including Narayana Murthy and Nandan Nilekani. In South Africa, top-selling Penguin authors included John van de Ruit and Justin Bonello.

eBook sales grew fourfold on the previous year. 14,000 eBook titles are now available. eBook sales are expected to grow rapidly in 2010, benefiting from the popularity of e-readers such as Amazon’s Kindle, the Sony Reader and Barnes and Noble’s nook as well as new devices such as Apple’s iPad.

Penguin’s adjusted operating margins deteriorated in 2009, dropping to 8.4% from 10.3% in 2008. The main reason for the decline was the charges in 2009 relating to the reorganisation of the UK business.

Year ended December 31, 2008 compared to year ended December 31, 2007

Consolidated results of operations

Sales

Our total sales from continuing operations increased by £649m, or 16%, to £4,811m in 2008, from £4,162m in 2007. The increase reflected growth, on a constant exchange rate basis, across all the businesses together with additional contributions from acquisitions made in both 2007 and 2008. The year on year growth was impacted by movements in exchange rates, particularly in the US dollar. 2008 sales, translated at 2007 average exchange rates, would have been £4,491m.

Pearson Education increased sales by £484m or 18% from £2,628m to £3,112m. The North American business was the major contributor to the increase and although much of the increase was due to exchange rates and a contribution from the Harcourt Assessment acquisition in 2008, we estimate that after excluding acquisitions there was growth of 3% at constant last year exchange rates. The North American Education business saw growth ahead of the market in its US Higher Education business and strong performances in state testing, catalogue tests and clinical assessment in its US Assessment and Information division. These businesses offset some decline in the US School Curriculum business which faced a decline in the overall US school publishing market of 4.4% (source: Association of American Publishers). International Education sales also benefitted from exchange and a full year contribution from the Harcourt Publishing acquisition in 2007. After excluding the effect of acquisitions we estimate that there was growth of 2% at constant last year exchange rates. Although there was good growth in the International Publishing business, the loss of a key school testing contract held back growth in the International Assessment business. Professional sales increased in 2008 by 8% or 1% at constant last year exchange rates. Growth in professional testing and certification was partially offset by some decline in the professional publishing markets.

FT Group sales were 16% ahead of last year with growth at FT Publishing and Interactive Data. FT Publishing sales were up by 13% or 4% after excluding the contribution from acquisitions made in 2007 and 2008 and the effect of exchange. FT Publishing’s sales growth was driven by a shift toward subscription and service based revenues. The newspaper maintained circulation but advertising revenues fell by 3% as the advertising market weakened in the fourth quarter of 2008. Interactive Data sales were up by 18% (9% at constant last year exchange rates and before the contribution from acquisitions) driven by strong sales to both existing and new institutional customers and the maintenance of renewal rates at approximately 95% within the institutional services sector.

Penguin’s sales were up 7% in 2008 (3% at constant last year exchange rates and before the effect of portfolio changes) as a result of a strong publishing performance in all its markets in a year where the business continued to publish bestsellers and win awards.

Pearson Education, our largest business sector, accounted for 65% of our continuing business sales in 2008 compared to 63% in 2007. North America continued to be the most significant source of our sales and as a proportion of total continuing sales contributed 63% in 2008 and 62% in 2007.

Cost of goods sold and operating expenses

The following table summarizes our cost of sales and net operating expenses:


	Year Ended December 31
	2008			2007
	£m			£m

Cost of goods sold		2,174			1,910
Distribution costs		235			202
Administration and other expenses		1,853			1,600
Other operating income		(102	)		(101	)

Total		1,986			1,701

Cost of goods sold. Cost of sales consists of costs for raw materials, primarily paper, printing and binding costs, amortization of pre-publication costs and royalty charges. Our cost of sales increased by £264m, or 14%, to £2,174m in 2008, from £1,910m in 2007. The increase corresponds to the increase in sales with cost of sales at 45.2% of sales in 2008 compared to 45.9% in 2007.

Distribution costs. Distribution costs consist primarily of shipping costs, postage and packing and remained at a fairly constant percentage of sales in 2008 compared to 2007.

Administration and other expenses. Our administration and other expenses increased by £253m, or 16%, to £1,853m in 2008, from £1,600m in 2007. As a percentage of sales they increased slightly to 39% in 2008 from 38% in 2007.

Other operating income. Other operating income mainly consists of freight recharges, sub-rights and licensing income and distribution commissions together with income from sale of assets. Other operating income remained fairly consistent at £102m in 2008 compared to £101m in 2007.

Share of results of joint ventures and associates

The contribution from our joint ventures and associates increased slightly from £23m in 2007 to £25m in 2008. The majority of the profit comes from our 50% interest in the Economist.

Operating profit

The total operating profit increased by £102m, or 18%, to £676m in 2008 from £574m in 2007. 2008 operating profit, translated at 2007 average exchange rates, would have been £71m lower.

Operating profit attributable to Pearson Education increased by £45m, or 12%, to £406m in 2008, from £361m in 2007. The increase was mainly due to exchange which offset the effect of increased intangible amortization and the cost of integrating Harcourt Assessment with the existing Assessment businesses. Operating profit attributable to the FT Group increased by £39m, or 28%, to £179m in 2008, from £140m in 2007. The increase reflects exchange differences and a contribution from new acquisitions but also reflects improved margins at Interactive Data which offset some reorganization costs at the Financial Times. Operating profit attributable to the Penguin Group increased by £18m, or 25%, to £91m in 2008, from £73m in 2007. Although Penguin benefitted from exchange there was also continued progress on margin improvement.

Net finance costs

Net finance costs decreased from £106m in 2007 to £91m in 2008. Net interest payable in 2008 was £89m, down from £95m in 2007. Although our fixed rate policy reduces the impact of changes in market interest rates, we were still able to benefit from a fall in average US dollar and sterling interest rates during the year. Year on year, average three month LIBOR (weighted for the Group’s net borrowings in US dollars and sterling at each year end) fell by 2.3% to 3.1%. This reduction in floating market interest rates was partially offset by higher fixed bond coupons prevailing at the time of our 2008 bond issue. The overall result was a decrease in the Group’s average net

interest rate payable by 1.4% to 5.9%. In 2008 the net finance income relating to post-retirement plans was an income of £8m compared to an income of £10m in the previous year.

Other net finance costs relating to foreign exchange and short-term fluctuations in the market value of financial instruments included a net foreign exchange loss of £11m in 2008 compared to a loss of £17m in 2007. In 2008 the loss related to the retranslation of foreign currency bank overdrafts and a variety of inter-company items. In 2007 the loss mainly related to losses on Euro denominated debt used to hedge the receipt of proceeds from the sale of Les Echos. For a more detailed discussion of our borrowings and interest expenses see “— Liquidity and Capital Resources — Capital Resources” and “— Borrowings” below and “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.

Taxation

The total tax charge in 2008 of £172m represents 29% of pre-tax profits compared to a charge of £131m or 28% of pre-tax profits in 2007. Our overseas profits, which arise mainly in the US are largely subject to tax at higher rates than the UK corporation tax rate (28.5% in 2008 compared to 30% in 2007). Higher tax rates were offset by releases from provisions reflecting continuing progress in agreeing our tax affairs with the authorities.

Minority interests

This comprises mainly the minority share in Interactive Data. Our share of Interactive Data remained at 62% throughout 2008, leaving the minority interest unchanged at 38%.

Discontinued operations

Discontinued operations relate to the disposal of Government Solutions (in February 2007), Les Echos (in December 2007), Datamark (in July 2007) and the Data Management business (in February 2008). The results of Government Solutions and Les Echos have been included in discontinued operations for 2007 and have been consolidated up to the date of sale. Operating profit for Government Solutions in 2007 was £2m and the loss on disposal after tax recorded in 2007 was £112m after a tax charge of £93m. Les Echos’ operating profit in 2007 amounted to £1m and the profit on sale recorded in 2007 was £165m. There was no tax payable on the Les Echos sale. Datamark was bought with the eCollege acquisition in 2007 and immediately sold. The only profit or loss recognized relating to Datamark was a £7m tax benefit arising from the taxable loss on sale. The Data Management business was included in discontinued operations in 2007 and 2008. In 2007 the operating profit before impairment charges was £12m compared to £nil in 2008. The Data Management business was formerly part of the Group’s Other Assessment and Testing cash-generating unit (CGU) and was carved out of this CGU in preparation for disposal. As a result, the Group recognized a goodwill impairment charge of £97m in 2007 in anticipation of the loss on disposal. The loss before tax on disposal in 2008 was £53m, mainly relating to the cumulative translation adjustment. There was a tax charge of £37m on the sale.

Profit for the year

The profit for the financial year in 2008 was £323m compared to a profit in 2007 of £310m. The overall increase of £13m was mainly due to the improved operating performance with a contribution from reduced net finance costs. Offsetting this was the increased tax charge and increased loss from the disposal of discontinued businesses.

Earnings per ordinary share

The basic earnings per ordinary share, which is defined as the profit for the financial year divided by the weighted average number of shares in issue, was 36.6p in 2008 compared to 35.6p in 2007 based on a weighted average number of shares in issue of 797.0m in 2008 and 796.8m in 2007. The increase in earnings per share was due to the increase in profit for 2008 described above and was not significantly affected by the movement in the weighted average number of shares.

The diluted earnings per ordinary share of 36.6p in 2008 and 35.6p in 2007 was not significantly different from the basic earnings per share in those years as the effect of dilutive share options was again not significant.

Exchange rate fluctuations

The strengthening of the US dollar and other currencies against sterling on an average basis had a positive impact on reported sales and profits in 2008 compared to 2007. 2008 sales, translated at 2007 average exchange rates, would have been lower by £320m and operating profit, translated at 2007 average exchange rates, would have been lower by £71m. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk” for a discussion regarding our management of exchange rate risks.

Sales and operating profit by division


	Year Ended December 31, 2008
	North
	American		International				FT		Interactive
£m	Education		Education		Professional		Publishing		Data		Penguin		Total

Sales		2,002		866		244		390		406		903		4,811
		42%		18%		5%		8%		8%		19%		100%
Total operating profit		258		113		35		67		112		91		676
		38%		17%		5%		10%		17%		13%		100%
Add back:
Amortization of acquired Intangibles		45		22		1		7		9		2		86

Adjusted operating profit: continuing Operations		303		135		36		74		121		93		762
Adjusted operating profit: discontinued Operations		—		—		—		—		—		—		—

Total adjusted operating profit		303		135		36		74		121		93		762

		40%		17%		5%		10%		16%		12%		100%


	Year Ended December 31, 2007
	North
	American		International				FT		Interactive
£m	Education		Education		Professional		Publishing		Data		Penguin		Total

Sales		1,667		735		226		344		344		846		4,162
		40%		18%		5%		8%		8%		21%		100%
Total operating profit		253		82		26		50		90		73		574
		44%		14%		4%		9%		16%		13%		100%
Add back:
Amortization of acquired Intangibles		20		10		1		6		7		1		45

Adjusted operating profit: continuing Operations		273		92		27		56		97		74		619
Adjusted operating profit: discontinued Operations		—		—		14		1		—		—		15

Total adjusted operating profit		273		92		41		57		97		74		634

		43%		15%		6%		9%		15%		12%		100%

North American Education

North American Education sales increased by £335m, or 20%, to £2,002m in 2008, from £1,667m in 2007 and adjusted operating profit increased by £30m, or 11%, to £303m in 2008 from £273m in 2007. The results were significantly affected by the weakening of sterling, which we estimate increased sales by £156m and adjusted operating profit by £17m when compared to the equivalent figures at constant 2007 exchange rates. At constant exchange and after taking account of the contribution from acquisitions there was underlying growth in sales but some decline in profits as the contribution from the US school curriculum business declined in a falling market and we expensed costs on the integration of Harcourt Assessment.

In the US school market, the Association of American Publishers’ estimate that there was an overall decrease for the industry of 4.4% as state budget issues caused particular industry-wide weakness in the supplementary publishing segment and the open territories (those territories that do not have a state-wide adoption process). New adoption market share was 31% in the adoptions where Pearson competed (and 28% of the total new adoption market). The US School business launched enVisionMATH, an integrated print-and-digital elementary mathematics program (and the next generation of the innovative and highly successful California social studies program). enVisionMATH helped to gain a market-leading 38% share of all math adoptions, including 50% in Texas. The program also sold strongly across the Open Territories. During the year the U.S. Department of Defense awarded the US school business a five-year contract to provide elementary-school reading programs, including Pearson’s Reading Street, for its schools around the world.

In the US Assessment and Information business, the integration of Harcourt Assessment progressed well with strong performances in state testing, catalogue tests and clinical assessments. The market-leading state assessments division continued to gain share and the business now provides major state-wide testing services to 30 states. The business took the lead in online testing with over 3.8 million secure tests delivered across 13 states during the year, up from 2.5 million in 2007. The National Assessments division benefited from new long-term contracts including the American Diploma Project (a three-year contract to deliver Algebra II exams to a consortium of fifteen states); the College Board’s Accuplacer program (a seven-year contract to deliver computer-adaptive reading, writing and maths test to assess college readiness); and the National Board for Professional Teaching Standards (a five-year

contract to develop, administer and score its National Board Certification program for accomplished teachers, covering 25 certificate areas). The leading position in teacher certification was boosted by a three-year renewal in California, a six-year renewal in Oklahoma, a four-year renewal in New Mexico and a two-year contract to manage California’s certification testing for teachers of English as a foreign language. The Clinical Assessments division benefited from the strong growth of our AimsWeb data management and progress monitoring service for the Response to Intervention (RTI) market (which monitors children who are having learning difficulty) and the publication of WAIS-IV and MMPI-RF, new editions of the leading products for assessing intelligence and personality. There were major contract wins in Student Information Systems including South Carolina (709,000 students), Dallas (165,000 students) and Baltimore (83,000 students). There were also continued gains by our new Edustructures business with State Education Agencies, and it successfully implemented proof-of-concept projects in Kansas and Alaska, and expanded projects in Virginia, South Carolina and Wyoming.

The US Higher Education publishing market was up 3.6% in 2008, according to the Association of American Publishers, benefiting from healthy enrolments, even in tougher economic conditions, and federal government action to support student funding. The industry continues to see strong demand for instructional materials that are enhanced by technology and customization. Our US Higher Education business grew significantly faster than the industry and outperformed the market for the tenth straight year. There was continued investment in established and new author franchises, such as Campbell and Reece’s Biology, Tro’s Chemistry, Lilienfeld, Lynn, Namy and Woolf’s Psychology and Wysocki and Lynch’s DK Handbook. There was also rapid growth in ‘MyLab’ digital learning, homework and assessment programs, which now span the curriculum. MyLab products were used by more than 4.3m students globally, with student registrations 48% higher than in 2007. Evaluation studies show that the use of the MyLab programs can significantly improve student test scores and institutional productivity. We saw strong growth in Custom Solutions with our expansion beyond custom textbooks to educational solutions including on-demand authoring of original content, customized technology, and on-demand curriculum, assessments and courseware. The Higher Education business formed new strategic partnerships to provide materials and online learning services to educational institutions. These included Rio Salado College in Arizona, which has 450 online classes and 48,000 students; the Colorado Community College system, providing digital textbooks for 17 courses; and the Louisiana Community & Technical College System, providing students with a customised online learning program across 47 campuses through the combination of custom textbooks, eCollege and MyLabs. eCollege, the platform for fully-online distance learning in higher education, increased enrolments by 34% to 2.5m and benefited from continued strong renewal rates. It achieved good new business performance in both the US and internationally, most notably in Brazil.

Overall adjusted operating margins in the North American Education business were lower at 15.1% in 2008 compared to 16.4% in 2007 with the majority of the decline attributable to the Harcourt Assessment integration costs.

International Education

International Education sales increased by £131m, or 18%, to £866m in 2008, from £735m in 2007 and adjusted operating profit increased by £43m, or 47%, to £135m in 2008 from £92m in 2007. The results benefit from exchange gains and a full year contribution in 2008 from the acquisition of Harcourt International.

In the UK, Edexcel received over 1.3 million registrations for vocational assessment which, when combined with more than 2.1 million registrations for general qualifications, made it one of the UK’s largest assessment organisations. Edexcel marked 4.3m ‘A’-level and GCSE (national secondary school examinations) scripts onscreen, representing 88% of all student work marked by their examiners. Edexcel also made a significant investment in supporting the growth of academic and vocational qualifications both in the UK and internationally including the UK’s new Diploma qualification for 14-19 year-olds, the IGCSE qualifications to meet the needs of International schools and colleges and BTEC, Edexcel’s flagship vocational qualification where registrations have grown from about 70,000 to 250,000 in the last two years.

The UK school publishing business grew ahead of the market, with Harcourt International making a significant contribution. This was driven by curriculum reform and market share gains in the secondary market, helped by strong publishing, innovative technology and integrated assessment for learning. The combination of Pearson

content, customisation capabilities and technology supported strong performances in Higher Education and ELT across the European markets including France, Benelux and Central and Eastern Europe.

The ‘MyLab’ digital learning, homework and assessment programmes were used internationally by more than 237,000 students, up 82% on 2007, and are now sold in more than 65 countries worldwide. MyLabs and Mastering Physics, two of Pearson’s online education programmes, continue to win international adoptions, increasingly with localised versions for individual markets.

In the Middle East, the business won a contract to deliver the Abu Dhabi Education Council’s external assessment program that started in 2009 and is expected to run to 2011. The tests cover English, Arabic, mathematics and science for students in grades 3 to 11. Pearson worked with Jordan’s Ministry of Education to build a test development system which has been enhanced to support the creation of test items and tests in Arabic, replacing a paper-based system.

In India, International Education saw rapid sales growth underpinned by strong local publishing of titles including Macroeconomics by Errol D’Sousa of IIM Ahmedabad and Upinder Singh’s book on Ancient and Medieval Indian History. Two books published by Pearson Education won the First and Third Prize in the Delhi Management Association’s DMA-NTPC Awards. In Thailand, Pearson secured its largest adoption of MyITLab outside North America at Sripatum University accompanied by the Go! Office 2007 series of textbooks.

International Education saw rapid growth in Mexico, the business’ largest market in the Latin America region, with particularly strong growth in custom publishing. In English Language Teaching, we won an integrated custom publishing, academic support and services solutions contract with CONALEP, the national vocational/technical secondary program. We developed a custom publishing program for a leading test prep academy, CONAMAT, which included Simplified Mathematics, the best selling title of the program, selling over 20,000 units. In Panama, the Ministry of Education adopted Prentice Hall’s Virtual Labs and Lab Manuals for Chemistry and Biology for 75,000 high school students. In Brazil, which has Latin America’s largest and fastest-growing university population, Pearson provided custom publishing services to five leading universities in business, math, science, engineering and several other fields. There was growing success in Government tenders including a new local math series for middle schools in Mexico and the adoption of two levels of our primary Science program in Chile, adapted from our US Scott Foresman 5th/6th Grade program, to support local curriculum standards in Spanish. Strong growth of English Language Teaching materials across Latin America was underpinned by the performance in Mexico, Argentina, Colombia, Peru and Central America.

International Education adjusted operating margins continued to improve and the increase in the overall margin from 12.5% in 2007 to 15.6% in 2008 continued to reflect increases in both publishing and testing margins.

Professional

Professional sales increased by £18m, or 8%, to £244m in 2008 from £226m in 2007. Adjusted operating profit from continuing operations increased by £9m or 33% to £36m in 2008, from £27m in 2007. Sales were affected by the weakness of sterling, which increased sales by £15m when compared to the equivalent figures at constant 2007 exchange rates.

In professional testing (Pearson VUE), approximately 6m secure online tests were delivered in more than 4,000 test centers worldwide in 2008, an increase of 2% over 2007. Registration volumes for the Graduate Management Admissions Council test rose 12% worldwide in 2008, including a 22% increase outside the US. New business included contracts to provide certification exams for the Health Authority of Abu Dhabi, end of course exams for Maryland University College, certification exams for the Institute of Supply Management, the development and administration of tests for the Colorado Office of Barber and Cosmetology Licensure and an exclusive contract with Adobe. Renewals included contracts with the Georgia Insurance Licensing Board, the Virginia Board of Nursing, the Law National Admissions Consortium, Measurement Research Associates Inc., and the Kentucky Real Estate Commission. Pearson VUE also announced the transition of The Institute of Internal Auditors certification exam, the Certified Internal Auditor, from paper-and-pencil to computer-based test delivery. The Certified Internal Auditor designation is the only globally accepted certification for internal auditors and will be delivered in English, Japanese, French, Spanish and Italian. The business also agreed a partnership with NIIT Ltd. of

India to expand Pearson VUE’s certification network in India, extending a range of tests for students throughout the country. In a first phase, Pearson VUE and NIIT will set up testing facilities in Bangalore, Chennai, New Delhi, Hyderabad and Pune.

In Professional publishing, The iPhone Developer’s Cookbook by Erica Sadun initially published online as a DRM-free ebook, became the number one computer book for Amazon Kindle and the number one book on Safari. And, when published in print form, became the number one Computers & Internet Book on Amazon. Scott Kelby, an author at our technology imprint Peachpit, was the top-selling author of computer books in the United States for the fifth consecutive year with titles such as The iPhone Book, Mac OS X Leopard Book and The Adobe CS4 Book for Digital Photographers. The Professional publishing business created nearly 200 video based educational lessons (230 hours of video) including Aarron Walter’s SEO And Beyond, and Deitel & Associates’ C# 2008 Fundamentals I and II and built new distribution channels for video via our web sites, and via Safari Books Online. The business developed a new iterative publishing programme called Rough Cuts which allows authors and customers to interact ahead of publication, building awareness and capturing customer contributions. Almost 25% of the print books published in 2008 entered the Rough Cuts program, benefiting from comments prior to print publication. There was also strong growth in eBooks, videos and other digital assets sold directly (via our websites and our joint venture, Safari Books Online) and through other digital retail outlets (such as the Amazon Kindle and Sony eReader). Sales of English and local language technology books saw good growth in international markets including the Middle East, South Africa, India and South America with best-sellers including CCNA Exam Certification Library by Wendell Odom, Presentation Zen by Garr Reynolds and Effective Java 2E by Josh Bloch. Titles by Pearson’s business imprints, including FTPress and Wharton School Publishing, included Financial Shock by Mark Zandi, Chief Economist at Moody’s and an advisor to the White House, on the causes of the credit crunch with particular emphasis on the sub-prime mortgage market.

Overall adjusted operating margins in the Professional business continued their rapid improvement and were higher at 14.8% in 2008 compared to 11.9% in 2007 as margins improved again in both the testing and professional publishing businesses.

FT Publishing

Sales at FT Publishing increased by £46m or 13%, from £344m in 2007 to £390m in 2008. Adjusted operating profit from continuing operations increased by £18m, from £56m in 2007 to £74m in 2008. The sales and profit increase is mainly generated by Mergermarket, which continued to perform strongly.

FT Publishing benefited from the shift towards subscription and service-based revenues despite a tough advertising market, particularly in the fourth quarter. Financial Times maintained worldwide newspaper circulation at approximately 435,000 (434,196 average for the June-December ABC period) and won both major UK press awards: Newspaper of the Year at the 2008 British Press Awards and Newspaper Awards. In the UK National Readership Survey, readership rose more than 16% to 418,000. Financial Times circulation revenues were up 16% as investment in content and demand for high-quality analysis of the global financial crisis supported increases in pricing and quality of circulation. FT Publishing advertising revenues were 3% lower for the full year, with a significantly weaker advertising market in the fourth quarter as financial institutions, technology companies and recruiters reduced their marketing investment. During 2008 we took a series of actions to reduce cost and prepare for more difficult trading conditions in 2009. The Financial Times continued to invest in international expansion and fast-growing markets. It successfully launched a new edition for the Middle East, and Rui, a lifestyle and wealth-management magazine for China’s fast-growing business elite.

FT.com benefited from the launch of an innovative new access model involving registration for access to more than three articles per month. Subscribers grew 9% to 109,609, while registered users increased more than five-fold from about 150,000 at the end of 2007 to 966,000 at the end of 2008.

There was a strong performance from Mergermarket, benefiting from its digital subscription model, with contract renewal rates of almost 85%. The Mergermarket and Debtwire products performed particularly well, emphasising that the services remain valuable to customers throughout the cycle. Mergermarket launched two new products, Debtwire ABS and Debtwire Restructuring Database, in response to growing levels of distressed asset sales and restructuring funds. It continued to expand and acquire new customers geographically in the US, Europe

and Asia, launching its M&A event-driven product, dealReporter, in Russia, Poland, Turkey, the UAE and South Africa. Mergermarket also continued to build its Pharmawire product for financial institutions that support the pharmaceutical industry. Mergermarket’s conference business, Remark, had a strong year, with significant growth in the number of events, attendees and newsletter publications. It also increased its digital offering in this business through video, podcasts and live webcasts. In January 2008, FT acquired Money-Media, which provides online news and commentary for the fund-management industry. During the year, Money-Media rolled out Ignites Europe, an online news service for people working with the European cross-border fund industry.

At The Economist, in which Pearson owns a 50% stake, global weekly circulation increased by 6.4% to 1.39 m (for the July-December 2008 ABC period). FTSE, in which Pearson also owns a 50% stake, announced several new indices including expansion of the FTSE Environmental Opportunities Index and introduction, in partnership with the Athens Exchange, of the FTSE/ATHEX Liquid Mid Index. Our share of the profits of the Economist and FTSE totaled £18m in 2008 compared to £17m in 2007.

Overall adjusted operating margins at FT Publishing continued to increase driven by the online businesses and in 2008 were 19.0% compared to 16.3% in 2007.

Interactive Data

Interactive Data, grew its sales by 18% from £344m in 2007 to £406m in 2008. Adjusted operating profit grew by 25% from £97m in 2007 to £121m in 2008. Interactive Data margins increased from 28.2% in 2007 to 29.8% in 2008. Both sales and adjusted operating profit were affected by the relative strength of the US dollar, which we estimate increased sales by £28m and adjusted operating profit by £9m when compared to the equivalent figures at constant 2007 exchange rates.

Interactive Data revenue growth was driven by strong new sales and approximately 95% renewal rates within its Institutional Services segment. Pricing and Reference Data continued to generate good growth in North America and Europe. Growth was primarily organic, providing additional services to customers; but it also benefited from bolt-on acquisitions, most recently the purchase of NDF, a leading provider of securities pricing, reference data and related services to most of the major financial institutions in Japan. Real-Time Services saw strong growth in its real-time data feeds business and continued expansion of its Managed Solutions business in the United States. Real-Time Services added a number of new market sources in North America and the Middle East. The Managed Solutions business announced that it had doubled the number of clients in the United States during the past year to 80. There was continued investment in expanding the breadth and depth of the data covered and products offered, including a new alliance to provide complex derivatives and structured product valuation services; and in the capacity of its real-time infrastructure to allow for the anticipated growth in real-time market data volumes.

Interactive Data continued to benefit from growth trends, including heightened scrutiny around the valuation of securities, increasing regulation, increasing adoption of low latency data for algorithmic trading and continuing need to differentiate wealth management offerings with bespoke client interface solutions.

The Penguin Group

Penguin Group sales increased to £903m in 2008 from £846m in 2007 and adjusted operating profit was up 26% to £93m in 2008 from £74m in 2007. Both sales and adjusted operating profit were affected by the stronger US dollar which we estimate increased sales by £54m and adjusted operating profit by £16m when compared to the equivalent figures at constant 2007 exchange rates.

In the US, Penguin had a number one New York Times bestseller for 49 weeks of the year, including Patricia Cornwell’s Scarpetta, Eckhart Tolle’s A New Earth and Greg Mortenson’s Three Cups of Tea. Penguin authors won the major industry awards. Junot Díaz won The Pulitzer Prize for Fiction and the National Book Critics Circle Award for Fiction for The Brief Wondrous Life of Oscar Wao, and Barton Gellman won the Pulitzer Prize for National Reporting.

In the UK, Penguin had 67 top ten bestsellers versus 52 in 2007, according to BookScan. The number one bestseller Devil May Care, the new James Bond novel by Sebastian Faulks, was the fastest-selling hardback fiction title in Penguin UK’s history and third-bestselling in the UK in 2008. Other bestsellers included This Charming Man

by Marian Keyes, The Beach House by Jane Green and Jamie’s Ministry of Food by Jamie Oliver. Penguin UK also published many more paperback originals, including Judith O’Reilly’s A Wife in the North.

In Australia, Penguin was named Publisher of the Year at the Australian Book Industry Awards (and won four of the seven awards for individual books) and grew sales ahead of its markets with bestsellers including titles from Australian authors Bryce Courtenay and Tim Winton alongside international authors Marian Keyes and Eckhart Tolle. In India, Penguin is the largest trade publisher and continued to grow rapidly with authors such as Shobhaa De, Amitav Ghosh and Nandan Nilekani. It also won the major English language prizes in India’s national book awards.

Penguin’s eBook publishing and sales expanded significantly in 2008, with nearly five-fold growth in eBook sales in the US. Penguin worldwide now has 8,500 eBook titles available, more than double the number available in 2007 and during the year Penguin US launched an Enriched eBook Classics series with Jane Austen’s Pride and Prejudice, which debuted in the top 10 on the Amazon Kindle bestseller list. The series is now sold via online stores on both Amazon.com and Penguin.com. Traffic for all Penguin’s web sites increased 37% to 17 million unique users.

Liquidity and capital resources

Cash flows and financing

Net cash generated from operations increased by £118m (or 13%), to £1,012m in 2009 from £894m in 2008. This increase reflected strong cash contributions, particularly from our education businesses. The exchange rate for translation of dollar cash flows was $1.61 in 2009, $1.56 in 2008 and $1.99 in 2007. In 2009, the average working capital to sales ratio for our book publishing businesses improved to 25.1% from 26.1% in 2008, reflecting tight working capital management and the favourable working capital profile of 2009 acquisitions. Average working capital is the average month end balance in the year of inventory (including pre-publication), receivables and payables. Net cash generated from operations increased by £235m (or 36%), to £894m in 2008 from £659m in 2007. This increase reflected strong cash contributions from all businesses, together with the significant strengthening of the US dollar against sterling. In 2008, the headline average working capital to sales ratio for our book publishing businesses deteriorated to 26.1% from 25.6% in 2007, reflecting the higher levels of working capital in Harcourt Assessments (purchased at the end of January 2008). The underlying working capital to sales ratio (excluding the effect of year on year portfolio changes) improved to 25.8% in 2008 from 25.9% in 2007.

Net interest paid increased to £87m in 2009 from £76m in 2008. The increase is due to the timing of payments on bonds issued in 2008 and 2009. Net interest paid decreased to £76m in 2008 from £90m in 2007. The decrease was due to a reduction in US and UK interest rates, with some offset from the higher level of debt following the acquisition of Harcourt Assessments and the strength of the US dollar relative to sterling.

Capital expenditure on property, plant and equipment was £62m in 2009, £75m in 2008 and £86m in 2007. The reduction in spend in 2009 reflects a more cautious approach to capital investment, given the uncertain economic environment, particularly in the first half of the year. The reduction in spend in 2008 reflects reduced infrastructure spend compared to 2007, notwithstanding the Group continued to invest in digital technology.

The acquisition of subsidiaries, joint ventures and associates accounted for a cash outflow of £222m in 2009 against £400m in 2008 and £476m in 2007. The principal acquisitions in 2009 were of Wall Street English for £101m and a controlling interest in Maskew Miller Longman for £54m, comprising £49m in cash and £5m in other consideration. The principal acquisitions in 2008 were of Harcourt Assessments for £324m and Money Media for £33m. The principal acquisitions in 2007 were Harcourt Education International for £155m and eCollege for £266m.

The sale of subsidiaries and associates produced a cash inflow of £14m in 2009 against £111m in 2008 and £469m in 2007. The disposal in 2009 relates entirely to the proceeds from the take-up of share options issued to minority shareholders. Proceeds of £99m in 2008 relate to the sale of the Data Management business, and £12m to the take-up of share options issued to minority shareholders. The principal disposals in 2007 were of Government Solutions for £278m and Les Echos for £156m.

The cash outflow from financing of £380m in 2009 reflects the repayment of one $350m bond, the repayment of borrowings under the Group’s committed borrowing facility and an increase of the dividend in line with earnings. Offsetting this, the Group issued £300m of sterling bonds in the year.

The cash outflow from financing of £149m in 2008 reflects the repayment at maturity of one £100m bond, the repayment of borrowings against a short-term bridge financing facility and a further increase in the dividend. Offsetting this, the Group issued $900m of US Dollar bonds. The cash outflow from financing activities of £444m in 2007 represented the higher dividend and the repayment at maturity of one €591m bond, offset in part by drawings on the Group’s revolving credit facility.

Capital resources

Our borrowings fluctuate by season due to the effect of the school year on the working capital requirements in the educational materials business. Assuming no acquisitions or disposals, our maximum level of net debt normally occurs in July, and our minimum level of net debt normally occurs in December. Based on a review of historical trends in working capital requirements and of forecast monthly balance sheets for the next 12 months, we believe that we have sufficient funds available for the Group’s present requirements, with an appropriate level of headroom given our portfolio of businesses and current plans. Our ability to expand and grow our business in accordance with current plans and to meet long-term capital requirements beyond this 12-month period will depend on many factors, including the rate, if any, at which our cash flow increases and the availability of public and private debt and equity financing, including our ability to secure bank lines of credit. We cannot be certain that additional financing, if required, will be available on terms favorable to us, if at all.

At December 31, 2009, our net debt was £1,092m compared to net debt of £1,460m at December 31, 2008. Net debt is defined as all short-term, medium-term and long-term borrowing (including finance leases), less all cash, cash equivalents and liquid resources. Cash equivalents comprise short-term deposits with a maturity of up to 90 days, while liquid resources comprise short-term deposits with maturities of more than 90 days and other marketable instruments which are readily realizable and held on a short-term basis. Short-term, medium-term and long-term borrowing amounted to £2,008m at December 31, 2009, compared to £2,363m at December 31, 2008 reflecting the impact of the strengthening of sterling relative to the US Dollar. At December 31, 2009, cash and liquid resources were £750m, compared to £685m at December 31, 2008.

Contractual obligations

The following table summarizes the maturity of our borrowings and our obligations under non-cancelable operating leases, exclusive of anticipated interest payments.


	At December 31, 2009
			Less than		One to		Two to		After five
	Total		one year		two years		five years		years
	£m		£m		£m		£m		£m

Gross borrowings:
Bank loans, overdrafts and commercial paper		70		70		—		—		—
Bonds		1,923		—		322		754		847
Finance lease obligations		15		4		5		6		—
Operating lease obligations		1,487		153		144		342		848

Total		3,495		227		471		1,102		1,695

At December 31, 2009 the Group had capital commitments for fixed assets, including finance leases already under contract, of £15m (2008: £7m). There are contingent liabilities in respect of indemnities, warranties and guarantees in relation to former subsidiaries and in respect of guarantees in relation to subsidiaries and associates. In addition there are contingent liabilities in respect of legal claims. None of these claims or guarantees is expected to result in a material gain or loss.

The Group is committed to an annual fee of 0.0675% payable quarterly, on the unused amount of the Group’s bank facility.

Off-Balance sheet arrangements

The Group does not have any off-balance sheet arrangements, as defined by the SEC Final Rule 67 (FR-67), “Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations”, that have or are reasonably likely to have a material current or future effect on the Group’s financial position or results of operations.

Borrowings

The Group finances its operations by a mixture of cash flows from operations, short-term borrowings from banks and commercial paper markets, and longer term loans from banks and capital markets.

We have in place a committed revolving credit facility of $1.75bn, of which $92m matures in May 2011 and the balance of $1.658bn matures in May 2012. At December 31, 2009, the full $1.75bn was available under this facility. This credit facility contains two key covenants measured for each 12 month period ending June 30 and December 31:

We must maintain the ratio of our profit before interest, tax and amortization to our net interest payable at no less than 3:1; and

We must maintain the ratio of our net debt to our EBITDA, which we explain below, at no more than 4:1.

“EBITDA” refers to earnings before interest, taxes, depreciation and amortization. We are currently in compliance with these covenants.

Treasury policy

Our treasury policy is described in note 19 of “Item 18. Financial Statements”. For a more detailed discussion of our borrowing and use of derivatives, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.

Related parties

There were no significant or unusual related party transactions in 2009, 2008 or 2007. Refer to note 35 in “Item 18. Financial Statements”.

Accounting principles

For a description of our principal accounting policies used refer to note 1 in “Item 18. Financial Statements”.


ITEM 6.	*DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES*

Directors and senior management

We are managed by a board of directors and a chief executive who reports to the board and manages through a management committee. We refer to the board of directors and the chairman of the board of directors as our “senior management”.

The following table sets forth information concerning senior management, as of March 2010.


Name	Age		Position

Glen Moreno		66	Chairman
Marjorie Scardino		63	Chief Executive
David Arculus		63	Non-executive Director
Terry Burns		66	Non-executive Director
Patrick Cescau		61	Non-executive Director
Will Ethridge		58	Chief Executive, Pearson Education North America
Rona Fairhead		48	Chairman and Chief Executive, The FT Group
Robin Freestone		51	Chief Financial Officer
Susan Fuhrman		65	Non-executive Director
Ken Hydon		65	Non-executive Director
John Makinson		55	Chairman and Chief Executive, Penguin Group
CK Prahalad		68	Non-executive Director

Glen Moreno was appointed chairman of Pearson on October 1, 2005 and is chairman of the nomination committee. He is a director of Fidelity International Limited and was previously senior independent director of Man Group plc. From January 2009 to August 2009, he was also acting chairman of UK Financial Investments Limited, the company set up by HM Treasury to manage the government’s shareholdings in UK banks. Effective March 1, 2010, he was appointed non-executive director of Lloyds Banking Group plc and became their senior independent director.

Marjorie Scardino joined the board and became chief executive in January 1997. She is a member of Pearson’s nomination committee. She trained and practiced as a lawyer and was chief executive of The Economist Group from 1993 until joining Pearson. She is also vice chairman of Nokia Corporation and on the board of several charitable organizations.

David Arculus became a non-executive director in February 2006 and currently serves on the audit and nomination committees and as chairman of the personnel committee. He is a non-executive director of Telefonica SA and was appointed chairman of Numis Corporation plc in May 2009. His previous roles include chairman of O2 plc, Severn Trent plc and IPC Group, chief operating officer of United Business Media plc and group managing director of EMAP plc.

Terry Burns became a non-executive director in May 1999 and the senior independent director in February 2004. He currently serves on the nomination and personnel committees. He was previously the UK government’s chief economic advisor from 1980 until 1991, Permanent Secretary of HM Treasury from 1991 until 1998 and chairman of Marks and Spencer Group plc. He is chairman of Santander UK and Glas Cymru Limited and is a non-executive director of Banco Santander SA. He was recently appointed chairman of The Channel 4 Television Corporation.

Patrick Cescau became a non-executive director in April 2002. He serves on the audit committee and nomination committee. He was previously group chief executive of Unilever. He is a non-executive director of Tesco plc and joined the board of directors of INSEAD, the Business School for the World, in June 2009.

Will Ethridge chief executive of Pearson Education North America, joined the Pearson board in May 2008, having previously held a number of senior positions within Pearson Education. He is chairman of CourseSmart, a publishers’ consortium and of the Association of American Publishers.

Rona Fairhead joined Pearson in October 2001 and became chief financial officer in June 2002. She was appointed chairman and chief executive of the FT Group in June 2006 and became responsible for Pearson VUE in March 2008. From 1996 until 2001, she worked at ICI plc, where she served as executive vice president, group control and strategy. She is also chairman of Interactive Data, a non-executive director of HSBC Holdings plc and chairs the HSBC audit committee.

Robin Freestone joined Pearson in 2004 as deputy chief financial officer and became chief financial officer in June 2006, when he also joined the Pearson board. He was previously group financial controller of Amersham plc (now part of GE). He qualified as a chartered accountant with Touche Ross (now Deloitte). He is also a non-executive director and founder shareholder of eChem Limited.

Susan Fuhrman became a non-executive director in July 2004. She is a member of the audit and nomination committees. She is president of Teachers College at Columbia University, America’s oldest and largest graduate school of education and president of the National Academy of Education. She was previously Dean of the Graduate school of Education at the University of Pennsylvania and a member of the Board of Trustees of the Carnegie Foundation for the Advancement of Teaching.

Ken Hydon became a non-executive director in February 2006 and currently serves on the personnel and nomination committees and as chairman of the audit committee. He is a non-executive director of Reckitt Benckiser Group plc, Tesco plc and Royal Berks NHS Foundation Trust. He was previously finance director of Vodafone Group plc and of subsidiaries of Racal Electronics.

John Makinson became chairman of the Penguin Group in May 2001 and its chief executive officer in June 2002. He served as Pearson’s finance director from March 1996 until June 2002. He is also chairman of the Institute for Public Policy Research, director of The Royal National Theatre and trustee of The International Rescue Committee (UK).

Coimbatore Krishnarao Prahalad became a non-executive director in May 2008 and is a distinguished university professor of corporate strategy and international business at the University of Michigan Business School. He is a non-executive director of NCR Corporation and Hindustan Unilever Corporation and director of the World Resources Institute and the Indus Entrepreneurs.

Compensation of senior management

The committee’s principal duty is to determine and regularly review, having regard to the Combined Code and on the advice of the chief executive, the remuneration policy and the remuneration and benefits packages of the executive directors, the chief executives of the principal operating companies and other members of the Pearson Management Committee who report directly to the chief executive. This includes base salary, annual and long-term incentive entitlements and awards, and pension arrangements.

Remuneration policy

Pearson’s goal remains unchanged: to help people make progress in their lives and thrive in a brain-based economy through learning. The basic strategy to achieve that goal is pursued by all Pearson’s businesses in some shape or form and has four fundamental parts: long-term organic growth investment in content; adding services to our content; international expansion; and efficiency.

Our starting point continues to be that total remuneration (base compensation plus annual and long-term incentives) should reward both short and long-term results, delivering competitive rewards for target performance, but outstanding rewards for exceptional company performance.

Total remuneration is made up of fixed and performance-linked elements, with each element supporting different objectives. Base salary reflects competitive market level, role and individual contribution. Annual incentives motivate the achievement of annual strategic goals. Bonus share matching encourages executive directors and other senior executives to acquire and hold Pearson shares and aligns executives’ and shareholders’ interests. Long-term incentives drive long-term earnings and share price growth and value creation and align executives’ and shareholders’ interests.

Consistent with its policy, the Committee places considerable emphasis on the performance-linked elements i.e., annual incentives, bonus share matching and long-term incentives. We will continue to review the mix of fixed and performance-linked remuneration on an annual basis, consistent with its overall philosophy.

We want our executive directors’ remuneration to be competitive with those of directors and executives in similar positions in comparable companies. In setting remuneration, the Committee reviews remuneration at a range

of UK companies in different sectors including the media sector. Some are of a similar size to Pearson, while others are larger, but the method which the Committee’s independent advisers use to make comparisons on remuneration takes this into account. All have very substantial overseas operations. The Committee also reviews remuneration at selected media companies in North America. We use these companies because they represent the wider executive talent pool from which we might expect to recruit externally and the pay market to which we might be vulnerable if our remuneration was not competitive.

Base salary

The Committee’s normal policy is to review salaries annually taking into account the remuneration arrangements and the level of increases applicable to employees across the rest of the company as a whole.

Allowances and benefits

The Group’s policy is that benefit programmes should be competitive in the context of the local labour market, but as an international company we require executives to operate worldwide and recognize that recruitment also is worldwide.

Annual incentives

The Committee establishes the annual incentive plans for the executive directors and the chief executives of the company’s principal operating companies, including performance measures and targets. These plans then become the basis of the annual incentive plans below the level of the principal operating companies, particularly with regard to the performance measures used and the relationship between the incentive plan targets and the relevant business unit operating plans.

The Committee will continue to review the annual incentive plans each year and to revise the performance measures, targets and individual incentive opportunities in light of current conditions.

Annual incentive payments do not form part of pensionable earnings.

Performance measures

The financial performance measures relate to the Group’s main drivers of business performance at both the corporate, operating company and business unit level. Performance is measured separately for each item. For each performance measure, the Committee establishes thresholds, target and maximum levels of performance for different levels of payout.

A proportion (which for 2010 may be up to 30%) of the total annual incentive opportunity for the executive directors and other members of the Pearson Management Committee is based on performance against personal objectives as agreed with the chief executive (or, in the case of the chief executive, the chairman). These comprise functional, operational, strategic and non-financial objectives relevant to the executives’ specific areas of responsibility and inter alia may include objectives relating to environmental, social and governance issues.

For 2010, the financial performance measures are sales, operating profit (for the operating companies) and growth in earnings per share for continuing operations at constant exchange rates (for Pearson plc), average working capital as a ratio to sales and operating cash flow. The selection and weighting of the performance measures takes into account the strategic objectives and the business priorities relevant to each operating company and to Pearson overall each year.

In each year’s report on directors’ remuneration, we describe any changes to target and maximum incentive opportunities for the chief executive and the other executive directors for the year ahead.

For 2010, there is no change to the target annual incentive opportunity for the chief executive which remains at 100% of base salary. We reviewed the chief executive’s maximum opportunity in light of competitive market data and practice elsewhere in the company and have increased it to 180% of base salary (150% in 2009)

For the other members of the Pearson Management Committee, we have reviewed individual incentive opportunities taking into account their membership of that committee and the contribution of their respective businesses or role to Pearson’s overall financial goals. In the case of the executive directors, the target individual incentive opportunity is in a range up to 87.5% of base salary. The maximum opportunity remains at twice target (as in 2009).

The annual incentive plans are discretionary and the Committee reserves the right to make adjustments to payouts up or down if it believes exceptional factors warrant doing so. The committee may also award individual discretionary incentive payments although no such payments were awarded in respect of 2009.

For 2009, total annual incentive opportunities were based on Pearson plc and operating company financial performance and performance against personal objectives as follows:


Name	Pearson plc			Operating company			Personal objectives

Marjorie Scardino		100	%		—			—
David Bell		75	%		—			25	%
Will Ethridge		30	%		60	%		10	%
Rona Fairhead		30	%		60	%		10	%
Robin Freestone		90	%		—			10	%
John Makinson		30	%		60	%		10	%

For Pearson plc, the performance measures were sales, earnings per share growth, average working capital to sales ratio and operating cash flow. Sales and growth in adjusted earnings per share at constant exchange rates were between target and maximum. Average working capital as a ratio to sales and operating cash flow were above maximum.

For Pearson Education North America, the performance measures were sales, operating profit, average working capital as a ratio to sales and operating cash flow. Operating profit, average working capital as a ratio to sales and operating cash flow were all above maximum level. Sales were above target but below maximum.

For FT Publishing, the performance measures were sales, operating profit and operating cash flow. Sales were below threshold level. FT Publishing exceeded the level of performance required for maximum payout on operating cash flow and operating profit. Sales were below threshold.

For our professional testing business (Pearson VUE), the performance measures were sales, operating profit, average working capital as a ratio to sales, and operating cash flow. Sales were between threshold and target. Operating profit and operating cash flow were both above target but below maximum. Average working capital as a ratio to sales was above the maximum level.

For Penguin Group, the performance measures were sales, operating profit, operating margin, average working capital as a ratio to sales and operating cash flow. Penguin Group exceeded the level of performance required for maximum payout on operating cash flow. Average working capital to sales ratio, sales, operating profit and operating margin were above target but below maximum.

Bonus share matching

In 2008, shareholders approved the renewal of the annual bonus share matching plan, which permits executive directors and senior executives around the company to invest up to 50% of any after-tax annual bonus in Pearson shares.

If the participant’s invested shares are held, they will be matched subject to earnings per share growth over the three-year performance period on a gross basis up to a maximum of one matching share for every one held (i.e., the number of matching shares will be equal to the number of shares that could have been acquired with the amount of the pre-tax annual bonus taken in invested shares).

Fifty percent of the maximum matching award, will be released if the company’s adjusted earnings per share increase in real terms by 3% per annum compound over the three-year performance period. One matching share for

every one invested share held (i.e., 100% of the maximum matching award, will be released if the company’s adjusted earnings per share increase in real terms by 5% per annum compound over the same period).

For real growth in adjusted earnings per share of between 3% and 5% per annum compound, the rate at which the participant’s invested shares will be matched will be calculated according to a straight-line sliding scale.

Where matching shares vest in accordance with the plan, a participant will also receive ‘dividend’ shares representing the gross value of dividends that would have been paid on the matching shares during the holding period and re-invested.

Long-term incentives

At the annual general meeting in April 2006, shareholders approved the renewal of the long-term incentive plan first introduced in 2001.

Executive directors, senior executives and other managers can participate in the plan which can deliver restricted stock and/or stock options. Approximately 6% of the Group’s employees currently hold awards under the plan. The aim is to give the Committee a range of tools with which to link corporate performance to management’s long-term reward in a flexible way. It is not the Committee’s intention to grant stock options in 2010.

Restricted stock granted to executive directors vests only when stretching corporate performance targets over a specified period have been met. Awards vest on a sliding scale based on performance over the period. There is no retesting.

The performance measures that have applied since 2006 and that will apply for 2010 and subsequent awards for the executive directors are focused on delivering and improving returns to shareholders. These are relative total shareholder return, return on invested capital and earnings per share growth.

Restricted stock may be granted without performance conditions to satisfy recruitment and retention objectives. Restricted stock awards that are not subject to performance conditions will not be granted to any of the current executive directors.

The Committee’s independent advisers verify each year the expected value of individual awards (i.e., their net present value after taking into account the vesting schedule, risk of forfeiture and the probability that any performance targets will be met). The level of individual awards takes into account three factors: their expected values; the assessments by the Committee’s independent advisers of market practice for comparable companies and of directors’ total remuneration relative to the market and the face value of individual awards and their potential value should the performance targets be met in full.

Pearson wishes to encourage executives and managers to build up a long-term holding of shares so as to demonstrate their commitment to the company. To achieve this, for awards of restricted stock that are subject to performance conditions over a three-year period, 75% of the award vests at the end of the three-year period. The remaining 25% of the award only vests if the participant retains the after-tax number of shares that vest at year three for a further two years.

Where shares vest, participants receive additional shares representing the gross value of dividends that would have been paid on these shares during the performance period and reinvested. The expected value of awards made on this basis take this into account.

There are limits on the amount of new-issue equity we can use. In any rolling ten-year period, no more than 10% of Pearson equity will be issued, or be capable of being issued, under all Pearson’s share plans, and no more than 5% of Pearson equity will be issued, or be capable of being issued, under executive or discretionary plans. In addition, for existing shares no more than 5% of Pearson equity may be held in trust at any time.

Shareholding policy

We encourage executive directors to build up a substantial shareholding in the company in line with the policy of encouraging widespread employee share ownership. We do not think it is necessary to specify a particular

relationship of shareholding to salary because of the volatility of the stock market and the share retention features that already exist in the annual bonus share matching plan and long-term incentive plans.

Service agreements

In accordance with long established policy, all continuing executive directors have rolling service agreements under which, other than by termination in accordance with the terms of these agreements, employment continues until retirement.

The committee reviewed the policy on executive employment agreements in 2008 and again in 2010. For future executive directors, service agreements should provide that the company may terminate these agreements by giving no more than 12 months’ notice. As an alternative, the company may at its discretion pay in lieu of that notice. Payment in lieu of notice may be made in instalments and may be subject to mitigation.

There are no special provisions for notice, pay in lieu of notice or liquidated damages in the event of termination of employment in the event of a change of control of Pearson. On termination of employment, executive directors’ entitlements to any vested or unvested awards under Pearson’s discretionary share plans are treated in accordance with the terms of the relevant plan.

Retirement benefits

Executive directors participate in the pension arrangements set up for Pearson employees. Marjorie Scardino, Will Ethridge, John Makinson, Rona Fairhead and Robin Freestone also have other retirement arrangements discussed below because of the cap on the amount of benefits that can be provided from the arrangements in the US and the UK.

The differences in the arrangements for the current executive directors reflect the different arrangements in the UK and the US and the changes in pension arrangements generally over the periods of their employment. The pension arrangements for all the executive directors include life insurance cover while in employment, and entitlement to a pension in the event of ill-health or disability. A pension for their spouse and/or dependants is also available on death.

In the US, the defined benefit arrangement is the Pearson Inc. Pension Plan. This plan provides a lump sum convertible to a pension on retirement. The lump sum accrued at 6% of capped compensation until 31 December 2001 when further benefit accruals ceased for most employees. Employees who satisfied criteria of age and service at that time continued to accrue benefits under the plan. Will Ethridge is included in this group and continues to accrue benefits under this plan. Marjorie Scardino is not and her benefit accruals under this plan ceased at the end of 2001.

The defined contribution arrangement in the US is a 401(k) plan. At retirement, the account balances will be used to provide benefits. In the event of death before retirement, the account balances will be used to provide benefits for dependants.

In the UK, the pension plan is the Pearson Group Pension Plan and executive directors participate in either the Final Pay or the Money Purchase 2003 section. Normal retirement age is 62, but, subject to company consent, retirement is currently possible after age 50 (age 55 from April 2010). In the Final Pay section, the accrued pension is reduced on retirement prior to age 60. Pensions in payment are guaranteed to increase each year at 5% or the increase in the Index of Retail Prices, if lower. Pensions for a member’s spouse, dependant children and/or nominated financial dependant are payable in the event of death. In the Money Purchase 2003 section the account balances are used to provide benefits at retirement. In the event of death before retirement pensions for a member’s spouse, dependant children and/or nominated financial dependant are payable.

Members of the Pearson Group Pension Plan who joined after May 1989 are subject to an upper limit of earnings that can be used for pension purposes, known as the earnings cap. This limit, £108,600 as at 6 April 2006, was abolished by the Finance Act 2004. However the Pearson Group Pension Plan has retained its own ’cap’, which will increase annually in line with the UK Government’s Index of Retail Prices (All Items). The cap was £123,600 as at 6 April 2009.

As a result of the UK Government’s A-Day changes effective from April 2006, UK executive directors and other members of the Pearson Group Pension Plan who are, or become, affected by the lifetime allowance are provided with a cash supplement as an alternative to further accrual of pension benefits on a basis that is broadly cost neutral to the company. In 2009 the only member of the board to whom this was applicable was David Bell. David was offered the allowance alternative but declined and continued as an active member of the plan. With David’s retirement there are no board members who received the offer of an allowance alternative.

Marjorie Scardino

Marjorie Scardino participates in the Pearson Inc. Pension Plan and the 401(k) plan.

Additional pension benefits are provided through an unfunded unapproved defined contribution plan and a funded defined contribution plan approved by HM Revenue and Customs as a corresponding plan to replace part of the unfunded plan. The account balance of the unfunded unapproved defined contribution plan is determined by reference to the value of a notional cash account that increases annually by a specified notional interest rate. This plan provides the opportunity to convert a proportion of this notional cash account into a notional share account reflecting the value of a number of Pearson ordinary shares. The number of shares in the notional share account is determined by reference to the market value of Pearson shares at the date of conversion.

David Bell

David Bell is drawing his pension from the Pearson Group Pension Plan. He began to receive his pension effective 30 September 2008 on attainment of Normal Retirement Age.

Will Ethridge

Will Ethridge is a member of the Pearson Inc. Pension Plan and the approved 401(k) plan. He also participates in an unfunded, unapproved Supplemental Executive Retirement Plan (SERP) that provides an annual accrual of 2% of final average earnings, less benefits accrued in the Pearson Inc. Pension Plan and US Social Security. Additional defined contribution benefits are provided through a funded, unapproved 401(k) excess plan.

Rona Fairhead

Rona Fairhead is a member of the Pearson Group Pension Plan. Her pension accrual rate is 1/30th of pensionable salary per annum, restricted to the plan earnings cap. Until April 2006, the company also contributed to a Funded Unapproved Retirement Benefits Scheme (FURBS) on her behalf. Since April 2006, she has received a taxable and non-pensionable cash supplement in replacement of the FURBS.

Robin Freestone

Robin Freestone is a member of the Money Purchase 2003 section of the Pearson Group Pension Plan. Company contributions are 16% of pensionable salary per annum, restricted to the plan earnings cap. Until April 2006, the company also contributed to a Funded Unapproved Retirement Benefits Scheme (FURBS) on his behalf. Since April 2006, he has received a taxable and non-pensionable cash supplement in replacement of the FURBS.

John Makinson

John Makinson is a member of the Pearson Group Pension Plan under which his pensionable salary is restricted to the plan earnings cap. The company ceased contributions on 31 December 2001 to his FURBS arrangement. During 2002 it set up an Unfunded Unapproved Retirement Benefits Scheme (UURBS) for him. The UURBS tops up the pension payable from the Pearson Group Pension Plan and the closed FURBS to target a pension of two-thirds of a revalued base salary on retirement at age 62. The revalued base salary is defined as £450,000 effective at 1 June 2002, increased at 1 January each year by reference to the increase in the UK Government’s Index of Retail Prices (All Items). In the event of his death a pension from the Pearson Group Pension Plan, the FURBS and the UURBS will be paid to his spouse or nominated financial dependant. Early retirement is possible from age 50 (age 55 from April 2010), with company consent.

The pension is reduced to reflect the shorter service, and before age 60, further reduced for early payment.

Executive directors’ non-executive directorships

Our policy is that executive directors may, by agreement with the board, serve as non-executives of other companies and retain any fees payable for their services.

The following executive directors served as non-executive directors elsewhere and received fees or other benefits for the period covered by this report as follows: Marjorie Scardino (Nokia Corporation and MacArthur Foundation) and Rona Fairhead (HSBC Holdings plc and Spencer Stuart). Other executive directors served as non-executive directors elsewhere but did not receive fees.

Chairman’s remuneration

Our policy is that the chairman’s pay should be set at a level that is competitive with those of chairmen in similar positions in comparable companies. He is not entitled to any annual or long-term incentive, retirement or other benefits.

There were no changes in the chairman’s remuneration in 2009. With effect from 1 January 2007, his remuneration was £450,000 per year.

Non-Executive directors

Fees for non-executive directors are determined by the full board having regard to market practice and within the restrictions contained in Pearson’s articles of association. Non-executive directors receive no other pay or benefits (other than reimbursement for expenses incurred in connection with their directorship of Pearson) and do not participate in the Pearson’s equity-based incentive plans.

There were no changes in the structure and level of non-executive directors’ fees in 2009. With effect from 1 July 2007, these were as follows:


	Fees payable from
	July 1, 2007 (£)

Non-executive director fee		60,000
Chairmanship of audit committee		20,000
Chairmanship of personnel committee		15,000
Membership of audit committee		10,000
Membership of personnel committee		5,000
Senior independent director		15,000

A minimum of 25% of the basic fee is paid in Pearson shares that the non-executive directors have committed to retain for the period of their directorships.

Terry Burns also receives a fee in respect of his non-executive directorship at Edexcel.

Non-executive directors serve Pearson under letters of appointment and do not have service contracts. There is no entitlement to compensation on the termination of their directorships.

Remuneration of senior management

Excluding contributions to pension funds and related benefits, senior management remuneration for 2009 was as follows:


	Salaries/		Annual
	Fees(1)		Incentive(2)		Allowances(3)		Benefits(4)		Total(5)
	£000		£000		£000		£000		£000

Non-executive Chairman
Glen Moreno		450		—		—		—		450
Executive directors
Marjorie Scardino		950		1,301		56		21		2,328
David Bell (stepped down 1 May 2009)		154		207		—		6		367
Will Ethridge		639		874		—		—		1,513
Rona Fairhead		506		570		—		28		1,104
Robin Freestone		450		639		—		13		1,102
John Makinson		525		655		216		29		1,425

Senior management as a group		3,674		4,246		272		97		8,289


Notes:


(1)	There were no increases in base salary for the executive directors for 2009

(2)	Allowances for Marjorie Scardino include £44,870 in respect of housing costs and a US payroll supplement of £10,961. John Makinson is entitled to a location and market premium in relation to the management of the business of the Penguin Group in the US and received £215,594 for 2009.

(3)	Benefits include company car, car allowance and UK health care premiums. US health and welfare benefits for Marjorie Scardino and Will Ethridge are self-insured and the company cost, after employee contributions, is tax free to employees. For Marjorie Scardino, benefits include £5,317 for pension planning and financial advice. Marjorie Scardino, Rona Fairhead, David Bell and John Makinson have the use of a chauffeur.


(4)		No amounts as compensation for loss of office and no expense allowances chargeable to UK income tax were paid during the year.

(5)		David Bell stepped down from the board on 1 May 2009. He continued to be entitled to the same base salary and other benefits in accordance with his service agreement with the company until his retirement from the company on 31 December 2009.

Share options of senior management

This table sets forth for each director the number of share options held as of December 31, 2009 as well as the exercise price, rounded to the nearest whole pence/cent, and the range of expiration dates of these options.


	Number of		Exercise	Earliest
Director	Options	(1)	Price	Exercise Date	Expiry Date

Marjorie Scardino(2)	41,550	c*	1421.0p	05/09/02	05/09/11
	41,550	c*	1421.0p	05/09/03	05/09/11
	41,550	c*	1421.0p	05/09/04	05/09/11
	41,550	c*	1421.0p	05/09/05	05/09/11

Total	166,200


	Number of		Exercise	Earliest
Director	Options	(1)	Price	Exercise Date	Expiry Date

David Bell	297	b	629.6p	08/01/09	02/01/10
	821	b	690.4p	08/01/10	02/01/11
	16,350	c*	1421.0p	05/09/02	05/09/11
	16,350	c*	1421.0p	05/09/03	05/09/11
	16,350	c*	1421.0p	05/09/04	05/09/11
	16,350	c*	1421.0p	05/09/05	05/09/11

Total	66,518

Will Ethridge	11,010	c*	$21.00	05/09/02	05/09/11
	11,010	c*	$21.00	05/09/03	05/09/11
	11,010	c*	$21.00	05/09/04	05/09/11
	11,010	c*	$21.00	05/09/05	05/09/11
	14,680	c*	$11.97	11/01/02	11/01/11
	14,680	c*	$11.97	11/01/03	11/01/11
	14,680	c*	$11.97	11/01/04	11/01/11

Total	88,080

Rona Fairhead	2,371	b	690.4p	08/01/12	02/01/13
	20,000	c*	822.0p	11/01/02	11/01/11
	20,000	c*	822.0p	11/01/03	11/01/11
	20,000	c*	822.0p	11/01/04	11/01/11

Total	62,371

Robin Freestone	1,757	b	534.8p	08/01/11	02/01/12

Total	1,757

John Makinson	4,178	b	424.8p	08/01/10	02/01/11
	19,785	c*	1421.0p	05/09/02	05/09/11
	19,785	c*	1421.0p	05/09/03	05/09/11
	19,785	c*	1421.0p	05/09/04	05/09/11
	19,785	c*	1421.0p	05/09/05	05/09/11

Total	83,318


Notes:


(1)	Shares under option are designated as: a executive; b worldwide save for shares; and c long-term incentive; and * where options are exercisable.


a	Executive

The plans under which these options were granted were replaced with the introduction of the long-term incentive plan in 2001. No executive options have been granted to the directors since 1998. All options have now lapsed, having been unexercised at the tenth anniversary of the date of grant.


b	Worldwide save for shares

The acquisition of shares under the worldwide save for shares plan is not subject to the satisfaction of a performance target.


c	Long-term incentive

All options that remain outstanding are exercisable and lapse if they remain unexercised at the tenth anniversary of the date of grant.


(2)	In addition, Marjorie Scardino contributes US$1,000 per month (the maximum allowed) to the US employee stock purchase plan. The terms of this plan allow participants to make monthly contributions for one year and


	to acquire shares at the end of that period at a price that is the lower of the market price at the beginning or the end of the period, both less 15%.

Share ownership of senior management

The table below sets forth the number of ordinary shares and restricted shares held by each of our directors as at February 28, 2010. Additional information with respect to share options held by, and bonus awards for, these persons is set out above in “Remuneration of Senior Management” and “Share Options for Senior Management”. The total number of ordinary shares held by senior management as of February 28, 2010 was 2,213,434 representing less than 1% of the issued share capital on February 28, 2010.


	Ordinary			Restricted
As at February 28, 2010	shares(1)			shares(2)

Glen Moreno		210,000			—
Marjorie Scardino		824,124			1,740,911
David Arculus		13,044			—
David Bell		253,050	(3)		358,277	(3)
Terry Burns		12,008			—
Patrick Cescau		5,356			—
Will Ethridge		262,988			622,707
Rona Fairhead		270,982			598,749
Robin Freestone		118,996			482,537
Susan Fuhrman		9,384			—
Ken Hydon		9,774			—
John Makinson		474,581			538,569
CK Prahalad		2,197			—

Notes:


(1)		Amounts include shares acquired by individuals under the annual bonus share matching plan and amounts purchased in the market by individuals.

(2)		Restricted shares comprise awards made under the annual bonus share matching and long-term incentive plans. The number of shares shown represents the maximum number of shares which may vest, subject to the performance conditions being fulfilled.

(3)		David Bell’s figures are as at May 1, 2009 when David Bell resigned as a director of Pearson plc.

Employee share ownership plans

Worldwide save for shares and US employee share purchase plans

In 1998, we introduced a worldwide save for shares plan. Under this plan, our employees around the world have the option to save a portion of their monthly salary over periods of three, five or seven years. At the end of this period, the employee has the option to purchase ordinary shares with the accumulated funds at a purchase price equal to 80% of the market price prevailing at the commencement of the employee’s participation in the plan.

In the United States, this plan operates as a stock purchase plan under Section 423 of the US Internal Revenue Code of 1986. This plan was introduced in 2000 following Pearson’s listing on the New York Stock Exchange. Under it, participants save a portion of their monthly salary over six month periods, at the end of which they have the option to purchase ADRs with their accumulated funds at a purchase price equal to 85% of the lower of the market price prevailing at the beginning or end of the period.

Board Practices

Our board currently comprises the chairman, who is a part-time non-executive director, five executive directors and six non-executive directors. Our articles of association provide that at every annual general meeting, one-third of the board of directors, or the number nearest to one-third, shall retire from office. The directors to retire each year are the directors who have been longest in office since their last election or appointment. A retiring director is eligible for re-election. If at any annual general meeting, the place of a retiring director is not filled, the retiring director, if willing, is deemed to have been re-elected, unless at or prior to such meeting it is expressly resolved not to fill the vacated office, or unless a resolution for the re-election of that director has been put to the meeting and lost. Our articles of association also provide that every director be subject to re-appointment by shareholders at the next annual general meeting following their appointment.

However this year, and in future years, in accordance with good corporate governance, the board have resolved that all directors should offer themselves for re-election on an annual basis at the company’s annual general meeting. Accordingly, all of the directors will offer themselves for re-election, (or reappointment in the case of directors who were appointed since the last meeting), at the forthcoming AGM on 30 April 2010.

Pearson is listed on the New York Stock Exchange (“NYSE”). As a listed non-US issuer, we are required to comply with some of the NYSE’s corporate governance rules, and otherwise must disclose on our website any significant ways in which our corporate governance practices differ from those followed by US companies under the NYSE listing standards. At this time, the Company believes that it is in compliance in all material respects with all the NYSE rules except that the Nomination Committee is not composed entirely of independent directors, and that it is the full board, not the Nomination Committee, that develops and recommends corporate governance principles.

The board of directors has established the following committees, all of which report to the board. Each committee has its own written terms of reference setting out their authority and duties. These can be found on our website (www.pearson.com/investors/shareholder-information/governance)

Audit committee

This committee provides the board with a vehicle to appraise our financial management and reporting and to assess the integrity of our accounting procedures and financial controls. Ken Hydon chairs this committee and its other members are David Arculus, Patrick Cescau and Susan Fuhrman. Ken Hydon is also the designated audit committee financial expert within the meaning of the applicable rules and regulations of the US Securities and Exchange Commission. Our internal and external auditors have direct access to the committee to raise any matter of concern and to report the results of work directed by the committee.

Personnel committee

This committee meets regularly to decide the remuneration and benefits of the executive directors and the chief executives of our three operating divisions. The committee also recommends the chairman’s remuneration to the board of directors for its decision and reviews management development and succession plans. David Arculus chairs this committee and its other members are Terry Burns, Glen Moreno and Ken Hydon.

Nomination committee

This committee meets from time to time as necessary to consider the appointment of new directors. The committee is chaired by Glen Moreno and comprises Marjorie Scardino and all of the non-executive directors.

Employees

The average number of persons employed by us during each of the three fiscal years ended 2009 were as follows:


	•	37,164 in fiscal 2009,


	•	33,680 in fiscal 2008, and

	•	32,692 in fiscal 2007.

We, through our subsidiaries, have entered into collective bargaining agreements with employees in various locations. Our management has no reason to believe that we would not be able to renegotiate any such agreements on satisfactory terms. We encourage employees to contribute actively to the business in the context of their particular job roles and believe that the relations with our employees are generally good.

The table set forth below shows for 2009, 2008 and 2007 the average number of persons employed in each of our operating divisions.


Average number employed	2009		2008		2007

North American Education		15,606		15,412		14,327
International Education		8,899		5,718		5,291
Professional		2,662		2,641		2,540
Penguin		4,163		4,112		4,163
FT Publishing		2,328		2,379		2,083
Interactive Data		2,459		2,413		2,300
Other		1,047		909		918

Continuing operations		37,164		33,584		31,622

Discontinued operations		—		96		1,070

Total		37,164		33,680		32,692


ITEM 7.	*MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS*

To our knowledge, as of February 28, 2010, the only beneficial owners of 3% or more of our issued and outstanding ordinary share capital were Legal & General Group plc which owned 32,300,784 ordinary shares representing 3.98% of our outstanding ordinary shares. On February 28, 2010, record holders with registered addresses in the United States held 38,440,234 ADRs, which represented 4.74% of our outstanding ordinary shares. Some of these ADRs are held by nominees and so these numbers may not accurately represent the number of beneficial owners in the United States.

Loans and equity advanced to joint ventures and associates during the year and as at December 31, 2009 are shown in note 12 in “Item 18. Financial Statements.” Amounts due from joint ventures and associates are set out in note 22 and dividends receivable from joint ventures and associates are set out in note 12 in “Item 18. Financial Statements”. There were no other related party transactions in 2009.


ITEM 8.	*FINANCIAL INFORMATION*

The financial statements filed as part of this Annual Report are included on pages F-1 through F-70 hereof.

Other than those events described in note 35 in “Item 18. Financial Statements” of this Form 20-F and seasonal fluctuations in borrowings, there has been no significant change to our financial condition or results of operations since December 31, 2009. Our borrowings fluctuate by season due to the effect of the school year on the working capital requirements of the educational book business. Assuming no acquisitions or disposals, our maximum level of net debt normally occurs in July, and our minimum level of net debt normally occurs in December.

Our policy with respect to dividend distributions is described in response to “Item 3. Key Information” above.


ITEM 9.	*THE OFFER AND LISTING*

The principal trading market for our ordinary shares is the London Stock Exchange. Our ordinary shares also trade in the United States in the form of ADSs evidenced by ADRs under a sponsored ADR facility with The Bank of New York Mellon, as depositary. We established this facility in March 1995 and amended it in August 2000 in connection with our New York Stock Exchange listing. Each ADS represents one ordinary share.

The ADSs trade on the New York Stock Exchange under the symbol “PSO”.

The following table sets forth the highest and lowest middle market quotations, which represent the average of closing bid and asked prices, for the ordinary shares, as derived from the Daily Official List of the London Stock Exchange and the average daily trading volume on the London Stock Exchange:


	•	on an annual basis for our five most recent fiscal years,

	•	on a quarterly basis for our most recent quarter and two most recent fiscal years, and

	•	on a monthly basis for the six most recent months.


	Ordinary shares				Average daily
Reference period	High		Low		trading volume
	(In pence)
					(Ordinary shares)

Five most recent fiscal years
2009		893		578		4,030,500
2008		733		519		4,758,300
2007		915		695		6,405,600
2006		811		671		5,004,500
2005		695		608		5,296,700
Most recent quarter and two most recent fiscal years
2009 Fourth quarter		893		755		2,777,200
Third quarter		777		578		3,158,500
Second quarter		733		600		4,554,700
First quarter		714		584		5,695,700
2008 Fourth quarter		651		520		5,603,400
Third quarter		705		570		4,748,000
Second quarter		710		611		3,590,800
First quarter		733		682		5,083,300
Most recent six months
February 2010		912		855		2,113,800
January 2010		909		863		2,536,000
December 2009		893		846		1,697,900
November 2009		854		825		2,376,400
October 2009		859		755		4,234,400
September 2009		777		735		2,915,000


ITEM 10.	*ADDITIONAL INFORMATION*

Articles of association

We summarize below the material provisions of our articles of association, as amended, which have been filed as an exhibit to our annual report on Form 20-F for the year ended December 31, 2009. The summary below is qualified entirely by reference to the Articles of Association. We have multiple business objectives and purposes and are authorized to do such things as the board may consider fit to further our interests or incidental or conducive to the attainment of our objectives and purposes.

Directors’ powers

Our business shall be managed by the board of directors and the board may exercise all such of our powers as are not required by law or by the Articles of Association or by any directions given by the Company by special resolution, to be exercised in a general meeting.

Interested directors

For the purposes of section 175 of the Companies Act 2006 the board may authorize any matter proposed to it which would, if not so authorized, involve a breach of duty by a Director under that section, including, without limitation, any matter which relates to a situation in which a Director has, or can have, an interest which conflicts, or possibly may conflict, with the interests of the Company. Any such authorization will be effective only if:


	(a)	any requirement as to quorum at the meeting at which the matter is considered is met without counting the Director in question or any other interested Director; and


	(b)	the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.

The board may (whether at the time of the giving of the authorization or subsequently) make any such authorization subject to any limits or conditions it expressly imposes but such authorization is otherwise given to the fullest extent permitted. The board may vary or terminate any such authorization at any time.

Provided that he has disclosed to the board the nature and extent of his interest, a Director notwithstanding his office:


	(a)	may be a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is otherwise (directly or indirectly) interested;


	(b)	may act by himself or his firm in a professional capacity for the Company (otherwise than as auditor) and he or his firm shall be entitled to remuneration for professional services as if he were not a Director;


	(c)	may be a director or other officer of, or employed by, or a party to a transaction or arrangement with, or otherwise interested in, any body corporate in which the Company is otherwise (directly or indirectly) interested.

A Director shall not, by reason of his office, be accountable to the Company for any remuneration or other benefit which he derives from any office or employment or from any transaction or arrangement or from any interest in any body corporate:


	(a)	the acceptance, entry into or existence of which has been approved by the board (subject, in any such case, to any limits or conditions to which such approval was subject); or


	(b)	which he is permitted to hold or enter into by virtue of paragraph (a), (b) or (c) above;

nor shall the receipt of any such remuneration or other benefit constitute a breach of his duty under section 176 of the Act.

A Director shall be under no duty to the Company with respect to any information which he obtains or has obtained otherwise than as a director of the Company and in respect of which he owes a duty of confidentiality to another person. However, to the extent that his relationship with that other person gives rise to a conflict of interest

or possible conflict of interest, which has been approved by the board: the director shall not be in breach of the general duties he owes to the Company by virtue of sections 171 to 177 of the Act because he fails:


	(a)	to disclose any such information to the board or to any Director or other officer or employee of the Company; and/or


	(b)	to use or apply any such information in performing his duties as a Director of the Company.

Where the existence of a Director’s relationship with another person has been approved by the board and his relationship with that person gives rise to a conflict of interest or possible conflict of interest, the Director shall not be in breach of the general duties he owes to the Company by virtue of sections 171 to 177 of the Act because he:


	(a)	absents himself from meetings of the board at which any matter relating to the conflict of interest or possible conflict of interest will or may be discussed or from the discussion of any such matter at a meeting or otherwise; and/or


	(b)	makes arrangements not to receive documents and information relating to any matter which gives rise to the conflict of interest or possible conflict of interest sent or supplied by the Company and/or for such documents and information to be received and read by a professional adviser,

for so long as he reasonably believes such conflict of interest or possible conflict of interest subsists.

Except as stated below, a Director shall not vote in respect of any contract or arrangement or any other proposal whatsoever in which he has an interest which is, to his knowledge, a material interest, otherwise than by virtue of his interests in shares or debentures or other securities of or otherwise in or through the Company. A Director shall not be counted in the quorum at a meeting of the Board in relation to any resolution on which he is debarred from voting.

Notwithstanding the foregoing, a director will be entitled to vote, and be counted in the quorum, on any resolution concerning any of the following matters:


	•	the giving of any guarantee, security or indemnity in respect of money lent or obligations incurred by him or by any other person at the request of or for the benefit of the Company or any of its subsidiaries;

	•	the giving of any guarantee, security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which he himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security;

	•	any proposal relating to the Company or any of its subsidiary undertakings where it is offering securities in which offer a Director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which a Director is to participate;

	•	any proposal relating to another company in which he and any persons connected with him do not to his knowledge hold an interest in shares (as that term is used in sections 820 to 825 of the Companies Act 2006) representing one per cent. or more of either any class of the equity share capital, or the voting rights, in such company;

	•	any proposal relating to an arrangement for the benefit of the employees of the Company or any of its subsidiary undertakings which does not award him any privilege or benefit not generally awarded to the employees to whom such arrangement relates; and

	•	any proposal concerning insurance that we propose to maintain or purchase for the benefit of directors or for the benefit of persons, including directors.

Where proposals are under consideration concerning the appointment of two or more directors to offices or employment with us or any company in which we are interested, these proposals may be divided and considered separately and each of these directors, if not prohibited from voting under the provisions of the eighth paragraph before this one, will be entitled to vote and be counted in the quorum with respect to each resolution except that concerning his or her own appointment.

Borrowing powers

The board of directors may exercise all powers to borrow money and to mortgage or charge our undertaking, property and uncalled capital and to issue debentures and other securities, whether outright or as collateral security for any of our or any third party’s debts, liabilities or obligations. The board of directors must restrict the borrowings in order to secure that the aggregate amount of undischarged monies borrowed by us (and any of our subsidiaries), but excluding any intra-group debts, shall not at any time (without the previous sanction of the Company in the form of an ordinary resolution) exceed a sum equal to twice the aggregate of the adjusted capital and reserves.

Other provisions relating to directors

Under the articles of association, directors are paid out of our funds for their services as we may from time to time determine by ordinary resolution and, in the case of non-executive directors, up to an aggregate of £750,000 or such other amounts as resolved by the shareholders at a general meeting. Directors currently are not required to hold any share qualification. From April 6, 2007 under the Companies Act 2006, the maximum age limit for directors of PLCs, which was 70, has been removed.

Annual general meetings

In every year the Company must hold an annual general meeting (‘AGM’) (within a period of not more than 15 months after the date of the preceding AGM) at a place and time determined by the board. The following matters are usually considered at an annual general meeting:


	•	approving final dividends;

	•	consideration of the accounts and balance sheet;

	•	ordinary reports of the board of directors and auditors and any other documents required to be annexed to the balance sheet;

	•	as holders of ordinary shares vote for the election of one-third of the members of the board of directors at every annual general meeting, the appointment or election of directors in the place of those retiring by rotation or otherwise;

	•	appointment or reappointment of, and determination of the remuneration of, the auditors; and

	•	the renewal, limitation, extension, variation or grant of any authority to the board in relation to the allotment of securities.

The board may call a general meeting whenever it thinks fit. If at any time there are not within the United Kingdom sufficient directors capable of acting to form a quorum, any director or any two members may convene a general meeting in the same manner as nearly as possible as that in which meetings may be convened by the board.

No business shall be dealt with at any general meeting unless a quorum is present when the meeting proceeds to business. Three members present in person and entitled to vote shall be a quorum for all purposes. A corporation being a member shall be deemed to be personally present if represented by its duly authorized representative.

If a quorum for a meeting convened at the request of shareholders is not present within fifteen minutes of the appointed time, the meeting will be dissolved. In any other case, the general meeting will be adjourned to the same day in the next week, at the same time and place, or to a time and place that the chairman fixes. If at that rescheduled meeting a quorum is not present within fifteen minutes from the time appointed for holding the meeting, the shareholders present in person or by proxy will be a quorum. The chairman or, in his absence, the deputy chairman or any other director nominated by the board, will preside as chairman at every general meeting. If no director is present at the general meeting or no director consents to act as chairman, the shareholders present shall elect one of their number to be chairman of the meeting.

Share Certificates

Every person whose name is entered as a member in the Company’s Register of Members shall be entitled to one certificate in respect of each class of shares held. (The law regarding this does not apply to stock exchange nominees). Subject to the terms of issue of the shares, certificates are issued following allotment or receipt of the form of transfer bearing the appropriate stamp duty by our registrar, Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom, telephone number +44-871-384-2043.

Share capital

Any share may be issued with such preferred, deferred or other special rights or other restrictions as we may determine by way of a shareholders’ vote in general meeting. Subject to the Companies Act 2006, any shares may be issued on terms that they are, or at our or the shareholders’ option are, liable to be redeemed on such terms and in such manner as we, before the issue of the shares, may determine by special resolution of the shareholders.

There are no provisions in the Articles of Association which discriminate against any existing or prospective shareholder as a result of such shareholder owning a substantial number of shares.

Subject to the terms of the shares which have been issued, the directors may from time to time make calls upon the shareholders in respect of any moneys unpaid on their shares, provided that (subject to the terms of the shares so issued) no call on any share shall be payable at less than fourteen clear days from the last call. The directors may, if they see fit, receive from any shareholder willing to advance the same, all and any part of the moneys uncalled and unpaid upon any shares held by him.

Changes in capital

We may from time to time, by ordinary resolution:


	•	consolidate and divide our share capital into shares of a larger amount than its existing shares; or

	•	sub-divide all of or any of our existing shares into shares of smaller amounts, subject to the Companies Act 2006; or

	•	cancel any shares which, at the date of passing of the resolution, have not been taken, or agreed to be taken, by any person and diminish the amount of our share capital by the amount of the shares so cancelled.

We may, from time to time, by ordinary resolution increase our share capital and, subject to the consents and incidents required by the Companies Act 2006, may by special resolution decrease our share capital, capital redemption reserve fund and any share premium account in any way.

Voting rights

Every holder of ordinary shares present in person at a meeting of shareholders has one vote on a vote taken by a show of hands. On a poll, every holder of ordinary shares who is present in person or by proxy has one vote for every ordinary share of which he or she is the holder. Voting at any meeting of shareholders is by a show of hands unless a poll is properly demanded before the declaration of the results of a show of hands. A poll may be demanded by:


	•	the chairman of the meeting;

	•	at least three shareholders present in person or by proxy and entitled to vote;

	•	any shareholder or shareholders present in person or by proxy representing not less than one-tenth of the total voting rights of all shareholders having the right to vote at the meeting; or

	•	any shareholder or shareholders present in person or by proxy holding shares conferring a right to vote at the meeting being shares on which the aggregate sum paid up is equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

Dividends

Holders of ordinary shares are entitled to receive dividends out of our profits that are available by law for distribution, as we may declare by ordinary resolution, subject to the terms of issue thereof. However, no dividends may be declared in excess of an amount recommended by the board of directors. The board may pay interim dividends to the shareholders as it deems fit. We may invest or otherwise use all dividends left unclaimed for six months after having been declared for our benefit, until claimed. All dividends unclaimed for a period of twelve years after having been declared will be forfeited and revert to us.

The directors may, with the sanction of an ordinary resolution of the shareholders, offer any holders of ordinary shares the right to elect to receive ordinary shares credited as fully paid, in whole or in part, instead of cash in respect of such dividend.

The directors may deduct from any dividend payable to any shareholder all sums of money (if any) presently payable by that shareholder to us on account of calls or otherwise in relation to our shares.

Liquidation rights

In the event of our liquidation, after payment of all liabilities, our remaining assets would be used to repay the holders of ordinary shares the amount they paid for their ordinary shares. Any balance would be divided among the holders of ordinary shares in proportion to the nominal amount of the ordinary shares held by them.

Other provisions of the articles of association

Whenever our capital is divided into different classes of shares, the special rights attached to any class may, unless otherwise provided by the terms of the issue of the shares of that class, be varied or abrogated, either with the written consent of the holders of three-fourths of the issued shares of the class or with the sanction of a special resolution passed at a separate meeting of these holders.

In the event that a shareholder or other person appearing to the board of directors to be interested in ordinary shares fails to comply with a notice requiring him or her to provide information with respect to their interest in voting shares pursuant to section 820 of the Companies Act 2006, we may serve that shareholder with a notice of default. After service of a default notice, that shareholder shall not be entitled to attend or vote at any general meeting or at a separate meeting of holders of a class of shares or on a poll until he or she has complied in full with our information request.

If the shares described in the default notice represent at least one-fourth of 1% in nominal value of the issued ordinary shares, then the default notice may additionally direct that in respect of those shares:


	•	we will not pay dividends (or issue shares in lieu of dividends); and

	•	we will not register transfers of shares unless the shareholder is not himself in default as regards supplying the information requested and the transfer, when presented for registration, is in such form as the board of directors may require to the effect that after due and careful inquiry, the shareholder is satisfied that no person in default is interested in any of the ordinary shares which are being transferred or the transfer is an approved transfer, as defined in our articles of association.

No provision of our articles of association expressly governs the ordinary share ownership threshold above which shareholder ownership must be disclosed. Under the Companies Act 2006, any person who acquires, either alone or, in specified circumstances, with others:


	•	a material interest in our voting share capital equal to or in excess of 3%; or

	•	a non-material interest equal to or in excess of 10%,

comes under an obligation to disclose prescribed particulars to us in respect of those ordinary shares. A disclosure obligation also arises where a person’s notifiable interests fall below the notifiable percentage, or where, above that level, the percentage of our voting share capital in which a person has a notifiable interest increases or decreases.

Limitations affecting holders of ordinary shares or ADSs

Under English law and our memorandum and articles of association, persons who are neither UK residents nor UK nationals may freely hold, vote and transfer ordinary shares in the same manner as UK residents or nationals.

With respect to the items discussed above, applicable UK law is not materially different from applicable US law.

Material contracts

Pearson has not entered into any contracts outside the ordinary course of business during the two year period immediately preceding the date of this annual report.

Executive employment contracts

We have entered into agreements with each of our executive directors pursuant to which such executive director is employed by us. These agreements describe the duties of such executive director and the compensation to be paid by us. See “Item 6. Directors, Senior Management and Employees — Compensation of Senior Management”. Each agreement may be terminated by us on 12 months’ notice or by the executive director on six months’ notice. In the event we terminate any executive director without giving the full 12 months’ advance notice, the executive director is entitled to receive liquidated damages equal to 12 months’ base salary and benefits together with a proportion of potential bonus.

Exchange controls

There are no UK government laws, decrees, regulations or other legislation which restrict or which may affect the import or export of capital, including the availability of cash and cash equivalents for use by us or the remittance of dividends, interest or other payments to nonresident holders of our securities, except as otherwise described under “— Tax Considerations” below.

Tax considerations

The following is a discussion of the material US federal income tax considerations and UK tax considerations arising from the acquisition, ownership and disposition of ordinary shares and ADSs by a US holder. A US holder is:


	•	an individual citizen or resident of the US, or

	•	a corporation created or organized in or under the laws of the US or any of its political subdivisions, or

	•	an estate or trust the income of which is subject to US federal income taxation regardless of its source.

This discussion deals only with ordinary shares and ADSs that are held as capital assets by a US holder, and does not address tax considerations applicable to US holders that may be subject to special tax rules, such as:


	•	dealers or traders in securities or currencies,

	•	financial institutions or other US holders that treat income in respect of the ordinary shares or ADSs as financial services income,

	•	insurance companies,

	•	tax-exempt entities,

	•	US holders that hold the ordinary shares or ADSs as a part of a straddle or conversion transaction or other arrangement involving more than one position,

	•	US holders that own, or are deemed for US tax purposes to own, 10% or more of the total combined voting power of all classes of our voting stock,

	•	US holders that have a principal place of business or “tax home” outside the United States, or

	•	US holders whose “functional currency” is not the US dollar.

For US federal income tax purposes, holders of ADSs will be treated as the owners of the ordinary shares represented by those ADSs.

In addition, the following discussion assumes that The Bank of New York will perform its obligations as depositary in accordance with the terms of the depositary agreement and any related agreements.

Because US and UK tax consequences may differ from one holder to the next, the discussion set out below does not purport to describe all of the tax considerations that may be relevant to you and your particular situation. Accordingly, you are advised to consult your own tax advisor as to the US federal, state and local, UK and other, including foreign, tax consequences of investing in the ordinary shares or ADSs. The statements of US and UK tax law set out below are based on the laws and interpretations in force as of the date of this Annual Report, and are subject to any changes occurring after that date.

UK income taxation of distributions

The UK does not impose dividend withholding tax on dividends paid to US holders.

US income taxation of distributions

Distributions that we make with respect to the ordinary shares or ADSs, other than distributions in liquidation and distributions in redemption of stock that are treated as exchanges, will be taxed to US holders as ordinary dividend income to the extent that the distributions do not exceed our current and accumulated earnings and profits. The amount of any distribution will equal the amount of the cash distribution. Distributions, if any, in excess of our current and accumulated earnings and profits will constitute a non-taxable return of capital to a US holder and will be applied against and reduce the US holder’s tax basis in its ordinary shares or ADSs. To the extent that these distributions exceed the tax basis of the US holder in its ordinary shares or ADSs, the excess generally will be treated as capital gain.

Dividends that we pay will not be eligible for the dividends received deduction generally allowed to US corporations under Section 243 of the Code.

In the case of distributions in pounds, the amount of the distributions generally will equal the US dollar value of the pounds distributed, determined by reference to the spot currency exchange rate on the date of receipt of the distribution by the US holder in the case of shares or by The Bank of New York in the case of ADSs, regardless of whether the US holder reports income on a cash basis or an accrual basis. The US holder will realize separate foreign currency gain or loss only to the extent that this gain or loss arises on the actual disposition of pounds received. For US holders claiming tax credits on a cash basis, taxes withheld from the distribution are translated into US dollars at the spot rate on the date of the distribution; for US holders claiming tax credits on an accrual basis, taxes withheld from the distribution are translated into US dollars at the average rate for the taxable year.

A distribution by the Company to noncorporate shareholders before 2011 will be taxed as net capital gain at a maximum rate of 15%, provided certain holding periods are met, to the extent such distribution is treated as a dividend under US federal income tax principles.

UK income taxation of capital gains

Under the Income Tax Treaty, each country generally may tax capital gains in accordance with the provisions of its domestic law. Under present UK law, a US holder that is not a resident, and, in the case of an individual, not ordinarily resident, in the UK for UK tax purposes and who (in the case of an individual) does not carry on a trade, profession or vocation in the UK through a branch or agency, or (in the case of a company) does not carry on a trade in the UK through a UK permanent establishment, to which ordinary shares or ADSs are attributable will not be liable for UK taxation on capital gains or eligible for relief for allowable losses, realized on the sale or other disposal (including redemption) of these ordinary shares or ADSs.

US income taxation of capital gains

Upon a sale or exchange of ordinary shares or ADSs to a person other than Pearson, a US holder will recognize gain or loss in an amount equal to the difference between the amount realized on the sale or exchange and the US holder’s adjusted tax basis in the ordinary shares or ADSs. Any gain or loss recognized will be capital gain or loss and will be long-term capital gain or loss if the US holder has held the ordinary shares or ADSs for more than one year. Long-term capital gain of a noncorporate US holder is generally taxed at a maximum rate of 15%. This long-term capital gain rate is scheduled to expire in 2011.

Gain or loss realized by a US holder on the sale or exchange of ordinary shares or ADSs generally will be treated as US-source gain or loss for US foreign tax credit purposes.

Estate and gift tax

The current Estate and Gift Tax Convention, or the Convention, between the US and the UK generally relieves from UK Inheritance Tax (the equivalent of US Estate and Gift Tax) the transfer of ordinary shares or of ADSs where the transferor is domiciled in the US, for the purposes of the Convention. This relief will not apply if the ordinary shares or ADSs are part of the business property of an individual’s permanent establishment in the UK or pertain to the fixed base in the UK of a person providing independent personal services. If no relief is given under the Convention, inheritance tax may be charged on the amount by which the value of the transferor’s estate is reduced as a result of any transfer made by way of gift or other gratuitous transfer by an individual, in general within seven years of death, or on the death of an individual. In the unusual case where ordinary shares or ADSs are subject to both UK Inheritance Tax and US Estate or Gift Tax, the Convention generally provides for tax paid in the UK to be credited against tax payable in the US or for tax paid in the US to be credited against tax payable in the UK based on priority rules set forth in the Convention.

Stamp duty

No stamp duty or stamp duty reserve tax (SDRT) will be payable in the UK on the purchase or transfer of an ADS, provided that the ADS, and any separate instrument or written agreement of transfer, remain at all times outside the UK and that the instrument or written agreement of transfer is not executed in the UK. Subject to the following paragraph, stamp duty or SDRT is, however, generally payable at the rate of 1.5% of the amount or value of the consideration or, in some circumstances, the value of the ordinary shares, where ordinary shares are issued or transferred to a person whose business is or includes issuing depositary receipts, or to a nominee or agent for such a person, or issued or transferred to a person whose business is or includes the provision of clearance services or a nominee or agent for such a person.

Following a decision of the European Court of Justice in 2009, HMRC has announced that it will not seek to apply the 1.5% SDRT charge when new shares are issued an EU clearance service or EU depositary receipt system. It seems that HMRC’s view is that the 1.5% SDRT charge will continue to apply to transfer of shares into a clearance service or depositary receipt system, and also in respect of issues of shares into non-EU clearance services and non-EU depositary receipt systems. Arguably the 1.5% SDRT charge in such situations is not consistent with the 2009 decision of the European Court of Justice, although HMRC is likely to impose such charges until further case law or legislation resolves the issue.

A transfer for value of the underlying ordinary shares will generally be subject to either stamp duty or SDRT, normally at the rate of 0.5% of the amount or value of the consideration. A transfer of ordinary shares from a nominee to its beneficial owner, including the transfer of underlying ordinary shares from the Depositary to an ADS holder, under which no beneficial interest will not be subject to stamp duty or SDRT.

Close company status

We believe that the close company provisions of the UK Income and Corporation Taxes Act 1988 do not apply to us.

Documents on display

Copies of our Memorandum and Articles of Association and filed as exhibits to this Annual Report and certain other documents referred to in this Annual Report are available for inspection at our registered office at 80 Strand, London WC2R 0RL (c/o the Company Secretary), or, in the US, at the registered office of Pearson Inc. at 1330 Avenue of the Americas, 7th Floor, New York, New York, during usual business hours upon reasonable prior request.


ITEM 11.	*QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*

Introduction

Our principal market risks are changes in interest rates and currency exchange rates. Following an evaluation of these positions, we selectively enter into derivative financial instruments to manage our risk exposure. For this purpose, we primarily use interest rate swaps, interest rate caps and collars, forward rate agreements, currency swaps and forward foreign exchange contracts. Managing market risks is the responsibility of the chief financial officer, who acts pursuant to policies approved by the board of directors. The Audit Committee receives regular reports on our treasury activities.

We have a policy of not undertaking any speculative transactions, and we do not hold our derivative and other financial instruments for trading purposes.

We have formulated policies for hedging exposures to interest rate and foreign exchange risk, and have used derivatives to ensure compliance with these policies. Although a large proportion of our derivative contracts were transacted without regard to existing IFRS requirements on hedge accounting, during 2009 and 2008 we qualified for hedge accounting under IFRS on a number of our key derivative contracts.

The following discussion addresses market risk only and does not present other risks that we face in the normal course of business, including country risk, credit risk and legal risk.

Interest rates

The Group’s financial exposure to interest rates arises primarily from its borrowings. The Group manages its exposure by borrowing at fixed and variable rates of interest, and by entering into derivative transactions. Objectives approved by the board concerning the proportion of debt outstanding at fixed rates govern the use of these financial instruments.

The Group’s objectives are applied to core net debt, which is measured at the year-end and comprises borrowings net of cash and other liquid funds. Our objective is to maintain a proportion of forecast core net debt in fixed or capped form for the next four years, subject to a maximum of 65% and a minimum that starts at 40% and falls by 10% each year.

The principal method of hedging interest rate risk is to enter into an agreement with a bank counterparty to pay a fixed rate and receive a variable rate, known as a swap. Under interest rate swaps, the Group agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and variable-rate amounts calculated by reference to an agreed notional principal amount. The majority of the Group’s swap contracts are US dollar denominated, and some of them have deferred start dates, in order to maintain the desired risk profile as other contracts mature. The variable rates received are normally based on three-month or six-month LIBOR, and the dates on which these rates are set do not necessarily exactly match those of the hedged borrowings. Management believes that our portfolio of these types of swaps is an efficient hedge of our portfolio of variable rate borrowings.

In addition, from time to time, the Group issues bonds or other capital market instruments to refinance existing debt. To avoid the fixed rate on a single transaction unduly influencing our overall net interest expense, our typical practice has been to enter into a related derivative contract effectively converting the interest rate profile of the bond transaction to a variable interest rate. In some cases, the bond issue is denominated in a different currency to the Group’s desired borrowing risk profile and the Group enters into a related cross currency interest rate swap in order to maintain this risk profile, which is predominantly borrowings denominated in US dollars.

The Group’s accounting objective in its use of interest rate derivatives is to minimize the impact on the income statement of changes in the mark-to-market value of its derivative portfolio as a whole. It uses duration calculations to estimate the sensitivity of the derivatives to movements in market rates. The Group also identifies which derivatives are eligible for fair value hedge accounting (which reduces significantly the income statement impact of changes in the market value of a derivative). The Group then divides the total portfolio between hedge-accounted and pooled segments, so that the expected movement on the pooled segment is minimized.

Currency exchange rates

Although the Group is based in the UK, it has significant investments in overseas operations. The most significant currency in which the Group trades is the US dollar.

The Group’s policy is to align approximately the currency composition of its core net borrowings with its forecast operating profit before depreciation and amortization. This policy aims to dampen the impact of changes in foreign exchange rates on consolidated interest cover and earnings. This policy applies only to currencies that account for more than 15% of group operating profit, which currently are the US dollar and sterling. However, the Group still borrows small amounts in other currencies, typically for seasonal working capital needs. In addition, the Group’s policy does not require existing currency debt to be terminated to match declines in that currency’s share of Group operating profit. Following the board’s approval of a policy change in October 2008, currencies that account for less than 15% of Group operating profit before depreciation and amortization may now be included in the above hedging process at the request of the chief financial officer. During 2009, one hedging transaction, denominated in South African Rand, had been undertaken under that authority.

At December 31, 2009 the Group’s net borrowings in our main currencies (taking into account the effect of cross currency rate swaps) were: US dollar £1,314m, sterling £168m, and South African rand £9m.

The Group uses both currency denominated debt and derivative instruments to implement the above policy. Its intention is that gains/losses on the derivatives and debt offset the losses/gains on the foreign currency assets and income. Each quarter the value of hedging instruments is monitored against the assets in the relevant currency and, where practical, a decision is made whether to treat the debt or derivative as a net investment hedge (permitting foreign exchange movements on it to be taken to reserves) for the purposes of reporting under IFRS.

Investments in overseas operations are consolidated for accounting purposes by translating values in one currency to another currency, in particular from US dollars to sterling. Fluctuations in currency exchange rates affect the currency values recorded in our accounts, although they do not give rise to any realized gain or loss, nor to any currency cash flows.

The Group is also exposed to currency exchange rates in its cash transactions and its investments in overseas operations. Cash transactions — typically for purchases, sales, interest or dividends — require cash conversions between currencies. Fluctuations in currency exchange rates affect the cash amounts that the Group pays or receives.

Forward foreign exchange contracts

The Group sometimes uses forward foreign exchange contracts where a specific major project or forecasted cash flow, including acquisitions and disposals, arises from a business decision that has used a specific foreign exchange rate. The Group’s policy is to effect routine transactional conversions between currencies, for example to collect receivables or settle payables, at the relevant spot exchange rate.

The Group seeks to offset purchases and sales in the same currency, even if they do not occur simultaneously. In addition, its debt and cash portfolios management gives rise to temporary currency shortfalls and surpluses. Both of these activities require using short-dated foreign exchange swaps between currencies.

Although the Group prepares its consolidated financial statements in sterling, significant sums have been invested in overseas assets, particularly in the US. Therefore, fluctuations in currency exchange rates, particularly between the US dollar and sterling, and to a lesser extent between the euro and sterling, are likely to affect shareholders’ funds and other accounting values.

Derivatives

Under IFRS, the Group is required to record all derivative instruments on the balance sheet at fair value. Derivatives not classified as hedges are adjusted to fair value through earnings. Changes in fair value of the derivatives that the Group has designated and that qualify as effective hedges are either recorded in reserves or are offset in earnings by the corresponding movement in the fair value of the underlying hedged item. Any ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings.

In 2009 and 2008 the Group met the prescribed designation requirements and hedge effectiveness tests under IFRS for some of its derivative contracts. As a result, the movements in the fair value of the effective portion of fair value hedges and net investment hedges have been offset in earnings and reserves respectively by the corresponding movement in the fair value of the underlying hedged item.

In line with the Group’s treasury policy, none of these instruments were considered trading instruments and each instrument was transacted solely to match an underlying financial exposure.

Quantitative information about market risk

The sensitivity of the Group’s derivative portfolio to changes in interest rates is found in note 19 of “Item 18. Financial Statements”.


ITEM 12.	*DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES*


ITEM 12D.	*AMERICAN DEPOSITARY SHARES*

Fees paid by ADR holders

Our ordinary shares trade in the United States under a sponsored ADR facility with The Bank of New York Mellon as depositary.

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal, or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

The following table summarizes various fees currently charged by The Bank of New York Mellon:


Person depositing or withdrawing shares
must pay to the depositary:		For:

$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)		• Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property • Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
$.02 (or less) per ADS		• Any cash distribution to ADS registered holders
A fee equivalent to the fee that would be payable if securities distributed had been shares and the shares had been deposited for issuance of ADSs		• Distribution of securities by the depositary to ADS registered holders of deposited securities
$.02 (or less) per ADS per calendar year		• Depositary services
Registration of transfer fees		• Transfer and registration of shares on the share register to or from the name of the depositary or its agent when shares are deposited or withdrawn
Expenses of the depositary		• Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) • Converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes		• As necessary
Any charges incurred by the depositary or its agents for servicing the deposited securities		• As necessary

Fees incurred in past annual period and fees to be paid in the future

From January 1, 2009 to February 28, 2010 the Company received payments from the depositary of $700,000, $38,000 and a further $38,000 for continuing annual stock exchange listing fees, standard out-of-pocket maintenance costs for the ADRs (consisting of the expenses of postage and envelopes for mailing the annual and interim financial reports, printing and distributing dividend cheques, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile and telephone calls), any applicable performance indicators relating to the ADR facility, underwriting fees and legal fees.

The depositary has agreed to reimburse the Company for expenses they incur that are related to establishment and maintenance expenses of the ADS programme. The depositary has agreed to reimburse the Company for its continuing annual stock exchange listing fees. The depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consists of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend cheques, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile and telephone calls. It has also agreed to reimburse the Company annually for certain investor relationship programmes or special investor relations promotional activities. In certain instances, the depositary has agreed to provide additional payments to the Company based on any applicable performance indicators relating to the ADR facility. There are limits on the amount of expenses for which the depositary will reimburse the Company, but the amount of reimbursement available to the Company is not necessarily tied to the amount of fees the depositary collects from investors.

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal, or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

PART II


ITEM 13.	*DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES*

None.


ITEM 14.	*MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS*

None.


ITEM 15.	*CONTROLS AND PROCEDURES*

Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2009 was carried out by us under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation the Chief Executive Officer and Chief Financial Officer concluded that Pearson’s disclosure controls and procedures have been designed to provide, and are effective in providing, reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow such timely decision regarding required disclosures. A controls system, no matter how well designed and operated cannot provide absolute assurance to achieve its objectives.

Management’s Annual Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Management has assessed the effectiveness of internal control over financial reporting, as at December 31, 2009, and has concluded that such internal control over financial reporting was effective.

PricewaterhouseCoopers LLP, which has audited the consolidated financial statements of the Company for the year ended December 31, 2009, has also audited the effectiveness of the Company’s internal control over financial reporting under Auditing Standard No. 5 of the Public Company Accounting Oversight Board (United States). Their audit report may be found on page F-2.

Change in Internal Control Over Financial Reporting

During the period covered by this Annual Report on Form 20-F, Pearson has made no changes to its internal controls over financial reporting that have materially affected or are reasonably likely to materially affect Pearson’s internal control over financial reporting.


ITEM 16A.	*AUDIT COMMITTEE FINANCIAL EXPERT*

The members of the Board of Directors of Pearson plc have determined that Ken Hydon is an audit committee financial expert within the meaning of the applicable rules and regulations of the US Securities and Exchange Commission.


ITEM 16B.	*CODE OF ETHICS*

Pearson has adopted a code of ethics (the Pearson code of business conduct) which applies to all employees including the Chief Executive Officer and Chief Financial Officer and other senior financial management. This code of ethics is available on our website (www.pearson.com/investor/corpgov.htm). The information on our website is not incorporated by reference into this report.


ITEM 16C.	*PRINCIPAL ACCOUNTANT FEES AND SERVICES*

In line with best practice, our relationship with PricewaterhouseCoopers LLP (PwC) is governed by our external auditor policy, which is reviewed and approved annually by the audit committee. The policy establishes procedures to ensure the auditors’ independence is not compromised as well as defining those non-audit services that PwC may or may not provide to Pearson. These allowable services are in accordance with relevant UK and US legislation.

The audit committee approves all audit and non-audit services provided by PwC. Certain categories of allowable non-audit services have been pre-approved by the audit committee subject to the authorities below:


	•	Pre-approved non-audit services can be authorized by the chief financial officer up to £100,000 per project, subject to a cumulative limit of £500,000 per annum;

	•	Acquisition due diligence services up to £100,000 per transaction;

	•	Tax compliance and related activities up to the greater of £1,000,000 per annum or 50% of the external audit fee; and

	•	For forward-looking tax planning services we use the most appropriate advisor, usually after a tender process. Where we decide to use our independent auditor, authority, up to £100,000 per project subject to a cumulative limit of £500,000 per annum, has been delegated by the audit committee to management.

Services provided by PwC above these limits and all other allowable non-audit services, irrespective of value, must be approved by the audit committee. Where appropriate, services will be tendered prior to awarding this work to the auditor.

The following table sets forth remuneration paid to PwC for 2008 and 2009:


Auditors’ Remuneration	2009		2008
	£m		£m

Audit fees		6		5
Tax fees		2		2
All other fees		1		1

Audit fees include £35,000 (2008: £35,000) of audit fees relating to the audit of the parent company.

Fees for the audit of the effectiveness of the Group’s internal control over financial reporting are allocated to audit fees paid.

Tax services include services related to tax planning and various other tax advisory services.

Other services include due diligence on acquisitions and services related to the disposal of the Data Management business.


ITEM 16D.	*EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES*

Not applicable.


ITEM 16E.	*PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES*

Maximum

number

Total number of

of shares that

units purchased

may yet be

as part of publicly

purchased under

Total number of

Average price

announced plans

the plans or

Period

shares purchased

paid per share

or programs

programs

June 1, 2008 - June 30, 2008

2,000,000

£6.14

N/A

June 1, 2009 - June 30, 2009

2,200,000

£6.14

N/A

Purchases of shares were made to satisfy obligations under Pearson employee share award programs. All purchases were made in open-market transactions. None of the foregoing share purchases was made as part of a publicly announced plan or program.


ITEM 16F.	*CHANGE IN REGISTRANT’S CERTIFYING AUDITOR*

Not applicable.


ITEM 16G.	*CORPORATE GOVERNANCE*

PART III


ITEM 17.	*FINANCIAL STATEMENTS*

Not applicable.


ITEM 18.	*FINANCIAL STATEMENTS*

The financial statements filed as part of this Annual Report are included on pages F-1 through F-70 hereof.


ITEM 19.	*EXHIBITS*


1.1		Memorandum and Articles of Association of Pearson plc.
2.1		Indenture dated June 23, 2003 between Pearson plc and The Bank of New York, as trustee *
2.2		Indenture dated May 25, 2004 among Pearson Dollar Finance plc, as Issuer, Pearson plc, Guarantor, and the Bank of New York, as trustee, Paying Agent and Calculation Agent. #
2.3		Indenture dated June 21, 2001 between Pearson plc and The Bank of New York, as trustee.†
2.4		Indenture dated March 26, 2009 among Pearson Funding One plc, as the Issuer, Pearson plc, Guarantor, and The Law Debenture Trust Corporation P.L.C., as trustee.
2.5		Indenture dated May 6, 2008 among Pearson Dollar Finance Two plc, as the Issuer, Pearson plc, Guarantor, and The Bank of New York, as trustee, Paying Agent and Calculation Agent.
2.6		Indenture dated October 27, 1999 between Pearson plc, as the Issuer and The Law Debenture Trust Corporation P.L.C., as trustee.
8.1		List of Significant Subsidiaries.
12.1		Certification of Chief Executive Officer.


12.2		Certification of Chief Financial Officer.
13.1		Certification of Chief Executive Officer.
13.2		Certification of Chief Financial Officer.
15		Consent of PricewaterhouseCoopers LLP.


*		Incorporated by reference from the Form 20-F of Pearson plc for the year ended December 31, 2003 and filed May 7, 2004.

#		Incorporated by reference from the Form 20-F of Pearson plc for the year ended December 31, 2004 and filed June 27, 2005.

†		Incorporated by reference from the Form 20-F of Pearson plc for the year ended December 31, 2001 and filed June 10, 2002.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Pearson plc

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, equity and cash flows present fairly, in all material respects, the financial position of Pearson plc and its subsidiaries (the “Group”) at December 31, 2009 and December 31, 2008 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

The Group’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in “Management’s Annual Report on Internal Control Over Financial Reporting” appearing under Item 15 of this Form 20-F. Our responsibility is to express opinions on these financial statements and on the Group’s internal control over financial reporting based on our integrated audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

London

United Kingdom

March 31, 2010

F-2

Consolidated Income Statement
Year ended 31 December 2009
All figures in £ millions


	Notes		2009			2008			2007

Continuing operations
Sales		2		5,624			4,811			4,162
Cost of goods sold		4		(2,539	)		(2,174	)		(1,910	)

Gross profit				3,085			2,637			2,252
Operating expenses		4		(2,360	)		(1,986	)		(1,701	)
Share of results of joint ventures and associates		12		30			25			23

Operating profit		2		755			676			574
Finance costs		6		(122	)		(136	)		(150	)
Finance income		6		27			45			44

Profit before tax				660			585			468
Income tax		7		(198	)		(172	)		(131	)

Profit for the year from continuing operations				462			413			337
Loss for the year from discontinued operations		3		—			(90	)		(27	)

Profit for the year				462			323			310

Attributable to:
Equity holders of the company				425			292			284
Minority interest				37			31			26

Earnings per share for profit from continuing and discontinued operations attributable to the equity holders of the company during the year (expressed in pence per share)
— basic		8		53.2p			36.6p			35.6p
— diluted		8		53.1p			36.6p			35.6p

Earnings per share for profit from continuing operations attributable to the equity holders of the company during the year (expressed in pence per share)
— basic		8		53.2p			47.9p			39.0p
— diluted		8		53.1p			47.9p			39.0p

F-3

Consolidated Statement of Comprehensive Income
Year ended 31 December 2009
All figures in £ millions


	Notes		2009			2008			2007

Profit for the year				462			323			310
Net exchange differences on translation of foreign operations				(388	)		1,125			24
Currency translation adjustment disposed — subsidiaries				—			49			53
Currency translation adjustment disposed — joint venture				—			1			—
Actuarial (losses)/gains on retirement benefit obligations — Group		25		(299	)		(71	)		80
Actuarial losses on retirement benefit obligations — associate		12		(3	)		(3	)		—
Net increase in fair values of proportionate holding arising on stepped acquisition				18			—			—
Taxation on items recognised in other comprehensive income		7		91			9			22

Other comprehensive (expense)/income for the year				(581	)		1,110			179

Total comprehensive (expense)/income for the year				(119	)		1,433			489

Attributable to:
Equity holders of the company				(127	)		1,327			464
Minority interest				8			106			25

F-4

Consolidated Statement of Changes in Equity
Year ended 31 December 2009
All figures in £ millions


	Equity attributable to the equity holders of the company
	Share		Share		Treasury			Translation			Retained						Minority			Total
	capital		premium		shares			reserve			earnings			Total			interest			equity

At 1 January 2009		202		2,505		(222	)		586			1,679			4,750			274			5,024
Total comprehensive (expense)/income		—		—		—			(359	)		232			(127	)		8			(119	)
Equity-settled transactions		—		—		—			—			37			37			—			37
Taxation on equity-settled transactions		—		—		—			—			6			6			—			6
Issue of ordinary shares under share option schemes		1		7		—			—			—			8			—			8
Purchase of treasury shares		—		—		(33	)		—			—			(33	)		—			(33	)
Release of treasury shares		—		—		29			—			(29	)		—			—			—
Put option over minority interest		—		—		—			—			(23	)		(23	)		—			(23	)
Changes in minority shareholding		—		—		—			—			—			—			24			24
Dividends		—		—		—			—			(273	)		(273	)		(15	)		(288	)

At 31 December 2009		203		2,512		(226	)		227			1,629			4,345			291			4,636


At 1 January 2008		202		2,499		(216	)		(514	)		1,724			3,695			179			3,874
Total comprehensive income		—		—		—			1,100			227			1,327			106			1,433
Equity-settled transactions		—		—		—			—			33			33			—			33
Taxation on equity-settled transactions		—		—		—			—			(7	)		(7	)		—			(7	)
Issue of ordinary shares under share option schemes		—		6		—			—			—			6			—			6
Purchase of treasury shares		—		—		(47	)		—			—			(47	)		—			(47	)
Release of treasury shares		—		—		41			—			(41	)		—			—			—
Changes in minority shareholding		—		—		—			—			—			—			6			6
Dividends		—		—		—			—			(257	)		(257	)		(17	)		(274	)

At 31 December 2008		202		2,505		(222	)		586			1,679			4,750			274			5,024

At 1 January, 2007		202		2,487		(189	)		(592	)		1,568			3,476			168			3,644
Total comprehensive income		—		—		—			78			386			464			25			489
Equity-settled transactions		—		—		—			—			30			30			—			30
Taxation on equity-settled transactions		—		—		—			—			7			7			—			7
Issue of ordinary shares under share option schemes		—		12		—			—			—			12			—			12
Purchase of treasury shares		—		—		(56	)		—			—			(56	)		—			(56	)
Release of treasury shares		—		—		29			—			(29	)		—			—			—
Changes in minority shareholding		—		—		—			—			—			—			8			8
Dividends		—		—		—			—			(238	)		(238	)		(22	)		(260	)

At 31 December 2007		202		2,499		(216	)		(514	)		1,724			3,695			179			3,874

The translation reserve includes exchange differences arising from the translation of the net investment in foreign operations and of borrowings and other currency instruments designated as hedges of such investments.

F-5

Consolidated Balance Sheet
As at 31 December 2009
All figures in £ millions


	Notes		2009		2008

Assets
Non-current assets
Property, plant and equipment		10		388		423
Intangible assets		11		5,129		5,353
Investments in joint ventures and associates		12		30		23
Deferred income tax assets		13		387		372
Financial assets — Derivative financial instruments		16		112		181
Retirement benefit assets		25		—		49
Other financial assets		15		62		63
Other receivables		22		112		152

				6,220		6,616
Current assets
Intangible assets — Pre-publication		20		650		695
Inventories		21		445		501
Trade and other receivables		22		1,284		1,342
Financial assets — Derivative financial instruments		16		—		3
Financial assets — Marketable securities		14		63		54
Cash and cash equivalents (excluding overdrafts)		17		750		685

				3,192		3,280

Total assets				9,412		9,896

F-6

Consolidated Balance Sheet (Continued)
As at 31 December 2009
All figures in £ millions


	Notes		2009			2008

Liabilities
Non-current liabilities
Financial liabilities — Borrowings		18		(1,934	)		(2,019	)
Financial liabilities — Derivative financial instruments		16		(2	)		(15	)
Deferred income tax liabilities		13		(473	)		(447	)
Retirement benefit obligations		25		(339	)		(167	)
Provisions for other liabilities and charges		23		(50	)		(33	)
Other liabilities		24		(253	)		(221	)

				(3,051	)		(2,902	)
Current liabilities
Trade and other liabilities		24		(1,467	)		(1,429	)
Financial liabilities — Borrowings		18		(74	)		(344	)
Financial liabilities — Derivative financial instruments		16		(7	)		(5	)
Current income tax liabilities				(159	)		(136	)
Provisions for other liabilities and charges		23		(18	)		(56	)

				(1,725	)		(1,970	)

Total liabilities				(4,776	)		(4,872	)

Net assets				4,636			5,024

Equity
Share capital		27		203			202
Share premium		27		2,512			2,505
Treasury shares		28		(226	)		(222	)
Translation reserve				227			586
Retained earnings				1,629			1,679

Total equity attributable to equity holders of the company				4,345			4,750
Minority interest				291			274

Total equity				4,636			5,024

These financial statements have been approved for issue by the board of directors on 10 March 2010 and signed on its behalf by

Robin Freestone Chief financial officer

F-7

Consolidated Cash Flow Statement
Year ended 31 December 2009
All figures in £ millions


	Notes		2009			2008			2007

Cash flows from operating activities
Net cash generated from operations		31		1,012			894			659
Interest paid				(90	)		(87	)		(109	)
Tax paid				(103	)		(89	)		(87	)

Net cash generated from operating activities				819			718			463

Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired		29		(208	)		(395	)		(472	)
Acquisition of joint ventures and associates				(14	)		(5	)		(4	)
Purchase of investments				(10	)		(1	)		—
Purchase of property, plant and equipment (PPE)				(62	)		(75	)		(86	)
Proceeds from sale of investments				—			5			—
Proceeds from sale of PPE		31		1			2			14
Purchase of intangible assets				(58	)		(45	)		(33	)
Disposal of subsidiaries, net of cash disposed		30		14			111			469
Interest received				3			11			19
Dividends received from joint ventures and associates				22			23			32

Net cash used in investing activities				(312	)		(369	)		(61	)

Cash flows from financing activities
Proceeds from issue of ordinary shares		27		8			6			12
Purchase of treasury shares				(33	)		(47	)		(72	)
Proceeds from borrowings				296			455			272
Liquid resources acquired				(13	)		—			(15	)
Repayment of borrowings				(343	)		(275	)		(391	)
Finance lease principal payments				(2	)		(3	)		(2	)
Dividends paid to company’s shareholders		9		(273	)		(257	)		(238	)
Dividends paid to minority interest				(20	)		(28	)		(10	)

Net cash used in financing activities				(380	)		(149	)		(444	)
Effects of exchange rate changes on cash and cash equivalents				(36	)		(103	)		3

Net increase/(decrease) in cash and cash equivalents				91			97			(39	)

Cash and cash equivalents at beginning of year				589			492			531

Cash and cash equivalents at end of year		17		680			589			492

F-8

Notes to the Consolidated Financial Statements

General information

Pearson plc (the company) and its subsidiaries (together the Group) are international media businesses covering education, business information and consumer publishing.

The company is a limited liability company incorporated and domiciled in England. The address of its registered office is 80 Strand, London WC2R 0RL.

The company has its primary listing on the London Stock Exchange but is also listed on the New York Stock Exchange.

These consolidated financial statements were approved for issue by the board of directors on 10 March 2010.


1.	Accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.


a.	Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations as adopted by the European Union (EU) and with those parts of the Companies Act 1985 and/or the Companies Act 2006 (as applicable) applicable to companies reporting under IFRS. These consolidated financial statements are also prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB). In respect of the accounting standards applicable to the Group there is no difference between EU-adopted and IASB-adopted IFRS. The Group transitioned from UK GAAP to IFRS on 1 January 2003.

These consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of financial assets and liabilities (including derivative financial instruments) to fair value.

(1) Interpretations and amendments to published standards effective in 2009

IAS 1 (Revised) ‘Presentation of Financial Statements’, effective for annual reporting periods beginning on or after 1 January 2009. The amendments require a number of presentational changes including the requirement to present a statement of changes in equity as a primary statement and the introduction of the statement of comprehensive income, which presents all items of recognised income and expense, either in one statement or in two linked statements. Management have elected to present two statements.

Amendments to IAS 23 ‘Borrowing Costs’, effective for annual reporting periods beginning on or after 1 January 2009. The amendment requires capitalisation of borrowing costs that relate to qualifying assets (ones that take a substantial amount of time to get ready for use or sale, with the exception of assets measured at fair value or inventories manufactured in large quantities or on a repetitive basis). Management have assessed that this amendment has no impact on the Group’s financial statements as there are currently no material qualifying assets.

Amendments to IFRS 7 ‘Financial Instruments: Disclosures’, effective for annual reporting periods beginning on or after 1 January 2009. The amendments require additional disclosures about fair value measurement and liquidity risk. For financial instruments measured at fair value in the balance sheet disclosure is required, based on observability of inputs, into a three level fair value hierarchy. In addition, a reconciliation between the opening and closing balance for level 3 fair value measurements must be presented, along with significant transfers between the levels of the hierarchy. The amendments also clarify the scope of liquidity risk disclosures. Fair value measurement and liquidity risk disclosures are detailed in note 19.

Amendments to IFRS 2 ‘Share-based Payment’, effective for annual reporting periods beginning on or after 1 January 2009. The amendment clarifies that only service and performance conditions are vesting conditions and that all cancellations, whether Group or counterparty, should be accounted for the same way. Management have determined that this does not have any impact on the financial statements for the Group.

F-9

Notes to the Consolidated Financial Statements (Continued)

Amendments to IAS 32 ‘Financial Instruments: Presentation’ and IAS 1 ‘Presentation of Financial Statements’ — Puttable Financial Instruments and Obligations Arising on Liquidation, effective for annual reporting periods beginning on or after 1 January 2009. The amendments require puttable financial instruments or investments that impose on the entity an obligation to another party in respect of a share of net assets only on liquidation to be classified as equity. Management have determined that this has no impact on the financial statements of the Group.

Amendments to IFRIC 9 ‘Reassessment of Embedded Derivatives’ and IAS 39 ‘Financial Instruments: Recognition and Measurement’, effective for annual reporting periods ending on or after 30 June 2009. The amendments clarify the position on embedded derivatives following the earlier amendments to IAS 39 regarding reclassification. The amendment to IFRIC 9 requires an entity to assess whether an embedded derivative must be separated from a host contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. IAS 39 now states that if an embedded derivative cannot be reliably measured, the entire hybrid instrument must remain classified as at fair value through profit and loss. Management have determined this has no impact on the financial statements of the Group.

‘Improvements to Financial Reporting Standards 2008’, mostly effective for annual reporting periods beginning on or after 1 January 2009. This is the first standard published under the IASB’s annual improvements process which is designed to deal with non-urgent minor amendments to standards. Of the 35 amendments issued, the adoption of the following amendment resulted in a change to accounting policy but did not have any significant impact on the Group’s financial position or performance.

Amendments to IAS 38 ‘Intangible Assets’ require expenditure on advertising and promotional activities to be recognised as an expense when the Group either has the right to access the goods or has received the service, rather than when the Group uses the goods or service.

Other amendments did not have any impact on the accounting policies or financial statements of the Group.

In the 2008 accounts the Group early adopted IFRS 8 ‘Operating Segments’, effective for annual reporting periods beginning on or after 1 January 2009.

The standard requires a management approach to reporting segmental information and six reporting segments have been identified under IFRS 8 as detailed in note 2.

IFRIC 13 ‘Customer Loyalty Programmes’, effective for annual reporting periods beginning on or after 1 July 2008. IFRIC 13 explains how entities that grant loyalty award credit to customers should account for their obligations to provide free or discounted goods or services to customers who redeem award credits. As no Group entities operate a customer loyalty programme management have assessed that IFRIC 13 is not relevant to the Group.

IFRIC 15 ‘Agreements for the Construction of Real Estate’, effective for annual reporting periods beginning on or after 1 January 2009. IFRIC 15 addresses the accounting by entities that undertake the construction of real estate with guidance on determining whether an agreement for the construction of real estate falls within the scope of IAS 11 ‘Construction Contracts’ or IAS 18 ‘Revenue’. As no Group entities undertake the construction of real estate management have assessed that IFRIC 15 is not relevant to the Group.

IFRIC 16 ‘Hedges of a Net Investment in Foreign Operations’, effective for annual reporting periods beginning on or after 1 October 2008. IFRIC 16 provides guidance on net investment hedging including which foreign currency risks within the Group qualify for hedging and where the hedging investments can be held within the Group. Management have assessed that this has no impact on the Group’s financial statements.

(2) Standards, interpretations and amendments to published standards that are not yet effective

The Group has not early adopted the following new pronouncements that are not yet effective:


	•	IFRS 3 (Revised) ‘Business Combinations’ and amendments to IAS 27 ‘Consolidated and Separate Financial Statements’, effective for annual reporting periods beginning on or after 1 July 2009. The

F-10

Notes to the Consolidated Financial Statements (Continued)


		amendments affect the accounting for business combinations, including the requirement to re-measure the fair value of previously held interests in step acquisitions with any gain or loss arising being recognised in the income statement, the requirement to expense acquisition costs and the requirement to recognise adjustments to contingent consideration in the income statement.


	•	Amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’, effective for annual reporting periods beginning on or after 1 July 2009. These amendments clarify that inflation may only be hedged where changes in inflation are a specified portion of cash flows of a financial instrument, and also clarify hedging with options.

	•	Amendments to IAS 24 ‘Related Parties’, effective for annual reporting periods beginning on or after 1 January 2011. The amendments simplify disclosure for government related entities and clarify the definition of a related party.

	•	Amendments to IFRS 2 ‘Share-based Payment’: Group cash-settled share-based payment transactions, effective for annual reporting periods beginning on or after 1 January 2010. This amendment clarifies the scope and accounting for group cash-settled share-based payment transactions.

	•	Amendments to IAS 32 ‘Financial Instruments: Presentation’ — Classification of Rights, effective for annual reporting periods beginning on or after 1 February 2010. The amendment clarifies that rights, options or warrants issued to a acquire a fixed number of an entity’s own non-derivative equity instruments for a fixed amount in any currency are classified as equity instruments provided the offer is made pro-rata to all existing owners of the same class of the entity’s own non-derivative equity instruments.

	•	IFRS 9 ‘Financial Instruments’, effective for annual reporting periods beginning on or after 1 January 2013. The new standard details the requirements for the classification and measurement of financial assets.

	•	‘Improvements to IFRSs — 2009’ effective dates vary upon the amendment. This is the second set of amendments published under the IASB’s annual improvements process and incorporates minor amendments to 12 standards and interpretations.

	•	IFRIC 18 ‘Transfers of Assets from Customers’ effective for transfers of assets from customers received on or after 1 July 2009. IFRIC 18 states that when an item of property, plant and equipment is received from a customer and it meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at its fair value at the date of transfer and recognise the credit in accordance with IAS 18 ‘Revenue’.

	•	IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’, effective for annual reporting periods beginning on or after 1 July 2010. IFRIC 19 clarifies accounting by entities issuing equity instruments to extinguish all or part of a financial liability.

	•	Amendments to IFRIC 14 ‘Prepayments of a Minimum Funding Requirement,’ effective for annual reporting periods beginning on or after 1 January 2011. This amendment remedies a consequence of IFRIC 14 where, in certain circumstances, an entity was not permitted to recognise prepayments of a minimum funding requirement as an asset.

Management are currently assessing the impact of these new standards, interpretations and amendments on the Group’s financial statements.

In addition, management has assessed the relevance of the following interpretation with respect to the Group’s operations:


	•	IFRIC 17 ‘Distributions of Non-cash Assets to Owners’, effective for annual reporting periods beginning on or after 1 July 2009. IFRIC 17 provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends, including recognition upon authorisation and measurement at fair value of assets distributed, with any difference between fair value and carrying value of these assets being recognised in the income statement when an entity settles the dividend payable. This does not apply to

F-11

Notes to the Consolidated Financial Statements (Continued)


		distributions of non-cash assets under common control. This interpretation will have no impact on the Group’s financial statements as the Group does not currently distribute non-cash assets.

(3) Critical accounting assumptions and judgements — The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting assumptions. It also requires management to exercise

its judgement in the process of applying the Group’s accounting policies. The areas requiring a higher degree of judgement or complexity or areas where assumptions and estimates are significant to the consolidated financial statements, are discussed in the relevant accounting policies under the following headings:


• Intangible assets:		Goodwill
• Intangible assets:		Pre-publication assets
• Royalty advances
• Taxation
• Employee benefits:		Pension obligations
• Revenue recognition


b.	Consolidation

(1) Business combinations — The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

Where the settlement of consideration payable is deferred, or contingent on future events, the fair value of the deferred component is determined by discounting the amount payable or probable to be paid to its present value using an appropriate discount rate.

Identifiable assets and contingent assets acquired and identifiable liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. For material acquisitions, the fair value of the acquired intangible assets is determined by an external, independent valuer. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. See note 1e(1) for the accounting policy on goodwill.

(2) Subsidiaries — Subsidiaries are entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases.

(3) Transactions with minority interests — Transactions with minority interests are treated as transactions with shareholders. Any surplus or deficit arising from disposals to a minority interest is recorded in equity. For purchases from a minority interest, the difference between consideration paid and the relevant share acquired of the carrying value of the subsidiary is recorded in equity.

(4) Joint ventures and associates — Joint ventures are entities in which the Group holds an interest on a long-term basis and which are jointly controlled, with one or more other venturers, under a contractual arrangement. Associates are entities over which the Group has significant influence but not the power to control the financial and operating policies, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in joint ventures and associates are accounted for by the equity method and are initially recognised at cost.

The Group’s share of its joint ventures’ and associates’ post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The Group’s share of its joint ventures’ and associates’ results is recognised as a component of operating profit as these

F-12

Notes to the Consolidated Financial Statements (Continued)

operations form part of the core publishing business of the Group and are an integral part of existing wholly-owned businesses. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in a joint venture or associate equals or exceeds its interest in the joint venture or associate, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the joint venture or associate.


c.	Foreign currency translation

(1) Functional and presentation currency — Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency’). The consolidated financial statements are presented in sterling, which is the company’s functional and presentation currency.

(2) Transactions and balances — Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying net investment hedges.

(3) Group companies — The results and financial position of all Group companies that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

i) assets and liabilities are translated at the closing rate at the date of the balance sheet;

ii) income and expenses are translated at average exchange rates;

iii) all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. The Group treats specific inter-company loan balances, which are not intended to be repaid in the foreseeable future, as part of its net investment. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.

At the date of transition to IFRS the cumulative translation differences in respect of foreign operations have been deemed to be zero.

Any gains and losses on disposals of foreign operations will exclude translation differences that arose prior to the transition date.

The principal overseas currency for the Group is the US dollar. The average rate for the year against sterling was $1.57 (2008: $1.85) and the year end rate was $1.61 (2008: $1.44).


d.	Property, plant and equipment

Property, plant and equipment are stated at historical cost less depreciation. Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost less their residual values over their estimated useful lives as follows:

Buildings (freehold): 20-50 years

Buildings (leasehold): over the period of the lease

Plant and equipment: 3-10 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

F-13

Notes to the Consolidated Financial Statements (Continued)

The carrying value of an asset is written down to its recoverable amount if the carrying value of the asset is greater than its estimated recoverable amount.


e.	Intangible assets

(1) Goodwill — Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary, associate or joint venture at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates and joint ventures is included in investments in associates and joint ventures.

Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. An impairment loss is recognised to the extent that the carrying value of goodwill exceeds the recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. These calculations require the use of estimates and significant management judgement. A description of the key assumptions and sensitivities is included in note 11. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. IFRS 3 ‘Business Combinations’ has not been applied retrospectively to business combinations before the date of transition to IFRS. Subject to the transition adjustments to IFRS required by IFRS 1, the accounting for business combinations before the date of transition has been grandfathered.

(2) Acquired software — Software separately acquired for internal use is capitalised at cost. Software acquired in material business combinations is capitalised at its fair value as determined by an independent valuer. Acquired software is amortised on a straight-line basis over its estimated useful life of between three and eight years.

(3) Internally developed software — Internal and external costs incurred during the preliminary stage of developing computer software for internal use are expensed as incurred. Internal and external costs incurred to develop computer software for internal use during the application development stage are capitalised if the Group expects economic benefits from the development. Capitalisation in the application development stage begins once the Group can reliably measure the expenditure attributable to the software development and has demonstrated its intention to complete and use the software. Internally developed software is amortised on a straight-line basis over its estimated useful life of between three and eight years.

(4) Acquired intangible assets — Acquired intangible assets include customer lists and relationships, trademarks and brands, publishing rights, content and technology. These assets are capitalised on acquisition at cost and included in intangible assets. Intangible assets acquired in material business combinations are capitalised at their fair value as determined by an independent valuer. Intangible assets are amortised over their estimated useful lives of between two and 20 years, using a depreciation method that reflects the pattern of their consumption.

(5) Pre-publication assets — Pre-publication assets represent direct costs incurred in the development of educational programmes and titles prior to their publication. These costs are recognised as current intangible assets where the title will generate probable future economic benefits and costs can be measured reliably. Pre-publication assets are amortised upon publication of the title over estimated economic lives of five years or less, being an estimate of the expected operating life cycle of the title, with a higher proportion of the amortisation taken in the earlier years.

The investment in pre-publication assets has been disclosed as part of cash generated from operations in the cash flow statement (see note 31).

The assessment of the recoverability of pre-publication assets and the determination of the amortisation profile involve a significant degree of judgement based on historical trends and management estimation of future potential

F-14

Notes to the Consolidated Financial Statements (Continued)

sales. An incorrect amortisation profile could result in excess amounts being carried forward as intangible assets that would otherwise have been written off to the income statement in an earlier period.

Reviews are performed regularly to estimate recoverability of pre-publication assets. The carrying amount of pre-publication assets is set out in note 20.


f.	Other financial assets

Other financial assets, designated as available for sale investments, are non-derivative financial assets measured at estimated fair value. Changes in the fair value are recorded in equity in the fair value reserve. On the subsequent disposal of the asset, the net fair value gains or losses are taken to the income statement.


g.	Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first in first out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. Provisions are made for slow moving and obsolete stock.

h. Royalty advances

Advances of royalties to authors are included within trade and other receivables when the advance is paid less any provision required to adjust the advance to its net realisable value. The realisable value of royalty advances relies on a degree of management judgement in determining the profitability of individual author contracts. If the estimated realisable value of author contracts is overstated, this will have an adverse effect on operating profits as these excess amounts will be written off.

The recoverability of royalty advances is based upon an annual detailed management review of the age of the advance, the future sales projections for new authors and prior sales history of repeat authors. The royalty advance is expensed at the contracted or effective royalty rate as the related revenues are earned. Royalty advances which will be consumed within one year are held in current assets. Royalty advances which will be consumed after one year are held in non-current assets.


i.	Newspaper development costs

Investment in the development of newspaper titles consists of measures to increase the volume and geographical spread of circulation. The measures include additional and enhanced editorial content, extended distribution and remote printing. These costs are expensed as incurred as they do not meet the criteria under IAS 38 ‘Intangible Assets’ to be capitalised as intangible assets.


j.	Cash and cash equivalents

Cash and cash equivalents in the cash flow statement include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included in borrowings in current liabilities in the balance sheet.

Short-term deposits and marketable securities with maturities of greater than three months do not qualify as cash and cash equivalents. Movements on these financial instruments are classified as cash flows from financing activities in the cash flow statement as these amounts are used to offset the borrowings of the Group.


k.	Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

F-15

Notes to the Consolidated Financial Statements (Continued)

Where any Group company purchases the company’s equity share capital (treasury shares) the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable transaction costs and the related income tax effects, is included in equity attributable to the company’s equity holders.


l.	Borrowings

Borrowings are recognised initially at fair value, which is proceeds received net of transaction costs incurred. Borrowings are subsequently stated at amortised cost with any difference between the proceeds (net of transaction costs) and the redemption value being recognised in the income statement over the period of the borrowings using the effective interest method. Accrued interest is included as part of borrowings. Where a debt instrument is in a fair value hedging relationship, an adjustment is made to its carrying value in the income statement to reflect the hedged risk. Interest on borrowings is expensed in the income statement as incurred.

m. Derivative financial instruments

Derivatives are recognised at fair value and re-measured at each balance sheet date. The fair value of derivatives is determined by using market data and the use of established estimation techniques such as discounted cash flow and option valuation models. The Group designates certain of the derivative instruments within its portfolio to be hedges of the fair value of its bonds (fair value hedges) or hedges of net investments in foreign operations (net investment hedges).

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

The effective portion of changes in the fair value of derivatives that are designated and qualify as net investment hedges are recognised in other comprehensive income. Gains and losses accumulated in equity are included in the income statement when the corresponding foreign operation is disposed of. Gains or losses relating to the ineffective portion are recognised immediately in finance income or finance costs in the income statement.

Certain derivatives do not qualify or are not designated as hedging instruments. Such derivatives are classified at fair value and any movement in their fair value is recognised immediately in finance income or finance costs in the income statement.


n.	Taxation

Current tax is recognised on the amounts expected to be paid or recovered under the tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

Deferred income tax is provided, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided in respect of the undistributed earnings of subsidiaries other than where it is intended that those undistributed earnings will not be remitted in the foreseeable future.

Current and deferred tax are recognised in the income statement, except when the tax relates to items charged or credited directly to equity or other comprehensive income, in which case the tax is also recognised in equity or other comprehensive income.

F-16

Notes to the Consolidated Financial Statements (Continued)

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the estimates in relation to the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In particular, significant judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration given to the timing and level of future taxable income together with any future tax planning strategies.


o.	Employee benefits

(1) Pension obligations — The retirement benefit asset and obligation recognised in the balance sheet represents the net of the present value of the defined benefit obligation and the fair value of plan assets at the balance sheet date. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting estimated future cash flows using yields on high quality corporate bonds which have terms to maturity approximating the terms of the related liability.

The determination of the pension cost and defined benefit obligation of the Group’s defined benefit pension schemes depends on the selection of certain assumptions, which include the discount rate, inflation rate, salary growth, longevity and expected return on scheme assets.

Actuarial gains and losses arising from differences between actual and expected returns on plan assets, experience adjustments on liabilities and changes in actuarial assumptions are recognised immediately in other comprehensive income.

The service cost, representing benefits accruing over the year, is included in the income statement as an operating cost. The unwinding of the discount rate on the scheme liabilities and the expected return on scheme assets are presented as finance costs or finance income.

Obligations for contributions to defined contribution pension plans are recognised as an operating expense in the income statement as incurred.

(2) Other post-retirement obligations — The expected costs of post-retirement healthcare and life assurance benefits are accrued over the period of employment, using a similar accounting methodology as for defined benefit pension obligations. The liabilities and costs relating to material other post-retirement obligations are assessed annually by independent qualified actuaries.

(3) Share-based payments — The fair value of options or shares granted under the Group’s share and option plans is recognised as an employee expense after taking into account the Group’s best estimate of the number of awards expected to vest. Fair value is measured at the date of grant and is spread over the vesting period of the option or share. The fair value of the options granted is measured using an option model that is most appropriate to the award. The fair value of shares awarded is measured using the share price at the date of grant unless another method is more appropriate. Any proceeds received are credited to share capital and share premium when the options are exercised. The Group has applied IFRS 2 ‘Share-based Payment’ retrospectively to all options granted but not fully vested at the date of transition to IFRS.


p.	Provisions

Provisions are recognised if the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are discounted to present value where the effect is material.

F-17

Notes to the Consolidated Financial Statements (Continued)

The Group recognises a provision for deferred consideration when the payment of the deferred consideration is probable.

The Group recognises a provision for onerous lease contracts when the expected benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract.

The provision is based on the present value of future payments for surplus leased properties under non-cancellable operating leases, net of estimated sub-leasing income.


q.	Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services net of value-added tax and other sales taxes, rebates and discounts, and after eliminating sales within the Group.

Revenue from the sale of books is recognised when title passes. A provision for anticipated returns is made based primarily on historical return rates. If these estimates do not reflect actual returns in future periods then revenues could be understated or overstated for a particular period.

Circulation and advertising revenue is recognised when the newspaper or other publication is published. Subscription revenue is recognised on a straight-line basis over the life of the subscription.

Where a contractual arrangement consists of two or more separate elements that can be provided to customers either on a stand-alone basis or as an optional extra, such as the provision of supplementary materials with textbooks, revenue is recognised for each element as if it were an individual contractual arrangement.

Revenue from multi-year contractual arrangements, such as contracts to process qualifying tests for individual professions and government departments, is recognised as performance occurs. The assumptions, risks, and uncertainties inherent in long-term contract accounting can affect the amounts and timing of revenue and related expenses reported. Certain of these arrangements, either as a result of a single service spanning more than one reporting period or where the contract requires the provision of a number of services that together constitute a single project, are treated as long-term contracts with revenue recognised on a percentage of completion basis. Losses on contracts are recognised in the period in which the loss first becomes foreseeable. Contract losses are determined to be the amount by which estimated total costs of the contract exceed the estimated total revenues that will be generated by the contract.

On certain contracts, where the Group acts as agent, only commissions and fees receivable for services rendered are recognised as revenue. Any third-party costs incurred on behalf of the principal that are rechargeable under the contractual arrangement are not included in revenue.

Income from recharges of freight and other activities which are incidental to the normal revenue generating activities is included in other income.


r.	Leases

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the commencement of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in financial liabilities — borrowings. The interest element of the finance cost is charged to the income statement over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.

F-18

Notes to the Consolidated Financial Statements (Continued)

Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases by the lessee. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.


s.	Dividends

Dividends are recorded in the Group’s financial statements in the period in which they are approved by the company’s shareholders. Interim dividends are recorded in the period in which they are approved and paid.


t.	Non-current assets and liabilities held for sale

Assets and liabilities are classified as held for sale and stated at the lower of carrying amount and fair value less costs to sell if it is intended to recover their carrying amount principally through a sale transaction rather than through continuing use. No depreciation is charged in respect of non-current assets classified as held for sale. Amounts relating to non-current assets and liabilities held for sale are classified as discontinued operations in the income statement where appropriate.


u.	Trade receivables

Trade receivables are stated at fair value after provision for bad and doubtful debts and anticipated future sales returns (see also note 1q).


2.	Segment information

The Group is organised into six business segments:

North American Education — Educational publishing, assessment and testing for the school and higher education market within the USA and Canada;

International Education — Educational publishing, assessment and testing for the school and higher education market outside of North America;

Professional — Business and technology publishing and testing and certification for professional bodies;

FT Publishing — Publisher of the Financial Times, business magazines and specialist information;

Interactive Data — Provider of financial and business information to financial institutions and retail investors;

Penguin — Publisher with brand imprints such as Penguin, Putnam, Berkley, Viking and Dorling Kindersley.

F-19

Notes to the Consolidated Financial Statements (Continued)

For more detail on the services and products included in each business segment refer to Item 4 of this Form 20-F.


			2009
			North
			American			International						FT			Interactive
	Notes		Education			Education			Professional			Publishing			Data			Penguin			Corporate		Group
			All figures in £ millions

Continuing operations
Sales (external)				2,470			1,035			275			358			484			1,002			—		5,624
Sales (inter-segment)				—			—			7			—			—			24			—		31

Adjusted operating profit				403			141			43			39			148			84			—		858
Amortisation of acquired intangibles				(49	)		(32	)		(1	)		(8	)		(12	)		(1	)		—		(103	)

Operating profit				354			109			42			31			136			83			—		755

Finance costs		6																						(122	)
Finance income		6																						27

Profit before tax																								660

Income tax		7																						(198	)

Profit for the year from continuing operations																								462

Segment assets				4,382			1,635			377			420			471			1,173			924		9,382
Joint ventures		12		13			—			1			1			—			3			—		18
Associates		12		—			5			—			7			—			—			—		12

Total assets				4,395			1,640			378			428			471			1,176			924		9,412

Other segment items
Share of results of joint ventures and associates		12		(2	)		6			1			25			—			—			—		30
Capital expenditure		10, 11, 20		258			80			20			15			29			46			—		448
Depreciation		10		24			16			10			5			21			9			—		85
Amortisation		11, 20		274			89			13			20			16			42			—		454

F-20

Notes to the Consolidated Financial Statements (Continued)


			2008
			North
			American			International						FT			Interactive
	Notes		Education			Education			Professional			Publishing			Data			Penguin			Corporate		Group
			All figures in £ millions

Continuing operations
Sales (external)				2,002			866			244			390			406			903			—		4,811
Sales (inter-segment)				—			—			4			—			—			22			—		26

Adjusted operating profit				303			135			36			74			121			93			—		762
Amortisation of acquired intangibles				(45	)		(22	)		(1	)		(7	)		(9	)		(2	)		—		(86	)

Operating profit				258			113			35			67			112			91			—		676

Finance costs		6																						(136	)
Finance income		6																						45

Profit before tax																								585

Income tax		7																						(172	)

Profit for the year from continuing operations																								413

Segment assets				4,952			1,358			423			482			524			1,211			923		9,873
Joint ventures		12		—			8			—			2			—			3			—		13
Associates		12		—			4			—			6			—			—			—		10

Total assets				4,952			1,370			423			490			524			1,214			923		9,896

Other segment items
Share of results of joint ventures and associates		12		—			5			—			19			—			1			—		25
Capital expenditure		10, 11, 20		224			82			22			17			25			51			—		421
Depreciation		10		25			12			8			13			13			9			—		80
Amortisation		11, 20		219			69			12			12			12			36			—		360

F-21

Notes to the Consolidated Financial Statements (Continued)


			2007
			North
			American			International						FT			Interactive
	Notes		Education			Education			Professional			Publishing			Data			Penguin			Corporate		Group
			All figures in £ millions

Continuing operations
Sales (external)				1,667			735			226			344			344			846			—		4,162
Sales (inter-segment)				1			—			—			—			—			19			—		20

Adjusted operating profit				273			92			27			56			97			74			—		619
Amortisation of acquired intangibles				(20	)		(10	)		(1	)		(6	)		(7	)		(1	)		—		(45	)

Operating profit				253			82			26			50			90			73			—		574

Finance costs		6																						(150	)
Finance income		6																						44

Profit before tax																								468

Income tax		7																						(131	)

Profit for the year from continuing operations																								337

Segment assets				3,536			1,013			291			397			330			937			651		7,155
Joint ventures				—			5			—			4			—			2			—		11
Associates				1			3			—			5			—			—			—		9

Assets — continuing operations				3,537			1,021			291			406			330			939			651		7,175
Assets — discontinued operations				—			—			117			—			—			—			—		117

Total assets				3,537			1,021			408			406			330			939			651		7,292

Other segment items
Share of results of joint ventures and associates				—			6			1			16			—			—			—		23
Capital expenditure				136			109			20			28			19			44			—		356
Depreciation				26			7			9			9			10			7			—		68
Amortisation				159			45			11			9			8			30			—		262

In 2009, sales from the provision of goods were £3,947m (2008: £3,411m; 2007: £3,053m) and sales from the provision of services were £1,677m (2008: £1,400m; 2007: £1,109m). Sales from the Group’s educational publishing, consumer publishing and newspaper business are classified as being from the provision of goods and sales from its assessment and testing, market pricing and other service businesses are classified as being from the provision of services.

Corporate costs are allocated to business segments on an appropriate basis depending on the nature of the cost and therefore the segment result is equal to the Group operating profit. Inter-segment pricing is determined on an arm’s-length basis. Segment assets consist of property, plant and equipment, intangible assets, inventories, receivables, retirement benefit assets and deferred taxation and exclude cash and cash equivalents and derivative assets. Corporate assets comprise cash and cash equivalents, marketable securities and derivative financial instruments. Capital expenditure comprises additions to property, plant and equipment and intangible assets, including pre-publication but excluding goodwill (see notes 10, 11 and 20).

Property, plant and equipment and intangible assets acquired through business combination were £153m (2008: £253m) (see note 29). Capital expenditure, depreciation and amortisation include amounts relating to discontinued operations. Discontinued operations relate to the Data Management business in 2008 and to the Data Management business, Government Solutions, Datamark and Les Echos in 2007 (see note 3).

F-22

Notes to the Consolidated Financial Statements (Continued)

The Group operates in the following main geographic areas:


	Sales						Non-current assets
	2009		2008		2007		2009		2008		2007
	All figures in £ millions

Continuing operations
UK		748		754		721		941		701		724
Other European countries		474		463		381		242		224		140
USA		3,462		2,861		2,448		3,811		4,624		3,146
Canada		201		167		143		204		209		183
Asia Pacific		519		415		351		340		179		114
Other countries		220		151		118		121		14		11

Total continuing		5,624		4,811		4,162		5,659		5,951		4,318

Discontinued operations
UK		—		—		1		—		—		—
Other European countries		—		—		82		—		—		—
USA		—		8		78		—		—		117
Canada		—		—		—		—		—		—
Asia Pacific		—		—		—		—		—		—
Other countries		—		—		6		—		—		—

Total discontinued		—		8		167		—		—		117

Total		5,624		4,819		4,329		5,659		5,951		4,435

Sales are allocated based on the country in which the customer is located. This does not differ materially from the location where the order is received. Non-current assets are based on the subsidiary’s country of domicile. This is not materially different to the location of the assets. Non-current assets comprise property, plant and equipment, intangible assets, investments in joint ventures and associates and other receivables.


3.	Discontinued operations

Discontinued operations relate to the Group’s interest in Government Solutions (sold on 15 February 2007), Datamark (sold on 31 July 2007), Les Echos (sold on 24 December 2007) and the Data Management business (sold on 22 February 2008).

The results of the Data Management business (previously included in the Professional segment) have been included in discontinued operations for 2007 and 2008. In anticipation of the loss on sale, an impairment to held for sale goodwill was charged to the income statement in 2007.

The results of Government Solutions (previously included in the Professional segment) and Les Echos (previously included in the FT Publishing segment) were included in discontinued operations for 2007 and were consolidated up to the date of sale.

Datamark was sold immediately following its acquisition as part of the eCollege transaction and consequently none of the results for this business were consolidated.

F-23

Notes to the Consolidated Financial Statements (Continued)

An analysis of the results and cash flows of the discontinued operation is as follows:


	2008
	Data
	Management
	All figures
	in £ millions

Sales		8

Operating profit		—

Profit before tax		—

Attributable tax expense		—

Profit after tax		—
Loss on disposal of discontinued operations before tax		(53	)
Attributable tax expense		(37	)

Loss for the year from discontinued operations		(90	)

Operating cash flows		—
Investing cash flows		—
Financing cash flows		—

Total cash flows		—


	2007
	Data								Government
	Management			Les Echos			Datamark		Solutions			Total
	All figures in £ millions

Sales		56			82			—		29			167

Operating profit		12			1			—		2			15

Goodwill impairment		(97	)		—			—		—			(97	)

(Loss)/profit before tax		(85	)		1			—		2			(82	)

Attributable tax expense		(4	)		—			—		(1	)		(5	)

(Loss)/profit after tax		(89	)		1			—		1			(87	)
Profit/(loss) on disposal of discontinued operations before tax		—			165			—		(19	)		146
Attributable tax (expense)/benefit		—			—			7		(93	)		(86	)

(Loss)/profit for the year from discontinued operations		(89	)		166			7		(111	)		(27	)

Operating cash flows		11			4			—		(8	)		7
Investing cash flows		(1	)		4			—		—			3
Financing cash flows		(10	)		(7	)		—		(4	)		(21	)

Total cash flows		—			1			—		(12	)		(11	)

F-24

Notes to the Consolidated Financial Statements (Continued)


4.	Operating expenses


	2009			2008			2007
	All figures in £ millions

By function:
Cost of goods sold		2,539			2,174			1,910

Operating expenses
Distribution costs		274			235			202
Administrative and other expenses		2,206			1,853			1,600
Other income		(120	)		(102	)		(101	)

Total operating expenses		2,360			1,986			1,701

Total		4,899			4,160			3,611


	Notes		2009			2008			2007
			All figures in £ millions

By nature:
Utilisation of inventory		21		843			832			732
Depreciation of property, plant and equipment		10		85			80			65
Amortisation of intangible assets — Pre-publication		20		307			244			192
Amortisation of intangible assets — Other		11		147			116			70
Employee benefit expense		5		1,903			1,553			1,288
Operating lease rentals				171			168			129
Other property costs				87			116			122
Royalties expensed				497			415			365
Advertising, promotion and marketing				297			244			195
Information technology costs				96			76			70
Other costs				586			418			484
Other income				(120	)		(102	)		(101	)

Total				4,899			4,160			3,611

During the year the Group obtained the following services from the Group’s auditor:


	2009		2008		2007
	All figures in £ millions

Fees payable to the company’s auditor for the audit of parent company and consolidated financial statements		4		3		3
The audit of the company’s subsidiaries pursuant to legislation		2		2		1
Tax services		2		2		2
Other services		1		1		1

Total		9		8		7

F-25

Notes to the Consolidated Financial Statements (Continued)

Reconciliation between audit and non-audit service fees is shown below:


	2009		2008		2007
	All figures in £ millions

Group audit fees including fees for attestation under section 404 of the Sarbanes-Oxley Act		6		5		4
Non-audit fees		3		3		3

Total		9		8		7

Fees for attestation under section 404 of the Sarbanes-Oxley Act are allocated between fees payable for the audits of consolidated and subsidiary accounts.

Tax services include services related to tax planning and various other tax advisory matters. Other services include due diligence on acquisitions.


5.	Employee information


	Notes		2009		2008		2007
			All figures in £ millions

Employee benefit expense
Wages and salaries (including termination benefits and restructuring costs)				1,632		1,317		1,087
Social security costs				152		119		100
Share-based payment costs		26		37		33		30
Retirement benefits — defined contribution plans		25		62		41		39
Retirement benefits — defined benefit plans		25		18		37		31
Other post-retirement benefits		25		2		6		1

				1,903		1,553		1,288

The details of the emoluments of the directors of Pearson plc are shown in the report on directors’ remuneration.


	2009		2008		2007
	Average number employed

Employee numbers
North American Education		15,606		15,412		14,327
International Education		8,899		5,718		5,291
Professional		2,662		2,641		2,540
FT Publishing		2,328		2,379		2,083
Interactive Data		2,459		2,413		2,300
Penguin		4,163		4,112		4,163
Other		1,047		909		918

Continuing operations		37,164		33,584		31,622

Discontinued operations		—		96		1,070

		37,164		33,680		32,692

F-26

Notes to the Consolidated Financial Statements (Continued)


6.	Net finance costs


	Notes		2009			2008			2007
			All figures in £ millions

Interest payable				(92	)		(106	)		(114	)
Finance costs in respect of retirement benefits		25		(12	)		—			—
Net foreign exchange losses				(7	)		(11	)		(25	)
Other losses on financial instruments in a hedging relationship:
— fair value hedges				(1	)		(7	)		(1	)
— net investment hedges				—			—			(1	)
Other losses on financial instruments not in a hedging relationship:
— derivatives				(10	)		(12	)		(9	)

Finance costs				(122	)		(136	)		(150	)

Interest receivable				7			17			19
Finance income in respect of retirement benefits		25		—			8			10
Net foreign exchange gains				—			—			8
Other gains on financial instruments in a hedging relationship:
— fair value hedges				4			2			—
— net investment hedges				—			1			—
Other gains on financial instruments not in a hedging relationship:
— amortisation of transitional adjustment on bonds				3			1			1
— derivatives				13			16			6

Finance income				27			45			44

Net finance costs				(95	)		(91	)		(106	)

The £3m net gain (2008: £5m net loss; 2007: £1m net loss) on fair value hedges comprises a £96m gain (2008: £156m loss; 2007: £20m loss) on the underlying bonds offset by a £93m loss (2008: £151m gain; 2007: £19m gain) on the related derivative financial instruments.


7.	Income tax


	Notes		2009			2008			2007
			All figures in £ millions

Current tax
Charge in respect of current year				(156	)		(89	)		(71	)
Other adjustments in respect of prior years				9			10			27

Total current tax charge				(147	)		(79	)		(44	)

Deferred tax
In respect of temporary differences				(55	)		(97	)		(96	)
Other adjustments in respect of prior years				4			4			9

Total deferred tax charge		13		(51	)		(93	)		(87	)

Total tax charge				(198	)		(172	)		(131	)

F-27

Notes to the Consolidated Financial Statements (Continued)

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the UK tax rate as follows:


	2009			2008			2007
	All figures in £ millions

Profit before tax		660			585			468
Tax calculated at UK rate (2009: 28%, 2008: 28.5%, 2007: 30%)		(185	)		(167	)		(141	)
Effect of overseas tax rates		(40	)		(23	)		(25	)
Joint venture and associate income reported net of tax		8			7			7
Net income/(expense) not subject to tax		5			(7	)		(9	)
Utilisation of previously unrecognised tax losses		2			4			3
Unutilised tax losses		(1	)		—			(2	)
Prior year adjustments		13			14			36

Total tax charge		(198	)		(172	)		(131	)

UK		(43	)		(53	)		(42	)
Overseas		(155	)		(119	)		(89	)

Total tax charge		(198	)		(172	)		(131	)

The tax benefit/(charge) recognised in other comprehensive income is as follows:


	2009		2008			2007
	All figures in £ millions

Pension contributions and actuarial gains and losses		79		10			28
Net investment hedges and other foreign exchange gains and losses		12		(1	)		(6	)

		91		9			22

A tax benefit of £6m (2008: tax charge £7m; 2007: tax benefit £7m) relating to share-based payments has been recognised directly in equity.


8.	Earnings per share

Basic

Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the company and held as treasury shares.

F-28

Notes to the Consolidated Financial Statements (Continued)

Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares to take account of all dilutive potential ordinary shares and adjusting the profit attributable, if applicable, to account for any tax consequences that might arise from conversion of those shares.

Notes

2009

2008

2007

All figures in £ millions

Profit for the year from continuing operations

462

413

337

Minority interest

(37

)

(31

)

(26

)

Earnings from continuing operations

425

382

311

Loss for the year from discontinued operations

—

(90

)

(27

)

Earnings

425

292

284

Weighted average number of shares (millions)

799.3

797.0

796.8

Effect of dilutive share options (millions)

0.8

0.5

1.3

Weighted average number of shares (millions) for diluted earnings

800.1

797.5

798.1

Earnings per share from continuing and discontinued operations

Basic

53.2p

36.6p

35.6p

Diluted

53.1p

36.6p

35.6p

Earnings per share from continuing operations

Basic

53.2p

47.9p

39.0p

Diluted

53.1p

47.9p

39.0p

Earnings per share from discontinued operations

Basic

—

(11.3p

)

(3.4p

)


9.	Dividends


	2009		2008		2007
	All figures in £ millions

Final paid in respect of prior year 22.0p (2008: 20.5p; 2007: 18.8p)		176		163		150
Interim paid in respect of current year 12.2p (2008: 11.8p; 2007: 11.1p)		97		94		88

		273		257		238

The directors are proposing a final dividend in respect of the financial year ended 31 December 2009 of 23.3p per share which will absorb an estimated £187m of shareholders’ funds. It will be paid on 7 May 2010 to shareholders who are on the register of members on 9 April 2010. These financial statements do not reflect this dividend.

F-29

Notes to the Consolidated Financial Statements (Continued)


10.	Property, plant and equipment


							Assets in
	Land and			Plant and			course of
	buildings			equipment			construction			Total
	All figures in £ millions

Cost
At 1 January 2008		298			622			16			936
Exchange differences		54			138			6			198
Additions		6			67			6			79
Disposals		(7	)		(38	)		—			(45	)
Acquisition through business combination		2			29			2			33
Reclassifications		2			21			(23	)		—

At 31 December 2008		355			839			7			1,201

Exchange differences		(21	)		(55	)		(1	)		(77	)
Additions		14			46			7			67
Disposals		(2	)		(41	)		—			(43	)
Acquisition through business combination		1			17			—			18
Reclassifications		1			5			(6	)		—

At 31 December 2009		348			811			7			1,166


							Assets in
	Land and			Plant and			course of
	buildings			equipment			construction		Total
	All figures in £ millions

Depreciation
At 1 January 2008		(126	)		(455	)		—		(581	)
Exchange differences		(30	)		(102	)		—		(132	)
Charge for the year		(19	)		(61	)		—		(80	)
Disposals		6			36			—		42
Acquisition through business combination		(1	)		(26	)		—		(27	)

At 31 December 2008		(170	)		(608	)		—		(778	)

Exchange differences		11			42			—		53
Charge for the year		(17	)		(68	)		—		(85	)
Disposals		2			39			—		41
Acquisition through business combination		—			(9	)		—		(9	)

At 31 December 2009		(174	)		(604	)		—		(778	)

Carrying amounts
At 1 January 2008		172			167			16		355
At 31 December 2008		185			231			7		423
At 31 December 2009		174			207			7		388

Depreciation expense of £12m (2008: £12m) has been included in the income statement in cost of goods sold, £7m (2008: £6m) in distribution expenses and £66m (2008: £61m) in administrative and other expenses. The Group leases certain equipment under a number of finance lease agreements. The net carrying amount of leased plant and equipment included within property, plant and equipment was £15m (2008: £7m).

F-30

Notes to the Consolidated Financial Statements (Continued)


11.	Intangible assets


							Acquired
							customer			Acquired			Acquired			Other
							lists and			trademarks			publishing			intangibles
	Goodwill			Software			relationships			and brands			rights			acquired			Total
	All figures in £ millions

Cost
At 1 January 2008		3,343			217			187			62			136			99			4,044
Exchange differences		1,082			71			77			24			31			62			1,347
Additions — internal development		—			29			—			—			—			—			29
Additions — purchased		—			16			—			—			—			—			16
Disposals		(8	)		(27	)		—			—			—			—			(35	)
Acquisition through business combination		153			17			77			42			—			97			386
Disposal through business disposal		—			(1	)		—			—			(2	)		—			(3	)
Transfer to Pre-publication		—			(12	)		—			—			—			—			(12	)

At 31 December 2008		4,570			310			341			128			165			258			5,772

Exchange differences		(420	)		(25	)		(32	)		(9	)		(5	)		(22	)		(513	)
Additions — internal development		—			35			—			—			—			—			35
Additions — purchased		—			24			—			—			—			—			24
Disposals		(9	)		(5	)		—			—			—			—			(14	)
Acquisition through business combination		205			—			38			24			55			25			347

At 31 December 2009		4,346			339			347			143			215			261			5,651

F-31

Notes to the Consolidated Financial Statements (Continued)


						Acquired
						customer			Acquired			Acquired			Other
						lists and			trademarks			publishing			intangibles
	Goodwill		Software			relationships			and brands			rights			acquired			Total
	All figures in £ millions

Amortisation
At 1 January 2008		—		(142	)		(28	)		(4	)		(32	)		(24	)		(230	)
Exchange differences		—		(50	)		(15	)		(3	)		(13	)		(12	)		(93	)
Charge for the year		—		(30	)		(24	)		(10	)		(25	)		(27	)		(116	)
Disposals		—		27			—			—			—			—			27
Acquisition through business combination		—		(13	)		—			—			—			—			(13	)
Disposal through business disposal		—		1			—			—			1			—			2
Transfer to Pre-publication		—		4			—			—			—			—			4

At 31 December 2008		—		(203	)		(67	)		(17	)		(69	)		(63	)		(419	)

Exchange differences		—		19			6			1			6			8			40
Charge for the year		—		(44	)		(35	)		(11	)		(22	)		(35	)		(147	)
Disposals		—		4			—			—			—			—			4

At 31 December 2009		—		(224	)		(96	)		(27	)		(85	)		(90	)		(522	)

Carrying amounts
At 1 January 2008		3,343		75			159			58			104			75			3,814
At 31 December 2008		4,570		107			274			111			96			195			5,353
At 31 December 2009		4,346		115			251			116			130			171			5,129

Goodwill

The goodwill carrying value of £4,346m relates to acquisitions completed after 1 January 1998. Prior to 1 January 1998 all goodwill was written off to reserves on the date of acquisition. £3,127m of the carrying value relates to acquisitions completed between 1 January 1998 and 31 December 2002 and £1,219m relates to acquisitions completed after 1 January 2003 (the date of transition to IFRS).

For acquisitions completed between 1 January 1998 and 31 December 2002 no value was ascribed to intangibles other than goodwill and the goodwill on each acquisition was amortised over a period of up to 20 years. On adoption of IFRS on 1 January 2003, the Group chose not to restate the goodwill balance and at that date the balance was frozen (i.e. amortisation ceased). If goodwill had been restated then a significant value would have been ascribed to other intangible assets, which would be subject to amortisation, and the carrying value of goodwill would be significantly lower.

For acquisitions completed after 1 January 2003 value has been ascribed to other intangible assets, which are amortised, with only the remaining difference between the purchase price and the fair value of net assets acquired being allocated to goodwill.

Other intangible assets

Other intangibles acquired include content, technology and software rights. Amortisation of £5m (2008: £5m) is included in the income statement in cost of goods sold and £142m (2008: £111m) in administrative and other expenses.

F-32

Notes to the Consolidated Financial Statements (Continued)

Impairment tests for cash-generating units containing goodwill Impairment tests have been carried out where appropriate as described below. The recoverable amount for each unit tested exceeds its carrying value.

Goodwill is allocated to 14 cash-generating units (CGUs) within the business segments as follows:


	2009		2008
	All figures in £ millions

US School Curriculum		812		937
US School Assessment and Information		652		722
US Higher Education		1,064		1,164
Canada		181		173
International Education Publishing		468		315
International Education Assessment and Testing		222		241
Professional Publishing		13		15
Professional Assessment and Testing		226		254

Pearson Education total		3,638		3,821

Financial Times		43		46
Mergermarket		125		130
Interactive Data		184		208

FT Group total		352		384

Penguin US		190		216
Penguin UK		103		95
Pearson Australia		63		54

Penguin total		356		365

Total goodwill		4,346		4,570

As highlighted in the 2008 business review, integration of the US School and Higher Education businesses began in 2008. This integration continued throughout 2009 and has now advanced to a point where, from 1 January 2010, these companies will be combined into one CGU for impairment review purposes.

The recoverable amount of each CGU is based on value in use calculations. Goodwill is tested for impairment annually. Other than goodwill there are no intangible assets with indefinite lives. The goodwill is generally denominated in the currency of the relevant cash flows and therefore the impairment review is not materially sensitive to exchange rate fluctuations.

Key assumptions

The value in use calculations use cash flow projections based on financial budgets approved by management covering a five-year period. The key assumptions used by management in the value in use calculations were:

Discount rate — The discount rate is based on the risk-free rate for government bonds, adjusted for a risk premium to reflect the increased risk in investing in equities. The risk premium adjustment is assessed for each specific CGU. The average pre-tax discount rates used are in the range of 10.9% to 11.8% for the Pearson Education businesses (2008: 10.2% to 11.7%), 12.7% to 18.1% for the FT Group businesses (2008: 10.8% to 20.5%) and 9.5% to 11.4% for the Penguin businesses (2008: 8.8% to 10.4%).

Perpetuity growth rates — The cash flows subsequent to the approved budget period are based upon the long-term historic growth rates of the underlying territories in which the CGU operates and reflect the long-term growth prospects of the sectors in which the CGU operates. A perpetuity growth rate of 2.0% was used for

F-33

Notes to the Consolidated Financial Statements (Continued)

all CGUs in 2009 (2008: 2.0%). The perpetuity growth rates are consistent with appropriate external sources for the relevant markets.

Cash flow growth rates — The cash flow growth rates are derived from management’s latest forecast of sales taking into consideration past experience of operating margins achieved in the CGU. Historically, such forecasts have been reasonably accurate.

Sensitivities

The Group’s impairment review is sensitive to a change in assumptions used, most notably the discount rates, the perpetuity growth rates and expected future cash flows. Based on the Group’s sensitivity analysis, a reasonably possible change in the discount rate or perpetuity growth rate could cause an impairment in the US School Curriculum CGU. Following a restructuring during 2009, the Penguin UK CGU is no longer considered sensitive to impairment.

The fair value of US School Curriculum is 6%, or approximately £59m, above its carrying value, but an increase of 0.4 percentage points in the discount rate or a reduction of 0.5 percentage points in the perpetuity growth rate would have caused the value in use to fall below the carrying value.


12.	Investments in joint ventures and associates

Joint ventures


	2009			2008
	All figures in £ millions

At beginning of year		13			11
Exchange differences		—			(4	)
Share of profit after tax		4			6
Dividends		(3	)		(5	)
Loan repayment		(3	)		—
Additions and further investment		13			5
Transfer to subsidiary		(6	)		—

At end of year		18			13

Investments in joint ventures are accounted for using the equity method of accounting and are initially recognised at cost. Investments at 31 December 2009 include goodwill of £11m (2008: £nil).

F-34

Notes to the Consolidated Financial Statements (Continued)

The aggregate of the Group’s share of its joint ventures’ assets (including goodwill) and liabilities, none of which are individually significant, are as follows:


	2009			2008
	All figures in £ millions

Assets
Non-current assets		15			6
Current assets		11			21

Liabilities
Current liabilities		(8	)		(14	)

Net assets		18			13

Income		12			36
Expenses		(8	)		(30	)

Profit after income tax		4			6

Associates


	2009			2008
	All figures in £ millions

At beginning of year		10			9
Exchange differences		4			(5	)
Share of profit after tax		26			19
Dividends		(19	)		(16	)
Additions		1			—
(Reversal of distribution)/Distribution from associate in excess of carrying value		(7	)		6
Actuarial losses on retirement benefit obligations		(3	)		(3	)

At end of year		12			10

Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. There is no acquisition goodwill relating to the Group’s investments in associates.

The Group’s interests in its principal associates, all of which are unlisted, are as follows:

2009

Country of incorporation

interest held

Assets

Liabilities

Revenues

Profit

All figures in £ millions

The Economist Newspaper Ltd

England

116

(116

)

161

Other

(30

)

Total

158

(146

)

211


			%
2008	Country of incorporation		interest held		Assets		Liabilities			Revenues		Profit
	All figures in £ millions

The Economist Newspaper Ltd		England		50		86		(86	)		149		16
Other						35		(25	)		42		3

Total						121		(111	)		191		19

The interests held in associates are equivalent to voting rights.

F-35

Notes to the Consolidated Financial Statements (Continued)


13.	Deferred income tax


	2009			2008
	All figures in £ millions

Deferred income tax assets
Deferred income tax assets to be recovered after more than 12 months		374			341
Deferred income tax assets to be recovered within 12 months		13			31

		387			372

Deferred income tax liabilities
Deferred income tax liabilities to be settled after more than 12 months		(473	)		(447	)
Deferred income tax liabilities to be settled within 12 months		—			—

		(473	)		(447	)

Net deferred income tax		(86	)		(75	)

Deferred income tax assets to be recovered within 12 months relate to the utilisation of losses in the US.

Deferred income tax assets and liabilities may be offset when there is a legally enforceable right to offset current income tax assets against current income tax liabilities and when the deferred income taxes relate to the same fiscal authority. The Group has unrecognised deferred income tax assets at 31 December 2009 in respect of UK losses of £20m (2008: £28m). None of these unrecognised deferred income tax assets have expiry dates associated with them.

The recognition of the deferred income tax assets is supported by management’s forecasts of the future profitability of the relevant business units.

The movement on the net deferred income tax account is as follows:


	Notes		2009			2008
			All figures in £ millions

At beginning of year				(75	)		41
Exchange differences				10			(12	)
Income statement charge		7		(51	)		(93	)
Acquisition through business combination		29		(45	)		(4	)
Tax benefit/(charge) to other comprehensive income or equity				75			(7	)

At end of year				(86	)		(75	)

F-36

Notes to the Consolidated Financial Statements (Continued)

The movement in deferred income tax assets and liabilities during the year is as follows:


										Retirement
	Trading			Goodwill and			Returns			benefit
	losses			intangibles			provisions			obligations			Other			Total
	All figures in £ millions

Deferred income tax assets
At 1 January 2008		87			20			79			10			132			328
Exchange differences		19			6			28			2			38			93
Acquisition through business combination		2			—			—			—			—			2
Income statement (charge)/benefit		(35	)		(6	)		(1	)		(8	)		5			(45	)
Tax benefit/(charge) to other comprehensive income or equity		—			—			—			3			(9	)		(6	)

At 31 December 2008		73			20			106			7			166			372

Exchange differences		(5	)		(2	)		(10	)		(1	)		(17	)		(35	)
Acquisition through business combination		—			—			—			—			—			—
Income statement (charge)/benefit		(46	)		(7	)		(4	)		(6	)		42			(21	)
Tax benefit to other comprehensive income or equity		—			—			—			68			3			71

At 31 December 2009		22			11			92			68			194			387

Other deferred income tax assets include temporary differences on share-based payments, inventory and other provisions.


	Goodwill and
	intangibles			Other			Total
	All figures in £ millions

Deferred income tax liabilities
At 1 January 2008		(214	)		(73	)		(287	)
Exchange differences		(73	)		(32	)		(105	)
Acquisition through business combination		(5	)		(1	)		(6	)
Income statement charge		(26	)		(22	)		(48	)
Tax charge to other comprehensive income or equity		—			(1	)		(1	)

At 31 December 2008		(318	)		(129	)		(447	)

Exchange differences		30			15			45
Acquisition through business combination		(41	)		(4	)		(45	)
Income statement (charge)/benefit		10			(40	)		(30	)
Tax benefit to other comprehensive income or equity		—			4			4

At 31 December 2009		(319	)		(154	)		(473	)

Other deferred income tax liabilities include temporary differences in respect of depreciation and royalty advances.

F-37

Notes to the Consolidated Financial Statements (Continued)


14.	Classification of financial instruments

The accounting classification of each class of the Group’s financial assets and financial liabilities, together with their fair values, is as follows:


			2009
			Fair value
					Derivatives			Derivatives					Amortised cost					Total			Total
			Available		deemed held			in hedging		Other			Loans and		Other			carrying			market
	Notes		for sale		for trading			relationships		liabilities			receivables		liabilities			value			value
			All figures in £ millions

Investments in unlisted securities		15		62		—			—		—			—		—			62			62
Cash and cash equivalents		17		—		—			—		—			750		—			750			750
Marketable securities				63		—			—		—			—		—			63			63
Derivative financial instruments		16		—		42			70		—			—		—			112			112
Trade receivables		22		—		—			—		—			989		—			989			989

Total financial assets				125		42			70		—			1,739		—			1,976			1,976

Derivative financial instruments		16		—		(9	)		—		—			—		—			(9	)		(9	)
Trade payables		24		—		—			—		—			—		(461	)		(461	)		(461	)
Other financial liabilities — put option over minority interest		24		—		—			—		(23	)		—		—			(23	)		(23	)
Bank loans and overdrafts		18		—		—			—		—			—		(70	)		(70	)		(70	)
Borrowings due within one year		18		—		—			—		—			—		(4	)		(4	)		(4	)
Borrowings due after more than one year		18		—		—			—		—			—		(1,934	)		(1,934	)		(1,969	)

Total financial liabilities				—		(9	)		—		(23	)		—		(2,469	)		(2,501	)		(2,536	)

F-38

Notes to the Consolidated Financial Statements (Continued)


			2008
			Fair value
					Derivatives			Derivatives		Amortised cost					Total			Total
			Available		deemed held			in hedging		Loans and		Other			carrying			market
	Notes		for sale		for trading			relationships		receivables		liabilities			value			value
			All figures in £ millions

Investments in unlisted securities		15		63		—			—		—		—			63			63
Cash and cash equivalents		17		—		—			—		685		—			685			685
Marketable securities				54		—			—		—					54			54
Derivative financial instruments		16		—		23			161		—		—			184			184
Trade receivables		22		—		—			—		1,030		—			1,030			1,030

Total financial assets				117		23			161		1,715		—			2,016			2,016

Derivative financial instruments		16		—		(20	)		—		—		—			(20	)		(20	)
Trade payables		24		—		—			—		—		(450	)		(450	)		(450	)
Bank loans and overdrafts		18		—		—			—		—		(228	)		(228	)		(228	)
Borrowings due within one year		18		—		—			—		—		(248	)		(248	)		(247	)
Borrowings due after more than one year		18		—		—			—		—		(1,887	)		(1,887	)		(1,620	)

Total financial liabilities				—		(20	)		—		—		(2,813	)		(2,833	)		(2,565	)

Certain of the Group’s derivative financial instruments are deemed to be held for trading either as they do not meet the hedge accounting criteria specified in IAS 39 ’Financial Instruments: Recognition and Measurement’ or the Group has chosen not to seek hedge accounting for these instruments. None of these derivatives are held for speculative trading purposes. Transactions in derivative financial instruments are only undertaken to manage risks arising from underlying business activity, in accordance with the Group’s treasury policy as described in note 19.

The Group designates certain qualifying derivative financial instruments as hedges of the fair value of its bonds (fair value hedges). Changes in the fair value of these derivative financial instruments are recorded in the income statement, together with any change in the fair value of the hedged liability attributable to the hedged risk.

The Group also designates certain of its borrowings and derivative financial instruments as hedges of its investments in foreign operations (net investment hedges). Movements in the fair value of these financial instruments (to the extent they are effective) are recognised in other comprehensive income.

None of the Group’s financial assets or liabilities are designated at fair value through the income statement upon initial recognition.

More detail on the Group’s accounting for financial instruments is included in the Group’s accounting policies. The Group’s approach to managing risks in relation to financial instruments is described in note 19.

F-39

Notes to the Consolidated Financial Statements (Continued)


15.	Other financial assets


	2009			2008
	All figures in £ millions

At beginning of year		63			52
Exchange differences		(6	)		18
Acquisition of investments		10			1
Disposal of investments		(5	)		(8	)

At end of year		62			63

Other financial assets comprise non-current unlisted securities.


16.	Derivative financial instruments

The Group’s approach to the management of financial risks is set out in note 19. The Group’s outstanding derivative financial instruments are as follows:


	2009							2008
	Gross notional							Gross notional
	amounts		Assets		Liabilities			amounts		Assets		Liabilities
	All figures in £ millions

Interest rate derivatives — in a fair value hedge relationship		1,103		70		—			1,232		161		—
Interest rate derivatives — not in a hedge relationship		486		13		(7	)		1,033		23		(20	)
Cross currency rate derivatives — in a net investment hedge relationship		220		29		(2	)		—		—		—

Total		1,809		112		(9	)		2,265		184		(20	)

Analysed as expiring:
In less than one year		238		—		(7	)		487		3		(5	)
Later than one year and not later than five years		844		60		(2	)		859		47		(15	)
Later than five years		727		52		—			919		134		—

Total		1,809		112		(9	)		2,265		184		(20	)

The carrying value of the above derivative financial instruments equals their fair value. Fair values are determined by using market data and the use of established estimation techniques such as discounted cash flow and option valuation models.

At the end of 2009, the currency split of the mark-to-market values of rate derivatives, including the exchange of principal on cross currency rate derivatives, was US dollar £(127)m, sterling £252m and South African rand £(22)m (2008: US dollar £161m, sterling £3m and South African rand £nil).

The fixed interest rates on outstanding rate derivative contracts at the end of 2009 range from 3.65% to 9.28% (2008: 4.45% to 7.00%) and the floating rates are based on LIBOR in US dollar and sterling.

The Group’s portfolio of rate derivatives is diversified by maturity, counterparty and type. Natural offsets between transactions within the portfolio and the designation of certain derivatives as hedges significantly reduce the risk of income statement volatility. The sensitivity of the portfolio to changes in market rates is set out in note 19.

Counterparty exposure from all derivatives is managed, together with that from deposits and bank account balances, within credit limits that reflect published credit ratings and by reference to other market measures (e.g.

F-40

Notes to the Consolidated Financial Statements (Continued)

market prices for credit default swaps) to ensure that there is no significant risk to any one counterparty. No single derivative transaction had a market value (positive or negative) at the balance sheet date that exceeded 3% of the Group’s consolidated total equity.

In accordance with IAS 39 ’Financial Instruments: Recognition and Measurement’ the Group has reviewed all of its material contracts for embedded derivatives that are required to be separately accounted for if they do not meet certain requirements, and has concluded that there are no material embedded derivatives.


17.	Cash and cash equivalents (excluding overdrafts)


	2009		2008
	All figures in
	£ millions

Cash at bank and in hand		580		528
Short-term bank deposits		170		157

		750		685

Short-term bank deposits are invested with banks and earn interest at the prevailing short-term deposit rates.

At the end of 2009 the currency split of cash and cash equivalents was US dollar 35% (2008: 36%), sterling 22% (2008: 22%), euro 18% (2008: 20%) and other 25% (2008: 22%).

Cash and cash equivalents have fair values that approximate to their carrying value due to their short-term nature.

Cash and cash equivalents include the following for the purpose of the cash flow statement:


	2009			2008
	All figures in
	£ millions

Cash and cash equivalents		750			685
Bank overdrafts		(70	)		(96	)

		680			589

F-41

Notes to the Consolidated Financial Statements (Continued)


18.	Financial liabilities — Borrowings

The Group’s current and non-current borrowings are as follows:


	2009		2008
	All figures in
	£ millions

Non-current
Bank loans and overdrafts		—		132
7.0% Global Dollar Bonds 2011 (nominal amount $500m)		322		368
5.5% Global Dollar Bonds 2013 (nominal amount $350m)		226		258
5.7% US Dollar Bonds 2014 (nominal amount $400m)		274		322
7.0% Sterling Bonds 2014 (nominal amount £250m)		254		254
6.0% Sterling Bonds 2015 (nominal amount £300m)		297		—
6.25% Global Dollar Bonds 2018 (nominal amount $550m)		359		445
4.625% US Dollar notes 2018 (nominal amount $300m)		191		237
Finance lease liabilities		11		3

		1,934		2,019

Current
Due within one year or on demand:
Bank loans and overdrafts		70		96
4.7% US Dollar Bonds 2009 (nominal amount $350m)		—		244
Finance lease liabilities		4		4

		74		344

Total borrowings		2,008		2,363

Included in the non-current borrowings above is £12m of accrued interest (2008: £12m). Included in the current borrowings above is £nil of accrued interest (2008: £1m).

The maturity of the Group’s non-current borrowing is as follows:


	2009		2008
	All figures in
	£ millions

Between one and two years		327		2
Between two and five years		760		759
Over five years		847		1,258

		1,934		2,019

F-42

Notes to the Consolidated Financial Statements (Continued)

The carrying amounts and market values of borrowings are as follows:


				2009				2008
	Effective			Carrying				Carrying
	interest rate			value		Market value		value		Market value
	All figures in £ millions

Bank loans and overdrafts		n/a			70		70		228		228
4.7% US Dollar Bonds 2009		4.86	%		—		—		244		243
7.0% Global Dollar Bonds 2011		7.16	%		322		331		368		349
5.5% Global Dollar Bonds 2013		5.76	%		226		232		258		227
5.7% US Dollar Bonds 2014		5.88	%		274		266		322		262
7.0% Sterling Bonds 2014		7.20	%		254		276		254		258
6.0% Sterling Bonds 2015		6.27	%		297		317		—		—
6.25% Global Dollar Bonds 2018		6.46	%		359		360		445		352
4.625% US Dollar notes 2018		4.69	%		191		176		237		169
Finance lease liabilities		n/a			15		15		7		7

					2,008		2,043		2,363		2,095

The market values are based on clean market prices at the year end or, where these are not available, on the quoted market prices of comparable debt issued by other companies. The effective interest rates above relate to the underlying debt instruments.

The carrying amounts of the Group’s borrowings are denominated in the following currencies:


	2009		2008
	All figures in
	£ millions

US dollar		1,457		2,081
Sterling		551		277
Euro		—		5

		2,008		2,363

The Group has the following undrawn capacity on its committed borrowing facilities as at 31 December:


	2009		2008
	All figures in
	£ millions

Floating rate
— expiring within one year		—		—
— expiring beyond one year		1,084		1,085

		1,084		1,085

In addition to the above facilities, there are a number of short-term facilities that are utilised in the normal course of business.

All of the Group’s borrowings are unsecured. In respect of finance lease obligations, the rights to the leased asset revert to the lessor in the event of default.

F-43

Notes to the Consolidated Financial Statements (Continued)

The maturity of the Group’s finance lease obligations is as follows:


	2009		2008
	All figures in
	£ millions

Finance lease liabilities — minimum lease payments
Not later than one year		4		4
Later than one year and not later than two years		5		2
Later than two years and not later than three years		3		1
Later than three years and not later than four years		3		—
Later than four years and not later than five years		—		—
Later than five years		—		—
Future finance charges on finance leases		—		—

Present value of finance lease liabilities		15		7

The present value of finance lease liabilities is as follows:


	2009		2008
	All figures in
	£ millions

Not later than one year		4		4
Later than one year and not later than five years		11		3
Later than five years		—		—

		15		7

The carrying amounts of the Group’s lease obligations approximate their fair value.


19.	Financial risk management

The Group’s approach to the management of financial risks together with sensitivity analyses is set out below.

Treasury policy

The Group holds financial instruments for two principal purposes: to finance its operations and to manage the interest rate and currency risks arising from its operations and its sources of finance. The Group finances its operations by a mixture of cash flows from operations, short-term borrowings from banks and commercial paper markets, and longer term loans from banks and capital markets. The Group borrows principally in US dollars and sterling, at both floating and fixed rates of interest, using derivative financial instruments (’derivatives), where appropriate, to generate the desired effective currency profile and interest rate basis. The derivatives used for this purpose are principally rate swaps, rate caps and collars, currency rate swaps and forward foreign exchange contracts. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity and refinancing risk, counterparty risk and foreign currency risk. These risks are managed by the chief financial officer under policies approved by the board, which are summarised below. All the treasury policies remained unchanged throughout 2009, apart from a revision to the Group’s bank counterparty limits policy and a minor change applicable to the authorisation of treasury policy waivers.

The audit committee receives reports on the Group’s treasury activities, policies and procedures. The treasury department is not a profit centre and its activities are subject to regular internal audit.

Interest rate risk management

The Group’s exposure to interest rate fluctuations on its borrowings is managed by borrowing on a fixed rate basis and by entering into rate swaps, rate caps and forward rate agreements. The Group’s policy objective has

F-44

Notes to the Consolidated Financial Statements (Continued)

continued to be to set a target proportion of its forecast borrowings (taken at the year end, with cash netted against floating rate debt and before certain adjustments for IAS 39 ’Financial Instruments: Recognition and Measurement’) to be hedged (i.e. fixed or capped at the year end) over the next four years, subject to a maximum of 65% and a minimum that starts at 40% and falls by 10% at each year end. At the end of 2009 the fixed to floating hedging ratio, on the above basis, was approximately 71%. This above-policy level was a result of better than forecast cash collections in December 2009, resulting in lower than expected net debt. A simultaneous 1% change on 1 January in the Group’s variable interest rates in US dollar and sterling, taking into account forecast seasonal debt, would have a £6m effect on profit before tax.

Use of interest rate derivatives

The policy described in the section above creates a group of derivatives, under which the Group is a payer of fixed rates and a receiver of floating rates. The Group also aims to avoid undue exposure to a single interest rate setting. Reflecting this objective, the Group has predominantly swapped its fixed rate bond issues to floating rate at their launch. This creates a second group of derivatives, under which the Group is a receiver of fixed rates and a payer of floating rates. The Group’s accounting objective in its use of interest rate derivatives is to minimise the impact on the income statement of changes in the mark-to-market value of its derivative portfolio as a whole. It uses duration calculations to estimate the sensitivity of the derivatives to movements in market rates. The Group also identifies which derivatives are eligible for fair value hedge accounting (which reduces sharply the income statement impact of changes in the market value of a derivative). The Group then balances the total portfolio between hedge-accounted and pooled segments, so that the expected movement on the pooled segment is minimal.

Liquidity and refinancing risk management

The Group’s objective is to secure continuity of funding at a reasonable cost. To do this it seeks to arrange committed funding for a variety of maturities from a diversity of sources. The Group’s policy objective has been that the weighted average maturity of its core gross borrowings (treating short-term advances as having the final maturity of the facilities available to refinance them) should be between three and ten years. At the end of 2009 the average maturity of gross borrowings was 5.1 years of which bonds represented 96% of these borrowings (up from 5.0 years and up from 90% respectively at the beginning of the year).

The Group believes that ready access to different funding markets also helps to reduce its liquidity risk, and that published credit ratings and published financial policies improve such access. All of the Group’s credit ratings remained unchanged during the year. The long-term ratings are Baa1 from Moody’s and BBB+ from Standard & Poor’s, and the short-term ratings are P2 and A2 respectively. The Group’s policy is to strive to maintain a rating of Baa1/BBB+ over the long term. The Group will also continue to use internally a range of ratios to monitor and manage its finances. These include interest cover, net debt to operating profit and cash flow to debt measures. The Group also maintains undrawn committed borrowing facilities. At the end of 2009 the committed facilities amounted to £1,084m and their weighted average maturity was 2.4 years.

F-45

Notes to the Consolidated Financial Statements (Continued)

Analysis of Group debt, including the impact of derivatives

The following tables analyse the Group’s sources of funding and the impact of derivatives on the Group’s debt instruments.

The Group’s net debt position is set out below:


	2009			2008
	All figures in £
	millions

Cash and cash equivalents		750			685
Marketable securities		63			54
Derivative financial instruments		103			164
Bank loans, overdrafts and loan notes		(70	)		(228	)
Bonds		(1,923	)		(2,128	)
Finance lease liabilities		(15	)		(7	)

Net debt		(1,092	)		(1,460	)

The split of net debt between fixed and floating rate, stated after the impact of rate derivatives, is as follows:


	2009		2008
	All figures in £
	millions

Fixed rate		772		781
Floating rate		320		679

Total		1,092		1,460

Gross borrowings, after the impact of cross-currency rate derivatives, analysed by currency are as follows:


	2009		2008
	All figures in £ millions

US dollar		1,656		2,081
Sterling		330		277
Other		22		5

Total		2,008		2,363

As at 31 December 2009 the exposure of the borrowings of the Group to interest rate changes when the borrowings re-price is as follows:


	Less than		One to			More than
	one year		five years			five years			Total
	All figures in £ millions

Re-pricing profile of borrowings		74		1,087			847			2,008
Effect of rate derivatives		1,289		(762	)		(527	)		—

Total		1,363		325			320			2,008

F-46

Notes to the Consolidated Financial Statements (Continued)

The maturity of contracted cash flows on the Group’s borrowings and all of its derivative financial instruments are as follows:

2009

USD

GBP

Other

Total

All figures in £ millions

Not later than one year

Later than one year and not later than five years

878

313

1,221

Later than five years

739

106

—

845

Total

1,659

440

2,131

Analysed as:

Revolving credit facilities and commercial paper

—

Bonds

1,692

745

—

2,437

Rate derivatives — inflows

(386

)

(313

)

—

(699

)

Rate derivatives — outflows

353

393

Total

1,659

440

2,131


	2008
	USD			GBP			Other		Total
	All figures in £ millions

Not later than one year		311			17			—		328
Later than one year and not later than five years		884			65			—		949
Later than five years		954			266			—		1,220

Total		2,149			348			—		2,497

Analysed as:
Revolving credit facilities and commercial paper		141			—			—		141
Bonds		2,237			355			—		2,592
Rate derivatives — inflows		(392	)		(21	)		—		(413	)
Rate derivatives — outflows		163			14			—		177

Total		2,149			348			—		2,497

All cash flow projections shown above are on an undiscounted basis. Any cash flows based on a floating rate are calculated using interest rates as set at the date of the last rate reset. Where this is not possible, floating rates are based on interest rates prevailing at 31 December in the relevant year. All derivative amounts are shown gross, although the Group net settles these amounts wherever possible.

Amounts drawn under revolving credit facilities and commercial paper are assumed to mature at the maturity date of the relevant facility, with interest calculated as payable in each calendar year up to and including the date of maturity of the facility.

Financial counterparty risk management

Counterparty credit limits, which take published credit rating and other factors into account, are set to cover our total aggregate exposure to a single financial institution. The limits applicable to published credit ratings bands are approved by the chief financial officer within guidelines approved by the board. Exposures and limits applicable to each financial institution are reviewed on a regular basis.

F-47

Notes to the Consolidated Financial Statements (Continued)

Foreign currency risk management

Although the Group is based in the UK, it has its most significant investment in overseas operations. The most significant currency for the Group is the US dollar. The Group’s policy on routine transactional conversions between currencies (for example, the collection of receivables, and the settlement of payables or interest) remains that these should be transacted at the relevant spot exchange rate. The majority of the Group’s operations are domestic within their country of operation. No unremitted profits are hedged with foreign exchange contracts, as the company judges it inappropriate to hedge non-cash flow translational exposure with cash flow instruments. However, the Group does seek to create a natural hedge of this exposure through its policy of aligning approximately the currency composition of its core net borrowings (after the impact of cross currency rate derivatives) with its forecast operating profit before depreciation and amortisation. This policy aims to dampen the impact of changes in foreign exchange rates on consolidated interest cover and earnings. The policy above applies only to currencies that account for more than 15% of Group operating profit before depreciation and amortisation, which currently is only the US dollar. The Group still borrows small amounts in other currencies, typically for seasonal working capital needs. Our policy does not require existing currency debt to be terminated to match declines in that currency’s share of Group operating profit before depreciation and amortisation. In addition, currencies that account for less than 15% of Group operating profit before depreciation and amortisation can be included in the above hedging process at the request of the chief financial officer.

Included within year end net debt, the net borrowings/(cash) in the hedging currencies above (taking into account the effect of cross currency swaps) were: US dollar £1,314m, sterling £168m and South African rand £9m.

Use of currency debt and currency derivatives

Financial instruments — fair value measurement

The following table provides an analysis of those financial instruments that are measured subsequent to initial recognition at fair value, grouped into levels 1 to 3, based on the degree to which the fair value is observable:

Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 fair value measurements are those derived from inputs, other than quoted prices included within level 1, that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).


	2009
	Level 1		Level 2			Level 3			Total
	All figures in £ millions

Financial assets at fair value
Derivative financial assets		—		112			—			112
Marketable securities		—		63			—			63
Available for sale financial assets
Investments in unlisted securities		—		—			62			62
Financial liabilities at fair value
Derivative financial liabilities		—		(9	)		—			(9	)
Other financial liabilities — put option over minority interest		—		—			(23	)		(23	)

Total		—		166			39			205

F-48

Notes to the Consolidated Financial Statements (Continued)

The following table analyses the movements in level 3 fair value measurements:


	2009
	Investments in			Other financial
	unlisted securities			liabilities
	All figures in £ millions

At beginning of year		63			—
Exchange differences		(6	)		—
Additions		10			(23	)
Disposals		(5	)		—

At end of year		62			(23	)

The fair value of the investments in unlisted securities is determined by reference to the financial performance of the underlying asset and amounts realised on the sale of similar assets. The fair value of other financial liabilities represents the present value of the estimated future liability.

Financial instruments — sensitivity analysis

As at 31 December 2009 the sensitivity of the Group’s financial instruments to fluctuations in interest rates and exchange rates is as follows:


				Impact of 1%			Impact of 1%			Impact of 10%			Impact of 10%
	Carrying			increase in			decrease in			strengthening in			weakening in
	value			interest rates			interest rates			sterling			sterling
	All figures in £ millions

Investments in unlisted securities		62			—			—			(2	)		3
Cash and cash equivalents		750			—			—			(47	)		58
Marketable securities		63			—			—			(5	)		7
Derivative financial instruments		103			(59	)		66			14			(17	)
Bonds		(1,923	)		54			(61	)		118			(144	)
Other borrowings		(85	)		—			—			8			(9	)
Put option over minority interest		(23	)		—			—			3			(3	)
Other net financial assets		528			—			—			(42	)		52

Total financial instruments		(525	)		(5	)		5			47			(53	)

The table shows the sensitivities of the fair values of each class of financial instruments to an isolated change in either interest rates or foreign exchange rates. The class ‘Other net financial assets’ comprises trade assets less trade liabilities.

The sensitivities of derivative instruments are calculated using established estimation techniques such as discounted cash flow and option valuation models. Where modelling an interest rate decrease of 1% led to negative interest rates, these points on the yield curve were adjusted to 0%. A large proportion of the movements shown above would impact equity rather than the income statement, depending on the location and functional currency of the entity in which they arise and the availability of net investment hedge treatment. The changes in valuations are estimates of the impact of changes in market variables and are not a prediction of future events or anticipated gains or losses.

F-49

Notes to the Consolidated Financial Statements (Continued)


20.	Intangible assets — Pre-publication


	2009			2008
	All figures in £ millions

Cost
At beginning of year		1,800			1,264
Exchange differences		(160	)		494
Additions		322			297
Disposals		(230	)		(345	)
Acquisition through business combination		(1	)		78
Transfer from software		—			12
Transfer to inventories		(4	)		—

At end of year		1,727			1,800

Amortisation
At beginning of year		(1,105	)		(814	)
Exchange differences		102			(337	)
Charge for the year		(307	)		(244	)
Disposals		230			345
Acquisition through business combination		3			(51	)
Transfer from software		—			(4	)

At end of year		(1,077	)		(1,105	)

Carrying amounts
At end of year		650			695

Included in the above are pre-publication assets amounting to £398m (2008: £462m) which will be realised in more than 12 months.

Amortisation is included in the income statement in cost of goods sold.


21.	Inventories


	2009		2008
	All figures in £ millions

Raw materials		32		31
Work in progress		23		29
Finished goods		390		441

		445		501

The cost of inventories relating to continuing operations recognised as an expense and included in the income statement in cost of goods sold amounted to £843m (2008: £832m). In 2009 £75m (2008: £56m) of inventory provisions was charged in the income statement. None of the inventory is pledged as security.

F-50

Notes to the Consolidated Financial Statements (Continued)


22.	Trade and other receivables


	2009		2008
	All figures in £ millions

Current
Trade receivables		989		1,030
Royalty advances		99		111
Prepayments and accrued income		75		62
Other receivables		121		135
Receivables from related parties		—		4

		1,284		1,342

Non-current
Royalty advances		86		102
Prepayments and accrued income		24		3
Other receivables		2		47

		112		152

Trade receivables are stated at fair value, net of provisions for bad and doubtful debts and anticipated future sales returns. The movements on the provision for bad and doubtful debts are as follows:


	2009			2008
	All figures in £ millions

At beginning of year		(72	)		(52	)
Exchange differences		5			(18	)
Income statement movements		(26	)		(27	)
Utilised		20			27
Acquisition through business combination		(3	)		(2	)

At end of year		(76	)		(72	)

Concentrations of credit risk with respect to trade receivables are limited due to the Group’s large number of customers, who are internationally dispersed.

The ageing of the Group’s trade receivables is as follows:


	2009			2008
	All figures in £ millions

Within due date		1,096			1,110
Up to three months past due date		228			248
Three to six months past due date		51			60
Six to nine months past due date		20			21
Nine to 12 months past due date		4			15
More than 12 months past due date		20			20

Total trade receivables		1,419			1,474

Less: provision for bad and doubtful debts		(76	)		(72	)
Less: provision for sales returns		(354	)		(372	)

Net trade receivables		989			1,030

F-51

Notes to the Consolidated Financial Statements (Continued)

The Group reviews its bad debt provision at least twice a year following a detailed review of receivable balances and historic payment profiles. Management believe all the remaining receivable balances are fully recoverable.


23.	Provisions for other liabilities and charges


	Deferred
	consideration			Leases			Other			Total
	All figures in £ millions

At 1 January 2009		43			8			38			89
Exchange differences		(2	)		—			(3	)		(5	)
Charged to income statement		3			3			2			8
Released to income statement		—			—			(3	)		(3	)
Acquisition through business combination — current year		27			—			—			27
Acquisition through business combination — prior year adjustments		(4	)		—			—			(4	)
Utilised		(29	)		(2	)		(13	)		(44	)

At 31 December 2009		38			9			21			68


	2009		2008
	All figures in £ millions

Analysis of provisions
Non-current		50		33
Current		18		56

		68		89

Deferred consideration primarily relates to the acquisition of Fronter in 2009.


24.	Trade and other liabilities


	2009		2008
	All figures in £ millions

Trade payables		461		450
Social security and other taxes		30		35
Accruals		504		501
Deferred income		487		444
Interest payable		10		10
Dividends payable to minority interest		—		5
Put option over minority interest		23		—
Other liabilities		205		205

		1,720		1,650

Less: non-current portion
Accruals		23		42
Deferred income		116		87
Interest payable		—		1
Put option over minority interest		23		—
Other liabilities		91		91
		253		221

Current portion		1,467		1,429

F-52

Notes to the Consolidated Financial Statements (Continued)

The carrying value of the Group’s payables approximates its fair value.

The deferred income balances comprise:


	•	multi-year obligations to deliver workbooks to adoption customers in school businesses;

	•	advance payments in assessment and testing businesses;

	•	subscription income in school, newspaper and market pricing businesses;

	•	advertising income relating to future publishing days in newspaper businesses; and

	•	obligations to deliver digital content in future periods.

The put option over minority interest is the fair value of an option held by the minority interest in our Pearson South Africa business. The option enables the minority interest to sell their 15% share of Pearson South Africa to Pearson from 1 January 2012 at a price determined by the future performance of that business.


25.	Retirement benefit and other post-retirement obligations

Background

The Group operates a number of defined benefit and defined contribution retirement plans throughout the world. For the defined benefit plans, benefits are based on employees’ length of service and final pensionable pay. Defined contribution benefits are based on the amount of contributions paid in respect of an individual member, the investment returns earned and the amount of pension this money will buy when a member retires.

The largest plan is the Pearson Group Pension Plan (‘UK Group plan’) with both defined benefit and defined contribution sections. From 1 November 2006, all sections of the UK Group plan were closed to new members with the exception of a defined contribution section that was opened in 2003. This section is available to all new employees of participating companies. The other major defined benefit plans are based in the US.

Other defined contribution plans are operated principally overseas with the largest plan being in the US. The specific features of these plans vary in accordance with the regulations of the country in which employees are located.

Pearson also has several post-retirement medical benefit plans (PRMBs), principally in the US. PRMBs are unfunded but are accounted for and valued similarly to defined benefit pension plans.

Assumptions

The principal assumptions used for the UK Group plan and the US PRMB are shown below. Weighted average assumptions have been shown for the other plans, which primarily relate to US pension plans.


	2009						2008						2007
	UK Group		Other				UK Group		Other				UK Group		Other
	plan		plans		PRMB		plan		plans		PRMB		plan		plans		PRMB

%
Inflation		3.50		2.50		2.50		2.80		2.80		2.80		3.30		2.93		3.00
Rate used to discount plan liabilities		5.70		5.25		5.50		6.40		6.25		6.25		5.80		6.01		6.05
Expected return on assets		6.03		6.75		—		6.33		7.60		—		6.50		7.27		—
Expected rate of increase in salaries		5.00		4.00		—		4.30		4.50		—		5.00		4.36		—
Expected rate of increase for pensions in payment and deferred pensions		2.60 to 4.40		—		—		2.30 to 4.20		—		—		2.50 to 4.30		—		—
Initial rate of increase in healthcare rate		—		—		8.50		—		—		9.00		—		—		9.50
Ultimate rate of increase in healthcare rate		—		—		5.00		—		—		5.00		—		—		5.00

F-53

Notes to the Consolidated Financial Statements (Continued)

The UK discount rate is based on the annualised yield on the iBoxx over 15-year AA-rated corporate bond index, adjusted to reflect the duration of our liabilities. The US discount rate is set by reference to a US bond portfolio matching model. The expected return on assets is based on market expectations of long-term asset returns for the defined portfolio at the end of the year.

The expected rates of return on categories of plan assets are determined by reference to relevant indices. The overall expected rate of return is calculated by weighting the individual rates in accordance with the anticipated balance in the plan’s investment portfolio.

The expected rate of increase in salaries has been set at 5.0% for 2009 with a short-term assumption of 3.0% for three years.

In 2008 the UK mortality assumptions were derived by adjusting standard mortality tables (PMFA 92 tables projected forward with medium cohort improvement factors). In 2009 the Group changed its mortality assumptions in the UK. The mortality base table assumptions have been derived from the SAPS ‘all pensioners’ tables for males and the SAPS ‘normal health pensioners’ tables for females, adjusted to reflect the observed experience of the plan, with medium cohort improvement factors. In 2008 a 1% improvement floor on the medium cohort was applied. In 2009 this was changed to 1.5% for males and 1.25% for females, with tapering.

For the US plans, the assumptions used were based on standard US mortality tables. In 2008 a switch from GAM94 to RP2000 was made, to reflect the mortality assumption now more prevalent in the US.

Using the above tables, the remaining average life expectancy in years of a pensioner retiring at age 65 on the balance sheet date for the UK and US Group plans is as follows:

2009

2008

2009

2008

Male

22.7

21.5

17.6

17.6

Female

23.5

21.8

20.2

20.2

The remaining average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet date, for the UK and US Group plans is as follows:

2009

2008

2009

2008

Male

25.3

23.3

17.6

17.6

Female

25.6

23.8

20.2

20.2

F-54

Notes to the Consolidated Financial Statements (Continued)

Financial statement information

The amounts recognised in the income statement are as follows:


	2009
				Defined
	UK Group			benefit						Defined
	plan			other			Sub-total			contribution		PRMB		Total
	All figures in £ millions

Current service cost		14			3			17			62		2		81
Past service cost		—			1			1			—		—		1

Total operating expense		14			4			18			62		2		82

Expected return on plan assets		(83	)		(5	)		(88	)		—		—		(88	)
Interest on plan liabilities		89			8			97			—		3		100
Net finance expense		6			3			9			—		3		12

Net income statement charge		20			7			27			62		5		94

Actual return on plan assets		136			8			144			—		—		144


	2008
				Defined
	UK Group			benefit						Defined
	plan			other			Sub-total			contribution		PRMB		Total
	All figures in £ millions

Current service cost		33			3			36			41		1		78
Past service cost		—			1			1			—		5		6

Total operating expense		33			4			37			41		6		84

Expected return on plan assets		(104	)		(7	)		(111	)		—		—		(111	)
Interest on plan liabilities		93			7			100			—		3		103
Net finance (income)/expense		(11	)		—			(11	)		—		3		(8	)

Net income statement charge		22			4			26			41		9		76

Actual loss on plan assets		(130	)		(27	)		(157	)		—		—		(157	)


	2007
				Defined
	UK Group			benefit						Defined
	plan			other			Sub-total			contribution		PRMB		Total
	All figures in £ millions

Current service cost		29			2			31			39		1		71

Total operating expense		29			2			31			39		1		71

Expected return on plan assets		(96	)		(7	)		(103	)		—		—		(103	)
Interest on plan liabilities		84			7			91			—		2		93
Net finance (income)/expense		(12	)		—			(12	)		—		2		(10	)

Net income statement charge		17			2			19			39		3		61

Actual (loss)/return on plan assets		128			4			132			—		—		132

F-55

Notes to the Consolidated Financial Statements (Continued)

The total operating charge is included in administrative and other expenses. In 2008 the UK Group plan current service cost included £14m (2007: £10m) relating to defined contribution sections. In 2009 the defined contribution section of the UK Group plan is recorded within the defined contribution expense.

The amounts recognised in the balance sheet are as follows:


	2009												2008
				Other			Other									Other			Other
	UK Group			funded			unfunded						UK Group			funded			unfunded
	plan			plans			plans			Total			plan			plans			plans			Total
	All figures in £ millions

Fair value of plan assets		1,609			118			—			1,727			1,478			100			—			1,578
Present value of defined benefit obligation		(1,798	)		(151	)		(18	)		(1,967	)		(1,429	)		(149	)		(16	)		(1,594	)

Net pension (liability)/asset		(189	)		(33	)		(18	)		(240	)		49			(49	)		(16	)		(16	)

Other post-retirement medical benefit obligation											(65	)											(68	)
Other pension accruals											(34	)											(34	)
Net retirement benefit obligations											(339	)											(118	)

Analysed as:
Retirement benefit assets											—												49

Retirement benefit obligations											(339	)											(167	)

The following (losses)/gains have been recognised in other comprehensive income:


	2009			2008			2007
	All figures in £ millions

Amounts recognised for defined benefit plans		(295	)		(74	)		79
Amounts recognised for post-retirement medical benefit plans		(4	)		3			1

Total recognised in year		(299	)		(71	)		80

Cumulative amounts recognised		(246	)		53			124

The fair value of plan assets comprises the following:

2009

2008

Other

UK Group

funded

UK Group

funded

plan

plans

Total

plan

plans

Total

Equities

27.4

2.4

29.8

28.0

3.1

31.1

Bonds

47.2

2.1

49.3

40.8

2.2

43.0

Properties

9.4

0.0

9.4

7.4

0.1

7.5

Other

10.4

1.1

11.5

17.5

0.9

18.4

The plan assets do not include any of the Group’s own financial instruments, or any property occupied by the Group.

F-56

Notes to the Consolidated Financial Statements (Continued)

Changes in the values of plan assets and liabilities of the retirement benefit plans are as follows:


	2009									2008
	UK Group			Other						UK Group			Other
	plan			plans			Total			plan			plans			Total
	All figures in £ millions

Fair value of plan assets
Opening fair value of plan assets		1,478			100			1,578			1,744			109			1,853
Exchange differences		—			(6	)		(6	)		—			23			23
Expected return on plan assets		83			5			88			104			7			111
Actuarial gains and (losses)		53			3			56			(234	)		(34	)		(268	)
Contributions by employer		64			26			90			54			3			57
Contributions by employee		3			—			3			9			—			9
Benefits paid		(72	)		(10	)		(82	)		(72	)		(8	)		(80	)
Other movements		—			—			—			(127	)		—			(127	)

Closing fair value of plan assets		1,609			118			1,727			1,478			100			1,578

Present value of defined benefit obligation
Opening defined benefit obligation		(1,429	)		(165	)		(1,594	)		(1,682	)		(129	)		(1,811	)
Exchange differences		—			14			14			—			(38	)		(38	)
Current service cost		(14	)		(3	)		(17	)		(33	)		(3	)		(36	)
Past service cost		—			(1	)		(1	)		—			(1	)		(1	)
Interest cost		(89	)		(8	)		(97	)		(93	)		(7	)		(100	)
Actuarial gains and (losses)		(335	)		(16	)		(351	)		189			5			194
Contributions by employee		(3	)		—			(3	)		(9	)		—			(9	)
Benefits paid		72			10			82			72			8			80
Other movements		—			—			—			127			—			127

Closing defined benefit obligation		(1,798	)		(169	)		(1,967	)		(1,429	)		(165	)		(1,594	)

During 2008 changes made to the administration of the plan assets enabled assets relating to the defined contribution sections of the UK Group plan to be identified separately from those of the defined benefit section, for accounting purposes. Defined contribution assets are no longer disclosed as part of the UK Group plan assets. The other movements in both the change in value of plan assets and liabilities in 2008 represent the separation out of these defined contribution assets.

Changes in the value of the US PRMB are as follows:


	2009			2008
	All figures in £ millions

Opening defined benefit obligation		(68	)		(47	)
Exchange differences		8			(19	)
Current service cost		(2	)		(1	)
Past service cost		—			(5	)
Interest cost		(3	)		(3	)
Actuarial gains and (losses)		(4	)		3
Benefits paid		4			4

Closing defined benefit obligation		(65	)		(68	)

F-57

Notes to the Consolidated Financial Statements (Continued)

The history of the defined benefit plans is as follows:


	2009			2008			2007			2006			2005
	All figures in £ millions

Fair value of plan assets		1,727			1,578			1,853			1,633			1,500
Present value of defined benefit obligation		(1,967	)		(1,594	)		(1,811	)		(1,810	)		(1,803	)

Net pension (liability)/asset		(240	)		(16	)		42			(177	)		(303	)

Experience adjustments on plan assets		56			(268	)		29			74			140
Experience adjustments on plan liabilities		(351	)		194			50			28			(119	)

Funding

The UK Group plan is self-administered with the plan’s assets being held independently of the Group. The trustees of the plan are required to act in the best interest of the plan’s beneficiaries. The plan trustees and the company are currently finalising the latest triennial valuation for funding purposes as at 1 January 2009. At this point, the Group has contributed an additional £20m to the plan in 2009. In total the Group contributed £42m (2008: £21m) towards the funding shortfall and expects to contribute a similar amount in 2010. Regular contributions to the plan are estimated to be £23m for 2010.

The Group expects to contribute $83m in 2010 and $126m in 2011 to its US pension plans.

Sensitivities

The net retirement benefit obligations are calculated using a number of assumptions, the most significant being the discount rate used to calculate the defined benefit obligation. The effect of a one percentage point increase and decrease in the discount rate on the defined benefit obligation and the total pension expense is as follows:


	2009
	1% increase			1% decrease
	All figures in £ millions

Effect on:
(Decrease)/increase in defined benefit obligation — UK Group plan		(260.2	)		325.4
(Decrease)/increase of aggregate of service cost and interest cost — UK Group plan		(4.5	)		3.9
(Decrease)/increase in defined benefit obligation — US plan		(12.4	)		14.7

The effect of members living one year more or one year less on the defined benefit obligation and the total pension expense is as follows:


	2009
	1 year increase		1 year decrease
	All figures in £ millions

Effect on:
Increase/(decrease) in defined benefit obligation — UK Group plan		50.7		(49.3	)
Increase/(decrease) in defined benefit obligation — US plan		1.3		(1.7	)

The effect of a one percentage point increase and decrease in the assumed medical cost trend rates is as follows:


	2009
	1% increase		1% decrease
	All figures in £ millions

Effect on:
Increase/(decrease) in post-retirement medical benefit obligation		3.1		(2.7	)
Increase/(decrease) of aggregate of service cost and interest cost		0.2		(0.2	)

F-58

Notes to the Consolidated Financial Statements (Continued)


26.	Share-based payments

The Group recognised the following charges in the income statement in respect of its equity-settled share-based payment plans:


	2009		2008		2007
	All figures in £ millions

Pearson plans		27		25		23
Interactive Data plans		10		8		7

Total share-based payment costs		37		33		30

The Group operates the following equity-settled employee option and share plans:

Worldwide Save for Shares Plan — Since 1994, the Group has operated a Save-As-You-Earn plan for UK employees. In 1998, the Group introduced a Worldwide Save for Shares Plan. Under these plans, employees can save a portion of their monthly salary over periods of three, five or seven years. At the end of this period, the employee has the option to purchase ordinary shares with the accumulated funds at a purchase price equal to 80% of the market price prevailing at the time of the commencement of the employee’s participation in the plan. Options that are not exercised within six months of the end of the savings period lapse unconditionally.

Employee Stock Purchase Plan — In 2000, the Group established an Employee Stock Purchase Plan which allows all employees in the US to save a portion of their monthly salary over six month periods. At the end of the period, the employee has the option to purchase ADRs with their accumulated funds at a purchase price equal to 85% of the lower of the market price prevailing at the beginning or end of the period.

Long-Term Incentive Plan — This plan was introduced in 2001 and renewed in 2006 and consists of two parts: share options and/or restricted shares.

Options were last granted under this plan in 2001 based on a pre-grant earnings per share growth test and are not subject to further performance conditions on exercise. The options became exercisable in tranches and lapse if they remain unexercised at the tenth anniversary of the date of grant.

The vesting of restricted shares is normally dependent on continuing service over a three to five-year period, and in the case of senior management upon the satisfaction of corporate performance targets over a three-year period. These targets may be based on market and/or non-market performance criteria. Restricted shares awarded to senior management in March 2008 and March 2009 vest dependent on relative shareholder return, return on invested capital and earnings per share growth. The award was split equally across all three measures. Other restricted shares awarded in 2008 and 2009 vest depending on continuing service over a three-year period.

Annual Bonus Share Matching Plan — This plan permits executive directors and senior executives around the Group to invest up to 50% of any after tax annual bonus in Pearson shares. If these shares are held and the Group meets an earnings per share growth target, the company will match them on a gross basis i.e. the maximum number of matching shares is equal to the number of shares that could have been acquired with the amount of the pre-tax annual bonus taken in invested shares.

In addition to the above, share options remain outstanding under Executive Share Option, Reward and Special Share Option Plans. These are legacy plans which were replaced with the introduction of the Long-Term Incentive Plan in 2001.

F-59

Notes to the Consolidated Financial Statements (Continued)

The number and weighted average exercise prices of share options granted under the Group’s plans are as follows:

2009

2008

Weighted

Number of

average

Number of

average

share

exercise

share

exercise

options

price

options

price

000s

Outstanding at beginning of year

14,379

13.14

16,781

13.15

Granted during the year

1,320

5.47

1,437

5.35

Exercised during the year

(656

)

5.91

(683

)

4.85

Forfeited during the year

(2,488

)

13.02

(3,082

)

11.56

Expired during the year

(68

)

5.20

(74

)

6.06

Outstanding at end of year

12,487

12.78

14,379

13.14

Options exercisable at end of year

9,264

15.28

11,527

14.97

Options were exercised regularly throughout the year. The weighted average share price during the year was £7.15 (2008: £6.44). Early exercises arising from redundancy, retirement or death are treated as an acceleration of vesting and the Group therefore recognises in the income statement the amount that otherwise would have been recognised for services received over the remainder of the original vesting period.

The options outstanding at the end of the year have weighted average remaining contractual lives and exercise prices as follows:

2009

2008

Weighted

Number of

average

Number of

average

share

contractual

share

contractual

Range of exercise prices

options

life

options

life

000s

Years

000s

Years

0 — 5

172

1.07

453

1.23

5 — 10

5,523

2.37

5,113

2.84

10 — 15

4,225

1.36

5,481

1.97

15 — 20

270

0.75

908

0.84

20 — 25

344

0.19

350

1.19

>25

1,953

0.19

2,074

1.19

12,487

1.57

14,379

2.05

In 2009 and 2008 options were granted under the Worldwide Save for Shares Plan. The weighted average estimated fair value for the options granted was calculated using a Black-Scholes option pricing model.

F-60

Notes to the Consolidated Financial Statements (Continued)

The weighted average estimated fair values and the inputs into the Black-Scholes model are as follows:


	2009			2008
	Weighted			Weighted
	average			average

Fair value		£1.69			£1.67
Weighted average share price		£7.13			£6.96
Weighted average exercise price		£5.47			£5.35
Expected volatility		27.32	%		21.41	%
Expected life		4.0 years			4.1 years
Risk free rate		2.45	%		4.28	%
Expected dividend yield		4.74	%		4.54	%
Forfeiture rate		3.5	%		3.6	%

The expected volatility is based on the historic volatility of the company’s share price over the previous three to seven years depending on the vesting term of the options.

The following shares were granted under restricted share arrangements:

2009

2008

Weighted

Number of

average

Number of

average

shares

fair value

shares

fair value

000s

Long-Term Incentive Plan

4,519

5.77

4,152

5.78

Annual Bonus Share Matching Plan

271

6.70

253

6.73

The fair value of shares granted under the Long-Term Incentive Plan that vest unconditionally is determined using the share price at the date of grant. Participants of the Long-Term Incentive Plan are entitled to dividends during the vesting period. The number of shares to vest has been adjusted, based on historical experience, to account for any potential forfeitures. Restricted shares granted under the Annual Bonus Share Matching Plan are valued using the share price at the date of grant. Shares granted include the entitlement to dividends during the vesting period and therefore the share price is not discounted.

Restricted shares with a market performance condition were valued by an independent actuary using a Monte Carlo model. Restricted shares with a non-market performance condition were fair valued based on the share price at the date of grant. Non-market performance conditions were considered by adjusting the number of shares expected to vest based on the most likely outcome of the relevant performance criteria.

Subsidiary share option plans

Interactive Data, a 61% subsidiary of the Group, operates the following share-based payment plans:

2001 Employee Stock Purchase Plan

The 2001 Employee Stock Purchase Plan allows all eligible employees worldwide to purchase stock at a discounted price at specific times.

2000 Long-Term Incentive Plan

Under this plan, the Compensation Committee of the Board of Directors can grant share-based awards representing up to 20% of the total number of shares of common stock outstanding at the date of grant. The plan provides for the discretionary issuance of share-based awards to directors, officers and employees of Interactive Data, as well as persons who provide consulting or other services to Interactive Data. The exercise price for all options granted to date has been equal to the market price of the underlying shares at the date of

F-61

Notes to the Consolidated Financial Statements (Continued)

grant. Options expire ten years from the date of grant and generally vest over a three to four-year period without any performance criteria attached.

In addition, grants of restricted stock can be made to certain executives and members of the Board of Directors of Interactive Data. The awarded shares are available for distribution, at no cost, at the end of a three-year vesting period. No performance criteria are attached to shares granted under this plan.

Interactive Data employees purchased 234,956 shares (2008: 183,318) under the 2001 Employee Stock Purchase Plan at an average share price of $19.47 (£12.06) (2008: $22.95; £15.96). The weighted average fair value at the date of grant was $5.82 (£3.60) (2008: $6.59; £4.58).

The number and weighted average exercise prices of share options granted under the 2000 Long-Term Incentive Plan are as follows:

2009

2008

Weighted

Number

average

Number

average

of share

exercise

of share

exercise

options

price

options

price

000s

Outstanding at beginning of year

10,264

19.38

13.48

9,827

18.21

9.15

Granted during the year

1,224

23.25

14.40

1,449

24.95

17.35

Exercised during the year

(1,493

)

14.20

8.79

(895

)

15.37

10.69

Forfeited during the year

(159

)

24.44

15.13

(99

)

22.05

15.34

Expired during the year

(64

)

25.93

16.06

(18

)

12.17

8.46

Outstanding at end of year

9,772

20.53

12.71

10,264

19.38

13.48

Options exercisable at end of year

6,839

18.92

11.72

6,865

16.89

11.75

The options outstanding at the end of the year have a weighted average remaining contractual life and exercise price as follows:

2009

2008

Weighted

Number

average

Number

average

of share

contractual

of share

contractual

Range of exercise prices

options

life

options

life

000s

Years

000s

Years

0 — 4.4

—

4.4 — 7.5

0.3

1.3

7.5 — 12

909

1.5

1,502

2.4

12 — 20

2,339

3.6

2,987

4.6

> 20

6,504

7.5

5,728

8.0

9,772

6.0

10,264

6.2

F-62

Notes to the Consolidated Financial Statements (Continued)

The fair value of the options granted under the 2000 Long-Term Incentive Plan and of the shares awarded under the 2001 Employee Stock Purchase Plan was estimated using a Black-Scholes option pricing model. The weighted average estimated fair values and the inputs into the Black-Scholes model are as follows:

Long-Term Incentive Plan

Employee Stock Purchase Plan

2009

2008

2009

2008

Weighted

average

Fair value

$4.92

$5.58

$5.82

$6.59

Weighted average share price

$23.25

$24.95

$19.47

$22.95

Weighted average exercise price

$23.25

$24.95

$19.47

$22.95

Expected volatility

29.70

24.20

48.40

33.70

Expected life

5.9 years

5.7 years

0.5 years

0.5 years

Risk free rate

2.4% to 2.6%

1.5% to 3.5%

0.3% to 0.4%

2.0% to 2.4%

Expected dividend yield

3.6

2.2

3.6

2.1

Forfeiture rate

0.0

0.0

0.0

0.0

The expected volatility is based on the historic volatility of Interactive Data’s share price over the vesting term of the options.

During the year Interactive Data granted the following shares under restricted share arrangements:

2009

2008

Weighted

Number of

average

Number of

average

shares

fair value

shares

fair value

000s

2000 Long-Term Incentive Plan

415

22.92

14.19

194

25.43

17.69

Shares awarded under the 2000 Long-Term Incentive Plan were valued based on the share price prevailing at the date of grant.


27.	Share capital and share premium

Number

Ordinary

Share

of shares

shares

premium

000s

£m

At 1 January 2008

808,028

202

2,499

Issue of ordinary shares — share option schemes

1,248

—

At 31 December 2008

809,276

202

2,505

Issue of ordinary shares — share option schemes

1,523

At 31 December 2009

810,799

203

2,512

The ordinary shares have a par value of 25p per share (2008: 25p per share). All issued shares are fully paid. All shares have the same rights.

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.

The capital structure of the Group consists of debt (see note 18), cash and cash equivalents (see note 17) and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings.

The Group reviews its capital structure on a regular basis and will balance its overall capital structure through payments of dividends, new share issues as well as the issue of new debt or the redemption of existing debt in line with the financial risk policies outlined in note 19.

F-63

Notes to the Consolidated Financial Statements (Continued)


28.	Treasury shares


	Pearson plc						Interactive Data				Total
	Number						Number
	of shares						of shares
	000s			£m			000s		£m		£m

At 1 January 2008		11,761			141			7,229		75		216
Purchase of treasury shares		2,028			12			1,976		35		47
Release of treasury shares		(3,341	)		(41	)		—		—		(41	)

At 31 December 2008		10,448			112			9,205		110		222

Purchase of treasury shares		2,200			13			1,280		20		33
Release of treasury shares		(2,983	)		(29	)		—		—		(29	)

At 31 December 2009		9,665			96			10,485		130		226

The Group holds Pearson plc shares in trust to satisfy its obligations under its restricted share plans (see note 26). These shares, representing 1.2% (2008: 1.3%) of called-up share capital, are treated as treasury shares for accounting purposes and have a par value of 25p per share.

Interactive Data hold their own shares in respect of share buy-back programmes. These shares are held as treasury shares and have a par value of $0.01.

The nominal value of Pearson plc treasury shares amounts to £2.4m (2008: £2.6m). The nominal value of Interactive Data treasury shares amounts to £0.07m (2008: £0.06m).

At 31 December 2009 the market value of Pearson plc treasury shares was £86.1m (2008: £67.0m) and the market value of Interactive Data treasury shares was £164.3m (2008: £157.9m).

F-64

Notes to the Consolidated Financial Statements (Continued)


29.	Business combinations

On 15 April 2009 the Group acquired Wall Street English (WSE), China’s leading provider of premium English language training to adults. On 15 July 2009 the Group completed the purchase of an additional stake in Maskew Miller Longman (MML), its South African publishing business. Provisional values for the assets and liabilities arising from these and other acquisitions completed in the year together with adjustments to prior year acquisitions are as follows:


			2009												2008
			Wall Street
			English			MML			Other			Total			Total
	Notes		Fair value			Fair value			Fair value			Fair value			Fair value
	All figures in £ millions

Property, plant and equipment		10		6			1			2			9			6
Intangible assets		11		40			47			55			142			220
Intangible assets — Pre-publication		20		—			—			2			2			27
Inventories				1			12			1			14			7
Trade and other receivables				8			7			8			23			54
Cash and cash equivalents				3			9			17			29			16
Trade and other liabilities				(56	)		(16	)		(19	)		(91	)		(52	)
Current income tax liabilities				—			(2	)		(2	)		(4	)		(3	)
Net deferred income tax liabilities		13		(9	)		(12	)		(24	)		(45	)		(4	)
Provisions for other liabilities and charges				—			—			—			—			(26	)
Retirement benefit obligations				—			—			(1	)		(1	)		—
Minority interest				—			(7	)		(9	)		(16	)		(2	)
Assets held for sale				—			—			—			—			3

Net assets/(liabilities) acquired at fair value				(7	)		39			30			62			246

Goodwill		11		108			38			59			205			153

Increase in fair values of proportionate holding arising on stepped acquisition				—			(23	)		—			(23	)		—

Total				101			54			89			244			399

Satisfied by:
Cash				(101	)		(49	)		(51	)		(201	)		(394	)
Other consideration				—			(5	)		—			(5	)		—
Deferred consideration				—			—			(27	)		(27	)		—
Net prior year adjustments				—			—			(11	)		(11	)		(5	)

Total consideration				(101	)		(54	)		(89	)		(244	)		(399	)

Carrying value of net (liabilities)/assets acquired				(22	)		5			2			(15	)		78
Fair value adjustments				15			34			28			77			168

Fair value				(7	)		39			30			62			246

F-65

Notes to the Consolidated Financial Statements (Continued)

The goodwill arising on these acquisitions results from substantial cost and revenue synergies and from benefits that cannot be separately recognised, such as the assembled workforce.


	Wall Street English
	Carrying			Fair value
	value			adjustments			Fair value
	All figures in £ millions

Property, plant and equipment		6			—			6
Intangible assets		16			24			40
Inventories		1			—			1
Trade and other receivables		8			—			8
Cash and cash equivalents		3			—			3
Trade and other liabilities		(56	)		—			(56	)
Net deferred income tax liabilities		—			(9	)		(9	)

Net liabilities acquired		(22	)		15			(7	)

Goodwill								108

Total								101


	MML
	Carrying			Fair value
	value			adjustments			Fair value
	All figures in £ millions

Property, plant and equipment		1			—			1
Intangible assets		—			47			47
Inventories		12			—			12
Trade and other receivables		7			—			7
Cash and cash equivalents		9			—			9
Trade and other liabilities		(16	)		—			(16	)
Current income tax liabilities		(2	)		—			(2	)
Net deferred income tax liabilities		1			(13	)		(12	)
Minority interest		(7	)		—			(7	)

Net assets acquired		5			34			39

Goodwill								38

Increase in fair values of proportionate holding arising on stepped acquisition								(23	)

Total								54

F-66

Notes to the Consolidated Financial Statements (Continued)

Net cash outflow on acquisition:


	2009			2008			2007
	All figures in £ millions

Cash — Current year acquisitions		(201	)		(394	)		(468	)
Cash — Acquisitions yet to complete		(4	)		(12	)		—
Deferred payments for prior year acquisitions and other items		(32	)		(5	)		(4	)
Cash and cash equivalents acquired		29			16			—

Cash outflow on acquisition		(208	)		(395	)		(472	)

Wall Street English contributed £29m of sales and £nil to the Group’s profit before tax between the date of acquisition and the balance sheet date. MML contributed £22m of sales and £4m to the Group’s profit before tax between the date of acquisition and the balance sheet date. Other businesses acquired contributed £37m to the Group’s sales and £6m to the Group’s profit before tax between the date of acquisition and the balance sheet date.

If the acquisitions had been completed on 1 January 2009, the Group estimates that sales for the period would have been £5,658m and profit before tax would have been £662m.


30.	Disposals


	2009		2008			2007
	Total		Total			Total
	All figures in £ millions

Disposal of subsidiaries
Property, plant and equipment		—		(7	)		(16	)
Intangible assets		—		(1	)		(6	)
Intangible assets — Pre-publication		—		(2	)		—
Inventories		—		(7	)		(1	)
Trade and other receivables		—		(8	)		(95	)
Cash and cash equivalents		—		—			(14	)
Net deferred income tax liabilities		—		—			2
Trade and other liabilities		—		9			71
Retirement benefit obligations		—		—			3
Provisions for other liabilities and charges		—		—			1
Minority interest		—		—			—
Attributable goodwill		—		(99	)		(242	)
Cumulative translation adjustment		—		(49	)		(53	)

Net assets disposed		—		(164	)		(350	)

Cash received		—		114			481
Deferred receipts		—		2			—
Other proceeds received		—		—			35
Costs		—		(5	)		(20	)

(Loss)/profit on sale		—		(53	)		146

F-67

Notes to the Consolidated Financial Statements (Continued)


	2009		2008			2007

Cash flow from disposals
Cash — Current year disposals		—		114			481
Cash — Transactions with minorities		14		12			14
Cash and Cash equivalents disposed		—		—			(14	)
Costs paid		—		(15	)		(12	)

Net cash inflow		14		111			469

Further details of the Data Management business disposal in 2008 are shown in note 3.


31.	Cash generated from operations


	Notes		2009			2008			2007
			All figures in £ millions

Net profit				462			323			310
Adjustments for:
Income tax				198			209			222
Depreciation		10		85			80			68
Amortisation of purchased intangible assets		11		103			86			45
Amortisation of other intangible assets		11		44			30			25
Loss on sale of property, plant and equipment				2			1			1
Net finance costs		6		95			91			106
Share of results of joint ventures and associates		12		(30	)		(25	)		(23	)
Loss/(profit) on sale of discontinued operations		3		—			53			(146	)
Goodwill impairment of discontinued operation				—			—			97
Net foreign exchange adjustment from transactions				(14	)		105			11
Share-based payment costs		26		37			33			30
Pre-publication				(16	)		(58	)		(38	)
Inventories				32			(12	)		(1	)
Trade and other receivables				(14	)		(81	)		(5	)
Trade and other liabilities				103			82			80
Retirement benefit obligations				(72	)		(14	)		(126	)
Provisions for other liabilities and charges				(3	)		(9	)		3

Net cash generated from operations				1,012			894			659

Net cash generated from operations is translated at an exchange rate approximating to the rate at the date of cash flow. The difference between this rate and the average rate used to translate profit gives rise to a currency adjustment in the reconciliation between net profit and net cash generated from operations. This adjustment reflects the timing difference between recognition of profit and the related cash receipts or payments.

Included in net cash generated from operations is an amount of £nil (2008: £nil; 2007; £7m) relating to discontinued operations.

F-68

Notes to the Consolidated Financial Statements (Continued)

In the cash flow statement, proceeds from sale of property, plant and equipment comprise:


	2009			2008			2007
	All figures in £ millions

Net book amount		3			3			15
Loss on sale of property, plant and equipment		(2	)		(1	)		(1	)

Proceeds from sale of property, plant and equipment		1			2			14

The principal other non-cash transactions are movements in finance lease obligations of £8m (2008: £2m; 2007 £4m).


32.	Contingencies

There are contingent Group liabilities that arise in the normal course of business in respect of indemnities, warranties and guarantees in relation to former subsidiaries and in respect of guarantees in relation to subsidiaries and associates. In addition there are contingent liabilities of the Group in respect of legal claims. None of these claims are expected to result in a material gain or loss to the Group.


33.	Commitments

There were no commitments for capital expenditure contracted for at the balance sheet date but not yet incurred.

The Group leases various offices and warehouses under non-cancellable operating lease agreements. The leases have varying terms and renewal rights. The Group also leases various plant and equipment under operating lease agreements, also with varying terms. The lease expenditure charged to the income statement during the year is disclosed in note 4.

The future aggregate minimum lease payments in respect of operating leases are as follows:


	2009		2008
	All figures in £ millions

Not later than one year		153		149
Later than one year and not later than two years		144		138
Later than two years and not later than three years		129		129
Later than three years and not later than four years		114		118
Later than four years and not later than five years		99		108
Later than five years		848		970

		1,487		1,612


34.	Related party transactions

Joint ventures and associates — Amounts advanced to joint ventures and associates during the year and at the balance sheet date are set out in note 12. Amounts falling due from joint ventures and associates are set out in note 22.

Key management personnel — Key management personnel are deemed to be the members of the board of directors of Pearson plc. It is this board which has responsibility for planning, directing and controlling the activities of the Group. Key management personnel compensation is disclosed in the directors’ remuneration report.

There were no other material related party transactions.

No guarantees have been provided to related parties.

F-69


35.	Events after the balance sheet date

On 3 February 2010 the FT Publishing business announced the acquisition of Medley Global Advisors LLC, a premier provider of macro policy intelligence to the world’s top investment banks, hedge funds and asset managers for $15.5m.

SIGNATURES

The registrant hereby certifies that it meets the requirements for filing on Form 20-F and that it has caused and authorized the undersigned to sign this annual report on its behalf.

Pearson plc

/s/ Robin Freestone

Robin Freestone

Chief Financial Officer

Date: March 31, 2009

F-70

Exhibit 1.1

We, the several persons whose names and addresses are subscribed, are desirous of being formed into a company in pursuance of this Memorandum of Association, and we respectively agree to take the number of shares in the capital of the Company set opposite our respective names.


		Number of Preference Shares
Names, addresses and descriptions of subscribers		taken by each Subscriber

Weetman Dickinson Pearson,		One
Baronet, MP
10 Victoria Street,
Westminster, SW, and

Paddockhurst,
Worth,
Sussex

Annie Pearson,		One
Paddockhurst,
Worth,
Sussex

Wife of Sir Weetman D. Pearson, Bart., MP

George Pearson Esq,		One
Brickendonbury,
Hertford

Sam Wright,		One
10 Piccadilly,
Bradford

Solicitor

Bernard Croft Cass,		One
Maylands,
Bradford

Civil Engineer

Ernest William Moir,		One
23 Shooters Hill Road,
Blackheath

Civil Engineer

Samuel Robinson,		One
46 Ryde Vale Road,
Balham,
SW

Accountant

Dated the 11th day of August 1897

Witness to the above signature of George Pearson,

F.G.W. Pearson,
Brickendonbury,
Hertford.

Gentleman.

Witness to the above signatures of Sir Weetman Dickinson Pearson, Lady Annie Pearson, Samuel Wright, Bernard Croft Cass, Ernest William Moir and Samuel Robinson,

William Edward Sayer,
10 Victoria Street,
SW.

Clerk.

Page 2

PEARSON plc¹

MEMORANDUM OF ASSOCIATION

Incorporating amendments made up to and including
1 October 2009


¹		Name changed to Pearson plc on 1 June 1984



THE COMPANIES ACTS		PUBLIC COMPANY LIMITED BY SHARES
1985 TO 2006

ARTICLES OF ASSOCIATION

PEARSON PLC

Adopted by special resolution passed on 2 May 1986 and amended by special resolutions passed on 11 May 1990, 10 May 1991, 3 May 1996 and 25 April 2008 and 1 May 2009.

Preliminary

1. The regulations in Table A in the First Schedule to the Companies Act 1862 shall not apply to the Company.

2. In these Articles, if not inconsistent with the context, the words standing in the first column of the table next hereinafter contained shall bear the meanings set opposite to them respectively in the second column thereof.

Meanings


*Address:*		Includes a number or address used for the purposes of sending or receiving documents by electronic means.

*certificated share:*		A share in the capital of the Company that is not an uncertificated share and references in these Articles to a share being held in certificated form shall be construed accordingly.

*Chairman:*		The Chairman of the Board.

*clear days:*		In relation to the sending of a notice, means the period excluding the day on which a notice is given or deemed to be given and the day for which it is given or on which it is to take effect.

*CREST:*		The relevant system, as defined in the Regulations, in respect of which CRESTCo is the Operator.

*Deputy Chairman:*		The Deputy Chairman of the Board.

*Dividend:*		Includes bonus.

electronic copy, electronic form or electronic means		Have the meanings given to them by section 1168 of the Companies Act 2006.

*hard copy or hard copy form*		Have the meanings given to them by section 1168 of the Companies Act 2006.


*holder(s) or shareholder(s):*		In relation to a share in the capital of the Company means the member whose name is entered in the Register as the holder of that share.

*member:*		Means a member of the Company.

*month:*		Calendar month.

*Operator:*		Has the meaning given by the Regulations.

*Ordinary Share(s):*		Means ordinary shares in the capital of the Company of 25 pence each.

*paid up:*		Includes credited as paid up.

*participating security:*		Has the meaning given by the Regulations.

*Regulations:*		The Uncertificated Securities Regulations 2001 including any modification or re-enactment of them for the time being in force.

*resolution:*		Means a resolution of the members of the Company at a general meeting, unless the context otherwise requires.

*satellite meeting place:*		Subject to the provisions of Article 54.2, any one or more places where a person may attend a general meeting of the Company, other than the place set out in the notice referred to in Article 53.

*share(s):*		Means the Ordinary Share(s), unless the context otherwise requires.

*share warrant:*		A warrant to bearer in respect of shares of the Company issued by the Company.

*Securities Seal:*		An official seal kept by the Company by virtue of Section 40 of the Companies Act 1985.

*The Auditors:*		The auditors for the time being of the Company.

*The Board:*		The Directors or any of them acting as the Board of Directors of the Company.

*The Directors:*		The directors for the time being of the Company.

*The Office*:		The Registered Office of the Company.

*The Register:*		As appropriate, either or both the register of members of the Company and the Operator register of members of the Company.

*The Seal:*		The Common Seal of the Company.

Page 2


*The Statutes:*		The Companies Acts (as defined in Section 2 of the Companies Act 2006).

*The United Kingdom:*		Great Britain and Northern Ireland.

*These Articles:*		These Articles of Association, as originally adopted, as from time to time altered by special resolution.

*Transfer Office*:		The place where the register of members is situated for the time being.

*treasury shares:*		Has the meaning given by the Companies Act 1985, as amended by The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 and The Companies (Acquisition of Own Shares) (Treasury Shares) No 2 Regulations 2003, as if those Regulations were in force at the date of adoption of these Articles.

*uncertificated share:*		Means (subject to Regulation 42(11)(a) of the Regulations) a share in the capital of the Company, title to which is recorded on the Operator register of members of the Company and which may, by virtue of the Regulations, be transferred by means of a relevant system and references in these Articles to a share being held in uncertificated form shall be construed accordingly.

*Year:*		Year from 1 January to 31 December inclusive.

The expressions “debenture” and “debenture holder” shall respectively include “debenture stock” and “debenture stockholder” and the words “shareholder” and “holder” shall, subject as provided in these Articles, and unless the context otherwise requires, include the bearer of any share warrant. The expression “Secretary” shall include a temporary, deputy or assistant Secretary and any person appointed by the Board to perform any of the duties of the Secretary as set out in Articles 121-123.

Where, in relation to a share, these Articles refer to a relevant system, the reference is to the relevant system in which that share is a participating security at the relevant time.

References to a document or information being sent, supplied or given to or by a person mean such document or information, or a copy of such document or information, being sent, supplied, given, delivered, issued or made available to or by, or served on or by, or deposited with or by that person by any method authorised by these Articles, and sending, supplying and giving shall be construed accordingly.

References to writing mean the representation or reproduction of words, symbols or other information in a visible form by any method or combination of methods, whether in electronic form or otherwise, and written shall be construed accordingly.

Words denoting the singular number only shall include the plural number and vice versa.

Words denoting the masculine gender only shall include the feminine gender.

Words denoting persons only shall include corporations.

Page 3

Save as aforesaid any words or expressions defined in the Statutes shall, if not inconsistent with the subject or context, bear the same meaning in these Articles.

3. [Deliberately left blank].

Variation of Rights

4. Subject to the provisions of the Statutes, whenever the capital of the Company is divided into different classes of shares the special rights attached to any class may (unless otherwise provided by the terms of issue of the shares of that class), either:

(a)		with the written consent of the holders of three-fourths of the issued shares of the class (excluding any shares of that class held as treasury shares) which consent shall be in hard copy form or in electronic form sent to such address (if any) for the time being specified by or on behalf of the Company for that purpose, or in default of such specification to the Office, and may consist of several documents each executed or authenticated in such manner as the board may approve by or on behalf of one or more holders, or a combination of both; or

(b)		with the sanction of a special resolution passed at a separate meeting of such holders,

(but not otherwise) be varied or abrogated, and may be so varied or abrogated either whilst the Company is a going concern or during or in contemplation of a winding up.

5. The special rights conferred upon the holders of any shares or class of shares issued with preferred or other special rights shall not, unless otherwise expressly provided by these Articles or the conditions of issue of such shares, be deemed to be modified by:

(a)		the creation or issue of further shares ranking pari passu therewith; or

(b)		the Company permitting, in accordance with the Regulations, the holding of and transfer of title to shares of that or any other class in uncertificated form by means of a relevant system.

Shares

6. Without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, any share may be issued with such preferred, deferred, or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise as the Company may from time to time by ordinary resolution determine.

7.1 The Board has general and unconditional authority to exercise all the powers of the Company to allot relevant securities up to an aggregate nominal amount equal to the section 80 amount, for each prescribed period.

7.2 The Board is empowered for each prescribed period to allot equity securities for cash pursuant to the authority conferred by Article 7.1 as if section 89(1) of the Companies Act 1985 did not apply to any such allotment, provided that its power shall be limited to:

(a)

the allotment of equity securities in connection with a pre-emptive issue; and

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(b)

the allotment (otherwise than pursuant to Article 7.2(a)) of equity securities up to an aggregate nominal amount equal to the section 89 amount.

In this Article and Article 7.3, a reference to the allotment of equity securities also includes the sale of any relevant shares in the Company if, immediately before the sale, the shares were held by the Company as treasury shares. This Article applies in relation to a sale of shares which is an allotment of equity securities by virtue of this paragraph as if in this Article the words “pursuant to the authority conferred by Article 7.1” were omitted.

7.3 Before the expiry of a prescribed period the Company may make an offer or agreement which would or might require equity securities or other relevant securities to be allotted after such expiry. The Board may allot equity securities or other relevant securities in pursuance of that offer or agreement as if the prescribed period during which that offer or agreement was made had not expired.

7.4 In this Article and Articles 7.1, 7.2 and 7.3:

prescribed period means any period for which the authority conferred by Article 7.1 is given by ordinary or special resolution stating the section 80 amount and/or the power conferred by Article 7.2 is given by special resolution stating the section 89 amount;

pre-emptive issue means an offer of equity securities to holders of Ordinary Shares or an invitation to holders of Ordinary Shares to apply to subscribe for equity securities and, if in accordance with their rights the Board so determines, holders of other equity securities of any class (whether by way of rights issue, open offer or otherwise) where the equity securities respectively attributable to the interests of holders of Ordinary Shares or holders of other equity securities, if applicable are proportionate (as nearly as practicable) to the respective numbers of ordinary shares or other equity securities, as the case may be held by them, but subject to such exclusions or other arrangements as the Board may deem necessary or expedient in relation to fractional entitlements or any legal, regulatory or practical problems under the laws or regulations of any territory or the requirements of any regulatory body or stock exchange;

section 80 amount means, for any prescribed period, the amount stated in the relevant ordinary or special resolution; and

section 89 amount means, for any prescribed period, the amount stated in the relevant special resolution.

8. In addition to all other powers of paying commissions, the Company may exercise the powers of paying commissions conferred by the Statutes. Subject to the provisions of the Statutes, such commissions may be satisfied by the payment of cash or the allotment of fully or partly paid shares or partly in one way and partly in another. The Company may also on any issue of shares pay such brokerage as may be lawful.

9. Subject to and in accordance with the provisions of the Statutes and without prejudice to any relevant special rights attached to any class of shares, the Company may purchase any of its own shares of any class (including without limitation redeemable shares) in any way and at any price (whether at par or above or below par) and may hold such shares as treasury shares.

10. Except as required by law no person shall be recognised by the Company as holding any share upon any trust, and the Company shall not be bound by or be compelled in any way to recognise any equitable, contingent, future or partial interest in any share, or any interest in

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any fractional part of a share, or (except only as by these Articles or by law otherwise provided) any other right in respect of any share, except an absolute right to the entirety thereof in the registered holder.

11.1 If at any time the Board is satisfied that any member or other person appearing to be interested in any shares in the capital of the Company has failed within fourteen days to comply with a notice given to that person by the Company pursuant to section 793 of the Companies Act 2006 (or under any other statutory provisions for the time being in force enabling the Company by notice in writing to require any person to give any information regarding those shares) whether or not required to comply by law or has, in purported compliance with such a notice, made a statement which is false in a material particular, then the Board may serve notice in writing on any member holding shares in relation to which the Board has determined or become aware that such a default has occurred. Any such notice (hereinafter referred to as a “Default Notice”) shall specify the nature of the default, the number of shares concerned and the steps to be taken to remedy such default. For the purposes of this Article, a person shall be treated as appearing to be interested in any shares if the member holding such shares has given to the Company a notification under section 793 of the Companies Act 2006 which fails to the satisfaction of the Board to establish the identities of those interested in the shares and if (after taking account of the said notification under the said section 793 and any other relevant information in the possession of the Company) the Company knows or has reasonable cause to believe that the person in question is or may be interested in the shares.

11.2 After the service of a Default Notice or, if later, the time specified therein, until such time as the member or other person on whom the Default Notice was served has complied in full with the notice given pursuant to section 793 of the Companies Act 2006 or any other statutory provision as aforesaid (when the Board shall serve a further notice on the member or other person concerned stating that the default has been remedied), that member shall not be entitled to attend or vote at any general meeting, either personally or by proxy, or at a separate meeting of the holders of a class of shares or on a poll in respect of any share specified in the Default Notice.

11.2A Where the shares represented in the Default Notice represent at least ¹/4 of one per cent. in nominal value of the issued shares of their class, then the Default Notice may additionally direct that in respect of such shares: (i) no payment shall be made by way of dividend (including shares issued in lieu of dividend); and (ii) no transfer shall be registered unless: the member is not himself in default as regards supplying the information requested and the transfer when presented for registration is accompanied by a certificate by the member in such form as the Board may in its absolute discretion require to the effect that after due and careful enquiry the member is satisfied that no person in default as regards supplying such information is interested in any of the shares the subject of the transfer or the transfer is an approved transfer.

11.2B A transfer of shares is an approved transfer if:

(a)		it is a transfer of shares pursuant to acceptance of a takeover offer (within the meaning of section 974 of the Companies Act 2006);

(b)		the Board is satisfied that the transfer is made pursuant to a sale of the whole of the beneficial ownership of the shares the subject of the transfer to a party unconnected with the member and with any other person appearing to be interested in the shares; or

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(c)

the transfer results from a sale made through a recognised investment exchange as defined in the Financial Services and Markets Act 2000 or any other stock exchange outside the United Kingdom on which the Company’s shares are normally traded.

11.3 The Board shall cause to be noted in the Register against the member upon whom a Default Notice has been served, details of the Default Notice and the number of shares specified therein and shall cause a further note to be entered in the Register recording that the default complained of has been remedied upon service of any further notice under Article 11.2.

11.4 Any notice served by the Board pursuant to this Article shall be conclusive against the member concerned and its validity shall not be questioned by any person.

Uncertificated Shares

11.5 Subject to the provisions of the Regulations, the Board may permit the holding of shares in any class of shares in uncertificated form and the transfer of title to shares in that class by means of a relevant system and may determine that any class of shares shall cease to be a participating security.

11.6 Shares in the capital of the Company that fall within a certain class shall not form a separate class of shares from other shares in that class because any share in that class:

(a)		is held in uncertificated form; or

(b)		is permitted in accordance with the Regulations to become a participating security.

11.7 Where any class of shares is a participating security and the Company is entitled under any provision of the Statutes, the Regulations or these Articles to sell, transfer or otherwise dispose of, forfeit, re-allot, accept the surrender of or otherwise enforce a lien over a share held in uncertificated form, the Company shall be entitled, subject to the provisions of the Statutes, the Regulations, these Articles and the facilities and requirements of the relevant system:

(a)		to require the holder of that uncertificated share by notice to change that share into certificated form within the period specified in the notice and to hold that share in certificated form so long as required by the Company;

(b)		to require the holder of that uncertificated share by notice to give any instructions necessary to transfer title to that share by means of the relevant system within the period specified in the notice;

(c)		to require the holder of that uncertificated share by notice to appoint any person to take any step, including without limitation the giving of any instructions by means of the relevant system, necessary to transfer that share within the period specified in the notice;

(d)		to require the Operator to convert that uncertificated share into certificated form in accordance with Regulation 32(2)(c) of the Regulations; and

(e)		to take any action that the Board considers appropriate to achieve the sale, transfer, disposal, forfeiture, re-allotment or surrender of that share or otherwise to enforce a lien in respect of that share.

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Certificates

12.1 Every person whose name is entered as a member in the Register (except a stock exchange nominee in respect of whom the Company is not by law required to complete and have ready for delivery a certificate) shall be entitled without payment to one certificate in respect of each class of shares held by him, or, with the consent of the Board and upon payment of such sum (if any) for every certificate after the first as the Board shall determine, to several certificates, each for one or more of his shares except that shares of different classes may not be included in the same certificate. Where a member has transferred a part of the shares comprised in his holding he shall be entitled to a certificate for the balance without charge.

12.2 Every certificate shall be under the Seal or under the official seal kept by the Company by virtue of the Statutes and shall specify the shares to which it relates and the amount paid up thereon. In the case of a share held jointly by several persons, the Company shall not be bound to issue more than one certificate for each class of shares so held, and delivery of a certificate for a share to one of several joint holders shall be deemed sufficient delivery to all.

13. If a share certificate is worn out, defaced, lost or destroyed it may be renewed without charge on such terms (if any) as to evidence and indemnity as the Board thinks fit, and in the case of defacement or wearing-out, on delivery up to the Company of the old certificate. The person availing himself of the provisions of this Article shall pay to the Company all exceptional out of pocket expenses incident to the investigation of evidence and the preparation of the requisite form of indemnity as aforesaid.

Calls on Shares

14. The Board may from time to time (subject to any terms upon which any shares may have been issued) make calls upon the members in respect of any monies unpaid on their shares (whether on account of the nominal value of the shares or by way of premium), provided that (subject as otherwise fixed by the terms of issue) no call on any share shall be payable at less than fourteen clear days from the last call; and each member shall (subject to receiving at least fourteen clear days notice specifying the time or times and place of payment) pay to the Company at the time or times and place so specified the amount called on his shares. A call may be revoked in whole or in part and payment of a call may be postponed in whole or in part by the Board.

15. A call shall be deemed to have been made at the time when the resolution of the Board authorising the call was passed, and may be made payable by instalments.

16. The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof.

17. If a sum called in respect of a share is not paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate as may be fixed by the terms of allotment of the share or, if no rate is so fixed, at the appropriate rate (as defined by the Statutes); but the Board shall be at liberty to waive payment of such interest wholly or in part.

18. Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date, whether on account of the nominal value of the share or by way of premium, shall for all the purposes of these Articles be deemed to be a call duly made and payable on

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the date on which, by the terms of issue, the same becomes payable, and in case of non-payment all the relevant provisions of these Articles as to payment of interest and expenses, forfeiture and otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.

19. The Board may differentiate between the holders as to the amount of calls to be paid and the times of payment.

20. The Board may, if it thinks fit, receive from any member willing to advance the same, all or any part of the monies uncalled and unpaid upon any shares held by him, and upon all or any of the monies so advanced may (until the same would but for such advance become presently payable) pay interest at such rate (if any) not exceeding (unless the Company in general meeting shall otherwise direct) the appropriate rate (as defined by the Statutes) as may be agreed upon between the Board and such member.

Lien

21. The Company shall have a first and paramount lien on every share (not being a fully paid share) for all monies whether presently payable or not, called or payable at a fixed time in respect of that share; but the Board may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The Company’s lien (if any) on a share shall extend to all dividends and other monies payable thereon.

22. The Company may sell, in such manner as the Board thinks fit, any shares on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable, nor until the expiration of fourteen clear days after a notice in writing, stating and demanding payment of the sum presently payable, and stating the intention to sell in default, shall have been given to the registered holder for the time being of the share, or the person entitled by reason of death or bankruptcy to the share.

23. For giving effect to any such sale, the Board may, if the share is a certificated share, authorise some person to transfer the shares sold to, or in accordance with the directions of, the purchaser thereof. If the share is an uncertificated share, the Board may exercise any of the Company’s powers under Article 11.7 to effect the sale of the share to, or in accordance with the directions of, the purchaser thereof. The transferee shall be registered as the holder of the shares comprised in any such transfer, and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.

24. The net proceeds of sale, after payment of the costs thereof, shall be applied in or towards payment or satisfaction of the debt or liability in respect whereof the lien exists, so far as the same is presently payable, and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the shares prior to sale) be paid to the person entitled to the shares at the time of the sale.

Forfeiture of Shares

25. If a member fails to pay the whole or any part of any call or instalment of a call on the day fixed for payment thereof, the Board may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any accrued interest and any costs, charges and expenses incurred by the Company by reason of such non-payment.

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26. The notice shall name a further day (not being less than fourteen clear days from the date of the notice) on or before which, and the place where, the payment required by the notice is to be made, and shall state that, in the event of non-payment at or before the time and at the place appointed, the shares on which the call was made will be liable to be forfeited.

27. If the requirements of any such notice are not complied with, any share in respect of which such notice has been given may, at any time thereafter, before payment of all calls, interest, costs, charges and expenses due in respect thereof has been made, be forfeited by a resolution of the Board to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited share and not actually paid before the forfeiture.

28. A forfeited share may be sold, re-allotted or otherwise disposed of either to the person who was before forfeiture the holder thereof or entitled thereto, or to any other person, upon such terms and in such manner as the Board thinks fit, and at any time before sale, re-allotment or disposal, the forfeiture may be cancelled on such terms as the Board thinks fit. The Board may authorise some person to transfer a forfeited share to any person as aforesaid. Where for the purposes of its disposal a forfeited share held in certificated form is to be transferred to any person, the Board may authorise any person to execute an instrument of transfer of the share to that person. Where for the purposes of its disposal a forfeited share held in uncertificated form is to be transferred to any person, the Board may exercise any of the Company’s powers under Article 11.7.

29. A member any of whose shares have been forfeited shall cease to be a member in respect of the forfeited shares and shall surrender to the Company for cancellation the certificate for the shares forfeited, but shall, notwithstanding the forfeiture, remain liable to pay to the Company all monies which at the date of forfeiture were presently payable by him to the Company in respect of the shares, with interest thereon at such rate as the Board shall think fit (or, if no rate is determined, at the appropriate rate as defined by the Statutes) from the date of forfeiture until payment, but the Board shall be at liberty to waive payment of such interest wholly or in part or enforce payment without any allowance for the value of the shares at the time of forfeiture or of any consideration received on their disposal and his liability shall cease if and when the Company shall have received payment in full of all monies in respect of the shares.

30. The Board may accept the surrender of any share which it is in a position to forfeit upon such terms and conditions as may be agreed and, subject to any such terms and conditions, any share so surrendered shall be treated as if it had been forfeited.

31. A statutory declaration in writing that the declarant is a Director or the Secretary, and that a share has been duly forfeited or surrendered on a date stated in the declaration shall be conclusive evidence of such facts as against all persons claiming to be entitled to the share, and such declaration and the receipt of the Company for the consideration (if any) given for the share on the sale, re-allotment or disposal thereof shall constitute a good title to the share, and the person to whom the share is sold, re-allotted or disposed of shall be registered as the holder thereof, and his title to the share shall not be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, surrender, sale, re-allotment or disposal of the share.

Transfer of Shares

32. Without prejudice to any power of the Company to register as a shareholder a person to whom the right to any share has been transmitted by operation of law, all transfers of

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certificated shares shall be effected by transfer in writing in the usual common form or in such other form as the Board may approve.

33. The instrument of transfer of a certificated share shall be executed by or on behalf of the transferor, and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register in respect thereof. Registration of any instrument of transfer or other document relating to or affecting the title to any certificated share in the Company does not require the payment of any fee, provided that in the case of a partly paid share the instrument of transfer shall also be executed by or on behalf of the transferee.

34. The Board may, in its absolute discretion, and without assigning any reason therefor, refuse to register any transfer of certificated shares which are not fully paid, provided the exercise of such discretion does not prevent dealings in the shares from taking place on an open and proper basis.

35. The Board may also refuse to register any instrument of transfer of a certificated share, if:

(a)		the instrument of transfer is not lodged, duly stamped, at the Office or at such other place as the Board may appoint or is not accompanied by the certificate of the shares to which it relates and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer; or

(b)		the instrument of transfer is in respect of more than one class of share; or

(c)		in the case of a transfer to joint holders, they exceed four in number.

36. If the Board refuses to register a transfer of a share in certificated form, it shall within two months after the date on which the transfer was lodged with the Company, send to the transferee notice of the refusal.

37. The Register may be closed at such times and for such period as the Board may from time to time determine, provided that it shall not be closed for more than thirty days in any year.

Transmission of Shares

38. In the case of the death of a member, the survivor where the deceased was a joint holder, and the executors or administrators of the deceased where he was a sole holder, shall be the only persons recognised by the Company as having any title to a share held by him, but nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share held by him jointly.

39. Any person becoming entitled to a share in consequence of the death or bankruptcy of a member may, upon such evidence as to his title being produced as may from time to time be properly required by the Board, and subject as hereinafter provided, either be registered himself as the holder of the share or elect to have some person nominated by him registered as the transferee thereof.

40. A person becoming entitled by transmission to a share may, on production of any evidence as to his entitlement properly required by the Board, elect either to become the holder of the share or to have another person nominated by him registered as the transferee. If he elects to become the holder he shall send notice to the Company to that effect. If he

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elects to have another person registered and the share is a certificated share, he shall execute an instrument of transfer of the share to that person. If he elects to have himself or another person registered and the share is an uncertificated share, he shall take any action the Board may require (including without limitation the execution of any document and the giving of any instruction by means of a relevant system) to enable himself or that person to be registered as the holder of the share. All the provisions of these Articles relating to the transfer of shares apply to that notice or instrument of transfer as if it were an instrument of transfer executed by the member and the death or bankruptcy of the member or other event giving rise to the transmission had not occurred.

41. A person becoming entitled to a share in consequence of the death or bankruptcy of a member shall, subject to the requirements of Article 141, be entitled to receive and may give a discharge for all dividends and other monies payable in respect of the share, but he shall not be entitled to receive notices of or to attend or vote at meetings of the Company or to any of the rights or privileges of a member until he shall have become a member in respect of the share. The Board may at any time give notice requiring any such person to elect either to be registered himself or to transfer the share and if the notice is not complied with within sixty days the Board may thereafter withhold payment of all dividends or other monies payable in respect of the share until the requirements of the notice have been complied with.

41.(A) The following provisions shall apply to share warrants:

(a)		The Company with respect to fully-paid shares may issue share warrants stating that the bearer is entitled to the shares therein specified, and may provide by coupons or otherwise for the payment of future dividends or other monies on or in respect of the shares included in such share warrants.

(b)		A share warrant shall entitle the bearer thereof to the shares included in it, and the shares may be transferred by the delivery of the share warrant, and the provisions of these Articles with respect to transfer and transmission of shares shall not apply thereto. Each share warrant shall be issued under the Seal or under the Securities Seal or, in the case of shares on a branch register, an official seal for use in the relevant territory.

(c)		The Directors shall be at liberty to accept a certificate (in such form and from such person as the Directors may approve) to the effect that a specified person is shown in the records of the person issuing such certificate as being entitled to all or some of the shares comprised in a specified share warrant as sufficient evidence of the facts stated in such certificate, and may treat the deposit of such certificate at the Transfer Office (or at any other place specified from time to time by the Directors) as equivalent to the deposit there of the share warrant, and may inter alia allot to the person named in such certificate any shares to which the bearer of the share warrant referred to in such certificate may be entitled and the right of the allottee to the allotment shall not, after allotment, be questioned by any person.

(d)		The Directors may determine and from time to time vary the conditions upon which share warrants shall be issued, and in particular (but without limitation) upon which a new share warrant or coupon will be issued in the place of one worn out, defaced, lost or destroyed provided that no new share warrant may be issued to replace one that has been lost unless the Directors are satisfied beyond reasonable doubt that the original share warrant has been destroyed, upon which (subject as hereinafter provided) the bearer of a share warrant shall be entitled to attend and vote at general meetings, and upon which a share warrant may be surrendered and the name of the holder entered in the Register in respect of the shares therein specified. Subject to

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		such conditions and to these Articles, the bearer of a share warrant shall be subject to the conditions for the time being in force relating to share warrants, whether made before or after the issue of such share warrant.

(e)		Subject to any conditions for the time being in force relating to share warrants and as otherwise expressly provided in these Articles, the bearer of a share warrant may at any time deposit the share warrant at the Transfer Office (or at such other place as the Directors may from time to time appoint) and so long as the share warrant remains so deposited, the depositor shall have the same right of signing a requisition for calling a meeting and of attending and voting, appointing a proxy and exercising the other privileges of a member at any meeting held after the expiration of forty-eight hours from the time of deposit and be entitled to be given any notices by the Company which are to be given, after the expiration of forty-eight hours from the time of such deposit, to holders of shares of that class, as if his name were inserted in the Register as the holder of the shares included in the deposited share warrant, provided that in the case of a share warrant deposited elsewhere than at the Transfer Office (or such other place as aforesaid), the depositor shall have obtained from the person with whom the same is deposited a certificate of such deposit in such form as the Directors may require specifying inter alia the share warrant and the number of shares included therein, and shall have lodged the same at the Transfer Office (or such other place as aforesaid) not less than forty-eight hours before the time of the meeting at which the depositor desires to attend or to be represented. Not more than one person shall be recognised as a depositor of any share warrant. Every share warrant which shall have been so deposited as aforesaid shall remain so deposited until after the closing of the meeting at which the depositor desires to attend or to be represented.

(f)		Subject as otherwise expressly provided in these Articles or by the terms of issue of any shares or in any conditions for the time being in force relating to share warrants, no person shall, as bearer of a share warrant, be entitled to sign a requisition for calling a meeting of the Company or give notice of intention to submit a resolution to a meeting or attend or vote or give a proxy or exercise any other privilege of a member at a meeting of the Company, or be entitled to receive any notices from the Company, but the bearer of a share warrant shall be entitled in all other respects to the same privileges and advantages as if he were named in the Register as the holder of the shares included in the share warrant, and he shall be deemed to be a member of the Company.

Stock

42. The Company may from time to time by ordinary resolution convert any paid up shares into stock, and reconvert any stock into paid up shares of any denomination.

43. The holders of stock may transfer the same, or any part thereof, in the same manner and subject to the same regulations as and subject to which the shares from which the stock arose might previously to conversion have been transferred, or as near thereto as circumstances admit. The Board may from time to time fix the minimum amount of stock transferable and restrict or forbid the transfer of fractions of such minimum but the minimum shall not exceed the nominal amount of the shares from which the stock arose.

44. The holders of stock shall, according to the total amount of the stock held by them, have the same rights, privileges and advantages as regards dividends, participation in assets on a winding up, voting at meetings and other matters, as if they held the shares from which the stock arose, but no such privilege or advantage (except participation in dividends and in

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assets on a winding up) shall be conferred by any such amount of stock as would not, if existing in shares, have conferred such privilege or advantage.

45. All the provisions of these Articles applicable to paid up shares shall apply to stock, and the words “share” and “member” shall be construed accordingly.

Consolidation, Sub-Division and Cancellation of Shares

46. The Company may from time to time by ordinary resolution:

(a)		consolidate and divide all or any of its share capital into shares of larger amount than its existing shares. Whenever any fractions arise as a result of a consolidation or subdivision of shares, the Board may on behalf of the members deal with the fractions as it thinks fit. In particular, without limitation, the Board may sell shares representing fractions to which any members would otherwise become entitled to any person (including, subject to the provisions of the Statutes, the Company) and distribute the net proceeds of sale in due proportion among those members. Where the shares to be sold are held in certificated form the Board may authorise some person to execute an instrument of transfer of the shares to, or in accordance with the directions of, the buyer. Where the shares to be sold are held in uncertificated form, the Board may do all acts and things it considers necessary or expedient to effect the transfer of the shares to, or in accordance with the directions of, the buyer. The buyer shall not be bound to see to the application of the purchase monies and his title to the shares shall not be affected by any irregularity in, or invalidity of, the proceedings in relation to the sale.

(b)		sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum of association of the Company, subject nevertheless to the provisions of the Statutes and so that the resolution whereby any share is sub-divided may determine that as between the holders of the resulting shares, one or more of such shares shall have any preference or special advantage as regards dividend, capital, voting or otherwise, over, or may have any defined rights or be subject to any restrictions as compared with, the other or others but so that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each share resulting from the sub-division shall be the same as it was in the case of the share from which such shares were derived; and

(c)		cancel any shares which, at the date of the passing of the resolution, have not been taken, or agreed to be taken, by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.

Increase and Reduction of Capital

47. The Company may from time to time by ordinary resolution increase its share capital by such sum, to be divided into shares of such amounts, as the resolution shall prescribe.

48.1 Subject to the consents and incidents required by the Statutes, the Company may by special resolution reduce its share capital, its capital redemption reserve fund and any share premium account in any way.

48.2 All shares created by ordinary resolution pursuant to Articles 46-47 shall be:

(a)

subject to all the provisions of these Articles, including without limitation provisions relating to payment of calls, lien, forfeiture, transfer and transmission; and

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(b)

unclassified, unless otherwise provided by these Articles, by the resolution creating the shares or by the terms of allotment of the shares.

Redeemable Shares

49. Subject to the provisions of the Statutes, any shares may be issued on terms that they are, or at the option of the Company or the shareholder are liable, to be redeemed on such terms and in such manner as the Company before the issue of the shares may by special resolution determine.

Meetings of Members

General and Class Meetings

50. In every year the Company shall in addition to any other meetings in that year hold a general meeting as its annual general meeting, at such time (within a period of not more than fifteen months after the holding of the last preceding annual general meeting) and place as may be determined by the Board.

51.1 The Board may call a general meeting whenever it thinks fit, and, on the requisition of members in accordance with the Statutes, it shall forthwith convene a general meeting. If at any time there are not within the United Kingdom sufficient Directors capable of acting to form a quorum, any Director or any two members may convene a general meeting in the same manner as nearly as possible as that in which meetings may be convened by the Board.

51.2 All provisions of these Articles relating to general meetings of the Company or the proceedings thereat shall, mutatis mutandis, apply to every separate general meeting of the holders of any class of shares in the capital of the Company, except that:

(a)		the necessary quorum shall be two persons holding or representing by proxy at least one-third in nominal value of the issued shares of the class (excluding any shares of that class held as treasury shares) or, at any adjourned meeting of such holders, one holder present in person or by proxy, whatever the amount of his holding, who shall be deemed to constitute a meeting;

(b)		any holder of shares of the class present in person or by proxy may demand a poll; and

(c)		each holder of shares of the class shall, on a poll, have one vote in respect of every share of the class held by him.

For the purposes of this article, where a person is present by proxy or proxies, he is treated as holding only the shares in respect of which the proxy or proxies are authorised to exercise voting rights.

Notice of General Meetings

52. Fourteen clear days’ notice at the least, or, in the case of an annual general meeting, twenty-one clear days’ notice at the least shall be given in the manner hereinafter mentioned to such members as are, under the provisions herein contained, entitled to receive notices from the Company and also to each of the Directors and to the Auditors.

53. Every notice of meeting shall specify the place, the day and the hour of meeting, and, in the case of special business, the general nature of such business. Every notice convening an

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annual general meeting shall specify the meeting as such and every notice convening a meeting to pass a special resolution shall also specify the intention to propose the resolution as a special resolution, as the case may be. Every notice of meeting shall state with reasonable prominence that a member entitled to attend and vote is entitled to appoint a proxy and that such proxy need not be a member.

54.1 The accidental omission to give notice of any meeting or resolution, or to send any notification where required by the Statutes or these Articles in relation to the publication of a notice of meeting on a website, or to send a form of proxy with a notice where required by these Articles, to any person entitled to receive the same, or the non-receipt of a notice of meeting, resolution or form of proxy by such a person, whether or not the Company is aware of such omission or non-receipt, shall not invalidate the proceedings at the meeting.

54.2 The Board may resolve to enable persons entitled to attend a general meeting to do so by simultaneous attendance and participation at a satellite meeting place anywhere in the world. The members present in person or by proxy at a satellite meeting place shall be counted in the quorum for, and entitled to vote at, the general meeting in question, and that meeting shall be duly constituted and its proceedings valid if the chairman of the general meeting is satisfied that adequate facilities are available throughout the general meeting to ensure that members attending at all the meeting places are able to:

(a)		participate in the business for which the meeting has been convened;

(b)		hear and see all persons who speak (whether by the use of microphones, loudspeakers, audio-visual communications equipment or otherwise) in the principal meeting place and any satellite meeting place; and

(c)		be heard and seen by all other persons so present in the same way.

The chairman of the general meeting shall be present at, and the meeting shall be deemed to take place at, the principal meeting place.

54.3 If it appears to the chairman of the general meeting that the facilities at the principal meeting place or any satellite meeting place have become inadequate for the purposes referred to in Article 54.2, then the chairman of the general meeting may, without the consent of the meeting, interrupt or adjourn the general meeting. All business conducted at that general meeting up to the time of that adjournment shall be valid.

54.4 The Board may make arrangements for persons entitled to attend a general meeting or an adjourned general meeting to be able to view and hear the proceedings of the general meeting or adjourned general meeting and to speak at the meeting (whether by the use of microphones, loudspeakers, audio-visual communications equipment or otherwise) by attending at a venue anywhere in the world not being a satellite meeting place. Those attending at any such venue shall not be regarded as present at the general meeting or adjourned general meeting and shall not be entitled to vote at the meeting at or from that venue. The inability for any reason of any member present in person or by proxy at such a venue to view or hear all or any of the proceedings of the meeting or to speak at the meeting shall not in any way affect the validity of the proceedings of the meeting.

54.5 The Board may from time to time make any arrangements for controlling the level of attendance at any venue for which arrangements have been made pursuant to Article 54.4 (including without limitation the issue of tickets or the imposition of some other means of selection) if it considers it appropriate, and may from time to time change those arrangements. If a member, pursuant to those arrangements, is not entitled to attend in person or by proxy at

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a particular venue, he shall be entitled to attend in person or by proxy at any other venue for which arrangements have been made pursuant to Article 54.4. The entitlement of any member to be present at such venue in person or by proxy shall be subject to any such arrangement then in force and stated by the notice of meeting or adjourned meeting to apply to the meeting.

54.6 If, after the sending of notice of a general meeting but before the meeting is held, or after the adjournment of a general meeting but before the adjourned meeting is held (whether or not notice of the adjourned meeting is required), the Board decides that it is impracticable or unreasonable, for a reason beyond its control, to hold the meeting at the declared place (or any of the declared places, in the case of a meeting to which Article 54.2 applies); and/or time, it may as appropriate: (i) change the place (or any of the places, in the case of a meeting to which Article 54.2 applies); and/or (ii) postpone the time at which the meeting is to be held. If such a decision is made, the Board may then change the place (or any of the places, in the case of a meeting to which Article 54.2 applies) and/or postpone the time again if it decides that it is reasonable to do so. In either case:

(a)		no new notice of the meeting need be sent, but the Board shall, if practicable, advertise the date, time and place of the meeting in at least two newspapers having a national circulation and shall make arrangements for notices of the change of place and/or postponement to appear at the original place and/or at the original time; and

(b)		a proxy appointment in relation to the meeting may, if by means of a document in hard copy form, be delivered to the Office or to such other place within the United Kingdom as may be specified by or on behalf of the Company in accordance with Article 74(a) or, if in electronic form, be received at the address (if any) specified by or on behalf of the Company in accordance with Article 74(b) (or such address as the Company may be deemed by The Statutes to have agreed), at any time not less than forty-eight hours before any postponed time appointed for holding the meeting.

54.7 For the purposes of Articles 54.2-54.5, the right of a member to participate in the business of any general meeting shall include without limitation the right to speak, vote on a show of hands, vote on a poll, be represented by a proxy and have access to all documents which are required by the Statutes or these Articles to be made available at the meeting.

Proceedings at General Meetings

55. All business shall be deemed special that is dealt with at a general meeting, and also all business that is dealt with at an annual general meeting, with the exception of sanctioning or declaring dividends, the consideration of the accounts and balance sheet, the ordinary reports of the Board and Auditors and any other documents required to be annexed to the balance sheet, the appointment or election of Directors in the place of those retiring by rotation or otherwise and the appointment or re-appointment of and the fixing of the remuneration of the Auditors, and the renewal, limitation, extension, variation or grant of any authority of or to the Board, pursuant to the Statutes, to allot securities.

56. No business shall be dealt with at any general meeting unless a quorum is present when the meeting proceeds to business. Three members present in person and entitled to vote shall be a quorum for all purposes. A corporation being a member shall be deemed to be personally present if represented by its representative duly authorised in accordance with Article 67.

57. If within fifteen minutes from the time appointed for the meeting a quorum is not present, the meeting, if convened on the requisition of members, shall be dissolved. In any

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other case it shall stand adjourned to the same day in the next week, at the same time and place, or to such time and place as may be fixed by the chairman of the meeting, and if at such adjourned meeting a quorum is not present within fifteen minutes from the time appointed for holding the meeting the members present in person or by proxy shall be a quorum.

58. The Chairman (if any) of the Board or in his absence the Deputy Chairman of the Board or some other Director nominated by the Board shall preside as chairman at every general meeting of the Company. If there be no such Chairman or Deputy Chairman, or if at any meeting neither the Chairman, the Deputy Chairman nor such other Director (if any) be present within ten minutes after the time fixed for holding the meeting or be willing to act as chairman of the meeting, the Directors present shall choose one of their number to be chairman of the meeting, or if no Director is present, or if all the Directors present decline to take the chair, the members present shall choose one of their number to be chairman of the meeting.

59. The chairman of the meeting may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be dealt with at an adjourned meeting except business which might lawfully have been dealt with at the meeting from which the adjournment took place. When a meeting is adjourned for thirty days or more or for an indefinite period, notice of the adjourned meeting shall be given in like manner as in the case of the original meeting. Save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be dealt with at an adjourned meeting.

60. At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the show of hands) demanded:

(a)		by the chairman of the meeting; or

(b)		(except on the election of the chairman of the meeting or on a question of adjournment) by at least three members present in person or by proxy and entitled to vote on the resolution; or

(c)		by any member or members present in person or by proxy and representing not less than 10% of the total voting rights of all the members having the right to vote on the resolution; or

(d)		by a member or members present in person or by proxy holding shares in the Company conferring a right to vote on the resolution being shares on which an aggregate sum has been paid up equal to not less than 10% of the total sum paid up on all the shares conferring that right;

The appointment of a proxy to vote on a matter at a meeting authorises the proxy to demand, or join in demanding, a poll on that matter. In applying the provisions of this Article, a demand by a proxy counts (i) for the purposes of paragraph (b) of this Article, as a demand by the member, (ii) for the purposes of paragraph (c) of this Article, as a demand by a member representing the voting rights that the proxy is authorised to exercise, and (iii) for the purposes of paragraph (d) of this Article, as a demand by a member holding the shares to which those rights are attached.

61. Unless a poll is so demanded, a declaration by the chairman of the meeting that a resolution has been carried, or carried unanimously, or by a particular majority, or lost, or not

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carried by a particular majority, and an entry to that effect in the minute books, shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded in favour of or against such resolution.

62. If a poll is duly demanded, it shall be taken in such manner as the chairman of the meeting may direct, and the result of a poll shall be deemed to be the resolution of the meeting at which the poll was demanded. The chairman of the meeting may appoint scrutineers (who need not be members) and fix a time and place for declaring the result of a poll.

63. A poll demanded on the election of the chairman of the meeting or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time and place as the chairman of the meeting directs, but in any case not more than twenty-eight days after the meeting at which the poll was demanded. No notice need be given of a poll not taken forthwith if the time and place at which it is to be taken are announced at the meeting at which it is demanded. In any other case at least seven clear days’ notice shall be given specifying the time and place at which the poll is to be taken.

64. The demand for a poll shall not prevent the continuance of a meeting for dealing with any business other than the question on which the poll has been demanded, and it may be withdrawn at any time before the conclusion of the meeting or the date fixed for the taking of the poll. If a demand is withdrawn before the conclusion of the meeting the chairman of the meeting or other members entitled, may himself or themselves demand a poll. A demand for a poll which is withdrawn shall not be taken to have invalidated the result of a show of hands declared before the demand was made.

Votes of Members

65. Subject to any terms upon which any shares may be issued or may from time to time be held, on a show of hands every member (whether an individual or a corporation) present in person shall have one vote, and every proxy present who has been duly appointed by a member entitled to vote shall have one vote, and on a poll, every member (whether an individual or a corporation) present in person or by proxy shall have one vote for every 25 pence of nominal share capital of which he is the holder.

66. In the case of joint holders of a share the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register.

67. Any corporation which is a member of the Company may, by resolution of its directors or other governing body, authorise such person as it thinks fit to act as its representative at any general meeting, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as the corporation could exercise if it were an individual member of the Company. Any person so authorised may be required at any general meeting which such person attends to produce evidence of such authority in a form reasonably satisfactory to the Board.

68. A member in respect of whom an order has been made by any court having jurisdiction (whether in the United Kingdom or elsewhere) in matters concerning mental disorder may vote, whether on a show of hands or on a poll, by his receiver, curator bonis or other person authorised in that behalf appointed by that court, and any such receiver, curator bonis or other person may, on a show of hands or on a poll, vote by proxy provided that such evidence as the Board may require of the authority of such person shall have been deposited

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at the Office, or at such other place as is specified in accordance with these Articles for the deposit of proxies, not less than forty-eight hours before the time appointed for holding the meeting or adjourned meeting or for the taking of the poll at which the right to vote is to be exercised and in default the right to vote shall not be exercisable.

69. No member shall be entitled to vote at any general meeting or at any separate meeting of the holders of any class of shares in the Company, either in person or by proxy, in respect of any share held by him unless all calls or other sums presently payable by him in respect of shares in the Company have been paid.

70. No objection shall be raised to the qualification of any vote except at the meeting or adjourned meeting or poll at which the vote objected to is given or tendered, and every vote not disallowed at such meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the chairman of the meeting, whose decision shall be final and conclusive.

71. On a poll, a person entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.

Proxies

72.1 The appointment of a proxy shall be made in writing and shall be in any usual form or in any other form which the board may approve. Subject thereto, the appointment of a proxy may be (a) in hard copy form, or (b) in electronic form, if the Company agrees (or is deemed by the Statutes 2006 to have agreed).

72.2 The appointment of a proxy, whether made in hard copy form or in electronic form, shall be executed in such manner as may be approved by or on behalf of the Company from time to time. Subject thereto, the appointment of a proxy shall be executed by the appointor or any person duly authorised by the appointor or, if the appointor is a corporation, executed by a duly authorised person or under its common seal or in any other manner authorised by its constitution.

73. The Board may, if it thinks fit, but subject to the provisions of the Statutes, at the Company’s expense send hard copy forms of proxy for use at a general meeting and issue invitations in electronic form to appoint a proxy in relation to the meeting in such form as may be approved by the Board. The appointment of a proxy shall not preclude a member from attending and voting in person at the meeting or poll concerned. A member may appoint more than one proxy to attend on the same occasion provided that each such proxy is appointed to exercise the rights attached to a different share or shares held by that member.

74. The appointment of a proxy shall:

(a)

if in hard copy form, be delivered by hand or by post to the Office or such other place within the United Kingdom as may be specified by or on behalf of the Company for that purpose:

	(i)		in the notice convening the general meeting; or

	(ii)		in any form of proxy sent by or on behalf of the Company in relation to the meeting,

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(aa) not less than forty-eight hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the appointment proposes to vote; or

(b)

if in electronic form, be received at any address to which the appointment of a proxy may be sent by electronic means pursuant to a provision of The Statutes or to any other address specified by or on behalf of the Company for the purpose of receiving the appointment of a proxy in electronic form in:

	(i)		any form of proxy sent by or on behalf of the Company in relation to the meeting; or

	(ii)		any invitation to appoint a proxy issued by the Company in relation to the meeting,

(bb) not less than forty-eight hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the appointment proposes to vote; or

(c)		in either case, where a poll is taken more than forty-eight hours after it is demanded, be delivered or received as aforesaid after the poll has been demanded and not less than twenty-four hours before the time appointed for the taking of the poll; or

(d)		if in hard copy form, where a poll is not taken forthwith but is taken not more than forty-eight hours after it was demanded, be delivered at the meeting at which the poll was demanded to the chairman of the meeting or to the Secretary or to any Director.

75.1 Where the appointment of a proxy is expressed to have been or purports to have been made, sent or supplied by a person on behalf of the holder of a share:

(a)		the Company may treat the appointment as sufficient evidence of the authority of that person to make, send or supply the appointment on behalf of that holder;

(b)		that holder shall, if requested by or on behalf of the Company at any time, send or procure the sending of any written authority under which the appointment has been made, sent or supplied, or a copy of such authority certified notarially or in some other way approved by the Board, to such address and by such time as may be specified in the request (or such address as the Company may be deemed by The Statutes to have agreed) and, if the request is not complied with in any respect, the appointment may be treated as invalid; and

(c)		whether or not a request under Article 75.1(b) has been made or complied with, the Company may determine that it has insufficient evidence of the authority of that person to make, send or supply the appointment on behalf of that holder and may treat the appointment as invalid.

75.2 A proxy appointment which is not delivered or received in accordance with Article 74 shall be invalid. When two or more valid proxy appointments are delivered or received in respect of the same share for use at the same general meeting, the one which was last delivered or received shall be treated as replacing and revoking the others as regards that share, provided that, if the Company determines that it has insufficient evidence to decide whether or not a proxy appointment is in respect of the same share, it shall be entitled to determine which proxy appointment shall be entitled to determine which proxy appointment (if any) is to be treated as valid. Subject to The Statutes, the Company may determine at its

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discretion when a proxy appointment shall be treated as delivered or received for the purposes of these Articles.

75.3 A proxy appointment shall be deemed to entitle the proxy to exercise all or any of the appointing member’s rights to attend and to speak and vote at a meeting of the Company. The proxy appointment shall, unless it provides to the contrary, be valid for any adjournment of the meeting as well as for the meeting to which it relates.

75.4 Any corporation which is a member of the Company may, by resolution of its directors or other governing body, authorise such person or persons as it thinks fit to act as its representative or representatives at any meeting of the Company or at any separate meeting of the holders of any class of shares. A director, the secretary or other person authorised for the purpose by the secretary may require all or any of such persons to produce a certified copy of the resolution of authorisation before permitting him to exercise his powers.

75.5 The termination of the authority of a person to act as a proxy or duly authorised representative of a corporation does not affect:

(a)		whether he counts in deciding whether there is a quorum at a meeting;

(b)		the validity of anything he does as chairman of a meeting;

(c)		the validity of a poll demanded by him at a meeting; or

(d)		the validity of a vote given by that person,

unless notice of the termination was either delivered or received as mentioned in the following sentence at least three hours before the start of the relevant meeting or adjourned meeting or (in the case of a poll taken otherwise than on the same day as the meeting or adjourned meeting) the time appointed for taking the poll. Such notice of termination shall be either by means of a document in hard copy form delivered to the office or to such other place within the United Kingdom as may be specified by or on behalf of the Company in accordance with Article 74(a) or in electronic form received at the address (if any) specified by or on behalf of the Company in accordance with Article 74(b) (or such address as the Company may be deemed by The Statutes to have agreed), regardless of whether any relevant proxy appointment was effected in hard copy form or in electronic form.

Directors

Number and Appointment of Directors

76. Unless and until otherwise from time to time determined by an ordinary resolution of the Company, the Directors (other than alternate Directors) shall be not less than two in number.

77. The Board shall have power at any time, and from time to time, to appoint any other person who is willing to act to be a Director, either to fill a casual vacancy or as an addition to the existing Board, but so that the total number of Directors shall not at any time exceed the maximum number (if any) fixed by or in accordance with these Articles. Any Director so appointed shall hold office only until the next following annual general meeting, and shall then be eligible for re-appointment but shall not be taken into account in determining the Directors to retire by rotation at such meeting under the provisions contained in these Articles.

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78. The continuing Directors, or a sole continuing Director, may act notwithstanding any vacancies in the Board, but, if and so long as the number of Directors is reduced below the minimum number fixed by or in accordance with these Articles, the continuing Directors or Director may act for the purpose of filling up vacancies in the Board or of summoning general meetings of the Company, but not for any other purpose. If there be no Directors or Director able or willing to act, then any two members may summon a general meeting for the purpose of appointing Directors.

79. Except as otherwise authorised by the Statutes, a motion for the appointment of two or more persons as Directors by a single resolution shall not be made unless a resolution that it should be so made has first been agreed to by the meeting without any vote being given against it.

80. No person other than a Director retiring at the meeting shall, unless recommended by the Board for election, be eligible for the office of a Director at any general meeting, unless not less than seven and not more than forty-two days before the day appointed for the meeting there shall have been given to the Secretary notice by a member duly qualified to be present and vote at the meeting for which such notice is given of his intention to propose such person for election, and also notice by the person to be proposed of his willingness to be appointed.

Qualification of Directors

81. Unless and until otherwise determined by the Company in a general meeting, the Directors shall not be required to hold any share qualification.

Powers of Directors

84. The business of the Company shall be managed by the Board, and the Board may exercise all such powers of the Company as are not by the Statutes or by these Articles or by any directions given by the Company from time to time by special resolution required to be exercised by the Company in a general meeting. The general powers given by this Article shall not be limited or restricted by any special authority or power given to the Board by any other Article.

85. The Board may establish any local or special boards or agencies for managing any of the affairs of the Company either in the United Kingdom or elsewhere, and may appoint any persons to be members of such local or special boards or to be managers or agents, and may fix their remuneration, and may delegate to any local or special board, manager or agent any of the powers, authorities and discretions vested in the Board (other than the powers to borrow and make calls) with power to sub-delegate, and may authorise the members of any local or special board, or any of them, to fill any vacancies therein, and to act notwithstanding vacancies, and any such appointment or delegation may be made upon such terms and subject to such conditions as the Board may think fit, and the Board may remove any person so appointed, and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.

86.1 The Board may establish and maintain or procure the establishment and maintenance of any non-contributory or contributory pension, provident or superannuation funds for the benefit of and give or procure the giving of pensions, allowances, gratuities or bonuses to any persons who are or were at any time in the employment, or service of the Company, or of any company which is a subsidiary of the Company or is allied to or associated in business with the Company or with any such subsidiary company, or of any business acquired by the Company or who are or were at any time Directors or officers of the Company or of any such other company as aforesaid, and the spouses, civil partners, former spouses or former civil

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partners, families and dependants of any such persons. Any Director shall be entitled to participate in and retain for his own benefit any such pension, allowance, gratuity or bonus and may vote in favour of the exercise of any of the powers aforesaid notwithstanding that he is or may become interested therein.

86.2 Pursuant to section 719 of the Companies Act 1985, the Board is hereby authorised to make such provision as may seem appropriate for the benefit of persons employed or formerly employed by the Company or any of its subsidiaries in connection with the cessation or transfer of the whole or part of the undertaking of the Company or any subsidiary. Any such provision shall be made by a resolution of the Board in all respects in accordance with the said section.

87. The Board may from time to time by power of attorney under the Seal appoint any company, firm or person, or any fluctuating body of persons, whether nominated directly or indirectly by the Board, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board under these Articles) and for such period and subject to such conditions as it may think fit, and any such power of attorney may contain such provisions for the protection or convenience of persons dealing with any such attorney as the Board may think fit and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him. The Board may, by power of attorney or otherwise, appoint any person to be the agent of the Company for such purposes and on such conditions as it determines, including authority for the agent to delegate all or any of his powers.

88. The Board may from time to time make and vary such regulations as it thinks fit respecting the keeping of dominion registers of members pursuant to the Statutes.

89. All cheques, promissory notes, drafts, bills of exchange and other negotiable or transferable instruments, and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as the Board shall from time to time by resolution determine.

Borrowing

90.1 Subject as hereinafter provided, the Board may exercise all the powers of the Company to borrow money, and to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures and other securities, whether outright or as collateral security, for any debt, liability or obligation of the Company or of any third party.

90.2 The Board shall restrict the borrowings of the Company and exercise all voting and other rights or powers of control exercisable by the Company in relation to its subsidiaries so as to secure (as regards subsidiaries so far as by such exercise they can secure) that the aggregate amount for the time being remaining undischarged of all monies borrowed by the Company and/or any of its relevant subsidiaries (exclusive of monies borrowed by the Company from and for the time being owing to any such relevant subsidiary, or by any such relevant subsidiary from and for the time being owing to the Company or another such relevant subsidiary) shall not at any time without the previous sanction of an ordinary resolution of the Company exceed a sum equal to twice the aggregate of the adjusted capital and reserves.

90.3 For the purposes of this Article the expression “the adjusted capital and reserves” means at any relevant time the amount of the issued and paid up share capital of the Company (and so that capital allotted and capital the issue of which has been underwritten shall be treated as issued and any capital already called up or payable at any fixed future date within

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six months shall be treated as already paid up) plus or minus the aggregate amount standing to the credit or debit of the consolidated reserves (including for the purposes of this definition profit and loss account and any share premium account), plus the amount of minority interests in any subsidiaries, all as included in the latest published audited consolidated balance sheet of the Company plus an amount equal to the goodwill (including intangible assets) which has arisen on acquisitions of interests in companies and businesses made since 1 January 1981 in which the Company or any of its relevant subsidiaries continues to have an interest as at the relevant date of calculation and which has, as at such date, been written off against the consolidated reserves referred to above in accordance with United Kingdom accounting practices, less an amount equal to the amortisation of such goodwill up to the relevant date of calculation, over twenty years on a straight line basis but:

(a)		adjusted so as to exclude an amount equal to the net tangible assets of any subsidiary which is not a relevant subsidiary as included in the consolidated balance sheet of the Company;

(b)		adjusted as may be appropriate to take account of:

	(i)		any increase in or reduction of the issued and paid up share capital or share premium account of the Company since the date to which the consolidated balance sheet incorporated in such accounts shall have been made up;

	(ii)		any distributions in cash or specie made (otherwise than to the Company or to a relevant subsidiary) from such reserves since such date and not provided for therein;

	(iii)		any relevant subsidiary not consolidated in such accounts, any companies which since the date of such accounts have ceased to be or have become relevant subsidiaries, and any companies which will become or will cease to be relevant subsidiaries as a result of the transaction in relation to which the calculation falls to be made;

(c)		after excluding any sums provided for taxation (including deferred tax);

(d)		after deducting therefrom (insofar as not otherwise deducted) a sum equivalent to the book value of any goodwill and any other intangible assets in the said consolidated balance sheet;

(e)		after making such other adjustments (if any) as the Auditors may consider appropriate.

90.4 For the purpose of this Article “borrowings” shall include the following:

(a)		the principal amount for the time being outstanding of any debentures within the meaning of section 744 of the Companies Act 1985, issued (whether for cash or otherwise) by the Company or any relevant subsidiary;

(b)		the principal amount for the time being outstanding in respect of acceptances raised by the Company or any relevant subsidiary under any acceptance credit opened on its behalf (not being acceptances in relation to the purchase of goods in the normal course of trading which have been outstanding for one hundred and eighty days or less);

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(c)		the nominal amount of any issued share capital and the principal amount of any borrowings the repayment whereof is guaranteed by or is the subject of an indemnity from the Company or any relevant subsidiary; and

(d)		the nominal amount of any issued share capital (not being equity share capital) of a relevant subsidiary, which is not beneficially owned by the Company or by another relevant subsidiary,

together with (in any case) any fixed or minimum premium payable on final redemption or final repayment, but shall not include:

(i)		amounts borrowed and otherwise falling to be taken into account pursuant to this Article and intended to be applied within six months of being so borrowed in the repayment of borrowings then outstanding which fall to be taken into account pursuant to this Article pending their application for such purpose or the expiration of such period whichever shall be the earlier;

(ii)		borrowings from bankers or others for the purpose of financing any contract in respect of which any part of the price receivable is guaranteed or insured by the Export Credits Guarantee Department of the Department of Trade, to an amount not exceeding that part of the price receivable thereunder which is so guaranteed or insured;

(iii)		unsecured borrowings from bankers to the extent that there are amounts standing to the credit of the account(s) of the relevant subsidiary making the borrowing and/or any other relevant subsidiary which, in accordance with the arrangements made between the bankers and the relevant subsidiary making the borrowing or any other relevant subsidiary, are available for set-off by the bankers against the amount of such borrowings; and

(iv)		borrowings by a company, which on becoming a subsidiary after 27 May 1983 is also a relevant subsidiary, which are outstanding at the date when it becomes a subsidiary for a period of twelve months from the date of such event to the extent that a sum equal to the amount of such borrowings exceeds any increase in the relevant limit arising out of the adjustments to be made to the adjusted capital and reserves on account of the transaction whereby such company becomes a relevant subsidiary,

and shall be reduced by the amounts owed, as at the relevant date of calculation, to the Company or any of its relevant subsidiaries provided that the basis of calculation of such amounts owed shall be the same basis as that used for the calculation of the amounts of cash and liquid funds of the Company and its relevant subsidiaries for the purposes of the most recent published audited consolidated accounts of the Company.

90.5 For the purpose of determining whether the limit imposed by this Article has been exceeded, the principal amount of any borrowings expressed in a currency other than sterling shall be translated into sterling on the basis adopted for the translation of borrowings in the latest published audited consolidated accounts of the Company and no account shall be taken of subsequent fluctuations in the rates between sterling and the currency or currencies of the borrowing.

90.6 Notwithstanding any provision contained in this Article no account shall be taken of any amount more than once in the determination of the amount of borrowings in relation to the limits set out in this Article. If, in the determination of any such amount, the provisions of

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this Article may be applied to produce more than one amount, that provision which produces the higher amount shall apply to the exclusion of the other or others.

90.7 For the purpose of this Article the expression “relevant subsidiary” means any subsidiary of the Company for the time being.

90.8 No person dealing with the Company or any of its subsidiaries shall by reason of the foregoing provisions of this Article be concerned to see or inquire whether this limit is observed, and no debt incurred or security given in excess of such limit shall be invalid or ineffectual unless the lender or the recipient of the security had at the time when the debt was incurred or security given express notice that the limit hereby imposed had been or would thereby be exceeded.

Proceedings of the Board

91.1 The Board may meet together for the despatch of business, adjourn and otherwise regulate its meetings as it thinks fit. Questions arising at any meeting of the Board shall be determined by a majority of votes. In case of an equality of votes the Chairman shall not have a second or casting vote.

91.2 A Director may, and the Secretary on the requisition of a Director shall, at any time call a meeting of the Board by giving notice of the meeting to each Director. It shall not be necessary to give notice of a meeting of the Board to any Director for the time being absent from the United Kingdom.

91.3 Notice of the date, time and place of each meeting of the Board shall, so far as practicable, be given to each Director at least twenty-four hours prior to such meeting and may be given in hard copy form or in electronic form to such address (if any) for the time being notified by the Director or on his behalf to the Company for that purpose. The accidental omission to give notice of any meeting of the Board to any Director entitled to receive the same, or the non-receipt of a notice of any such meeting by such a Director, shall not invalidate the proceedings at the meeting.

92. The quorum necessary for dealing with the business of the Board shall be fixed by the Board, and unless so fixed at any other number, shall be two. For the purpose of determining whether the quorum for dealing with the business of the Board exists:

(a)		in the case of a resolution agreed by Directors in telephonic communications, all such Directors shall be counted in the quorum;

(b)		in the case of a meeting of Directors, in addition to the Directors present at the meeting, any Director in telephonic communication with such meeting shall be counted in the quorum.

93. The Board may elect a Chairman and, if it thinks fit, a Deputy Chairman of its meetings, determine the period for which they respectively are to hold office and may at any time remove the Chairman and/or the Deputy Chairman from their respective office. If no such Chairman or Deputy Chairman is elected, or if at any meeting of the Board neither is present within five minutes after the time appointed for holding the same, or if the Chairman or Deputy Chairman is unwilling to act, the Directors present may choose one of their number to be Chairman of the meeting.

94. A resolution in writing, agreed to by all the Directors entitled to receive notice of and vote at a meeting of the Board or of a committee of the Board shall, provided they constitute a

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quorum, be as effective as a resolution passed at a meeting of the Board or (as the case may be) a committee of the Board duly convened and held. For the purpose of this Article:

(a)		a Director signifies his agreement to a proposed written resolution when the Company receives from him a document indicating his agreement to the resolution authenticated in the manner permitted by the Companies Act 2006 for a document in the relevant form;

(b)		the Director may send the document in hard copy form or in electronic form to such address (if any) for the time being specified by the Company for that purpose, and in default of such specification to the Office;

(c)		if any alternate Director signifies his agreement to the proposed written resolution, his appointor need not also signify his agreement; and

(d)		if a Director signifies his agreement to the proposed written resolution an alternate director appointed by him need not also signify his agreement.

95. A meeting of the Board at which a quorum is present shall be competent to exercise all powers and discretions for the time being exercisable by the Board or by the Directors generally.

96. The Board may delegate any of its powers (other than the powers to make calls) to committees consisting of such member or members of its body as it thinks fit. Any committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may be imposed on it by the Board.

97. The meetings and proceedings of any such committee consisting of two or more members shall be governed by the provisions of these Articles regulating the meetings and proceedings of the Board, so far as the same are applicable and are not superseded by any regulations made by the Board under the last preceding Article.

98. All acts done by any meeting of the Board, or of a committee of the Board, or by any person acting as a Director or by an alternate Director, shall, notwithstanding it be afterwards discovered that there was some defect in the appointment or continuance in office of any such Director, alternate Director or person acting as aforesaid, or that they or any of them were disqualified, or had vacated office or were not entitled to vote, be as valid as if every such person had been duly appointed and was qualified and had continued to be a Director or, as the case may be, an alternate Director and had been entitled to vote.

98.A Without prejudice to the first sentence of Article 91.1, a person entitled to be present at a meeting of the board or of a committee of the board shall be deemed to be present for all purposes if he is able (directly or by electronic communication) to speak to and be heard by all those present or deemed to be present simultaneously. A director so deemed to be present shall be entitled to vote and be counted in a quorum accordingly. Such a meeting shall be deemed to take place where it is convened to be held or (if no Director is present in that place) where the largest group of those participating is assembled, or, if there is no such group, where the chairman of the meeting is. The word meeting in these Articles shall be construed accordingly.

Minutes

99. The Board shall cause minutes to be recorded for the purpose:

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(a)		of all appointments of officers made by the Board;

(b)		of the names of the Directors present at each meeting of the Board and of any committee of the Board; and

(c)		of all resolutions and proceedings at all meetings of the Company and of the holders of any class of shares in the Company and of the Board and of committees of the Board.

Any such minutes, if purporting to be signed by the chairman of the meeting to which they relate or of next meeting, shall be received as prima facie evidence of the facts therein stated.

Disqualification of Directors

100. A person ceases to be a director as soon as:

(a)		that person ceases to be a Director by virtue of any provision of The Statutes or is prohibited from being a Director by law;

(b)		a bankruptcy order is made against that person;

(c)		a composition is made with that person’s creditors generally in satisfaction of that person’s debts;

(d)		a registered medical practitioner who is treating that person gives a written opinion to the company stating that that person has become physically or mentally incapable of acting as a director and may remain so for more than three months;

(e)		by reason of that person’s mental health, a court makes an order which wholly or partly prevents that person from personally exercising any powers or rights which that person would otherwise have;

(f)		notification is received by the Company from the Director that the Director is resigning or retiring from office, and such resignation or retirement has taken effect in accordance with its terms; or

that person receives notice signed by not less than three quarters of the other directors stating that that person should cease to be a director. In calculating the number of directors who are required to give such notice to the Director, (i) an alternate director appointed by him acting in his capacity as such shall be excluded; and (ii) a Director and any alternate director appointed by him and acting in his capacity as such shall constitute a single director for this purpose, so that notice by either shall be sufficient.

101.1 No Director shall be disqualified by his office from contracting with the Company either as vendor, purchaser or otherwise, or from being interested whether directly or indirectly in any contract or arrangement entered into by or on behalf of the Company. No such contract or arrangement in which any Director shall be so interested shall be avoided, nor shall any Director so contracting, or being so interested, be liable to account to the Company for any profit realised by him from such contract or arrangement by reason of such Director holding that office or the fiduciary relationship thereby established. A Director so interested in any contract or arrangement shall declare the nature of his interest in accordance with the provisions of the Statutes. For the purpose of this Article 101.1 an interest of which a Director has no knowledge and of which it is unreasonable to expect him to have knowledge shall not be treated as an interest of his.

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101.2 Save as herein provided, a Director shall not vote in respect of any contract or arrangement or any other proposal whatsoever in which he has an interest which is, to his knowledge, a material interest, otherwise than by virtue of his interests in shares or debentures or other securities of or otherwise in or through the Company. A Director shall not be counted in the quorum at a meeting of the Board in relation to any resolution on which he is debarred from voting.

101.3 A Director shall (in the absence of some other material interest than is indicated below) be entitled to vote (and be counted in the quorum) in respect of any resolution concerning any of the following matters, namely:

(a)		the giving of any guarantee, security or indemnity in respect of money lent or obligations incurred by him or by any other person at the request of or for the benefit of the Company or any of its subsidiaries;

(b)		the giving of any guarantee, security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which he himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security;

(c)		any proposal relating to the Company or any of its subsidiary undertakings where it is offering securities in which offer a Director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which a Director is to participate;

(d)		any proposal relating to another company in which he and any persons connected with him do not to his knowledge hold an interest in shares (as that term is used in sections 820 to 825 of the Companies Act 2006) representing one per cent. or more of either any class of the equity share capital, or the voting rights, in such company;

(e)		any proposal relating to an arrangement for the benefit of the employees of the Company or any of its subsidiary undertakings which does not award him any privilege or benefit not generally awarded to the employees to whom such arrangement relates; or

(f)		any proposal concerning insurance which the Company proposes to maintain or purchase for the benefit of Directors or for the benefit of persons including Directors.

101.4 Where proposals are under consideration concerning the appointment (including fixing or varying the terms of appointment) of two or more Directors to offices or employments with the Company or any company in which the Company is interested, such proposals may be divided and considered in relation to each Director separately and in such cases each of the Directors concerned (if not debarred from voting under Article 101.2 above) shall be entitled to vote (and be counted in the quorum) in respect of each resolution except that concerning his own appointment.

101.5 If any question shall arise at any meeting of the Board as to the materiality of a Director’s interest or as to the entitlement of any Director to vote and such question is not resolved by his voluntarily agreeing to abstain from voting, such question shall be referred to the Chairman or, if the Chairman is also interested in the contract or arrangement in question, to a person appointed by the other Directors present at that meeting for such purpose who is not so interested, and the ruling of the Chairman or, if appropriate, such other person in relation to any other Director shall be final and conclusive except in a case where the nature or extent of the interests of the Director concerned have not been fairly disclosed.

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102.1 Until such time as section 175 of the Companies Act 2006 comes into force, (whereafter Articles 120.A to 120.G shall apply), a Director may be or become a director or other officer of any company promoted by the Company or in which the Company may be interested as vendor, member or otherwise, and no such Director shall (unless otherwise agreed) be accountable for any benefits received as Director or other officer of such company.

102.2 The Board may exercise the voting power conferred by the shares in any company held or owned by the Company in such manner in all respects as it thinks fit (including the exercise thereof in favour of any resolution appointing its members or any of them directors of such company, or voting or providing for the payment of remuneration to the directors of such company).

102.3 Until such time as section 175 of the Companies Act 2006 comes into force, (whereafter Articles 120.A to 120.G shall apply), any Director may act by himself or his firm in a professional capacity for the Company (otherwise than as Auditor) and he or his firm shall be entitled to remuneration for professional services as if he were not a Director.

Retirement and Removal of Directors

103. At every annual general meeting one-third of the Directors or, if their number is not a multiple of three, the number nearest to one-third of them shall retire from office but if any Director has at the start of the annual general meeting been in office for three years or more since his last appointment or re-appointment, he shall retire at that annual general meeting.

104. A Director retiring at a meeting shall retain office until the close or adjournment of the meeting.

105. The Directors to retire by rotation in every year shall be, first, those who wish to retire and not be re-appointed to office and, second, those who have been longest in office since their last election or appointment but, as between persons who became or were last re-elected Directors on the same day, those to retire shall (unless they otherwise agree among themselves) be determined by lot. A retiring Director shall be eligible for re-election.

106. The Company at a general meeting at which a Director retires in manner aforesaid may (subject to Article 80) fill the vacated office by electing a person thereto, and in default, the retiring Director shall be deemed to have been re-elected, unless at or prior to such meeting he intimates that he does not wish to be re-elected or it is expressly resolved not to fill such vacated office or a resolution for the re-election of such Director shall have been put to the meeting and lost. In the event of the vacancy not being filled at such meeting it may be filled by the Board as a casual vacancy.

107. Without prejudice to the provisions of Article 114.1, the Company may, pursuant and subject to the provisions of section 303 of the Companies Act 1985, by ordinary resolution remove any Director before the expiration of his period of office and may by an ordinary resolution appoint another person in his stead. The person so appointed shall be subject to retirement at the same time as if he had become a Director on the day on which the Director in whose place he is appointed was last elected a Director.

Managing Director and Executive Directors

108. The Board may from time to time appoint one or more of its body to the office of Managing Director, or to any other office (except that of Auditor) or employment under the Company, for such period and on such terms as it thinks fit and may revoke such appointment (but so that such revocation shall be without prejudice to any rights or claims which the

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person whose appointment is revoked may have against the Company by reason of such revocation) and may also authorise the continuation by any person appointed to be a Director in any other office or employment held by him before he was so appointed. A Director (other than a Managing Director) holding any such other office or employment is herein referred to as “an Executive Director”.

109. A Director appointed to the office of Managing Director shall, while holding that office, (subject to the provisions of any contract between himself and the Company) be subject to the same provisions as to resignation and removal as the other Directors of the Company, and if he ceases from any cause to be a Director he shall ipso facto cease to be a Managing Director (but without prejudice to any rights or claims which he may have against the Company by reason of such cesser).

110. An Executive Director shall, while holding any office or employment under the Company, (subject to the provisions of any contract between him and the Company) be subject to the same provisions as to resignation and removal as the other Directors of the Company, and if he ceases from any cause to be a Director he shall ipso facto cease to be an Executive Director (but without prejudice to any rights or claims which he may have against the Company by reason of such cesser).

111. The emoluments of any Managing Director or Executive Director for his services as such shall be determined by the Board, and may be of any description.

112. The Board may entrust to and confer upon a Managing Director or Executive Director any of the powers exercisable by it upon such terms and conditions and with such restrictions as it thinks fit, and either collaterally with or to the exclusion of its own powers, and may from time to time revoke, withdraw, alter or vary all or any of such powers.

President

113.1 The Board may from time to time appoint any person to be President of the Company and may also from time to time remove him from office and may appoint another person in his place. The appointment to the office of President shall be honorary. The President of the Company shall not be a Director and shall not by reason of his holding the office of President be deemed to be a Director.

113.2 The President shall be entitled to be repaid all such reasonable travelling (including hotel and incidental) expenses as he may incur in or about the business of the Company.

Non-executive Directors

114.1 Subject to the provisions of the Statutes, the Board may enter into, vary and terminate an agreement or arrangement with any Director who is not an Executive Director for the provision of his services to the Company. Subject to Article 114.2 and 114.3, any such agreement or arrangement may be made on such terms as the Board determines.

114.2 The ordinary remuneration of the Directors who are not Executive Directors for their services (excluding amounts payable under any other provision of these Articles) shall not, subject to Article 114.3, exceed in aggregate £750,000 per annum^* or such higher amount as


^*		Increased to £250,000 by an ordinary resolution passed on 11 May 1990.

^*		Increased to £300,000 by an ordinary resolution passed on 3 May 1996.

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the Company may from time to time by ordinary resolution determine. Subject thereto, each such Director shall be paid a fee for his services (which shall be deemed to accrue from day to day) at such rate as may from time to time be determined by the Board.

114.3 Any Director who is not an Executive Director and who performs special services which in the opinion of the Board are outside the scope of the ordinary duties of a Director, may be paid such extra remuneration by way of additional fee, salary, commission or otherwise as the Board may determine.

Directors’ Expenses

114.4 The Directors may be paid all travelling, hotel, and other expenses properly incurred by them in connection with their attendance at meetings of the Board or committees of the Board, general meetings or separate meetings of the holders of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties.

Alternate Directors

115. Any Director (other than an alternate Director) may without the consent of the Board appoint any other Director and may at any time appoint any person approved by the Board (such approval not to be unreasonably withheld) to be an alternate Director of the Company, and may at any time remove any alternate Director so appointed by him from office. An alternate Director so appointed shall not be entitled to receive any remuneration from the Company, nor be required to hold any share qualification. An alternate Director may be repaid by the Company such expenses as might properly have been repaid to him if he had been a Director, and he shall be entitled to be indemnified by the Company to the same extent as if he were a Director. Every person acting as an alternate Director shall be an officer of the Company and he shall not be deemed to be the agent of the Director whom he represents.

116. An alternate Director shall (subject to his giving to the Company an address within the United Kingdom at which notices may be served upon him) be entitled to receive notices of all meetings of the Board and of any committee of the Board of which the Director appointing him is a member, and to attend and vote and be counted for the purposes of a quorum as a Director at any such meeting at which the Director appointing him is not personally present, and generally perform all the functions of his appointor as a Director in his absence.

117. An alternate Director shall ipso facto cease to be an alternate Director if his appointor ceases for any reason to be a Director otherwise than by retiring and being re-elected at the same meeting or on the happening of any event which, if he were a Director, would cause him to vacate the office of Director.

118. An alternate Director may by notice to the Company resign such appointment.

119. All appointments and removals of alternate Directors shall be effected by notice of the Director making or revoking such appointment and shall take effect in accordance with the terms of the notice on receipt of such notice by the Company which shall, be in hard copy form or in electronic form sent to such address (if any) for the time being specified by or on behalf of the Company for that purpose, or in default of such specification, to the Office.


^*		Increased to £500,000 by an ordinary resolution passed on 30 April 2004.

^*		Increased to £750,000 by a special resolution passed on 25 April 2008.

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120. A Director or any other person may act as alternate Director to represent more than one Director, and an alternate Director shall be entitled at meetings of the Board and at any meeting of a committee of the Board to one vote for every Director whom he represents in addition to his own vote as Director.

Directors’ interests

120.A For the purposes of section 175 of the Companies Act 2006, and from the date on which such statutory provision comes into force (whereafter Articles 120.A to 120.G shall apply), the board may authorise any matter proposed to it in accordance with these articles which would, if not so authorised, involve a breach of duty by a Director under that section, including, without limitation, any matter which relates to a situation in which a Director has, or can have, an interest which conflicts, or possibly may conflict, with the interests of the Company. Any such authorisation will be effective only if:

(a)		any requirement as to quorum at the meeting at which the matter is considered is met without counting the Director in question or any other interested Director; and

(b)		the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.

The board may (whether at the time of the giving of the authorisation or subsequently) make any such authorisation subject to any limits or conditions it expressly imposes but such authorisation is otherwise given to the fullest extent permitted. The board may vary or terminate any such authorisation at any time.

For the purposes of Articles 120.A to 120.G, a conflict of interest includes a conflict of interest and duty and a conflict of duties, and interest includes both direct and indirect interests.

120.B Subject to section 177(5) and section 177(6) of the Companies Act 2006, provided that he has disclosed to the board the nature and extent of his interest, a Director notwithstanding his office:

(a)		may be a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is otherwise (directly or indirectly) interested;

(b)		may act by himself or his firm in a professional capacity for the Company (otherwise than as auditor) and he or his firm shall be entitled to remuneration for professional services as if he were not a Director;

(c)		may be a director or other officer of, or employed by, or a party to a transaction or arrangement with, or otherwise interested in, any body corporate in which the Company is otherwise (directly or indirectly) interested.

120.C A Director shall not, by reason of his office, be accountable to the Company for any remuneration or other benefit which he derives from any office or employment or from any transaction or arrangement or from any interest in any body corporate:

(a)

the acceptance, entry into or existence of which has been approved by the board pursuant to Article 120.A (subject, in any such case, to any limits or conditions to which such approval was subject); or

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(b)

which he is permitted to hold or enter into by virtue of paragraph (a), (b) or (c) of Article 120.B;

nor shall the receipt of any such remuneration or other benefit constitute a breach of his duty under section 176 of the Act.

120.D Any disclosure required by Article 120.B may be made at a meeting of the board, by notice in writing or by general notice or otherwise in accordance with section 177 of the Act.

120.E A Director shall be under no duty to the Company with respect to any information which he obtains or has obtained otherwise than as a director of the Company and in respect of which he owes a duty of confidentiality to another person. However, to the extent that his relationship with that other person gives rise to a conflict of interest or possible conflict of interest, this article applies only if the existence of that relationship has been approved by the board pursuant to Article 120.B. In particular, the director shall not be in breach of the general duties he owes to the Company by virtue of sections 171 to 177 of the Act because he fails:

(a)		to disclose any such information to the board or to any Director or other officer or employee of the Company; and/or

(b)		to use or apply any such information in performing his duties as a Director of the Company.

120.F Where the existence of a Director’s relationship with another person has been approved by the board pursuant to Article 120.B and his relationship with that person gives rise to a conflict of interest or possible conflict of interest, the Director shall not be in breach of the general duties he owes to the Company by virtue of sections 171 to 177 of the Act because he:

(a)		absents himself from meetings of the board at which any matter relating to the conflict of interest or possible conflict of interest will or may be discussed or from the discussion of any such matter at a meeting or otherwise; and/or

(b)		makes arrangements not to receive documents and information relating to any matter which gives rise to the conflict of interest or possible conflict of interest sent or supplied by the Company and/or for such documents and information to be received and read by a professional adviser,

for so long as he reasonably believes such conflict of interest or possible conflict of interest subsists.

120.G The provisions of articles 120.E and 120.F are without prejudice to any equitable principle or rule of law which may excuse the director from:

(a)		disclosing information, in circumstances where disclosure would otherwise be required under these articles; or

(b)		attending meetings or discussions or receiving documents and information as referred to in article 120.F, in circumstances where such attendance or receiving such documents and information would otherwise be required under these articles.

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Secretary

121. The Secretary shall be appointed by the Board for such term, at such remuneration and upon such conditions as it may think fit; and any Secretary so appointed may be removed by the Board.

122. The Board may also appoint one or more persons as deputy secretary (“Deputy Secretary”) for such term, at such remuneration and upon such conditions as it may think fit; and any Deputy Secretary so appointed may be removed by the Board. Any Deputy Secretary may, in the absence of the Secretary, do anything which may be required or authorised to be done by or to the Secretary.

123. A provision of the Statutes or these Articles requiring or authorising a thing to be done by or to a Director and the Secretary shall not be satisfied by its being done by or to the same person acting both as Director and as, or in place of, the Secretary or Deputy Secretary.

The Seal

124.1 The Board shall provide for the safe custody of the Seal, which shall only be used by the authority of the Board or of a committee of the Board authorised by the Board in that behalf and, subject to the provisions of this Article, every document to which the Seal shall be affixed shall be signed by a Director and shall be countersigned by the Secretary or by a second Director or by some other person appointed by the Board for the purpose.

124.2 All forms of certificates for shares, stock or debentures or representing any other form of security (other than letters of allotment or scrip certificates or other like documents) shall be issued under the Seal in manner above provided or under the official seal kept by the Company by virtue of the Statutes; but the Board may by resolution determine either generally or in any particular case that any signatures may be affixed to such certificates by some mechanical means, electronic means, or printed on it or that such certificates need not be signed by any person.

124.3 The Company may exercise the powers conferred by the Statutes with regard to having an official seal for use abroad, and such powers shall be vested in the Board.

Registers

125.1 Subject to the provisions of the Statutes and the Regulations, the Company may keep an overseas or local or other register in any place, and the Board may make, amend and revoke any regulations it thinks fit about the keeping of that register.

125.2 Any Director or the Secretary or any other person appointed by the Board for the purpose shall have power to authenticate and certify as true copies of and extracts from:

(a)		any document comprising or affecting the constitution of the Company, whether in hard copy form or electronic form;

(b)		any resolution passed by the Company, the holders of any class of shares in the capital of the Company, the Board or any committee of the Board, whether in hard copy form or electronic form; and

(c)		any book, record and document relating to the business of the Company, whether in hard copy form or electronic form (including without limitation the accounts).

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If certified in this way, a document purporting to be a copy of a resolution, or the minutes or an extract from the minutes of a meeting of the Company, the holders of any class of shares in the capital of the Company, the Board or a committee of the Board, whether in hard copy form or electronic form, shall be conclusive evidence in favour of all persons dealing with the Company in reliance on it or them that the resolution was duly passed or that the minutes are, or the extract from the minutes is, a true and accurate record of proceedings at a duly constituted meeting.

Accounts and Dividends

126. The Board shall cause accounting records to be kept and such other books and registers as are necessary to comply with the provisions of the Statutes.

127. The accounting records shall be kept at the Office or (subject to the provisions of the Statutes) at such other place as the Board thinks fit, and shall at all times be open to inspection by the Directors. No member (other than a Director) shall have any right of inspecting any account or book or document of the Company, except as conferred by the Statutes or authorised by the Board or by the Company in general meeting.

128. The Board shall from time to time in accordance with the Statutes cause to be prepared and to be laid before the Company in general meeting such profit and loss accounts, balance sheets, group accounts (if any) and reports as are required by the Statutes.

129. A printed copy of every balance sheet (including every document required by law to be annexed thereto) which is to be laid before the Company in general meeting and of the Board’s and Auditor’s reports shall, at least twenty-one days before the meeting, be delivered or sent to every member and debenture holder of the Company of whose address the Company is aware, or, in the case of joint holders of any share or debenture, to one of the joint holders provided that the requirements of this Article 129 shall be deemed satisfied in relation to any member by sending to each such member, where permitted by the Statutes and instead of the said copies, a summary financial statement derived from the Company’s annual accounts and the report of the Directors and prepared in the form and containing the information prescribed by the Statutes and any regulations made thereunder.

Audit

130. Auditors of the Company shall be appointed and their duties regulated in accordance with the Statutes.

131. The Auditors’ report to the members made pursuant to the statutory provisions as to audit shall be read before the Company in general meeting and shall be open to inspection by any member who shall be entitled to be furnished with a copy of the balance sheet (including every document required by law to be annexed thereto) and Auditors’ report in accordance with the Statutes.

Dividends and Reserves

132. The profits of the Company available for dividend and resolved to be distributed shall be applied in the payment of dividends to the members in accordance with their respective rights and priorities. Subject to the next following Article, the Company in general meeting may declare dividends but not in excess of the amount recommended by the Board.

133. No dividend shall be paid otherwise than out of profits available for distribution under the provisions of the Statutes.

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134.1 All dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid, but no amount paid up on a share in advance of calls shall be treated for the purposes of this Article as paid on the share. All dividends shall be apportioned and paid pro rata according to the amounts paid up on the shares during any portion or portions of the period in respect of which the dividend is paid; but if any share is issued on terms providing that it shall rank for dividend as from a particular date, or be entitled to dividends declared after a particular date such share shall rank for or be entitled to such dividend accordingly.

134.2 The Directors may at their discretion make provisions to enable such member and/or other person as they shall from time to time determine to receive dividends duly declared and all redemption monies in respect of redeemable shares in a currency or currencies other than sterling. For the purposes of the calculation of the amount receivable in respect of any dividend or payment of redemption monies, the rate of exchange to be used to determine the foreign currency equivalent of any sum payable as a dividend or payment of redemption monies shall be such market rate selected by the Directors as they shall consider appropriate ruling at any time between the close of business in London on the date which is the business day last preceding the date on which the Directors publicly announce their intention to recommend or pay (as the case may be) that specific dividend or (as the case may be) the redemption date in respect of such redeemable shares and the close of business on the date on which that specific dividend or redemption monies are paid.

135.1 Any general meeting declaring a dividend may upon the recommendation of the Board, direct payment or satisfaction of such dividend wholly or partly by the distribution of specific assets and in particular of fully paid up shares or debentures of any other company, and the Board shall give effect to such direction, and where any difficulty arises in regard to such distribution, the Board may settle it as it thinks expedient, and in particular may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payment shall be made to any members upon the footing of the value so fixed in order to adjust the rights of those entitled to participate in the dividend, and may vest any such specific assets in trustees upon trust for the members entitled to the dividend as may seem expedient to the Board.

135.2 The Directors may, with the sanction of an ordinary resolution of the Company, offer any holders of the Ordinary Shares the right to elect to receive Ordinary Shares credited as fully paid, in whole or in part, instead of cash in respect of such dividend or dividends (or some part to be determined by the Directors) as may be specified by the resolution. The following provisions shall apply:

(a)		the said resolution may specify a particular dividend, or may specify all or any dividends declared or to be declared or paid in respect of a specified period or periods, or for payment not later than the beginning of the annual general meeting next following the passing of such resolution or such later annual general meeting as may be specified by the resolution;

(b)		save where the Directors otherwise determine, the basis of allotment of Ordinary Shares shall be that the relevant value for each holder shall be as nearly as possible equal to (but not more than) the cash amount (exclusive of any imputed tax credit) that such holder would have received by way of the dividend forgone. For the purpose of this clause “relevant value” shall (save where the Directors otherwise determine) be calculated by reference to the average of the middle market quotations for the Company’s Ordinary Shares on The International Stock Exchange as derived from the Daily Official List for the day when the Ordinary Shares are first quoted “ex” the relevant dividend and the four immediately following business days;

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(c)		the Board may notify the holders in writing of any right of election offered to them, and may send to holders at any time forms of election applicable to such right of election and/or to more than one such right of election, such forms specifying the procedure to be followed and the place at which, and the latest time or date by which, duly completed forms of election, or notices from holders amending or terminating existing elections, must be lodged in order to be effective;

(d)		subject to sub-paragraph (f) of this Article, the dividend (or that part of the dividend for which a right of election has been given) shall never become payable in cash on Ordinary Shares to the extent that the election has been duly effected (“elected shares”) and additional Ordinary Shares shall instead be allotted to the holders of the elected shares on the basis of allotment determined as aforesaid. For such purpose the Board shall appropriate, as it sees fit, out of such of the sums standing to the credit of any reserve or fund (including the profit and loss account), whether or not the same is available for distribution, as the Board may determine, a sum equal to the aggregate nominal amount of the additional Ordinary Shares to be allotted on such basis and apply the same in paying up in full the appropriate number of unissued Ordinary Shares for allotment and distribution to and amongst the holders of the elected shares on such basis;

(e)		the additional Ordinary Shares so allotted shall rank pari passu in all respects with the fully paid Ordinary Shares of the same class then in issue save only as regards participation in the dividend in place of which they were allotted;

(f)		no fraction of an Ordinary Share shall be allotted. The Board may make such provisions as it thinks fit for any fractional entitlements including provisions whereby, in whole or in part, the benefit thereof accrues to the Company and/or under which fractional entitlements are accrued and/or retained and in each case accumulated on behalf of any holder and such accruals or retentions are applied to the allotment by way of bonus to or cash subscription on behalf of such holder of fully paid Ordinary Shares and/or provisions whereby cash payments may be made to holders in respect of their fractional entitlements;

(g)		the Board may do all acts and things considered necessary or expedient to give effect to the allotment and issue of any Ordinary Shares in accordance with the provisions of this Article or otherwise in connection with any offer made pursuant to this Article and may authorise any person to enter, on behalf of all the holders concerned, into an agreement with the Company providing for such allotment and incidental matters and any agreement so made under such authority shall be binding on all such holders;

(h)		the Board may on any occasion decide that rights of election shall not be made available to any category of shareholders or to any shareholders in any territory where, in the absence of a registration statement or other special formalities or for any other reason, the circulation of an offer of rights of election to such shareholders or in such territory would or might be unlawful or where, in the opinion of the Board, compliance with local laws and/or regulations would be unduly onerous and in such case the provisions of this Article shall be subject to such decision;

(i)		the Board may in its discretion amend, suspend or terminate any offer which is in operation;

(j)		the power conferred under this Article and by any authority given by the holders shall not be exercised unless the Board shall then have:

Page 39

	(i)		sufficient authority to allot Ordinary Shares in the capital of the Company;

	(ii)		sufficient reserves or funds that may be capitalised after the basis of allotment is determined,

		in each case to give effect to the terms of any such scheme; and

(k)		every duly elected election shall be binding on every successor in title to the elected shares (or any of them) of the holder(s) who has/have effected the same.

136. Subject to the provisions of the Statutes and to Article 133, the Directors:

(a)		may declare and pay the fixed dividends on any class of shares carrying a fixed dividend expressed to be payable on fixed dates on the half-yearly or other dates prescribed for the payment thereof;

(b)		may provide, in such manner and on, such terms as they may think fit, for the payment of any dividends (whether fixed or calculated by reference to or in accordance with a specified procedure or mechanism) on any class of shares carrying such a dividend on such dates as may be prescribed for the payment thereof (whether such dates are fixed or are determined or to be determined in accordance with a specified procedure or mechanism); and

(c)		may also from time to time declare and pay interim dividends on the shares of any class of such amount and on such dates and in respect of such periods as they think fit.

Provided the Directors act in good faith they shall not incur any liability to the holders of shares conferring preferred rights for any loss they may suffer by the lawful payment of an interim dividend on any shares having deferred or non-preferred rights.

137. The Board may set aside out of profits of the Company available for dividend and carry to reserve or reserves such sums as it may think proper, which shall, at the discretion of the Board be applicable for meeting contingencies, or for the gradual liquidation of any debt or liability of the Company, or in providing for depreciation or contingencies or for writing down the value of the assets or for equalising dividends, or for any other purpose to which the profits of the Company may properly be applied, and pending such application may, at the like discretion, either be employed in the business of the Company, or be invested in such investments as the Board may from time to time think fit. The Board may also without placing the same to reserve carry forward any profits which it may think prudent not to distribute.

138. The Board shall transfer to share premium account as required by the Statutes sums equal to the amount or value of any premiums at which any shares of the Company shall be issued. Subject to the provisions of the Statutes the provisions of these Articles relating to sums carried or standing to reserve shall be applicable to sums carried and standing to share premium account.

139. The Board may deduct from any dividend payable to any member all sums of money (if any) presently payable by him to the Company on account of calls or otherwise in relation to shares in the Company.

140. Subject to the rights attaching to, or the terms of issue of, any shares, any dividend on shares of any class or distribution, allotment or issue to the holders of any shares of any class

Page 40

(whether to be paid or made pursuant to a resolution of the Company in general meeting or a resolution of the Directors or otherwise) may be paid or made to the person registered as the holder of such shares or the persons otherwise entitled thereto at the close of business on a particular date notwithstanding that it may be a date prior to that on which the dividend, distribution, allotment or issue is to be paid or made or on which any resolution relating thereto is passed and any such dividend, distribution, allotment or issue shall be paid or made to them in accordance with their respective entitlements thereto but without prejudice to the rights inter se, in respect of such dividend, distribution, allotment or issue, of any holder or former holder of any such shares.

141. The Board may pay the dividends or interest payable on shares in respect of which any person is by transmission entitled to be registered as holder to such person upon production of such certificate and evidence as would be required if such person desired to be registered as a member in respect of such shares.

142. No dividend or other monies payable in respect of a share shall bear interest against the Company unless otherwise provided by the rights attached to or the terms of issue of the share.

143. All dividends unclaimed for six months after having been declared may be invested or otherwise made use of by the Board for the benefit of the Company until claimed and so that the Company shall not thereby be constituted as a trustee in respect thereof. All dividends unclaimed for a period of twelve years after having been declared shall be forfeited and shall revert to the Company.

144. Any dividend or other monies payable in respect of a share, may be paid: (i) in cash; or (ii) by cheque or warrant sent through the post to the registered address of the member or person entitled thereto (or, if two or more persons are registered as joint holders of the share or entitled thereto in consequence of the death or bankruptcy of the holder, to any one of such persons) or to such person and such address as such member or person or persons may by writing direct; or (iii) may be paid by inter-bank transfer to the account of the person entitled to such payment; or (iv) by such other means as the Directors may determine or think fit including without limitation in respect of an uncertificated share by means of the relevant system (subject to the facilities and requirements of the relevant system). Where such dividend or other monies are or are to be paid by cheque or warrant, every such cheque or warrant shall be made payable to the order of the person to whom it is sent or to such person as the holder or joint holders or person or persons entitled to the shares in consequence of the death or bankruptcy of the holder may direct and payment of the cheque or warrant by the bank on which it is drawn; or, in respect of an uncertificated share, the making of payment in accordance with the facilities and requirements of the relevant system (which, if the relevant system is CREST, may include the sending by the Company or by any person on its behalf of an instruction to the Operator of the relevant system to credit the cash memorandum account of the holder or joint holders or, if permitted by the Company, of such person as the holder or joint holders may in writing direct) shall be good discharge to the Company. Every such cheque or warrant shall be sent at the risk of the person entitled to the monies represented thereby. Subject to the provisions of these Articles and to the rights attaching to, or the terms of issue of, any shares, any dividend or other monies payable on or in respect of a share may be paid in such currency as the Directors may think fit or otherwise determine. If any such cheque or warrant is returned undelivered or is left uncashed on two consecutive occasions or, following one such occasion, reasonable enquiries have failed to establish any new address of the registered holder, the Company may cease sending any further cheques or warrants in respect of any dividend to such member until such time, if ever, as such member shall notify the Company of an address to which any cheque or warrant may be sent in future.

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145. If several persons are registered as joint holders of any share, any one of them may give effectual receipts for any dividend or other monies payable in respect of the share.

Capitalisation of Profits

146.1 The Company may, upon the recommendation of the Board, resolve that it is desirable to capitalise any of the profits of the Company to which this Article applies and accordingly that the Board be authorised and directed to appropriate the profits so resolved to be capitalised to the members on the record date specified in the relevant resolution who would have been entitled thereto if distributed by way of dividend and in the same proportions.

146.2 Subject to any direction given by the Company, the Board shall make all appropriations and applications of the profits resolved to be capitalised by any such resolution and such profits shall be applied by the Board on behalf of the members entitled thereto, either:

(a)		in or towards paying up the amounts (if any) for the time being unpaid on any shares held by such members respectively; or

(b)		in paying up in full unissued shares, debentures or obligations of the Company of a nominal amount equal to such profits, for allotment and distribution credited as fully paid up, to and amongst such members in the proportion aforesaid; or

(c)		partly in one way and partly in the other,

provided that the only purpose to which sums standing to capital redemption reserve or share premium account shall be applied pursuant to this Article shall be the payment up in full of unissued shares to be allotted and distributed as aforesaid.

146.3 The Board shall have power after the passing of any such resolution:

(a)		to make such provisions (by the issue of fractional certificates or by payment in cash or otherwise) as it thinks fit in the case of shares, debentures or obligations becoming distributable in fractions; and

(b)		to authorise any person to enter, on behalf of all the members entitled thereto, into an agreement with the Company providing (as the case may require) either:

	(i)		for the payment up by the Company on behalf of such members (by the application thereto of their respective proportions of the profits resolved to be capitalised) of the amounts, or any part of the amounts, remaining unpaid on their existing shares; or

	(ii)		for the allotment to such members respectively, credited as fully paid up, of any further shares, debentures or obligations to which they may be entitled upon such capitalisation,

and any agreement made under such authority shall be effective and binding on all such members.

146.4 The profits of the Company to which this Article applies shall be any undivided profits of the Company not required for paying the fixed dividends on any preference shares or other shares issued on special conditions and shall include:

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(a)		any profits arising from appreciation in capital assets (whether realised by sale or ascertained by valuation); and

(b)		any amounts for the time being standing to any reserve or reserves or to the capital redemption reserve or to share premium or other special account.

Communications

147. Any notice to be sent to or by any person pursuant to these Articles (other than a notice calling a meeting of the Board or any committee of the Board) shall be in writing.

148. Subject to Article 147 and unless otherwise provided by these Articles, the Company shall send or supply a document or information that is required or authorised to be sent or supplied to a member or any other persons by the Company by a provision of the Statutes or pursuant to these Articles or to any other rules or regulations to which the Company may be subject in such form and by such means as it may in its absolute discretion determine provided that the provisions of The Statutes which apply to sending or supplying a document or information required or authorised to be sent or supplied by the Statutes shall, the necessary changes having been made, also apply to sending or supplying any document or information required or authorised to be sent by these Articles or any other rules or regulations to which the Company may be subject.

149. Subject to Article 147 and unless otherwise provided by these Articles, a member or a person entitled by transmission to a share shall send a document or information pursuant to these Articles to the Company in such form and by such means as it may in its absolute discretion determine provided that:

(a)		the determined form and means are permitted by the Statutes for the purposes of sending and supplying a document or information of that type to a company pursuant to the provisions of the Statutes; and

(b)		unless the board otherwise permits, any applicable condition or limitation specified in the Statutes, including without limitation as to the address to which the document or information may be sent, is satisfied.

Unless otherwise provided by these Articles, or required by the board, such document or information shall be authenticated in the manner specified in the Statutes for authentication of a document or information sent in the relevant form.

150. Intentionally blank

151. Intentionally blank

152.1 In the case of joint holders of a share, any document or information shall be sent to the joint holder whose name stands first in the Register in respect of the joint holding and any document or information so sent shall be deemed for all purposes sent to all the joint holders.

152.2 A member whose registered address is not within an EEA State and who sends to the Company an address within an EEA State at which a document or information may be sent to him shall be entitled to have the document or information sent to him at that address (provided that, in the case of a document or information sent by electronic means, including without limitation, any notification required by The Statutes that the document is available on a website, the Company so agrees, which agreement the Company shall be entitled to withhold in its absolute discretion including, without limitation, in circumstances in which the

Page 43

Company considers that the sending of the document or information to such address using electronic means would or might infringe the laws of any other jurisdiction) but otherwise:

(a)		no such member shall be entitled to receive any document or information from the Company; and

(b)		without prejudice to the generality of the foregoing, any notice of a general meeting of the Company which is in fact sent or purports to be sent to such member shall be ignored for the purpose of determining the validity of the proceedings at such general meeting.

152.3 A member present, either in person or by proxy, at any meeting of the Company or of the holders of any class of shares in the capital of the Company shall be deemed to have been sent notice of the meeting and, where requisite, of the purposes for which it was called.

152.4 The Board may from time to time issue, endorse or adopt terms and conditions relating to the use of electronic means for the sending of notices, other documents and proxy appointments by the Company to members or persons entitled by transmission and by members or persons entitled by transmission to the Company.

152.5 A document or information may be sent or supplied by the Company to the person or persons entitled by transmission to a share by sending it in any manner the Company may choose authorised by these Articles for the sending of a document or information to a member, addressed to them by name, or by the title of representative of the deceased, or trustee of the bankrupt or by any similar description at the address (if any) in the United Kingdom as may be supplied for that purpose by or on behalf of the person or persons claiming to be so entitled. Until such an address has been supplied, a document or information may be sent in any manner in which it might have been sent if the death or bankruptcy or other event giving rise to the transmission had not occurred.

152.6 Every person who becomes entitled to a share shall be bound by any notice in respect of that share which, before his name is entered in the Register, has been sent to a person from whom he derives his title, provided that no person who becomes entitled by transmission to a share shall be bound by any Default Notice sent under Article 11.1 to a person from whom he derives his title.

152.7 Proof that a document or information was properly addressed, prepaid and posted shall be conclusive evidence that the document or information was sent. Proof that a document or information sent or supplied by electronic means was properly addressed, shall be conclusive evidence that the document or information was sent. A document or information sent by the Company to a member by post shall be deemed to have been received:

(a)		if sent by first class post or special delivery post from an address in the United Kingdom to another address in the United Kingdom, or by a postal service similar to first class post or special delivery post from an address in another country to another address in that other country, on the day following that on which the document or information was posted;

(b)		if sent by airmail from an address in the United Kingdom to an address outside the United Kingdom, or from an address in another country to an address outside that country (including without limitation an address in the United Kingdom), on the third day following that on which the envelope containing the document or information was posted; and

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(c)

in any other case, on the second day following that on which the document or information was posted.

152.8 A document or information sent or supplied by the Company to a member in electronic form shall be deemed to have been received by the member on the day following that on which the document or information was sent to the member. Such a document or information shall be deemed to have been received by the member on that day notwithstanding that the Company becomes aware that the member has failed to receive the relevant document or information for any reason and notwithstanding that the Company subsequently sends a hard copy of such document or information by post to the member.

152.9 A document or information sent or supplied by the Company to a member by means of a website shall be deemed to have been received by the member:

(a)		when the document or information was first made available on the website; or

(b)		if later, when the member is deemed by Article 152.7 or 152.8 to have received notice of the fact that the document or information was available on the website. Such a document or information shall be deemed received by the member on that day notwithstanding that the Company becomes aware that the member has failed to receive the relevant document or information for any reason and notwithstanding that the Company subsequently sends a hard copy of such document or information by post to the member.

152.10 Subject to the Statutes, if at any time the Company is unable effectively to convene a general meeting by notices sent through the post in the United Kingdom as a result of the suspension or curtailment of postal services, notice of general meeting may be sufficiently given by advertisement in the United Kingdom. Any notice given by advertisement for the purpose of this Article shall be advertised in at least one newspaper having a national circulation. If advertised in more than one newspaper, the advertisements shall appear on the same date. Such notice shall be deemed to have been sent to all persons who are entitled to have notice of meetings sent to them on the day when the advertisement appears. In any such case, the Company shall send confirmatory copies of the notice by post, if at least seven days before the meeting the posting of notices to addresses throughout the United Kingdom again becomes practicable.

Winding Up

153. If the Company shall be wound up, the liquidator may, with the sanction of a special resolution of the contributories, divide amongst the contributories in specie the whole or any part of the assets of the Company and may, for that purpose value any assets and determine how the division shall be carried out as between the contributories or different classes of contributories. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator with the like sanction shall think fit.

154. The power of sale of a liquidator shall include a power to sell wholly or partially for shares or stock or for the debentures, debenture stock or other obligations of another company, either then already constituted, or about to be constituted, for the purpose of carrying out the sale.

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Indemnity

155.1 Subject to the provisions of the Statutes, but without prejudice to any indemnity to which the person concerned may otherwise be entitled, every director or other officer of the Company (other than any person (whether an officer or not) engaged by the Company as auditor) shall be indemnified out of the assets of the Company against any liability incurred by him for negligence, default, breach of duty or breach of trust in relation to the affairs of the Company, provided that this Article shall be deemed not to provide for, or entitle any such person to, indemnification to the extent that it would cause this Article, or any element of it, to be treated as void under the Act or otherwise under the Statutes.

155.2 Without prejudice to the provision of Article 155(1), the Directors shall have the power to purchase and maintain insurance for or for the benefit of any persons who are or were at any time Directors, officers or employees of the Company, or any company in which the Company has an interest whether direct or indirect or which is in any way allied to or associated with the Company, or of any subsidiary undertaking of the Company or any such other company, or who are or were at any time trustees of any retirement benefits scheme or employee benefits trust in which employees of the Company or any such other company or subsidiary undertaking are interested, including (without prejudice to the generality of the foregoing) insurance against any liability incurred by such persons in respect of any act or omission in the actual or purported execution or discharge of their duties or in the exercise or purported exercise of their powers or otherwise in relation to their duties, powers or offices in relation to the Company or any such other company, subsidiary undertaking or retirement benefits scheme or employee benefits trust.

Discovery

156. No member or meeting of members shall be entitled to discovery of or any information respecting any detail of the Company’s operations or trading or any matter which may be or is in the nature of a trade secret, or which may relate to the conduct of the business of the Company, which in the opinion of the Board it would not be expedient in the interests of the members to communicate.

Destruction of Documents

157. The Company shall be entitled to destroy all instruments of transfer of shares which have been registered at any time after the expiration of six years from the date of registration thereof and all dividend mandates and notifications of change of address at any time after the expiration of two years from the date of recording thereof and all share certificates which have been cancelled at any time after the expiration of one year from the date of the cancellation thereof and it shall conclusively be presumed in favour of the Company that every entry in the Register purporting to have been made on the basis of an instrument of transfer or other document so destroyed was duly and properly made and every instrument of transfer so destroyed was a valid and effective instrument duly and properly registered and every share certificate so destroyed was a valid and effective certificate duly and properly cancelled and every other document herein before mentioned so destroyed was a valid and effective document in accordance with the recorded particulars thereof in the books or records of the Company. Provided always that:

(a)

the provisions aforesaid shall apply only to the destruction of a document in good faith and without notice of any claim (regardless of the parties thereto) to which the document might be relevant;

Page 46

(b)		nothing herein contained shall be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than as aforesaid or in any other circumstances which would not attach to the Company in the absence of this Article;

(c)		references herein to the destruction of any document include references to the disposal thereof in any manner.

Untraced Shareholders

158.1 If in the period of twelve years prior to the date of publication of the advertisements referred to below (or, if published on different dates, the first thereof) at least three dividends have become payable in respect of any class of shares of the Company and all warrants and cheques in respect of the shares in question have remained uncashed during that period, the Company may sell for the best price reasonably obtainable the shares of that member or of a person entitled to such shares by virtue of transmission on death, bankruptcy, mental disorder, operation of law or any other event in such manner as the Board thinks fit provided that:

(a)		the Company shall, as soon as practicable after expiry of the said period of twelve years, have given notice by advertisement in a national daily newspaper and a newspaper circulating in the area of the address at which service of notices upon such member or person entitled to such shares may be effected in accordance with these Articles of its intention to sell such shares; and

(b)		the Company has not, during the further period of three months after the date of the advertisements (or, if published on different dates the later thereof) and prior to the exercise of the power of sale, received any communication from the member or a person entitled to such shares by virtue of transmission on death or bankruptcy or otherwise.

158.2 To give effect to any such sale the Board may:

(a)		where the shares are held in certificated form, authorise any person to execute as transferor an instrument of transfer of the shares to be sold to, or in accordance with the directions of, the purchaser and such instrument of transfer shall be as effective as if it had been executed by the registered holder of, or person entitled by transmission to, such shares; or

(b)		where the shares are held in uncertificated form, do all acts and things it considers necessary or expedient to effect the transfer of the shares to, or in accordance with the directions of, the buyer.

The transferee shall be entered in the Register as the holder of the shares comprised in any such transfer (notwithstanding that no certificate representing the shares shall be produced), and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.

158.3 The net proceeds of sale, after payment of the costs thereof, shall belong to the Company which shall be obliged to account to the former member or other person previously entitled as aforesaid for an amount equal to such proceeds and shall enter the name of such former member or other person in the books of the Company as a creditor for such amount. No trust shall be created in respect of the debt, no interest shall be payable in respect of the same and the Company shall not be required to account for any money earned on the net

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proceeds, which may be employed in the business of the Company or invested in such investments as the Board may from time to time think fit.

Page 48

Index To Articles of Association


	Article			Page
Accounts, records of		126			36
records of, where kept		127			36
copies of, to be sent to members		129			36
inspection of		127			36
to be submitted in accordance with the Statutes		128			36
Administrators of deceased Members		39			11
Allotment of shares		7.1-7.4			4
Alternate Directors		98,115-120, 155.1			28, 33, 46
Appointment of Directors		77-80			22
Auditors, appointment		130			37
Report		131			37

Bankruptcy, rights of person entitled to shares in consequence of		39-40			11
Borrowing, Board’s powers		90.1-90.8			24
definitions related to		90.3-90.4			24
Brokerage on shares		8			5

Calls on shares, Board may make from time to time		14			8
date of call		15			8
differentiation on		19			9
forfeiture of shares, for non-payment of		25-27			9
in arrears		69			20
interest on unpaid calls		17			8
joint holders jointly and severally liable		16			8
made when resolution passed		15			8
monies may be paid up in advance and interest paid thereon		20			9
notice to be given		14			8
procedure to recover money due on calls		25			9
sums deemed to be		18			8
Capital of Company, alterations to		46-48			14
cancellation of shares		46	(c)		14
conversion of shares into stock and vice versa		42			13
consolidation of shares		46	(a)		14
fractions of shares on consolidation		46	(a)		14
increase of		47			14
redeemable shares, power to issue		49			15
reduction of by special resolution		48.1			14
rights may be varied		4-5			4
shares created pursuant to alteration to capital		48.2			14
sub-division of shares		46	(b)		14
Capitalisation of profits		146.1-146.4			42
Certificates		12-13			8
charges for		12.1			8
lost or destroyed, new may be issued		13			8
may be delivered to any one of joint holders		12.2			8
one to every member		12.1			8
to be sealed, but need not be signed		124.2			36

Page 49


	Article			Page
Chairman of a meeting		57-64			18
acting as		58			18
adjourn meetings, right to		59			18
adjourned meetings, fixing of		57			17
Declaration of result of vote on a show of hands		60			18
poll, consequence of demand		64			19
poll, on election of chairman		63			19
poll, procedure and effect of		61			18
poll, right to demand		60			18
qualification of vote, decision as to		70			20
Closing of Register		37			11
Commission on shares		8			5
Communications, accidental omission of, not to invalidate resolution		54.1			16
deemed receipt of notice		152.3			44
during disruption of services		152.10			45
includes website notification		152.9			45
methods of Company sending notice		148			43
methods of member etc. sending notice		149			43
proof of sending/when notices etc. deemed sent by post		152.7			44
registered address outside UK		152.2			43
terms and conditions for electronic communications		152.4			44
to joint holders		152.1			43
to persons entitled by transmission		152.5			44
transferees etc. bound by prior notice		152.6			44
website publication by Company		152.2			43
when notice required to be in writing; use of electronic communications		152.2			43
when notices etc. deemed sent by electronic communication		152.8			45

Consolidation of shares		46	(a)		14
Conversion of shares into stock and vice versa		42			13

Debentures, etc may be issued		90.1			24
Default notices		11.1-11.4			6
Definitions		2			1
Directors, acting in a professional capacity		102.3			31
acts valid notwithstanding defect in appointment		98			28
Alternate		115-120			33
appointment of		77,79			22, 23
appointment of, by separate resolution		79			23
Chairman and Deputy Chairman of		93			27
Chairman entitled to take chair at general meetings		58			18
Chairman to have no casting vote		91.1			27
Committees, powers may be delegated to		96			28
Company may fill vacancies at general meeting		78			23
continuing Directors may act in case of Vacancy		78			23
contracts, interest in to be disclosed		101.1			29
contracts, not disqualified from entering into with Company		101.1			29

Page 50


	Article		Page
contracts, power to vote on		101.2		30
defect in appointment of		98		28
delegation of powers		96		28
disqualification of		100		29
election by general meeting		106		31
Executive		108, 110-112		31, 32
Expenses		114.4		33
indemnified against losses, indemnity insurance etc		155.1-155.2		46
interests		120.A-120.G		34
Managing		108-109, 111-112		31, 32
may appoint attorneys		87		24
may appoint local Boards and delegate powers		85		23
may become Director of any subsidiary or other company		102.1		31
may provide for local management		85		23
meetings, a Director may at any time convene		91.2		27
meetings, Board may fix a quorum		92		27
meetings, competency to exercise powers		95		28
meetings, Directors may meet as they think fit		91.1		27
meetings, notice of		91.3		27
meetings, proceedings at		91-98		27
meetings, quorum		92		27

no person other than retiring Director eligible for election without notice or Directors’ recommendation		80		23
non-executive		114.1-114.3		32
number of		76		22
office, when vacated		104		31
pensions and other benefits determined by the Board		86.1-86.2		23
power to determine manner of endorsement of cheques		89		24

power to make additional appointments		77		22
powers of		84-89		23
powers, general powers of Company vested in Directors		84		23

proceedings		91-98		27
qualification of		81		23
removal of		107		31
remuneration of non executive Directors		114.2		32
remuneration for special services by non executive Directors		114.3		33
report to be submitted in accordance with the Statutes		128-129		37
Resolutions of		94		27
Retirement of		103-106		31
vacancy may be filled by Directors		77		22
voting by, with regard to interest in contracts		101.2		30
voting by		101.2-101.5		30
voting powers conferred by shares of a subsidiary		102.2		31
Discovery		156		46
Dividends, interim, Board may pay		136		40
in currency other than sterling		134.2		38
from profits		132		37
joint holders		145		42

Page 51


	Article		Page
may be paid in specie or satisfied by allotment or ordinary shares if authorised by general meeting		135.1-135.2		38
may cease to be sent		144		41
method of payment		144		41
no dividends shall bear interest against Company		142		41
no larger than Board recommends		132		37
on shares in proportion to amount paid up		134.1		38
paid to registered holder or entitled to be registered as a holder		140-141		40
Production of evidence of entitlement		141		41
Reserves		137		40
subject to Statutes		133		37
Unclaimed		143		41
when may be retained		21,41,139		9, 12, 40
Documents, discovery		156		46
power of Company to destroy		157		46

Executive and Managing Directors		108-112		31

Forfeiture, Board may accept surrender of shares liable to		30		10

day and place, etc, to be named in notice		26		10
forfeited shares		28		10
forfeiture may be cancelled		28		10
if notice not complied with shares may be forfeited		27		10
member liable to pay call notwithstanding		29		10
notice, form of		26		10
notice requiring payment of money due		25		9
statutory declaration conclusive evidence		31		10

General and class meetings		50-64		15
Accidental omission of notice of		54.1		16
adjournment of		57,59		17, 18
Annual		50		15
business of annual		55		17
chairman of		58		18
change of time/place of		54.6		17
may be convened by Board or by requisition		51.1		15
notice of		52-54.7		15
other than annual		50		15
period of notice		52		15
proceedings at		55-64		17
Provisions relating to class meetings		51.2		15
Quorum		56		17
satellite meeting place		54.2-54.3		16
time and place		53		15
venue not being a satellite meeting place		54.4-54.5		16
voting at		60-64		18

Increase of capital		47		14
Indemnity		155.1-155.2		46
Instalments of a call, failure to pay		25		9
Interpretation of provisions relating to stock		45		14

Page 52


	Article			Page
Lien, application of proceeds of sale		24			9
Board may exempt any share from these provisions		21			9
Company has first lien on shares not fully paid up, and on dividends		21			9
Company may sell shares to enforce lien		22			9
effect of sale		23			9
name of purchaser shall be entered in Register		23			9
Liquidation		153-154			45
Local management		85			23

Managing Director and Executive Directors		108-112			31
appointment of		108			31
power such as Board thinks fit		112			32
remuneration to be fixed by Board		111			32
resignation and removal of		109-110			32
Minutes of Board meetings		99			28

Pensions, establishment by Board		86.1			23
Poll, demand of not to prevent dealing with other business		64			19

how to be demanded		60			18
on adjournment or election of chairman		63			19
result of		62			19
to be taken as Chairman directs		62			19
Powers of attorney		74,87			20, 24
Powers of Board		84-89			23
President		113.1,113.2			32
Proceedings, at general meetings		55-64			17
of Board		91-98			27
Proxies		65-66,68,69, 71-75.4			19, 20

Purchase of Company’s shares		9			5

Quorum, at Board meetings		92			27
at general meetings		56			17
at meetings of classes of shares		51.2			15

Redeemable shares		49			15
Reduction of capital		48			14
Registers		125.1-125.2			36
Retirement and removal of Directors		103-107			31
Reserves		137			40
Rights of Members, variation of		4-5			4

Seal, affixing of		124.1-124.2			36
in foreign countries		124.3			36
Secretary		121,123			36
Deputy		122			36
if a Director		123			36
Securities Seal, shares warrants, issued under		41	(A)		12
Share certificates		12-13			8
Share premium account		138			40

Page 53


	Article			Page
Share warrant, provisions applying to		41	(A)		12
Shares, allotment by Board		7.1-7.4			4
cancellation of		46	(c)		14
commissions		8			5
Company may purchase its own		9			5
consolidation		46	(a)		14
conversion into stock and vice versa		42			13
different clauses of		4			4
new issues of, not a variation of rights attaching to existing shares		6			4
power to deal with fractions on consolidation		46	(a)		14
redeemable		49			15
sub-division of		46	(b)		14
transfer and transmission of		32-41			10
trusts not recognised		10			5
Uncertificated		11.5-11.7			7
Stock, conversion into		42			13
manner of transfer		43			13
provisions of these Articles applicable to,		45			14
Stockholders, same privileges as shareholders		44			13

‘Table A’ shall not apply		1			1
Transfer and Transmission		32-41			10
absolute discretion of Board		34			11

to refuse to register
Board may refuse to register in certain other cases		35			11
form of transfer		32			10
instrument of transfer of shares to be executed by or on behalf of transferor and (in the case of partly paid shares) transferee		33			11
legal personal representatives of deceased, survivors of joint holders only persons recognised by Company		38			11

notice of refusal to register transfer		36			11
of shares of deceased or bankrupt Member		38			11
registration of transfers may be suspended		37			11
transferor holder until transferee on Register		33			11
Transfer Office		2			1
share warrants, deposited at		41	(A)		12
Transmission of shares		38-41A			11
Trusts not to be recognised		10			5

Untraced shareholders		158.1-158.3			47

Variation of rights		4-5			4
Votes of Members		65-75.4			19
by a corporation		67			19
appointment of a proxy		72-75.3			20
chairman’s declaration as to result of votes is final		50			15
evidence of passing resolutions		60			18
members under incapacity		68			19
no member entitled to vote whilst call due, etc.		69			20

Page 54


		Page

Item 10.	Additional Information		59
	Articles of association		59
	Material Contracts		64
	Exchange Controls		64
	Tax considerations		64
	Documents on Display		67
Item 11.	Quantitative and Qualitative Disclosures about Market Risk		67
	Introduction		67
	Interest Rates		67
	Currency Exchange Rates		68
	Forward Foreign Exchange Contracts		68
	Derivatives		69
	Quantitative Information about market risk		69
Item 12.	Description of Securities Other Than Equity Securities		69
Item 12D.	American Depositary Shares		69
	Fees paid by ADR holders		69
	Fees incurred in past annual period and fees to be paid in the future		70

PART II
Item 13.	Defaults, Dividend Arrearages and Delinquencies		71
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds		71
Item 15.	Controls and Procedures		71
	Disclosure Controls and Procedures		71
	Management’s Annual Report on Internal Control over Financial Reporting		71
	Change in Internal Control over Financial Reporting		71
Item 16A.	Audit Committee Financial Expert		71
Item 16B.	Code of Ethics		72
Item 16C.	Principal Accountant Fees and Services		72
Item 16D.	Exemptions from the Listing Standards for Audit Committees		72
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchases		73
Item 16F.	Changes in Registrant’s Certifying Accountant		73
Item 16G.	Corporate Governance		73

PART III
Item 17.	Financial Statements		73
Item 18.	Financial Statements		73
Item 19.	Exhibits		73
Exhibit 1.1
Exhibit 2.4
Exhibit 2.5
Exhibit 2.6
Exhibit 8.1
Exhibit 12.1
Exhibit 12.2
Exhibit 13.1
Exhibit 13.2
Exhibit 15


		Page

	Introduction		4
	Forward-Looking Statements		4

	PART I
Item 1.	Identity of Directors, Senior Management and Advisers		6
Item 2.	Offer Statistics and Expected Timetable		6
Item 3.	Key Information		6
	Selected Consolidated Financial Data		6
	Dividend Information		7
	Exchange Rate Information		8
	Risk Factors		8
Item 4.	Information on the Company		13
	Pearson		13
	Overview of Operating Divisions		13
	Our Strategy		13
	Operating Divisions		14
	Operating Cycles		17
	Competition		18
	Intellectual Property		18
	Raw Materials		18
	Government Regulation		19
	Licenses, Patents and Contracts		19
	Legal Proceedings		19
	Recent Developments		19
	Organizational Structure		20
	Property, Plant and Equipment		20
	Capital Expenditures		21
Item 4A.	Unresolved Staff Comments		21
Item 5.	Operating and Financial Review and Prospects		21
	General Overview		21
	Results of Operations		24
	Liquidity and Capital Resources		42
	Accounting Principles		44
Item 6.	Directors, Senior Management and Employees		44
	Directors and Senior Management		44
	Compensation of Senior Management		46
	Share Options of Senior Management		53
	Share Ownership of Senior Management		55
	Employee Share Ownership Plans		55
	Board Practices		56
	Employees		56
Item 7.	Major Shareholders and Related Party Transactions		57
Item 8.	Financial Information		58
Item 9.	The Offer and Listing		58


	Page

Report of Independent Registered Public Accounting Firm		F-2
Consolidated Income Statement for the year ended December 31, 2009, 2008 and 2007		F-3
Consolidated Statement of Comprehensive Income for the year ended December 31, 2009, 2008 and 2007		F-4
Consolidated Statement of Changes in Equity for the year ended December 31, 2009, 2008 and 2007		F-5
Consolidated Balance Sheet as at December 31, 2009 and 2008		F-6
Consolidated Cash Flow Statement for the year ended December 31, 2009, 2008 and 2007		F-8
Notes to the Consolidated Financial Statements		F-9


	Article		Page
no right to vote in case of a Default Notice		11.2		6
objection to qualification		70		20
one vote for each share, at a poll		65		19
personally or by proxy		65		19
right to vote on show of hands and on a poll		65, 71		19, 20
vote by proxy		75.4		22
where joint holders		66		19

Winding up		153-154		45


	Page
Preliminary		1
Variation of Rights		4
Shares		4
Uncertificated Shares		7
Certificates		8
Calls on Shares		8
Lien		9
Forfeiture of Shares		9
Transfer of Shares		10
Transmission of Shares		11
Stock		13
Consolidation, Sub-Division and Cancellation of Shares		14
Increase and Reduction of Capital		14
Redeemable Shares		15
Meetings of Members		15
General and Class Meetings		15
Notice of General Meetings		15
Proceedings at General Meetings		17
Votes of Members		19
Proxies		20
Directors		22
Number and Appointment of Directors		22
Qualification of Directors		23
Powers of Directors		23


	Page
Borrowing		24
Proceedings of the Board		27
Minutes		28
Disqualification of Directors		29
Retirement and Removal of Directors		31
Managing Director and Executive Directors		31
President		32
Non-executive Directors		32
Directors’ Expenses		33
Alternate Directors		33
Directors’ interests		34
Secretary		36
The Seal		36
Registers		36
Accounts and Dividends		37
Audit		37
Dividends and Reserves		37
Capitalisation of Profits		42
Communications		43
Winding Up		45
Indemnity		46
Discovery		46
Destruction of Documents		46
Untraced Shareholders		47
Index To Articles of Association		49


		Page
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE

Section 1.1	Definitions		1
Section 1.2	Rules of Construction		9

ARTICLE II
THE NOTES

Section 2.1	Form and Dating		10
Section 2.2	Execution and Authentication		11
Section 2.3	Registrar and Paying Agent; Calculation Agent		13
Section 2.4	Paying Agent to Hold Money in Trust		13
Section 2.5	Holder Lists		14
Section 2.6	Global Note Provisions		14
Section 2.7	Legends		15
Section 2.8	Transfer and Exchange		15
Section 2.9	Mutilated, Destroyed, Lost or Stolen Notes		17
Section 2.10	Cancellation		18
Section 2.11	Add On Notes		18
Section 2.12	Defaulted Interest		20
Section 2.13	CUSIP Numbers		20

ARTICLE III
COVENANTS

Section 3.1	Payment of Notes		20
Section 3.2	Maintenance of Office or Agency		21
Section 3.3	Corporate Existence		21
Section 3.4	Payment of Taxes and Other Claims		21
Section 3.5	Further Instruments and Acts		21
Section 3.6	Waiver of Stay, Extension or Usury Laws		21
Section 3.7	Payment of Additional Amounts		22
Section 3.8	Offer to Repurchase upon a Change of Control Triggering Event		22
Section 3.9	Limitation on Liens		23
Section 3.10	Reports to Holders		24

ARTICLE IV
TRANSFEREE COMPANY

Section 4.1	Assumption of Obligations		24
Section 4.2	Transferee Company Substituted for Company		25

ARTICLE V
SUCCESSOR COMPANY

Section 5.1	Consolidation, Merger and Sale of Assets of the Company		25
Section 5.2	Consolidation, Merger and Sale of Assets of the Guarantor		26
Section 5.3	Successor Company or Guarantor Substituted		27


		Page
ARTICLE VI
OPTIONAL REDEMPTION OF NOTES

Section 6.1	Optional Tax Redemption		27
Section 6.2	Optional Redemption		27
Section 6.3	Election to Redeem		28
Section 6.4	Notice of Redemption		28
Section 6.5	Selection of Notes to be Redeemed in Part Pursuant to an Optional Redemption		29
Section 6.6	Deposit of Redemption Price		29
Section 6.7	Notes Payable on Redemption Date		29
Section 6.8	Unredeemed Portions of Partially Redeemed Note		30

ARTICLE VII
DEFAULTS AND REMEDIES

Section 7.1	Events of Default		30
Section 7.2	Acceleration		31
Section 7.3	Other Remedies		32
Section 7.4	Waiver of Past Defaults		32
Section 7.5	Control by Majority		32
Section 7.6	Limitation on Suits		33
Section 7.7	Rights of Holders to Receive Payment		33
Section 7.8	Collection Suit by Trustee		33
Section 7.9	Trustee May File Proofs of Claim, etc.		33
Section 7.10	Priorities		34
Section 7.11	Undertaking for Costs		34

ARTICLE VIII
TRUSTEE

Section 8.1	Duties of Trustee		35
Section 8.2	Rights of Trustee		36
Section 8.3	Individual Rights of Trustee		37
Section 8.4	Trustee’s Disclaimer		37
Section 8.5	Notice of Defaults		37
Section 8.6	Reports by Trustee to Holders		37
Section 8.7	Compensation and Indemnity		37
Section 8.8	Replacement of Trustee		38
Section 8.9	Successor Trustee by Merger		39
Section 8.10	Eligibility; Disqualification		39
Section 8.11	Preferential Collection of Claims Against Company		40
Section 8.12	Paying Agent and Calculation Agent		40

ARTICLE IX
SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONIES

Section 9.1	Satisfaction and Discharge		40
Section 9.2	Application by Trusteee of Funds Deposited for Payment of Notes		40
Section 9.3	Repayment of Monies Held by Paying Agent		41
Section 9.4	Return of Monies Held by Trustee and Paying Agent Unclaimed for Two Years		41


		Page
ARTICLE X
AMENDMENTS

Section 10.1	Without Consent of Holders		41
Section 10.2	With Consent of Holders		42
Section 10.3	Compliance with Trust Indenture Act		43
Section 10.4	Acts of Holders		43
Section 10.5	Notation on or Exchange of Notes		43
Section 10.6	Trustee to Sign Amendments		43

ARTICLE XI
GUARANTEES

Section 11.1	The Guarantees		44
Section 11.2	Guarantees Unconditional		44
Section 11.3	Reinstatement		44
Section 11.4	Subrogation		44

ARTICLE XII
MISCELLANEOUS

Section 12.1	Trust Indenture Act Controls		45
Section 12.2	Notices		45
Section 12.3	Communication by Holders with Other Holders		46
Section 12.4	Certificate and Opinion as to Conditions Precedent		46
Section 12.5	Statements Required in Certificate or Opinion		46
Section 12.6	Form of Documents Delivered to Trustee		47
Section 12.7	Rules by Trustee, Paying Agent and Registrar		47
Section 12.8	Payment on Business Days		47
Section 12.9	Governing Law, etc.		47
Section 12.10	Successors		49
Section 12.11	Duplicate and Counterpart Originals		49
Section 12.12	Severability		49
Section 12.13	Currency Indemnity		49
Section 12.14	Benefits of Indenture		49
Section 12.15	Table of Contents; Headings		50
Section 12.16	Waiver of Jury Trial		50
Section 12.17	Force Majeure		50

EXHIBITS

Exhibit A	Form of 2013 Notes		52
Exhibit B	Form of 2018 Notes		63
Exhibit C	Form of Transfer Certificate for Transfer to QIB		74
Exhibit D	Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S		75
Exhibit E	Form of Rule 144 Certification		77


		The Bank of New York,
		as Trustee

		By:

		as Authenticating Agent

		By:

		Authorized Signatory

	(i)		the Trustee fails to comply with Section 8.10;

	(ii)		the Trustee is adjudged bankrupt or insolvent;

	(iii)		a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee otherwise becomes incapable of acting.


PEARSON DOLLAR FINANCE TWO PLC
By:	/s/ Michael Day
	Name:	Michael Day
	Title:	Director

PEARSON PLC
By:	/s/ Michael Day
	Name:	Michael Day
	Title:	Group Treasurer

THE BANK OF NEW YORK as Trustee, Paying Agent and Calculation Agent
By:	/s/ Mark Jeanes
	Name:	Mark Jeanes
	Title:	Assistant Vice President


			Principal Amount of	Signature of
	Amount of decrease	Amount of increase in	this Global Note	authorized signatory
Date of	in Principal Amount	Principal Amount of	following such	of Trustee or Paying
Exchange	of this Global Note	this Global Note	decrease or increase	Agent


		Country of
Company		Incorporation
Addison Wesley Longman Australia Pty Ltd		Australia
Adelphi Finance Limited		Jersey
African Business Channel (Pty) Ltd		South Africa
AGS Inc		USA
AW Iberoamericana SA de CV		Mexico
Axis Finance Inc		USA
Bath Road Corporation		USA
BDFM Publishers (Pty) Ltd		South Africa
Beijing Rongjin Advertising Company Ltd		China
Berkhout Nijmegen BV		Netherlands
Blue Wharf Ltd		England and Wales
BS ZAO		Russia
Burmedia Investments Ltd		England and Wales
Camshaw USA Inc		USA
Chatelain Properties Ltd		England and Wales
Children’s Character Books Ltd		England and Wales
Chronicle Australasia pty Ltd		Australia
Data Broadcasting Corp. BVI		Virgin Islands
Detective Nominees Inc		USA
Dominie Press Inc		USA
Dorling Kindersley — Civilizacao, Editores, Lda		Portugal
Dorling Kindersley Australia Pty Ltd		Australia
Dorling Kindersley Holdings Ltd		England and Wales
Dorling Kindersley Inc		USA
Dorling Kindersley India Private Limited		India
Dorling Kindersley Ltd		England and Wales
Dorling Kindersley Publishers (South Africa) Pty Ltd		South Africa
Dorling Kindersley Publishing Inc		USA
Dorling Kindersley Publishing Pty Ltd		Australia
Dorling Kindersley Verlag GmbH		Germany
eCollege inc		USA
E-College Lanka (Private) Ltd		Sri Lanka
Edexcel China Ltd		Hong Kong
Edexcel Ltd		England and Wales
Edexcel South Africa Pty Ltd		South Africa
Editions Du Renouveau Pedagogique Inc		Canada
Education by Association (Pty) Ltd		South Africa
Educational Publishers LLP		USA
Embankment Finance Ltd		England and Wales
English Language Learning and Instruction System Inc		USA
eSignal (Europe) Ltd		England and Wales
eSignal .com Inc		USA
eSignal Inc		USA
Exec-Appointments Ltd		England and Wales
Exshare Financial (US) Ltd		England and Wales
Exshare Financial Inc		USA
Exshare Statistical Services Ltd		England and Wales
Family Books at Home Inc		USA
FDI Intelligence Limited		England and Wales

1.		I have reviewed this annual report on Form 20-F of Pearson plc;

2.		Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.		Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of Pearson plc as of, and for, the periods presented in this annual report;

4.		Pearson plc’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Pearson plc and have:

	a)		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Pearson plc, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b)		designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		evaluated the effectiveness of Pearson plc’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		disclosed in this annual report any change in Pearson plc’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, Pearson plc’s internal control over financial reporting; and

	a)		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Pearson plc’s ability to record, process, summarize and report financial information; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in Pearson plc’s internal control over financial reporting.



	/s/ Marjorie Scardino
	Marjorie Scardino
	Chief Executive Officer

	1.		The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	2.		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.