Thursday 04 March, 2010

Psion PLC

Annual Financial Report

RNS Number : 0730I

Psion PLC

04 March 2010

Thursday 4 March 2010: For immediate release

PSION PLC

Results for the Twelve Months ended 31 December 2009

Psion PLC, the mobile computing company, today announces audited results for the twelve months to 31 December 2009.

	12 months to 31/12/09 £m	12 months to 31/12/08 £m
Revenue	170.0	199.4
Operating loss	(3.1)	(8.8)
Operating margin	(1.8)%	(4.4)%
Loss before tax	(3.0)	(7.6)

Loss from continuing operations	(7.8)	(10.3)
Adjusted operating profit from continuing operations¹	2.0	6.0
Adjusted operating margin¹	1.1%	3.0%

Cash and cash equivalents	45.3	41.3
Net assets	177.6	210.4

Basic (Loss) / EPS	(5.1)p	(8.6)p
Diluted (Loss) / EPS	(5.1)p	(8.6)p
Adjusted basic EPS	(3.2)p	2.6p

Dividend	3.8p	3.7p

1. Adjusted operating profit reconciles to operating loss from continuing operations as follows:
Operating loss from continuing operations	(3.1)	(8.8)
(Deduct) / add back share-based payments (credit) / charge	(0.4)	0.5
Add back exceptional operating costs	5.5	15.1
Deduct gain on sale of non-current asset previously held for	-	(0.8)

Adjusted operating profit from continuing operations	2.0	6.0

2. Normalised operating profit reconciles to adjusted operating profit as follows:
Adjusted operating profit from continuing operations	2.0	6.0
Add back inventory provision	5.6	-
Deduct capitalised development costs	(3.6)	-
Normalised operating profit	4.0	6.0

John Conoley, Chief Executive, said:

"2010 will continue to be a year of evolution as the first new products based on the modular platform are made available. We will see full year benefits from many of the actions we took in 2009, and will see an increased rate of new products launched in the second half of 2010. With a strong balance sheet, a strong cash position and a clear strategy, Psion is well placed to exploit gradually improving market conditions."

"The slight improvement in sales activity and order intake that we reported towards the end of 2009 has continued into 2010. Trading in the current year has started in line with management expectations and we are confident of achieving a satisfactory outcome for 2010."

Summary

·	Results were in line with the Board's expectations. The slight improvement in sales activity and order intake reported in the second half has carried over into the current year. We were pleased to win new orders from a range of new customers including RWE npower, Dusseldorf Airport, and EON. By the last quarter of 2009, order books were at the highest level since we began to see the effects of the downturn in November 2008.
·	Revenues in 2009 were £170.0m (2008: £199.4m). Sales in Europe, Middle East and Africa expressed in Euros were €117.1m (2008: €152.2m). Sales in the Americas were US$83.3m (2008: US$115.2m), while sales in Asia were US$18.6m (2008: US$29.7m).
·	The company made progress in the second half of 2009 towards its previously stated goal of achieving a 10% adjusted operating margin. The normalised operating margin moved from a negative 1.3% in the first half to positive 6.0% in the second half.
·	Psion exceeded its internal cash targets for the year through improvements in supply chain and debtor management processes. This has enabled the company to maintain its strong balance sheet.
·	The Group has no debt. The Group's cash balance at the end of the year increased to £45.3m (2008: £41.3m). This increase in cash and cash equivalents has been delivered after restructuring costs, capital expenditure, tax, the currency impact on opening balance and dividends which together have absorbed £28.0m of net cash in 2009. We remain confident in our ability to generate significant operating cash in future.
·	The Change Programme begun in 2008 delivered targeted annualised cost savings of £46m, of which £35m relate to operating expenses and £11m relate to overheads charged to cost of sales. Inventory fell by 35% in 2009, driven largely by greatly improved processes, and debtors and receivables have been reduced by 26%.
·	We are reinvesting some of the savings from the Change Progamme to accelerate the refresh of Psion's major products. Our blend of modularity and an open business model, called 'Open Source Mobility' (OSM), will give Psion the best chance of exploiting the economic upturn and establishing a platform for satisfactory, sustainable profit delivery.
·	The Board has declared a second interim dividend of 2.6p per share in lieu of a final dividend for 2009 (2008 final: 2.5p) making a total of 3.8p for the year (2008: 3.7p), to be paid on 1 April 2010 to shareholders on the register on 12 March 2010.

For further enquiries, please contact:

Brunswick +44 (0) 20 7404 5959

psion@brunswickgroup.com

Tom Buchanan, Craig Breheny, Michelangelo Bendandi

Notes to Editors

Psion (PON.L) is listed on the London stock market. Its operational business, Psion Teklogix, is a global provider of solutions for mobile computing and wireless data collection. The Group's products and services include rugged mobile hardware, secure wireless networks, robust software, professional services and exceptional support programs. Psion Teklogix is committed to helping its customers reap the benefits of new and emerging technologies, including image capture, voice recognition and RFID. With over three decades of industry experience, Psion Teklogix has customers in more than 50 countries around the world. For further information, please go to: http://www.psionteklogix.com

Chairman's Statement

Introduction

In September, as I took up the Chairmanship, the Board was beginning to see the first fruits of the restructuring programme implemented by the management over the previous twelve months. 2009 was a year of complexity, structured transformation and fundamental repositioning for Psion, all of which had a material effect on the company's reported results. We took extensive actions to enable us to emerge from the economic downturn as a more competitive company, including to reinvest some of the savings from the Change Programme to afford Psion the opportunity to further enhance its market position. All in all, it has been quite a year and I would like to thank all staff for their work during 2009.

This report talks about the hard decisions that have been taken during a period of considerable economic uncertainty. It also highlights work being done to improve the way that we conduct business and secure a successful, sustainable future for the company. As we begin to see an improvement in market conditions, we have started 2010 with renewed optimism. There remains a great deal of work to do in the current year and beyond. However, I am confident that we are moving in the right direction.

Results and dividend

Revenues in 2009 were £170.0m (2008: £199.4m). Sales in Europe, Middle East and Africa expressed in Euros were €117.1m (2008: €152.2m). Sales in the Americas were US$83.3m (2008: US$115.2m), while sales in Asia were US$18.6m (2008: US$29.7m).

Normalised operating profit for the year was £4.0m (2008: £6.0m). Loss before tax was £3.0m (2008: £7.6m).

The company made further progress in the second half of 2009, improving the normalised operating margin from a negative 1.3% in the first half to positive 6.0% in the second half. Operating cash generation in 2009 demonstrated progress in better management of our assets and signalled an improvement in efficiency in the business. Psion exceeded its internal cash targets for the year through improvements in supply chain and debtor management processes. This has enabled the Group to maintain its strong balance sheet. The Group's cash balance at the end of the year increased to £45.3m (2008: £41.3m). This increase in cash and cash equivalents has been delivered after restructuring costs, capital expenditure, tax, the currency impact on opening balance and dividends which together have absorbed £28.0m in 2009. We remain confident in our ability to generate significant operating cash in future.

The Group has no debt. Total equity at the year end was £177.6m (2008: £210.4m). The Board has declared a second interim dividend of 2.6p in lieu of a final dividend (2008: 2.5p) making a total of 3.8p for the year (2008: 3.7p).

The company's reported financial performance was impacted by exchange rate movements. Most of the Group's trading occurs in Euro and the US Dollar. To help shareholders to compare our performance, year-on-year, we have made it easier to review the results on a constant currency basis in the Operational Review.

Board

I succeeded David Potter as Chairman of Psion in September 2009, having been a member of the Board since 2002. David's contribution to the company he founded and led for so many years with distinction has been immense.

Andy Clegg also stepped down. Previously a non-executive on the Board, he acted as Senior VP Supply Chain and Services through our change programme. We all thank him for his significant efforts, which are evidenced only in part through the significant improvement in inventory levels.

I would like to add my thanks and best wishes to everyone in the Group who has contributed to our success in 2009.

Objectives

Our objectives were clearly stated in 2009 as a three stage process.

The initial phase was the Change Programme, which was complex because in addition to reducing costs we were moving more of the business towards indirect channels. Aware that anyone can take costs out of a business, we had a clear strategy and although it is always a difficult decision and regrettable when people leave our Group, we knew the £46m of costs removed would leave us with a healthier platform to grow from. These extensive actions are now complete, some of the benefits are reflected in the 2009 results and more will come through in 2010.

The Change Programme has also entailed a significant effort to build an improved operating culture in the business. We have reorganised reporting lines to a more functional structure, with clearer responsibilities and accountability. This is intended to ensure ongoing progress in improving the quality and speed of decision making. It supports our values of being easier to do business with, transparency in our ways of working in trusted relationships with partners and customers, with the goal of creating choice for our customers. I believe it is delivering a solid platform for us to grow the business profitably and enhance our reputation for inventiveness and openness in the market place.

Even as we were completing the Change Programme, we were talking about our medium-term plans to improve competitiveness by deploying 'Open Source Mobility' (OSM). OSM is a business model innovation that leverages our modular technology platform, and extends the benefits of modularity to our customers. By opening our business model to outside innovation through our new online community, we are able to enhance our development resources. This will strengthen our relationships with partners and customers by being flexible enough to give them precisely what they want, when they want it. One of the key ways in which we will do this is by increasing the proportion of product sales through the partners to around three quarters over the medium-term.

Our ultimate goal is to establish market leadership. We want to be a recognised leader in technology and innovation, as Psion has often been in the past. With OSM, the Board believes that there is the opportunity to deliver sustainable differentiation and an ability to compete with other market participants on a radically different basis.

The Change Programme now implemented created significant positive operating leverage in our business model. In combination with OSM, it gives us the potential to drive further progress towards our operating margin goals. In the years to come, I want us to deliver a significant, sustained improvement in profitability and cash performance.

I appreciate that there may be some scepticism about our ability to hit these targets. However, I believe we have made good on our promises in 2009 and our 2010 initiatives are both well considered and realistic.

Outlook

2010 will continue to be a year of evolution as the first new products based on the modular platform are made available. We will see full year benefits from many of the actions we took in 2009, and will see an increased rate of new products launched in the second half of 2010. We will have an increased focus on delivering value-added services, and exploring ways of creating extended choice to our customers in products, services and the structure of contracts. I am confident that we remain on track to win more new business and to target higher rates of positive growth in the medium term. In addition to this, continued effort is required to improve gross margins in the face of market trends we have been facing in recent years and particularly in 2009 towards commoditised product and discounting pressures. We will remain vigilant on our costs, both costs of sale and operating expense. The Board is confident that the business is on the right path and looks forward to reporting continued progress over 2010 and the future.

With a strong balance sheet, a strong cash position and a clear strategy, Psion is well placed to exploit gradually improving market conditions. Having reduced our cost base and enhanced our channel sales activity we have invested further in our product portfolio.

The slight improvement in sales activity and order intake that we reported towards the end of 2009 has continued into 2010. Trading in the current year has started in line with management expectations and we are confident of achieving a satisfactory outcome for 2010.

John Hawkins,

Chairman

CEO Review

Introduction

I said last year that we would take actions to drive improved operating results, emerge from the economic downturn as a more competitive company, and put Psion in a position to establish market leadership in due course. I hope that shareholders will agree that we have met the commitments we made in 2009. The actions taken in 2009 and the initial impact they have had on our results are evidence of the progress we have made. We have created significant positive operating leverage in our business model. This is a direct consequence of the hard work of everyone within the organisation and I would like to thank them all for their endeavours during this challenging time.

Market overview

Psion classifies its markets into two categories: supply chain logistics (SCL) to automate information in warehousing, factories, retailing and ports; and wide area mobile (WAM) networks serving national and regional field staff. In both of these market categories, our products and services provide real-time, accurate data and are essential for enhanced productivity and competitiveness in today's world.

The SCL market is well established while the WAM market is more diverse and has a faster growth potential. Although there have been delays in customer projects throughout 2009 as a result of the economic downturn, opportunities seem now to be more widespread. Over the second half of 2009, sales activity across the market segments we serve has been modestly improving.

Inevitably, the global economic downturn affected business capital expenditure substantially and has caused a contraction of up to 30% in some of our market segments; the warehousing and distribution centre segment has been severely impacted. VDC Research Group expects this segment to return to more consistent performance in 2010 with moderate annual growth of around 3% through 2013. They also signal growth between 2010 and 2013 with a CAGR of 4-5% in the mobile computing market. (source: VDC Research Group, Inc., Enterprise Mobility Solutions, 2009 Market Intelligence Service: Sixth Edition - Mobile Device Offering Report).

Our own customer and channel research has shown us that vendors have been struggling to work out how to offer choice and customisation to the marketplace in a cost effective manner. When offered, lead times and profitability have been compromised. Customers have therefore bought what the vendors offer, not always what they would most like and neither vendors nor customers have been fully satisfied. In summary, there is a massive array of needs and applications that are not being fully addressed in the rugged mobile computing market. We see this as a major opportunity and are equipping ourselves to address it.

Financial and Operating Performance

We entered 2009 facing harsh trading conditions with reduced demand and aggressive discounting activity. However, during the year, we announced a number of major deals with clients including RWE npower, NBN, PJH, Dusseldorf Airport and E.ON. These give a sense of the broad range of applications for our products: Psion is delivering new mobile capabilities to the metering field force of RWE npower and E.ON; international book distributor NBN and PJH, a European supplier of bathrooms, kitchens and appliances to the home improvement market, are using the Workabout Pro to streamline warehousing and logistics processes; and the ground handling operation at Dusseldorf Airport is using Ikôn mobile computers to aid data capture and documentation in the process of moving passengers around the airport and between the terminals and aircraft.

In targeting around three quarters product sales through our channels, partnerships are, obviously, key to our success. In 2009 we announced a distribution agreement with Ingram Micro Inc. (NYSE: IM), the world's largest technology distributor. The benefits of Ingram Micro's Data Capture/POS Division supporting, marketing and reselling our products are already being felt.

Since the year end, we have also signed a contract with BT Global Services, for the IT and networking services giant to resell Psion's products as part of its own offer to clients. BT Global Services will initially sell Psion's rugged mobile computers to customers in the UK, Germany and France, but it is expected that the contract will extend to other markets in the future. The agreement with BT opens up our addressable market to thousands more users, so it represents the potential for a significant boost to future orders.

The slight improvement in sales activity and order intake reported with the first half results has carried over into the second half. We were particularly pleased to win new orders in Europe and North America. Order books in Q4 2009 were at the highest level since we began to see the effects of the downturn in November 2008, and continue at satisfactory levels in Q1 2010.

Meanwhile, cost reduction and control activities met our previously stated goals without impacting our ability to meet revenue targets. We have been able to accelerate product refresh programmes and further begin to invest in widening our addressable market. Exchange rate movements had an adverse impact on our operating expenses, as analysed in the Operating Review. However, the company is now making tangible progress towards its previously stated goal of achieving a 10% adjusted operating margin.

Change Programme

We have taken wide-ranging actions in 2009 to drive improved operating performance. The Change Programme begun in 2008 has delivered the targeted annualised cost savings of £46m, of which £35m relate to operating expenses and £11m relate to overheads charged to cost of sales. Inventory has fallen by 35% in 2009, largely by greatly improved processes, and trade receivables have been reduced by 26% over the same period despite the back-end spike in shipments in 2009, reflecting a reduction in average debtor days from 78 to 69.

As a result of the Change Programme, the company's organisational and legal structure has been simplified, inventory has been reduced and our working relationships with resellers continue to be strengthened. We remain confident that the actions we have taken in the last twelve months provide a solid base from which we can grow the business profitably and generate cash over the medium term.

Reported results for the year reflect the £1.8m of project expenses of the previously announced reorganisation of our European legal structure. The new structure better reflects our revised operating model and will contribute to the annualised cost savings delivered by our Change Programme. A much lower charge will be incurred in 2010 as the project completes.

I would highlight that more extensive detail on many of the above actions is provided in the Operating Review. In this report, I will focus on market dynamics and the strategy we are implementing to deliver profitable future growth.

Having taken significant costs out of the business, we have reinvested some of the savings in continued product innovation and widening our addressable markets. We have made solid progress in optimising marketing activity and our distribution channel arrangements. Moreover, we have delivered operating cash generation at higher than expected levels.

The end result is that we have repositioned Psion to be more competitive. This has been achieved through extensive actions to improve our operating structure, improve decision-making and enhance our working culture. In short, we have become easier to do business with and should be more profitable.

While continuing to address operating culture and improve margins, we will leverage the new product development and increase the pace of new product launches. The first example of this, the Workabout Pro3, was launched in March 2010 and you will see a number of exciting new announcements during the year. The company has enhanced its research and development process during 2009, designing a new modular technology platform, around which new products are customised. We have said we want to work more through our partners - distributors, resellers and systems integrators and allow them to create their own hardware, or software applications.

Investing in the future: Open Source Mobility

Following the successful completion of the Change Programme, we have to take the next steps. This means accelerating the refresh of Psion's major products by approximately two years. It also means developing new products to address market opportunities offering attractive profitable growth opportunities.

There is a significant opportunity for Psion to better meet customer and partner requirements, provide better value for money for customers of rugged mobile applications and so gain market share. A proportion of features and applications in traditional, "off the shelf" products are redundant, therefore challenging suppliers to meet customer price points profitably. We recognised early in 2009 that we could create significant opportunity through a strategy that would provide products much more closely tailored to customer requirements. We believe we can do this cost effectively and therefore offer better choice and value in turn.

Working on this strategy throughout the year, reinvesting some of the savings we made from our Change Programme, we are now in a position to bring our unique blend of modularity and an open business model that we call 'Open Source Mobility' (OSM) to market.

Modularity has been successfully implemented in a number of other industries, with Scania, the Swedish automotive manufacturer an acknowledged leader in its adoption. Modularity in our architecture will enable us to reduce the level of redundant technology that has traditionally been built into monolithic product designs, thus reducing the cost of product to our customers. The modular architecture further enables us to extend the useful life of the product in the field as we can replace defective or obsolescent modules, rather than having to scrap the whole product. This creates a significantly reduced total cost of ownership for our customers, improving the returns achievable on their investments. We derive benefit from economies of scale in our supply chain, and our customers obtain greater customisation and value from our products. Modularity provides an attractive opportunity to offer an enhanced choice of services, and an extended set of contractual arrangements, potentially including the offer of "platform as a service". In short, we believe that modularity will deliver a solid opportunity in its own right for profitable growth.

We also believe we can further extend that opportunity for profitable growth through adoption of an open business model. The whole premise of open business models is to better meet customer expectations by harnessing the collective ingenuity of our own innovation, our partners', our customers' and other market participants. By adopting an open business model, we create the opportunity to radically increase the research and development resources applied to better meeting customers' specific requirements. 2010 will see us launching a new set of tools and techniques on the internet, using a number of technologies which are collectively known as 'Web 2.0'. We will thereby be able to extend our market reach and collaboration through our own online Communities, as well as via Twitter, Facebook and the like. This will create opportunities for our partners to grow profitably by increasing the services they can offer to their customers. We will be able to target market segments that were previously beyond our collective reach, either because they were deemed to be too small, or because we were previously unable to compete effectively with larger market participants.

In summary, we believe that OSM will reduce our customers total cost of ownership, create the best possible fit with customer requirements, create new business opportunities for our partners and should enhance our ability to improve the returns generated by Psion.

Management

We enter 2010 with a settled management team that has proven itself in difficult circumstances. Alongside Fraser Park CFO, and myself, the team comprises:

§ Ron Caines President Sales and Service;

§ Constance Crosby VP and General Counsel;

§ Mike Doyle Chief Technology Officer;

§ Nick Eades Chief Marketing Officer;

§ Rob Gayson VP Operations and Quality;

§ Maija Michell VP Human Resources;

§ Dan Pearce VP Finance.

I echo John Hawkins commendation and thanks to David Potter and Andy Clegg. Both David and Andy left with the thanks of everyone at Psion and our very best wishes for the future.

Conclusion

Your company has entered 2010 in good heart and in good shape. We have taken extensive and aggressive action to drive improved operating performance, and improve our competitiveness. I am confident that we will see continued progress through 2010. We remain committed to delivering better financial performance for our shareholders.

John Conoley,

CEO

OPERATIONAL REVIEW

Introduction

Psion delivered average annual reported revenue growth of 10% in the five financial years from 2004 to 2008. However, gross margins were an average 43% over the same period, and have been on a general downward trend. This is indicative of the increased portion of revenue from third party product, and of an increasing fixed cost element within cost of sales. Average operating expenses in the same period were 39% of revenues, and have been on an upward trend in recent years. Operating margins have been an average of 3.8% over the period, and we have delivered unacceptable levels of progress against our 10% adjusted operating margin target (which excludes exceptional operating costs, share-based payment expenses, and net capitalisation of research and development expenses).

During the latter part of 2008 and throughout 2009, significant restructuring activities were undertaken by the Group. The majority of this restructuring activity and related cost reductions affected our employee base, with a specific emphasis on discretionary employee-related expenditure. This programme has now been completed enabling the business to make the investments to implement its strategy and deliver profitable growth in the medium term.

Psion undertook a project in the second half of 2009 focused on its legal structure in Europe. This project will be substantially completed by the end of March 2010, and has been undertaken to ensure our legal structure better reflects our simplified operating structure in Europe.

Change Programme

The executive team, with strong support from operational management, implemented a wide array of restructuring and operational improvement actions beginning in late 2008 and throughout 2009 to drive improved operating results in spite of the recessionary economic environment. Our goal has been to create significant positive operating leverage in our business model.

These actions included, but were not limited to:

§ Moving from a country oriented operating structure to a more centralised functional structure;

§ Enhancing the quality of the Psion management team;

§ Assigning clear responsibilities and accountabilities for key aspects of operating performance;

§ Increased control over discretionary expenditures;

§ Revision of remuneration policies to ensure that only good performance delivers incentive pay;

§ Initiating over 70 supply chain improvement projects to ensure that we were easier to do business with and reduced our costs, including:

o Implementation of a global lean manufacturing programme;

o Consolidation of manufacturing resource planning systems;

o Reorganisation of production facilities to reduce inventory and improve quality;

o ISO-9000 registration of the French production facility;

o Implementation of an enhanced new product introduction process to reduce cost and quality issues;

o Development and global roll out of an expedited quotation tool;

o Creation and deployment of "smart" part numbers across all major product lines to make ordering easier for customers and partners;

o Centralisation of European order entry resource and creation of a shared service centre in the UK;

o Freight expense reduced like for like over 2008 by c. £1.1m;

o Significant reduction in inventory globally coupled with consolidation of inventory in fewer locations;

o Easy to do business with projects:

- Deployment of a "Quick Ship" programme to improve customer lead times;

- Deployment of inventory rotation policy for distributors;

- New improved and super clear "Smart Number" product labels;

- New improved box labels for shipments;

- New formats for all customer facing documentation;

- Automatic emailing of order acknowledgements and estimated ship date changes.

o Implementation of a more channel-oriented distribution strategy with clearer coordination of direct sales efforts:

o Signing a distribution agreement with Ingram Micro for North America significantly reducing the complexity of dealing with lower-volume customers;

o Consultation with value-added resellers in preparation for an enhanced channel programme designed to deliver around three quarters of product revenues in the medium-term future;

o Better alignment in sales incentives to drive incremental revenue at higher gross margins; and

o Closure of direct sales organisations in more remote, lower value geographies that were loss making, and replacement with indirect channel partners.

§ Implementation of shorter working hours on a temporary basis for certain personnel to reflect variable activity levels in 2009;

§ Marked reduction in professional fees through reduced use and renegotiation of fee rates; and

§ Reduction in headcount of over 350 personnel, a decision not taken lightly, but implemented quickly to minimise disruption and enable the business to begin to focus on improved competitiveness.

Other operational improvement activities have also been undertaken throughout 2009 as we seek to simplify the way we do business, reduce cost and improve our service levels to customers.

We have increased the focus on our service business which has performed well in spite of the recessionary environment. Our service offer is being enhanced, we have restructured reporting lines to ensure improved coordination with our sales activities, and have implemented revised incentive schemes to deliver further improvements in service revenues.

There has been an extensive review undertaken on the costs of quality-related issues. A new team was recruited in late 2009 to implement a number of actions that will deliver improved quality beginning in 2010. We have amended our new product introduction processes to ensure lower cost, on-time product launches to higher standards of quality. We have enhanced our sales and operations planning processes, leading to lower inventory levels and an improved ability to meet fluctuating customer demand. We piloted new sales management tools in the second half of 2009 and will implement these across the business in 2010 to deliver further improvements in sales and operations planning. We recruited new marketing personnel with specific expertise in pricing of technical products and services.

We have implemented changes to our sales structure and incentives to ensure that our higher gross margin service business continues to deliver improved operating profitability and recurring revenue streams.

Further investments have been made throughout the second half of 2009 to develop a modular design process. The core platform that will be delivered by this will reduce product cost, reduce invested capital, and create product and service revenue growth opportunities, underpinning our ongoing commercial strategy for Psion (see OSM section below). The Board has concluded that each of these investments is critical to our ability to deliver progress against our operating margin target. We believe that the Change Programme now implemented creates significant positive operating leverage in our business model and we are confident that it gives us a solid base for continued improvement.

Open Source Mobility

Open Source Mobility (OSM) is our term for the innovation of our business model which will make us more competitive in the long term. It is comprised of three fundamental elements: a highly modular product platform, an open and collaborative online community fully engaging the potential of the Web 2.0 world, and highly customisable products, services and programmes. The value of an open platform approach, a partner ecosystem and our ability to deliver profitably has already been seen with the Workabout Pro. With OSM, we are taking this core competency and evolving it in such a way that the market for our products is more open, larger, stronger and more collaborative.

Our highly modular product platform will generate many opportunities to improve return on capital employed. For instance, the ability to reduce time to market, and launch more products, ought to increase revenues. No longer will each new product be designed from scratch. At the core of each new product will be a modular platform. New product development will therefore only have to focus on combining existing modules or designing further modules, and this will take less time than traditional development activity. As modules are tested iteratively through the design process, quality is improved earlier and many of the costs endemic in the older, more monolithic design approach are avoided.

Modularity enables us to benefit from economies of scale in component procurement and outsourced assembly. Much of the final assembly can now reside with our channel partners, creating profitable opportunities for them to add value to their customer relationships with limited investment. The impact on inventory turns, cash and liquidity will all be positive. Lower costs should create opportunities for more competitive pricing without sacrificing margin. The incidence of redundant technology built into monolithic products currently endemic in the market will be minimised. The effective life of our products in the field can be extended as defective or obsolescent modules can be replaced without scrapping the whole product, reducing the total cost of ownership for our customers. Modularity provides an attractive opportunity to offer an enhanced choice of services, and an extended set of contractual arrangements, potentially including the offer of "platform as a service". In short, we foresee that we will derive the same operational benefits as those experienced by other leading businesses in other industries (such as Scania, the Swedish automotive business) when they have embraced modularity.

Secondly, the open and collaborative nature of OSM creates a unique and powerful alignment between Psion, our partners and our customers. During 2009, we began the development of an open, online, community. This will become an ecosystem where Psion and its customers, resellers and developer partners will meet, collaborate and working together have the potential to create the most customer-specific solutions in the industry. This will extend the level of research and development resource we can harness to create customised offerings to our customers. This launched in March 2010 and the initial market reaction has been very positive.

Thirdly, by better understanding our customer needs through the open online community, combined with the modular product platform, we will be able to provide existing and new customers with highly customised products, services and programmes. What they need, they will get; creating cost reduction opportunities for them, and growth opportunities for Psion and its partners.

Operational Highlights

	12 months to 31.12.09 £m	12 months to 31.12.08 £m
Continuing operations
Revenue	170.0	199.4
Operating loss	(3.1)	(8.8)
Adjusted operating profit	2.0	6.0
Adjusted operating margin	1.1%	3.0%
Cash generated by operations	21.8	1.2
Adjusted cash generated by operations (excluding cash impact of exceptional costs)	31.7	7.0
Net cash	45.3	41.3
Net assets	177.6	210.4
Basic EPS	(5.1)p	(8.6)p
Diluted EPS	(5.1)p	(8.6)p
Adjusted basic EPS from continuing operations	(3.2)p	2.6p
Dividend	3.8p	3.7p

Normalised operating profit is prepared using the assumptions underlying the stated 10% operating margin target. The reconciliation to adjusted operating profit is as follows:

2009 2008

Adjusted operating profit as above 2.0 6.0

Add back June inventory provision 5.5 -

Deduct development costs capitalised (3.5) -

Normalised operating profit 4.0 6.0

Normalised operating margin 2.4% 3.0%

Revenue growth

Sales operations are managed in three regions - EMEA (Europe, Middle East and Africa), the Americas and Asia. For Psion, the biggest sales territory historically is EMEA although the largest market is the Americas. In 2009, EMEA represented 61.8% (2008: 60.5%) of Group sales. Americas represented 31.3% (2008: 31.3%) with the balance of revenue coming from Asia.

While the Group reports its operating results in Sterling, the performance of the operating regions is monitored in the dominant local currency (see section below analysing the impact of exchange rates in 2009). For EMEA, the dominant currency is the Euro, although it should be noted that 9% of EMEA sales are Sterling denominated, while 14% are denominated in currencies other than the Euro or Sterling. The Americas region's revenues are denominated in US Dollars, although it should be noted 7% are denominated in Canadian Dollars and 5% in other currencies. The Asia region's revenues are reported in US Dollars although it should be noted 50% are denominated in Chinese Yuan, 7% in Japanese Yen and 5% in currencies other than the US Dollar.

The sales for 2008 and 2009 are shown below in the respective dominant currency:

Millions	EMEA €	Americas US$	Asia US$
2008	152.2	115.2	29.7
H1 2009	59.9	35.9	9.5
H2 2009	57.2	47.4	9.1
2009	117.1	83.3	18.6
H209 vs H109	-4.5%	+31.7%	-4.7%
2009 vs. 2008	-23.1%	-27.7%	-37.4%

There is still limited visibility in our sales pipeline, and efforts were made in 2009 to improve forecasting processes and, as a consequence the coordination of supply chain activities. It is intended that further enhancements in systems and process will deliver ongoing improvements. Pricing processes were reviewed in the second half and specific responsibilities assigned to experienced personnel in product marketing. While this has had a limited beneficial impact in 2009, cost reductions implemented in 2009 and improved execution of pricing policies are expected to mitigate the effects of continued pricing pressure in 2010.

Following a period of several years when growth in EMEA had been acceptable, sales activity fell back in 2008 as the effect of recessionary conditions in many of our markets affected customers' buying decisions. This order intake trend continued in the first half of 2009 but sales activity began to show positive signs of improvement in the second half. We saw aggressive competitive action throughout the year, particularly in the first half of 2009, and expect this to be an ongoing factor for the foreseeable future. Few contracts or projects have been cancelled since the onset of the recession, but prospects have taken longer to convert than has been the historic norm. This extension of lead times had a slight adverse effect on the EMEA region's second half revenues when compared to the first half of 2009. However, we continue to see signs of a gradual improvement in EMEA business activity.

It became apparent from early in the second half that demand conditions had stabilised with a number of larger contracts being converted from prospects to orders. In the last quarter, a general improvement in activity levels was apparent, although this was not fully reflected in revenues delivered in the period. It remains to be seen how much of the improvement in activity related to historic seasonality trends, "budget flush" and the first signs of economic recovery.

It should be noted that EMEA gross margins are particularly susceptible to US Dollar strength against the Euro because component and assembly costs tend to be priced in US Dollars.

We have been commenting on weak demand in the Americas since 2007. Weakness continued between 2008 and 2009, compounded by general economic conditions and a historic under investment by Psion in product with appropriate wireless technology for this market. Activity trends in 2009 were somewhat similar to those in EMEA, although the first half revenues delivered by the Americas region were somewhat below expectations. Compensating this, a number of larger prospects were converted to orders and revenues in the last quarter allowing the Americas to close the gap somewhat against expectations, and post good growth between the first half and the second half of 2009. Competition is stronger and pricing pressure is more intense than in EMEA, although this may have been driven in the last quarter by short-term factors, as customers took advantage of some relaxation in capital budget controls and benefits from competitor destocking. The adoption of a modular product development process will enable extensions to our product offering to the Americas in due course. Cost reduction activities implemented in 2009 and improved pricing will mitigate margin pressure, but we do not expect to see any notable recovery to historic revenue levels in the Americas in 2010.

Performance in Asia was impacted by litigation going back to 2008 between the Company's trading subsidiary in Japan and a number of local trading partners. Contingent liabilities relating to these claims have decreased from £16.2m at December 2008 to £13.7m at December 2009, an increase from the June 2009 balance of £12.5m reflecting exchange movements between the Yen and the £ Sterling. Psion has also entered into negotiations with its insurance providers to recover losses arising from this matter. Psion received an initial £2.5m from its insurers in February 2010, which receipt was recorded within the net exceptional operating costs relating to Japan in 2009.

In Asia, sales reduced partly because of economic conditions and partly as a consequence of restructuring actions we took in the first half of 2009. Exchange rate movements in local currencies against the US Dollar caused a number of partners to extend payment terms. Credit control risks were assessed, and in certain cases, further purchases were blocked until a revised payment plan was initiated, reducing 2009 revenue levels. A detailed review of financial performance at that time indicated that the prospect of delivering an acceptable level of return on investment was remote in the medium term.

We closed a number of direct sales office locations and moved to third party distribution arrangements, the transitional effect of which has also been seen in 2009 revenues. The remaining direct and channel sales activities followed a pattern similar to EMEA and the Americas, although market conditions remained challenging in the second half of 2009. Our new modular technology platform should allow us to deliver lower cost products more appropriate for this market in due course, and we expect an improved performance in 2010 as we will not be impacted by further restructuring activities.

Costs

The Change Programme, as noted previously, initially focused on delivering significant reductions in our cost base. It was clear that maintaining the level of cost as reported in 2008 was inconsistent with the financial goals of the business. Consequently, separate rounds of restructuring were taken in late 2008 and in March 2009. The goal of this restructuring activity was to reduce our cost base by 35-40% (prior to net capitalisation of development expenditure), a material amount, but a scale of reduction required if the business was to meet its goals. The actions we implemented delivered the targeted level of reduction, and we implemented actions that reduced costs by approximately £46m (prior to net capitalisation of development expenditure) as reported in our interim results on 13 August 2009. £35m was taken out of operating expenses, and some £11m was reduced from overheads charged to cost of sales.

Regrettably, some 56% of these cost reductions arose from reductions in staff costs, with the loss of 350 employees, and changes to benefit and incentive arrangements. A further 11% of the cost reductions arose from reductions in travel and entertainment, 16% from manufacturing cost reductions. The balance was from a variety of sources including reduction in use of professional advisors and renegotiation of fee arrangements, and a range of other areas of discretionary spend.

In pursuing our strategy of profitable growth, we have invested some £11m in accelerating the refresh of our product portfolio, increasing our marketing resource and in widening our addressable market with extensions to our product portfolio.

As noted in the section on exchange rate movements, Sterling's weakness against the Canadian Dollar in particular has had a detrimental effect on the net reductions achieved, adding approximately £10m to our annualised cost base.

Legal simplification

In 2009, we began to implement our "European Streamlining Project" (ESP). The purpose of this exercise is to restructure our European legal entities consistent with our simplified operating structure and go-to-market approach. Control of inventory and all supply chain activities have been centralised, as have all support functions including finance, legal, human resources, marketing, and information systems. Discounting approvals, credit policies, order acceptance and third party item procurement will all be undertaken by these centralised functions in the principal company, PT Inc in Canada. Our regional businesses are solely responsible for selling activities (including pre-sales technical activities and local marketing execution), and will adhere to these stricter controls. This will enable us to better take advantage of harmonised pricing and promotional activity to deliver operational performance improvement.

As a consequence, we will change each of our European sales entities from a full risk distributor subsidiary status to that of a sales commissionaire in the first half of 2010. As such, the commissionaire will contract in its own name for the account and risk of the Canadian principal. There will be no resale arrangement, and legal title to goods will now pass direct from the Canadian principal to the customer. Invoicing will be undertaken by the principal in the name of the commissionaire, and the commissionaire will earn a commission on revenues as opposed to a resale profit.

It is expected that this reorganisation will deliver economies of process scale, enhanced controls and improved coordination of selling activities. In 2009, we incurred costs of £2.3m, of which £1.8m was charged to the statement of comprehensive income, and £0.5m was capitalised as it related to enterprise resource planning system enhancement. This latter expense will be amortised over a 5 year period.

Further costs are expected to be incurred in 2010 as the deployment of the ESP is undertaken.

Capitalisation of development expenditure

IAS 38 "Intangible Assets" requires that an entity should capitalise and subsequently amortise development expenditure if certain criteria are met. The criteria to be met for capitalising development expenditure are as follows:

a) The technical feasibility of completing the intangible asset so that it will be available for use or sale.

b) The intention to complete the intangible asset and use or sell it.

c) The ability to use or sell the intangible asset.

d) How the intangible asset will generate probable future economic benefits. Among other things, the entity must demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.

e) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.

f) The ability to measure reliably the expenditure attributable to the intangible asset during its development.

In prior years development activities at Psion were primarily expensed due to significant uncertainties regarding approvals and other regulatory requirements. There have been fundamental changes this year with respect to the development activities through the implementation of a modular architecture and the overall impact this has had on the degree of uncertainty in the approval process.

Modularity creates both a platform from which future products will be developed, and a series of modules that constitute that platform. Each module has one or more defined interfaces which can be tested independently. Similarly, selected worst-case supersets of modules are pre-tested in combination according to known regulatory requirements. The requirements typically do not change over the development cycle. Thus, by pre-testing the worst-case scenarios, and keeping the interfaces strictly within defined design parameters, the uncertainties with respect to final regulatory approvals are removed early in the development cycle.

Previously, products were developed as an inter-related configuration of electronic boards, connectivity solutions, peripherals and input/output devices. The lack of modularity (and in particular, lack of strong interface definitions) meant that each element of the device was to a greater or lesser extent dependent upon other system elements around it for its performance. This in turn led to uncertainties as to whether a final delivered product configuration would be capable of meeting regulatory approval requirements.

We have therefore satisfied ourselves that we meet the requirements for capitalisation under IAS 38. The following costs were determined to be allowable for capitalisation in compliance with IAS 38 for 2009 (in £m's).

Project	Expenses	Labour	Total

Platform	0.9	1.9	2.8
Accessories	0.2	0.1	0.3
Other hardware	0.1	0.3	0.4

	1.2	2.3	3.5

It is expected that the capitalization of these costs will continue into Q3 of 2010. The useful life of the platform over which capitalised costs will be amortised is four years.

Working capital

2009 saw a marked improvement in the management of working capital relative to recent years, contributing to the significant increase in operating cash generation. The tables below highlight the performance on trade debtors expressed in days sales outstanding (DSO) and inventory expressed in days sales inventory (DSI).

DSO	March 09	June 09	Sept 09	Dec 09	Average 2009*	Average 2008*
EMEA	80	78	75	65	75	78
Americas	48	37	37	52	43	57
Asia	83	85	77	79	81	112
Total	76	71	66	63	69	78

* Calculated as average of quarter-end DSO's

Revised and enhanced processes have been implemented across the regions, complemented by application of an increased focus and resources. EMEA displayed progress through 2009 and finished the year with a solid performance. The Americas region performed well up until the last quarter, when late payment of a large contract resulted in an unexpected increase at the end of the year. This late payment has been received in full post year-end. Asia made a significant improvement from 2008 and maintained this throughout the year. In group terms, we have delivered an improvement of nine days in our average DSO's despite the economic backdrop.

Inventory in US $m and DSI	March 09	June 09	Sept 09	Dec 09	Average 2009*	Average 2008*
Gross	63.2	52.7	50.0	46.9	53.2	67.9
Provisions	13.1	23.9	25.3	17.1	19.9	9.1
Net	50.1	28.8	24.7	29.8	33.3	58.9
DSI	167	88	82	74	103	129

* Calculated as average of quarter-end numbers

The majority of our component supplies and outsource assembly arrangements are denominated in US Dollars, and that is the currency we use to measure inventory performance indicators. We have made solid progress in improving our control of inventory relative to prior years when control was distributed across many areas of our business. The supply chain organisation has implemented improved processes and controls through 2009, having been delegated accountability for inventory after the reorganisation of reporting structures in late 2008. These improvements in process, control and accountability are a good example of the benefits of moving to a functional organisation, and the supply chain team has performed well in reducing average gross inventory from $67.9m in 2008 to $53.2m in 2009. This has been achieved in the face of material reductions to our sales volumes. Net inventory reduced from an average of $58.9m in 2008 to $33.3m in 2009. There has been a reduction in average DSI's from 129 in 2008 to 103 in 2009, with a year-end DSI of 74, despite the sizeable reduction in revenue year on year.

It is regrettable that a portion of this improvement in DSI's has been delivered by a material increase in inventory provisions over the budgeted amount. Indeed, in our interim report dated 13 August, 2009, we booked an additional one-off increase in inventory provisions of £6.1m driven by a number of factors.

Firstly, our sales activity fell to materially lower levels in the first half of 2009, in which we delivered £84.5m in revenue compared with £103.8m, in the first half of 2008, and £95.6m in the second half of 2008.

Secondly, a key strand of improving our control of inventory was to amend the basis on which we calculate inventory provisions. In the first half of 2009, we implemented an enhanced process to better link supply chain activity and inventory planning to forecast sales activity levels. Previously, we had calculated the provisions required by comparison of manufacturing component inventory to historical sales levels. We identified in the second quarter that this basis of calculation introduced a "lag effect" when calculating manufacturing component inventory provisions during a severe recessionary period, and moved to a forecast view after implementation of enhanced forecast processes in the second quarter of 2009.

Thirdly, we materially extended our review of manufacturing inventory to identify specific factors that might affect the net realisable value of our inventory. Such factors include obsolescence caused by existing products which will be replaced by new products being developed under our modular technology platform, as initiated in 2009. A further such factor is the emergence of technically superior components at a comparable or lower cost that have gained market acceptance to the detriment of the components that we hold in inventory.

Following a review of our inventory provisions at the year end, we have revised our estimate of the additional required provision from £6.1m to £5.6m. Further, whilst we consider it to be material, one-off and having arisen in the first half of 2009, we have concluded that this provision does not fall to be disclosed as "exceptional". As a consequence, we have not added it back to Adjusted Operating Profit, although given its size we have excluded it from our management reporting definition of normalised profit.

Exchange rates in 2009 and their impact on financial performance

The Group's 2009 financial performance has continued to be greatly impacted by volatility in underlying trading currencies, more information on which is set out below.

During 2009 there has been a material movement in the exchange rate of Sterling (the Group's reporting currency) to the Euro, the US Dollar and the Canadian Dollar.

In assessing the average rates for the year applied to the statement of comprehensive income, Sterling has depreciated by some 10% versus the Euro, 15% versus the US Dollar, and by some 9% against the Canadian Dollar when compared to average rates in 2008. However, Sterling was markedly volatile against the Group's main trading currencies throughout the year.

Value of £1
	Euro	US Dollar	Canadian Dollar
At 31 December 2008	1.0344	1.4378	1.7749
Average for the month of:
January	1.0797	1.4398	1.7812
February	1.1237	1.4336	1.7981
March	1.1010	1.4294	1.8060
April	1.0990	1.4576	1.7820
May	1.1321	1.5503	1.7623
June	1.1600	1.6328	1.8384
July	1.1731	1.6593	1.8564
August	1.1540	1.6508	1.7951
September	1.1150	1.6146	1.7533
October	1.1057	1.6239	1.7461
November	1.1066	1.6456	1.7551
December	1.1078	1.6275	1.7115
At 31 December 2009	1.1255	1.6149	1.6930

£ Weakest	1.0344	1.4294	1.6930
£ Strongest	1.1731	1.6593	1.8564
Difference in %	13.4%	16.1%	9.6%

Sterling appreciated against the Euro over the year, and had appreciated by some 11% against year-end 2008 rates during June, subsequently giving up some of its gains in the second half of the year. However, the average rate for the year was some 10% lower than the average rate for 2008. Sterling appreciated considerably against the US Dollar in the second quarter, and remained relatively stable after June. Again, the average rate for the year was some 15% lower than the average rate for 2008. Sterling remained relatively stable against the Canadian Dollar in the first half posting a 4% gain in June versus year-end 2008 rates. Since then, we have seen a marked depreciation against the Canadian Dollar through to a low in October and a modest subsequent increase although it ended some 4% below opening rates. The average rate for the year was 9% lower than 2008.

These trends affect the comparison of the statement of comprehensive income and balance sheet to prior years as the Group statement of comprehensive income and balance sheet consolidate transactions, assets and liabilities predominantly recorded in currencies other than Sterling. An average rate is used to translate items in the statement of comprehensive income but the balance sheet is translated at the year end rates. This means that the effect of movements in exchange rates in the statement of comprehensive income is different to the effect on the balance sheet. The results of each business are translated to £ Sterling each month at the average rate for the month, and the full year Sterling result for each business is the sum of the 12 months Sterling figures. This effectively results in a different rate of exchange for each business for each line of the statement of comprehensive income.

The average rates and year end rates of the three main trading currencies against Sterling in 2008 and 2009 have been as follows:

Against Sterling	Average			Year end
	2009	2008	% change	2009	2008	% change
Euro	1.1253	1.2508	-10.0%	1.1255	1.0344	8.8%
US Dollar	1.5711	1.8406	-17.5%	1.6149	1.4378	12.3%
Canadian Dollar	1.7785	1.9561	-9.1%	1.6930	1.7749	-4.6%

The differences between these average and year end exchange rates should be noted when reviewing the Group's financial statements.

The Group purchases the majority of its components and supplies in US Dollars as is customary practice in the electronics industry. This procurement is undertaken by our Canadian subsidiary. Consequently, although generally fixed overhead charged to cost of sale and operating expenses in this entity are Canadian Dollar-denominated, the functional currency of the Canadian entity is the US Dollar. Statement of comprehensive income and balance sheet items are therefore initially recorded in Canadian Dollars, and are then retranslated locally to US Dollars by way of a month-end functional currency adjustment. While historically, there has been limited volatility in the exchange rate between the US and Canadian Dollar, 2009 has been notable for the fact that the average Canadian Dollar rate was 11% weaker versus the US Dollar than in 2008. This has caused an overall detrimental impact on the retranslation of the Canadian statement of comprehensive income from US Dollars to Sterling.

Details of regional revenue in local currency are provided in the section on revenue trends above. Translating the 2008 revenue using exchange rates applicable in 2009 would have increased revenue by approximately £26.6m to £226.0m and translating adjusted operating profit at applicable 2009 rates would have increased adjusted operating profit by £0.9m to £6.9m. It should be specifically noted that translating 2008 distribution and administrative expenses (excluding exceptional operating costs) at applicable 2009 rates would have increased those costs from £80.9m to £90.8m.

Most assets and liabilities in the 2009 balance sheet include items denominated in overseas currencies. Goodwill is entirely recorded in US Dollars and the movement in goodwill between balance sheet dates has been caused by exchange rate movements. The decrease in assets and liabilities over 2009 includes a significant element attributable to exchange rate movements. The effects of exchange rate movements are eliminated in the Consolidated Cash Flow Statement as movements in the reporting currency of the subsidiary businesses are converted to Sterling at average rates.

As an indication of the impact on the Balance Sheet the table below shows actual 2009 working capital components, 2008 equivalent figures restated at 2009 rates of exchange and the originally reported 2008 figures.

	2009	2008	2008
	Reported	Restated	Reported
Inventories	18.4	35.8	37.1
Trade and other receivables	46.3	54.1	57.7
Trade and other payables	(48.7)	(47.7)	(50.1)

Net	16.0	42.2	44.7

The Group purchases the majority of its components and supplies in US Dollars as is customary practice in the electronics industry. Although the Group generates US Dollars from revenue transactions these may not be sufficient to cover the requirement for US Dollars in aggregate or as they fall due. It should be noted that, as the Group generates a majority of its revenue in Euros, and generates the majority of its costs in US Dollars (or Canadian Dollars which are retranslated to US Dollars by way of the functional currency adjustment noted above), we are particularly exposed to Euro weakness against the US Dollar. While the Group uses forward currency contracts to hedge short-term expected net positions, any prolonged weakness in the Euro against the US Dollar will have a detrimental impact on our reported results. Differences between actual overseas currencies received and paid and the amount that was originally booked for the transactions results in translation differences which are booked as an expense net of related hedging transactions. In 2009 the total written off to the statement of comprehensive income was £0.8m.

Please refer to the section on treasury risk management for an overview on hedging activities.

Financial review of 2009 reported results

Financial highlights

	2009	2008
Revenue	£170.0m	£199.4m
Gross margin	35.6%	43.3%
Adjusted operating margin (i)	1.1%	3.0%

(i) Operating profit excluding restructuring costs, share-based payment costs, and the gain on sale of fixed assets held for resale.

Sales and margins

Further details of the geographic analysis of revenues are given on in note 2. The table headed "Revenue by geographical market" is based on the geographic location of our customers. Our customers use local area networks for campus applications, especially in supply chain and logistics operations such as warehouses and ports and also wide area networks for mobile workers. As there is not always a clear dividing line between these markets, and some customers will have applications in both, we estimate our relative revenues by analysing revenues by product type. In 2009, sales of hardware products designed for the wide area mobile market represented 45.2% of total hardware revenues, up from 36.7% in 2008.

We sell products that we design ourselves and also third-party products such as printers or highly specialised tablet computers. We also provide extensive services to customers through single and multi-year maintenance contracts, and billable repairs. Any change in mix between our products, third-party products and services affects average margins because we achieve a higher gross margin on our own products and services than on third-party products. We do not provide any further analysis of product margins as this is commercially sensitive. The proportion of hardware revenue represented by third-party products was 12.0% in 2009 compared to 15.6% in 2008.

Operating margin

In 2009 our operating margin before exceptional restructuring costs, and the credit for share-based payments ("adjusted operating margin") was 1.1% (2008: 3.0%). Extensive restructuring activities were implemented in 2009 generating significant reductions in operating expenses and generally fixed overhead charged to cost of sales. The full benefit of the Change Programme is not reflected in our reported results for 2009 as these actions were implemented throughout the year. Furthermore, we invested heavily in the company's product portfolio in the second half of 2009. We seek to deliver shorter-term improvements in our operating margin combined with medium and long-term growth. Please refer to the section above for an overview of cost reductions.

Total operating expenses (before restructuring costs, net capitalisation of development expenditure and share-based payment costs or credits) decreased by 22.6% in Sterling terms compared to 2008. Distribution expenses, which include the costs of the worldwide sales organisation, decreased by 19.2% in 2009. Administrative expenses including Sterling denominated corporate expenses and Canadian Dollar denominated engineering costs decreased by 25.2%. Expressed in constant currency, distribution expenses have decreased by 31.1% compared to 2008 and administrative expenses have decreased by 31.3%. (See section above on exchange rates in 2009.)

It remains a key Group objective in the reasonably near term to increase our normalised operating margins, as defined above in the section on operational highlights, to at least 10% of revenues. In 2009 our normalised operating margin was 2.4% (2008: 3.0%)

Exceptional operating costs

During 2009 the second phase of the restructuring begun in 2008 was undertaken to further reduce the cost base of the Group. Headcount was reduced by over 150 in the second phase, following the near 200 reduction in the first phase, at a cost charged to exceptional operating costs of £4.5m. There were costs relating to phase 1 outstanding as at the end of December 2008 which were paid in 2009. In summary, in Sterling terms, the overall impact in the year was:

Phase 1 due at 31 December 2008 £2.7m

Cost of phase 2 £4.5m

Cash spend in the year (£6.4m)

Exchange variation on opening balance (£0.2m)

Phase 2 due at 31 December 2009 £0.6m

Changes in the Psion PLC Board incurred costs charged to exceptional operating costs of £0.5m. This sum, together with £30k outstanding at the end of December 2008 for Board changes in 2008, was all paid during 2009.

Continuing fees relating to the Japan litigation of £2.9m were charged to exceptional operating costs during 2009, partially offset by £2.5m recovered by way of insurance proceeds received after the year end. The cash outflow in 2009 was £2.9m.

Further details of the Japan litigation and dispute are given in note 10.

Investment income

Interest income on bank deposits was £0.2m in 2009 compared to £1.4m in 2008 the decrease being entirely due to lower interest rates, and finance costs were £0.2m in 2009 compared to £0.2m in 2008. The Board has adopted a prudent policy in managing the substantial cash holdings of the Group, with the majority of cash held in the UK and deposited in short term funds backed by UK Government Gilts.

Taxation

The Group's tax charge on continuing operations was £4.8m (2008 - £2.7m) and represented a 160% charge (2008 - 35%) on loss before taxation. The Group's tax charge reflects the tax rates that are applicable in the territories where the Group generates taxable profits and differences in the timing of items being recognised for accounting and tax purposes. The abnormally high charge is because deferred tax assets in Psion Teklogix Inc. as at 31 December 2008 have been written off. This is due to uncertainty of future profitability following three successive years of losses. In preparing the Group results under IFRS the Board reviewed the write off. Whilst it is anticipated that the trend of losses will reverse, which would lead to reinstatement of the deferred tax assets, there is sufficient uncertainty that it was considered appropriate to write off the asset. Further details of the tax charge are in note 6.

Loss per share

Basic loss per share in 2009 was 5.09p (2008 - loss 8.58p) and diluted loss per share was 5.09p (2008 - loss 8.58p). For continuing operations only, basic loss per share in 2009 was 5.52p (2008 - loss 7.34p) and diluted loss per share was 5.52p (2008 - loss 7.33p). The Board believes that a better appreciation of the continuing operations of the Group is given by adjusting for the gain on sale of assets held for resale, the charge or credit for share-based payments, and exceptional operating costs. Adjusted basic loss per share on this basis was 3.18p (2008 - profit 2.58p).

Cash flow

Details of the operating cash flow are in the Consolidated Cash Flow Statement. The Group generated an operating cash flow of £21.8m (2008 - £1.2m) including a cash inflow of £16.1m relating to working capital (2008 - £5.7m).

Generation of operating cash and improvements in our cash balances were a key area of focus in 2009 and good progress was made in reversing historical increases in inventory and trade debtors. Please refer to section above on working capital.

Extensive actions were taken in the year to rationalise our inventory holdings and improve our sales and operations planning processes to provide enhanced control of inventory. This resulted in significant decreases in our gross inventory holdings, and a material one-off increase to inventory provisions of £5.6m. The increased provision was a non cash item. It has been excluded from the cash generation from working capital of £16.1m in the summary above.

Further enhancements in credit collection policies and processes (and reductions in business activity levels compared with 2008) delivered an improvement in trade debtor balances.

As a consequence, operating cash (prior to exceptional cash outflows) of £31.7m was generated, reflecting in great part the one-off improvement in working capital as enhanced controls and processes were implemented.

Working capital movements in the cash flow statement are calculated by applying an average rate of exchange to the underlying movements.

Capital expenditure was £7.1m (2008 - £3.2m), mainly relating to IT systems and tooling and included £3.5m of capitalised development costs, compared with a depreciation and amortisation charge of £4.8m (2008 - £5.0m).

The Group had net cash balances of £45.3m at the end of 2009 (2008 - £41.3m). The Board intends to maintain a strong balance sheet, an ongoing focus on improving operating cash generation and continues to review the appropriateness of the Group's capital structure in the light of risks and opportunities.

Pensions

The Group operates defined contribution schemes, where the Group contributes a pre-determined amount proportionate to the salaries of participating employees to the schemes.

Treasury risk management

The principal treasury risks to the Group arise from exchange rate and interest rate fluctuations. The Board has approved policies for managing risks, which are reviewed on a regular basis, including the use of financial instruments, principally forward exchange contracts. No transactions of a speculative nature are undertaken.

The principal transactional foreign currency exposures are to Euro and US Dollar revenues and Euro, US and Canadian Dollar costs. The Group hedges certain net foreign currency cash flows relating to transactions in accordance with policies set by the Board. The Group does not hedge the foreign exchange exposure arising on translation of net investments in or assets and liabilities of overseas subsidiaries.

As a result of the banking crisis the Board reviewed the policy on management of liquid funds early in 2009 and the decision was taken not to make any deposits, other than day to day cash needs of the operating businesses, direct to single banks. Cash is deposited in Liquidity Funds managed by HSBC and RBS, with the majority going into funds invested in, or backed by, UK Government Gilts. This low risk policy has the effect of reducing the interest income of the Group but it was, and is, considered prudent to adopt such a policy.

Supplier Payment Policy

It is the Group's policy to settle terms of payment with suppliers when agreeing the terms of each transaction and to abide by those terms. As at 31 December 2009 the number of days of annual purchases represented by the year end trade creditors amounted to 43 days (2008 - 47 days) for the Group and 30 days (2008 - 30 days) for the Company.

Risks and uncertainties

The Group is subject to risks and uncertainties relating to its future business which might affect the financial performance of the Group. During 2009, the Board conducted a detailed review of the Group's risk management systems, processes and mitigating action plans. As a consequence, an enhanced approach to Enterprise Risk Management (ERM) was initiated in the second half of 2009. This is an iterative process and will continue to be implemented throughout 2010 and beyond.

The vision for Psion's ERM is to contribute to the creation, optimisation and protection of Psion's value by managing our business risks as we create value:

§ We are creating a comprehensive approach intended to anticipate, identify, prioritise, manage and monitor the portfolio of business risks impacting our business;

§ We are putting in place the policies, common processes, competencies, accountabilities, reporting and enabling technology to execute that approach successfully;

§ We will seek to ensure that risk management is fully embedded throughout the organisation by involving all relevant levels of staff and cross-functional skills in its deployment;

§ We continue to build a culture of integrity and empowerment consistent with a balanced approach to risk.

Although many of the systems and processes required to deliver on this vision for ERM have been in place throughout 2009, this is a more formalised and structured approach reflecting recent developments in best practices.

The process is iterative over time, reflecting emerging trends and realities, but began with a process to capture and document management's initial assessment of the risks faced by the business. An exhaustive list of potential risks was prepared and reviewed, culminating in the identification of a subset of risks and combination of risks that were assessed as priorities in terms of their potential impact on the business and their potential likelihood. These priority risks have been assessed in detail, the factors causing the risks and their impacts documented, and mitigating controls and actions identified and assigned to authorised personnel to ensure that the residual risk is acceptable within the business' risk appetite. Progress against implementing any further mitigating controls and adherence to such controls is assessed through regular reviews by operational management and internal audit activities currently conducted by finance personnel from separate geographic locations. While it is the goal of the Board to initiate a separate internal audit function in the reasonably near future, the business is not at this time of a size where this is perceived as being economic. The main thrust of ERM activities in 2010 will be to ensure that ERM is embedded at all levels of the business and that we continue to build the right culture consistent with our ERM and business goals.

As previously noted, the process of identifying and taking actions to mitigate risk is iterative. 2010 will see continued activity across the business to ensure that all necessary steps are taken to implement control enhancements, and verify the effectiveness of such controls, to mitigate priority risks that may materially impact the value of the group.

In addition to taking the steps necessary to address the above priority risks in line with the group's specified risk tolerance, internal audit procedures have been extended and strengthened. Although the Group does not have a separate Internal Audit department there is a regular series of Internal Audit Review visits to subsidiaries made by senior finance staff. The scope of work performed has been reviewed by the Audit Committee and the Chief Financial Officer and is regularly reviewed in the light of findings, risk assessments and changes in procedures. A formal report is prepared at the end of each visit and discussed with local management before being presented to the Audit Committee. It is the intention of the Group to initiate a separate Internal Audit function that will report direct to the Audit Committee in due course.

Two minor employee frauds involving procurement of goods and services for personal gain were discovered during the year. Procedures and control amendments implemented earlier in the year led to the discovery of this fraudulent activity. A further review was undertaken to mitigate the possibility of recurrence and the employees involved were immediately terminated. Management responsibilities in undertaking control activities were reiterated, and the potential consequences of failing to properly conduct the necessary controls have been communicated throughout the business.

Consolidated Statement of Comprehensive Income
for the year ended 31 December 2009
		2009			2008
	Notes	£000s			£000s
CONTINUING OPERATIONS
Revenue	2	170,042			199,364
Total cost of sales		(109,464)			(113,010)

GROSS PROFIT		60,578			86,354

Other income	3	-			804
Distribution costs		(40,018)			(50,738)
Administrative expenses		(18,195)			(30,142)
Exceptional operating costs	4	(5,420)			(15,084)
Total administrative expenses		(23,615)			(45,226)

OPERATING LOSS)		(3,055)			(8,806)

Investment income		207			1,371

Finance costs		(138)			(187)

LOSS BEFORE TAX		(2,986)			(7,622)

Tax	6	(4,769)			(2,665)

LOSS FOR THE YEAR FROM CONTINUING OPERATIONS		(7,755)			(10,287)

DISCONTINUED OPERATIONS
Profit / (loss) for the year from discontinued operations	7	603			(1,745)

LOSS FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT		(7,152)			(12,032)

OTHER COMPREHENSIVE INCOME
Exchange (loss) / gain on translation in goodwill foreign operations		(12,134)			31,002
Exchange (loss) / gain on translation of foreign operations		(7,937)			18,336

TOTAL COMPREHENSIVE INCOME		(27,223)			37,306

LOSS PER SHARE
From continuing operations
Basic	9	(5.52p)			(7.34p)

Diluted	9	(5.52p)			(7.33p)

From continuing and discontinued operations
Basic	9	(5.09p)			(8.58p)

Diluted	9	(5.09p)			(8.58p)

Consolidated Balance Sheet
At 31 December 2009
			2009	2008
				(Restated)
			£000s	£000s
NON-CURRENT ASSETS
Goodwill			99,898	112,032
Other intangible assets			5,527	1,821
Property, plant and equipment			9,932	11,206
Prepayments			645	667
Deferred tax assets			6,863	10,944
			122,865	136,670
CURRENT ASSETS
Inventories			18,430	37,087
Trade and other receivables			45,644	56,984
Current tax assets			3,653	1,883
Cash and cash equivalents			45,268	41,281
			112,995	137,235

TOTAL ASSETS			235,860	273,905

CURRENT LIABILITIES
Trade and other payables			(48,718)	(50,137)
Retirement benefit obligation			(7)	(234)
Tax liabilities			(2,167)	(2,365)
Obligations under finance leases			(236)	(314)
Derivative financial instruments			(14)	(678)
Provisions			(2,227)	(2,501)
			(53,369)	(56,229)
NON-CURRENT LIABILITIES
Tax liabilities			(575)	(1,602)
Deferred tax liabilities			(888)	-
Obligations under finance leases			(946)	(1,258)
Provisions			(2,496)	(4,417)
			(4,905)	(7,277)
TOTAL LIABILITIES			(58,274)	(63,506)

NET ASSETS			177,586	210,399

EQUITY
Share capital			21,086	21,081
Share premium account			15,597	15,581
Capital reserve			98,703	98,703
Translation reserve			18,656	38,727
Retained earnings			23,544	36,307

TOTAL EQUITY			177,586	210,399

Consolidated Cash Flow Statement
for the year ended 31 December 2009
	2009	2008
	£000s	£000s
LOSS FOR THE YEAR	(7,152)	(12,032)

Adjustments for:
Investment income	(207)	(1,371)
Finance costs	325	379
Gain on sale of non-current asset previously held for sale	-	(804)
Tax charge	4,769	2,665
Depreciation of property, plant and equipment	3,511	3,883
Amortisation of other intangible assets	1,270	1,155
Share-based payment (credit)/expense	(411)	573
Loss on disposal of property, plant and equipment	210	88
Loss on disposal of intangible assets	10	-
(Decrease)/Increase in provisions	(1,399)	1,067
Cash impact of discontinued operations	(856)	(121)
Operating cash flow before movements in working capital	70	(4,518)

Decrease/(Increase) in inventories	16,741	(6,924)
Decrease in receivables	5,149	14,457
Decrease in payables	(177)	(1,851)
Cash generated by operations	21,783	1,164

Tax received	829	1,092
Tax paid	(4,144)	(5,902)
Interest paid	(138)	(189)
NET CASH FLOW (USED IN) / FROM OPERATING ACTIVITIES	18,330	(3,835)

INVESTING ACTIVITIES
Interest received	216	1,619
Net proceeds on disposal of non-current asset previously held for sale	-	6,632
Proceeds on disposal of property, plant and equipment	145	47
Purchases of intangible assets	(4,739)	(480)
Purchases of property, plant and equipment	(2,352)	(2,656)
NET CASH (USED IN)/FROM INVESTING ACTIVITIES	(6,730)	5,162

FINANCING ACTIVITIES
Dividends paid	(5,200)	(5,177)
Repayment of obligations under finance leases	(568)	(861)
Proceeds from issue of new shares	21	1,040
NET CASH USED IN FINANCING ACTIVITIES	(5,747)	(4,998)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS	5,853	(3,671)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	41,281	38,316
Effects of foreign exchange rate changes	(1,866)	6,636
CASH AND CASH EQUIVALENTS AT END OF YEAR	45,268	41,281

Consolidated Statement of Changes in Equity
For the year ended 31 December 2009
	2009	2008
	£000s	£000s
SHARE CAPITAL
Balance at start of year	21,081	20,945
Exercise of equity share options	5	136
Balance at end of year	21,086	21,081

SHARE PREMIUM
Balance at start of year	15,581	14,677
Exercise of equity share options	16	904
Balance at end of year	15,597	15,581

CAPITAL RESERVE
Balance at start and end of year	98,703	98,703

TRANSLATION RESERVE
Balance at start of year	38,727	(10,611)
Exchange difference on translation of goodwill in foreign operations	(12,134)	31,002
Exchange difference on translation of foreign operations	(7,937)	18,336
Balance at end of year	18,656	38,727

RETAINED EARNINGS
Balance at start of year	36,307	52,943
Loss for the year	(7,152)	(12,032)
Recognition of share based payment (credit)/expense	(411)	573
Dividends (note 8)	(5,200)	(5,177)
Balance at end of year	23,544	36,307



TOTAL
Balance at start of year	210,399	176,657
Exercise of equity share options	21	1,040
Exchange difference on translation of goodwill in foreign operations	(12,134)	31,002
Exchange difference on translation of foreign operations	(7,937)	18,336
Profit for the year	(7,152)	(12,032)
Recognition of share based payment (credit)/expense	(411)	573
Dividends (note 8)	(5,200)	(5,177)
Balance at end of year	177,586	210,399

NOTES TO THE PRELIMINARY ANNOUNCEMENT

1. Basis of preparation

The preliminary results have been prepared under the historical cost convention. Whilst the information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. The Group expects to publish full financial statements that comply with IFRS in March 2010.

The financial information in the preliminary announcement does not constitute the Group's statutory financial statements for the years ended 31 December 2009 or 2008, but has been extracted from those financial statements and, as such, does not contain all information required to be disclosed in the financial statements prepared in accordance with IFRS. Statutory financial statements for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered following the Company's Annual General Meeting. The auditors have reported on these financial statements; their reports were unqualified and did not contain statements under section 498 (2) or (3) of the Companies Act 2006, but their reports on the 2009 and 2008 financial statements drew attention to a matter related to Japan by way of emphasis without qualifying their reports.

The preliminary announcement is prepared on the basis of the accounting policies set out in previous annual financial statements, except compliance with IFRS has resulted in some changes to the disclosures in the segmental analysis (note 2).

The preliminary announcement was approved by the Board of Directors on 4 March 2010.

2. Segmental analysis

The Group is managed on a geographical basis. The geographical segments are the basis on which the Group reports its results within its internal reporting to the Chief Executive Officer and the Board for the purposes of resource allocation and assessment of segmental performance.


Revenue by geographical origin
	2009	2008
	£000s	£000s
USA	36,576	46,463
Canada	24,959	18,803
Other	2,044	3,506
Americas	63,579	68,772
France	39,713	39,618
Germany	16,251	20,652
United Kingdom	8,233	12,208
Rest of Continental Europe	28,880	39,251
Other	6,068	7,050
EMEA	99,145	118,779
Asia and Australasia	7,318	11,813
Total revenue from continuing operations	170,042	199,364




Revenue by geographical market
	2009	2008
	£000s	£000s
USA	41,173	46,889
Canada	2,768	5,819
Other	9,097	10,028
Americas	53,038	62,736
France	37,801	38,311
Germany	15,926	20,566
United Kingdom	9,090	11,154
Rest of Continental Europe	35,039	40,501
Other	7,095	9,832
EMEA	104,951	120,364
Asia and Australasia	12,053	16,264
Total revenue from continuing operations	170,042	199,364	199,364



2. Segmental analysis (continued)
	2009	2008
Results	£000s	£000s
USA	(2,448)	(618)
Canada	1,957	(1,176)
Other	(34)	38
Americas	(525)	(1,756)
France	1,433	7,472
Germany	821	1,193
United Kingdom	759	389
Rest of Continental Europe	2,718	2,139
Other	381	(125)
EMEA	6,112	11,068
Asia and Australasia	1,410	(234)
Segment results from continuing operations	6,997	9,078

Unallocated corporate expenses (see note below)	(4,632)	(3,604)
Other income	-	804
Exceptional operating costs	(5,420)	(15,084)
Operating loss from continuing operations	(3,055)	(8,806)

Investment income	207	1,371
Finance costs	(138)	(187)
Loss before tax	(2,986)	(7,622)
Tax	(4,769)	(2,665)
Loss for the year from continuing operations	(7,755)	(10,287)

The Group is not reliant on any single major customer.

2. Segmental analysis (continued)

Other information
	2009		2008
	Capital additions	Depreciation and amortisation	Capital additions	Depreciation and amortisation
	£000s	£000s	£000s	£000s
USA	114	413	224	411
Canada	6,814	3,223	3,465	3,363
France	148	261	133	264
Germany	8	161	195	232
United Kingdom	33	106	83	115
Rest of Continental Europe	177	287	212	307
Asia and Australasia	1	200	216	210
Rest of world	39	130	135	136
Total for continuing operations	7,334	4,781	4,663	5,038	5,038

Capital additions include additions to property, plant and equipment and intangible assets.



Balance sheet
	Assets	Liabilities	Assets	Liabilities
	£000s	£000s	£000s	£000s
USA	12,887	(9,358)	19,737	(11,837)
Canada	141,242	(23,175)	154,385	(15,928)
France	15,043	(10,053)	23,054	(12,378)
Germany	4,739	(1,822)	5,154	(2,400)
United Kingdom	2,643	(3,197)	3,289	(4,940)
Rest of Continental Europe	7,620	(5,118)	12,195	(5,452)
Asia and Australasia	2,417	(940)	8,059	(3,875)
Rest of world	2,943	(727)	5,870	(1,096)
Total for continuing operations	189,534	(54,390)	231,743	(57,906)
Discontinued operations	1,058	(3,883)	881	(5,600)
Cash	45,268	-	41,281	-
	235,860	(58,273)	273,905	(63,506)

Cash is not allocated by geographical segment as financing of the operations is determined centrally.

3. Other income
	2009 £000s	2008 £000s
Gain on sale of asset previously held for sale	-	804

The sale of the Group's leasehold interest in a property at Park Crescent, London was completed on 30 April 2008.

4. Exceptional operating costs
	2009 £000s	2008 £000s
Restructuring costs (a)	4,466	5,439
Japanese costs (b)	412	8,451
Board changes (c)	542	1,194
	5,420	15,084

(a) A redundancy programme in various countries was undertaken to align costs and revenues. (b) Provision for the costs relating to unauthorised trade in the Japanese business together with associated investigation and other related costs of defending claims made on the Japanese business, offset by insurance proceeds of £2,500,000 received after the year end. See note 10 for more detail behind this charge. The charges are consistent with the announcement made on 12 August 2008 and further updated on 7 October 2008, as summarised in the 2008 Annual Report, and further updated in the Interim Financial Statements as at 30 June 2009. (c) Costs incurred in restructuring the Board. The timing of cash payments for restructuring costs does not match the timing of the charge to the Statement of Comprehensive Income.

Balance at start of year	2,676	-
Charge to Statement of Comprehensive Income	4,466	5,439
Paid in year	(6,365)	(3,056)
Foreign exchange impact	(159)	293
Balance at end of year	618	2,676

The charge to Statement of Comprehensive Income for Japanese costs was entirely cash related, save for £2,500,000 insurance settlement received after the year end. Cash payments for Board changes were £30,000 more than the charge to the Statement of Comprehensive Income as there was a payment outstanding at the end of 2008. There was nothing outstanding at the end of December 2009.

5. Reconciliation of adjusted operating profit from operating loss from continuing operations
	2009 £000s	2008 £000s
Operating loss from continuing operations	(3,055)	(8,806)
Exclude gain on sale of non-current asset previously held for resale	-	(804)
Add back / (deduct):
Share-based payment (credit)/expense	(411)	573
Exceptional operating costs	5,420	15,084
Adjusted operating profit from continuing operations	1,954	6,047

6. Tax
		Continuing operations		Discontinued operations		Total
		2009	2008	2009	2008	2009	2008
		£000s	£000s	£000s	£000s	£000s	£000s

Current tax		62	3,299	-	-	62	3,299
Deferred tax		4,707	(634)	-	-	4,707	(634)
Tax charge/(credit) for the year		4,769	2,665	-	-	4,769	2,665

The UK corporation tax is calculated at 28.0% (2008 - 28.5%) of the estimated assessable profit for the year.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The charge/(credit) for the year can be reconciled to the profit per the Statement of Comprehensive Income as follows:
				2009	2009	2008	2008
				£000s	%	£000s	%
(Loss) / profit before tax
	continuing operations			(2,986)		(7,622)
	discontinued operations			603		(1,745)
				(2,383)		(9,367)

Tax at the domestic tax rate of 28.0% (2008 - 28.5%)				(667)	28.0	(2,667)	28.5

Tax effect of expenses / (income) that are not deductible / (taxable)
	in determining taxable profit			(992)	41.6	679	(7.3)
Tax effect of utilisation of tax losses				(168)	7.1	(2,029)	21.7
Losses carried forward				3,988	(167.4)	7,252	(77.4)
Losses unavailable due to cessation of trade				15	(0.6)	497	(5.3)
Timing differences				989	(41.5)	1,101	(11.8)
Reassessment of recognition of deferred tax assets				2,998	(125.8)	-	-
Overseas withholding tax				-	-	167	(1.8)
Double tax relief				-	-	(144)	1.5
Effect of different tax rates of subsidiaries operating in other jurisdictions				(1,094)	45.9	(2,032)	21.7
Prior year adjustments				(300)	12.6	(159)	1.7
Tax charge and effective tax rate for the year				4,769	(200.1)	2,665	(28.5)

7. Discontinued operations

The results for the year from the discontinued operations, which all relate to the UK, are analysed as follows:
			2009	2008
		Note	£000s	£000s
Surplus/(Deficit) on closure of discontinued operations		(a)	790	(1,553)
Finance costs
	Unwinding of discount on provisions	(a)	(187)	(192)
			603	(1,745)

a) Digital
The surplus/(deficit) on closure and the unwinding of discount on provisions are associated with continuing property obligations of the Group. The prime reason for the increase in the provision during the year 2008 was that two tenants went into administration (one during the year and one just after the year end). Consequently the provisions against those properties were increased to reflect the changed circumstances. During 2009 new tenants were found for the properties vacated during 2008 and early 2009, taking a lease running through to the end of Psion's lease term. Consequently the provision was reduced in 2009.

8. Dividends

	2009	2008
	£000s	£000s
Amounts recognised as distributions to equity holders in the year:
Paid final dividend for the prior year of 2.5p (2008 - 2.5p) per share	3,513	3,491
Paid interim dividend for the current year of 1.2p (2008 - 1.2p)	1,687	1,686
	5,200	5,177

Second interim dividend declared for the year ended 31 December 2009 of 2.6p (2008 Final - 2.5p) per share	3,655
Final dividend for the year ended 31 December 2008 of 2.5p per share		3,513


The second interim dividend declared is in lieu of a final dividend and has not been included as a liability in these financial statements. The dividend will be paid on 1 April 2010 to shareholders on the register on 12 March 2010.

9. (Loss) / earnings per share

		2009			2008
		Number			Number
Number of shares
	Weighted average number of ordinary shares for the purposes of
	basic earnings per share	140,556,248			140,163,122

	Dilutive effect of potential ordinary shares:
	Share options	23,438			104,892

	Weighted average number of ordinary shares for the purposes of
	diluted earnings per share	140,579,686			140,268,014

The denominators above are used for the purpose of calculating basic and diluted earnings per share.


FROM CONTINUING AND DISCONTINUED OPERATIONS
		£000s	£000s
Loss
	Loss for the purposes of basic and diluted earnings per share being
	loss attributable to equity holders of the parent	(7,152)	(12,032)

Loss per share for continuing and discontinued operations		Pence	Pence

Basic loss per share		(5.09)	(8.58)

Diluted loss per share		(5.09)	(8.58)


FROM CONTINUING OPERATIONS

		£000s	£000s
Loss
	Loss attributable to equity holders of the parent	(7,152)	(12,032)
	(Deduct) / add (profit) / loss for the year from discontinued operations	(603)	1,745
	Loss for the purposes of basic and diluted earnings per share from continuing operations	(7,755)	(10,287)

Loss per share from continuing operations		Pence	Pence

Basic loss per share		(5.52)	(7.34)

Diluted loss per share		(5.52)	(7.33)

Adjusted (loss)/ earnings from continuing operations are calculated as follows:
		£000s	£000s
Loss from continuing operations attributable to equity holders of the parent		(7,755)		(10,287)
Adjustment to exclude exceptional operating costs net of tax		3,698		14,140
Adjustment to excluded gain on sale of non-current assets previously held for sale		-		(804)
Adjustment to exclude share-based payment (credit)/expense net of tax		(411)		573
Adjusted (loss)/earnings from continuing operations for the purpose of basic and diluted earnings per share		(4,468)		3,622

9. (Loss) / earnings per share (continued)

Adjusted (loss)/earnings per share from continuing operations	Pence	Pence

Adjusted basic (loss)/earnings per share	(3.18)	2.58

Adjusted diluted (loss)/earnings per share	(3.18)	2.58

FROM DISCONTINUED OPERATIONS
	£000s	£000s
Earnings / (loss)
Earnings/(loss) from discontinued operations	603	(1,745)

Earnings / (loss) per share from discontinued operations	Pence	Pence

Basic earnings/(loss) per share	0.43	(1.24)

Diluted earnings/(loss) per share	0.43	(1.24)

10. Japan

We reported in August 2008 and October 2008, as summarised in the 2008 Annual Report and Accounts dated 4 March 2009, and updated in the Interim Report dated 13 August 2009, that the Group had engaged forensic consultants to investigate claims from

trading partners of our Japanese subsidiary Psion Teklogix KK ("PTKK"). These claims amounted to JPY 2.1 bn (£16.2m at 31 December 2008 exchange rates) relating to unauthorised trades and a guarantee of third party trading obligations.

The investigation of these claims has continued throughout 2009. It is now clear that a material fraud has been perpetrated on the

Group through the coordinated actions of certain ex-PTKK personnel and certain of the trading partners involved in the claim

against the Group.

The detailed results of our investigations have been submitted to the Japanese legal authorities and to senior management of the owners of the largest claimant who commenced proceedings against us in the Japanese courts. We continue to resist this claim,

and will pursue any further actions necessary to defend our position.

No further claims have arisen since our interim results were reported on 13 August 2009. We have settled certain of the smaller

claims for amounts lower than was claimed. It is not possible to reasonably estimate how long it will take to resolve the remaining

claims and court actions, nor the amounts which may ultimately be paid. Accordingly, we continue to treat the remaining balances

as contingent liabilities and made no provision. With exchange rate differences between Sterling and the Japanese Yen, the

contingent liabilities are now estimated at £13.6m (JPY 1.96 bn at 31 December 2009 exchange rates)

(December 2008: £16.2m (JPY 2.10 bn)).

No provision has been made for future legal and related costs as it is not possible to make a reliable estimate of them. Costs

incurred to the end of December 2009 in investigating the claims, legal fees, additional travel costs and reorganisation costs of the Japanese office amounted to £2.9m (2008 - £1.7m.). This amount was charged to exceptional operating costs in 2009. Future costs incurred will continue to be disclosed separately within exceptional operating costs.

Offsetting the cash payments to date is an insurance settlement of £2.5m received after 31 December 2009, which was recorded

as a credit to exceptional operating costs.

11. Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Operational Review. The financial position of the Group, its cash flows and liquidity position are also described in the Operational Review. The Group has in excess of £45m of cash and a strong, debt free balance sheet, and its rigorous approach to operations and working capital management will continue to provide sufficient sources of liquidity to fund its business risks. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the current economic outlook, which remains uncertain. After reviewing the forecast cash flow and working capital requirements for the period until March 2011, including the most up to date information available on the dispute in Japan at the time of approving the annual report and consolidated accounts as disclosed in note 10, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR KKQDQKBKKCNK

Investegate takes no responsibility for the accuracy of the information within the site.

The announcements are supplied by the denoted source. Queries about the content of an announcement should be directed to the source. Investegate reserves the right to publish a filtered set of announcements. NAV, EMM/EPT, Rule 8 and FRN Variable Rate Fix announcements are filitered from this site.