e2v technologies PLC                                                                                                                   

7 June 2010

 

 

e2v technologies plc

 

Final results for the year ended 31 March 2010

 

e2v technologies plc, a leading developer and manufacturer of high-technology electronic components and sub-systems to the aerospace & defence, medical & science, and commercial & industrial sectors, announces its final results for the year ended 31 March 2010.

 

	Year ended 31 March 2010 £ million	Year ended 31 March 2009 £ million	Change
Sales	201.2	233.2	-14%
Adjusted* operating profit	15.0	27.4	-45%
Loss before taxation	(9.7)	(28.4)	66%
Adjusted* earnings per share	6.67p	19.08p	-12.41p
Loss per share	(1.66)p	(21.75)p	20.09p
Full year dividend	-	2.7p
Cash generated from operations	40.0	43.0	-7%
Net borrowings	44.8	137.3	-67%

 

Key points:

 

§  Net debt reduction from £137m to £45m

 

§  Sales down 14%, reflecting anticipated reduced demand; markets now largely stabilised

 

§  Run rate costs reduced by £7.5m in the year (14% reduction on an annualised basis) and other within year non recurring
 savings of £5.5m

 

§  Adjusted* operating profit of £15m, down 45%

 

§  Adjusted* earnings per share down 12.41p at 6.67p

 

§  Cash generated from operations of £40.0m, deployed in debt reduction

 

§  Reported loss before taxation of £9.7m after

§  Business improvement programme costs and provision - £18.7m

§  Offset by:

-   Fair value gains on financial instruments -  £2.6m; and

-   Profit on sale of Lincoln site - £3.7m

 

§  Equity raise of £52m net completed in December 2009

 

§  Order book at 31 March £161m (2009: £154m) with £132m (2009: £104m) for delivery in coming 12 months of which
 £12.5m is 'one-off'

 

§  Consultation on restructuring for Lincoln and Grenoble completed in the year on timetable.  Programme cost reduced
 from £33m to £26m reflecting additional customer demand to deliver annual benefits of c.£26m

 

 

Commenting on the results, Keith Attwood, Chief Executive said:

 

"The lower worldwide demand we have experienced over the last 18 months required us to take decisive action to re-establish the business through this difficult period and reposition it for the future.

 

The first step was completing the refinancing of the balance sheet in December 2009, with positive support from shareholders.

 

Along with delivering a creditable trading performance last year, in very difficult circumstances, we reduced our run rate cost base by 14%, on an annualised basis, and completed the consultation stages of our 2010/11 restructuring programme in Grenoble and Lincoln, to timetable and within the planned financial envelope anticipated at the time of the equity raise.

 

We have started this year with a stronger underlying order profile than last year, supporting our view that our markets have largely stabilised.  Looking forward, we expect cash flow to be broadly neutral during 2010/11, as we implement the major phase of the restructuring programme.  This provides us with a sound platform from which to implement our strategy for growth and we will be providing an update on this strategy during July."

 

 

 

 

Further enquiries:

 

e2v technologies plc
Keith Attwood, Chief Executive Charles Hindson, Group Finance Director		Today: 020 7269 7291 Thereafter: 01245 493 493
Website: www.e2v.com
Financial Dynamics
Jon Simmons / Susanne Yule		Tel: 020 7269 7291

 

 

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

 

Introduction

Over the last 18 months, the business has experienced extremely challenging trading conditions which required the implementation of aggressive short term cost reduction actions during the first half of 2009/10 and an acceleration of the established business improvement programme to significantly reduce the fixed cost base of the business.

 

The first key step to implementing this plan was to refinance the Group.  This was completed in December 2009 with the positive support of shareholders for a firm placing and rights issue that raised £52m net (£56m gross) and the Group's banks in providing a new, 3 year facility of £107m at 31 March 2010 rates.  The combination of the equity raised and £40m generated from within the business has enabled the Group to reduce net borrowings from £137m to £45m at 31 March 2010.

 

The second key step is the implementation of the accelerated business improvement programme.  In the UK, this includes the transfer of manufacturing operations from our Lincoln site to our Chelmsford site, along with the establishment of an engineering centre in Lincoln, and the integration of business management into the Electron devices and sub-systems division ('EDS').  In France, this includes the closure of the CCD wafer fab in Grenoble and significant resizing affecting other activities on this site.  Further restructuring actions, primarily related to the UK programme initiated in 2008/09, were also successfully implemented during the year. 

 

We launched appropriate employee consultations for these major changes in October 2009 which were completed within our planned timetable by the end of the financial year.  Following this process, the cost of the accelerated programme is anticipated to be £26m reflecting additional customer demand to deliver annual benefits of c.£26m.  Within the year we sold the site in Lincoln and have acquired a smaller, modern building for the engineering centre in Lincoln in May 2010.

 

Overall, the Board expects the restructuring programme to provide the potential level of profitability on a broadly flat level of turnover that was previously anticipated at the time of the equity raise.

 

The third key step in the overall programme is to return the Group to organic growth.  In October we indicated a shift in our strategic direction towards moving up the value chain and increasing the provision of solutions to our customers.  In January, we retained OC&C Strategy Consultants to assist us in carrying out our strategic review.

 

We plan to brief investors on the outcome of this review in July 2010. 

 

Financial Performance

We anticipated lower activity during the year and this has been reflected in the revenues for the Group being £201m, a decrease of 14% compared to the previous year.  Due to stringent cost management during the year, in a challenging environment that included some two months of industrial disruptions in Grenoble, the Group achieved an adjusted* operating profit of £15.0m (2009: £27.4m), operating loss £6.0m (2009: loss £19.5m).  Given the level of reorganisation taking place in the business and amortisation charged for past acquisitions, the Board considers that the adjusted* operating profit more accurately reflects the comparable performance of the underlying business.

 

The Group reduced its run rate costs by £7.5m in the year (a 14% reduction on an annualised basis), partly under the business improvement programme provided for at 31 March 2009 and partly under the accelerated business improvement programme put in place this year.  The within year charge for this programme was £18.7m after brought forward accruals, with further charges of £3.6m expected to arise over the coming two financial years.  In addition, within year non recurring costs savings of £5.5m were implemented.

 

As a result of this major programme, the Board considers that the Group will have realigned its capacity with the current level of turnover and have a scaleable platform to support additional demand when this arises.

 

These business improvement programme charges of £18.7m (2009: £6.8m) along with amortisation of acquired intangibles of £8.6m (2009: £8.6m), fair value gains on foreign exchange contracts and interest rate swaps of £2.6m (2009: loss of £4.7m) offset by the profit on sale of the Lincoln site of £3.7m (2009: £nil) and the gain on redenomination of borrowings of £2.6m (2009: £nil) have resulted in a Group loss before taxation of £9.7m (2009: £28.4m loss). 

 

Adjusted* earnings per share were 6.67p (2009: 19.08p) and earnings per share amounted to a loss of 1.66p (2009: 21.75p loss).

 

With the Group's focus on debt reduction during the year, reduced working capital including inventory contributed £14.3m to operating cash flow (2009: £6.7m).  Capital expenditure was also reduced to £3.1m (2009: £10.7m) and no dividend was paid in the year, in accordance with the conditions of the banking facilities.

 

Overall, this generated cash flow from operations of £40.0m (2009: £43.0m) which was used to achieve 44% of the reduction in the level of net borrowings in the year to a closing position at 31 March 2010 of £45m, the balance being provided by the net proceeds of the equity raise of £52.2m.

 

The order book at 31 March 2010 was £161m (2009: £154m), an increase of 4.5% despite the longer term contracts in radiotherapy continuing to run through their term.  £132m of this order book is due for delivery in the coming 12 months (2009: £104m).  Some £9m of the order book is for last time buys on the Grenoble front end wafer fab and some £3.5m is estimated to be additional overdue orders as a result of the industrial disruption there in the fourth quarter of last financial year.  Excluding this "one off" business, the underlying order book for the coming 12 months is strengthened compared with last year with a lower order gap for the first half of the current financial year than for the prior period.

 

The Board

The Board consists of the Chairman, three independent Non-Executive Directors and two Executive Directors.  Chris Geoghegan joined the Board as Chairman in October 2009.  Our thanks to George Kennedy for his 5 years as Chairman, including supporting the Company through its flotation in 2004.

 

Our People

This year's creditable performance was delivered by a huge effort across the organisation in very difficult circumstances.  The Board recognises and thanks all staff for their dedication, perseverance and commitment over the course of a very challenging year, and for the ongoing support as the extensive restructuring programme is implemented.

 

Outlook

Our increased underlying order cover for the coming 12 months, compared with the prior year leads us to consider that our markets have largely stabilised.  Our cost base has been reduced, and will reduce further with the phased implementation of our restructuring plans.  We therefore consider 2010/11 to be a year of transition in which, with our continued focus on cost management, capital investment and working capital control we anticipate that net cash flow (after restructuring costs) should be broadly neutral.

 

 

BUSINESS REVIEW

 

Market overview

e2v serves three broad market sectors; aerospace and defence, medical and science, along with commercial and industrial.

 

Our business model is to support specific application segments within these broad market sectors, which require specialised technology and process skills over the longer term.  We are often a leader in these specific applications.

 

The largest of these market sectors is aerospace and defence, where the e2v addressed market is estimated to be £1.1bn and which accounts for 46% of our sales (2009: 41%), of which defence accounts for 81% (2009: 85%).  We have experienced continued growth in the space sector with commercial aerospace activity remaining steady although activity has reduced in the global defence market, and in particular we see demand in the defence markets supported by the Electron devices and sub-systems division continuing to weaken.

 

The second largest sector is commercial and industrial, where the e2v addressed market is estimated to be £0.8bn and which accounts for 28% of our sales (2009: 30%).  After the substantial decrease in activity we reported last year, demand has stabilised and showed strong recovery in the fourth quarter in some of these applications.

 

Medical and science is the smallest sector, where the e2v addressed market is estimated to be £0.3bn and which accounts for 26% of our sales (2009: 29%).  Medical sub sectors served by the Group have recovered during the course of the year, although provision of Charge Coupled Devices ('CCD') product to the dental imaging sector has continued to decline.  The scientific sector continued to grow overall, although we lost some market share serving x-ray spectroscopy applications.

 

Business structure

The Group was organised into four divisions that are supported by Group functions:

 

Electron devices and sub-systems ('EDS') - high performance electron devices and sub-systems for applications including radiotherapy cancer treatment machines, defence electronic countermeasures and radar systems, satellite communications amplifiers, digital television transmitters and industrial laser and welding machines;

 

Imaging devices - advanced CCD and  Complimentary Metal Oxide Semiconductor ('CMOS') imaging sensors and cameras for applications including earth observation, space science and life science imaging, military surveillance, industrial process control, advanced data collection and dental X-ray systems;

 

Specialist semiconductors - including own design high speed data convertors, high reliability microprocessors in partnership with Freescale Semiconductor, MRAMs in partnership with Everspin, packaging and test and obsolescence management  services for high reliability integrated circuits for aerospace and defence programmes, and own design sensor data acquisition utilising mixed signal application specific devices;

 

Sensors - a range of professional sensing products for applications including environmental safety, fire rescue and security thermal imaging, x-ray spectroscopy, automotive alarm and security systems, microwave radar and safety and arming devices.

 

Group functions cover:

 

·     global operations with responsibility for all manufacturing and supply chain activity;

·     global sales that manage our customer relationships throughout the world through a combination of e2v's own sales and
 support offices and a network of distribution partners and representatives; and

·     support services including Finance, Legal, IT and HR.

 

For the coming year, the Sensors division has been rationalised with the businesses currently based in Lincoln transferred to the EDS division and its remaining portfolio of businesses will be reported in the corporate centre.  The strategy to review businesses not core to the Group continues and the creation of an expanded instrumentation business in safety and security products is also under consideration.

 

Financial overview

The Group achieved revenue of £201.2m (2009: £233.2m), adjusted* operating profit of £15.0m (2009: £27.4m) and an operating loss £6.0m (2009: loss £19.5m).

 

Revenue and adjusted* operating profit by division was as follows:

 

	Revenue				Adjusted* operating profit
	2010		2009		2010		2009
	£m		£m		£m		£m
Electron devices & sub-systems	65.6		83.8		11.5		15.7
Imaging	53.8		65.2		0.5		4.3
Specialist semiconductors	50.9		53.3		6.7		13.1
Sensors	30.9		30.9		(0.4)		(1.6)
	201.2		233.2		18.3		31.5
Group functions					(3.3)		(4.1)
					15.0		27.4

 

 

In line with decreased demand in the year across most of the Group's activities, reported sales decreased by 14%.  Excluding the full year impact of the acquisition of QP, the underlying business decreased by 17%.  Although there was growth in the smallest division, Sensors, the performance in the other three main divisions declined.  Sales fell in each of the Group's market sectors: aerospace and defence by 3%, medical and science by 22% and commercial and industrial by 20%.  By geographical spread revenue was steady in Asia Pacific and the Rest of World with lower sales in UK, Europe and North America.  New business, being new products or customers in the year, made up approximately 14% of sales.  The fourth quarter was impacted by the industrial disruption in the Grenoble facility, which only returned to normal working in the latter part of March, although a significant effort was made to recover overdue orders and provide product to meet customer demands.  As a result there was a shortfall in revenue in Imaging and Specialist semiconductors and the increase in overdue orders is estimated at £3.5m.

 

Gross profit decreased by 22% to £61.2m (2009: £79.0m) and represented 30.4% of sales (2009: 33.9%).  The lower volume reduced gross profit due to the reduction in sales being greater than the reduction in the relatively fixed operating cost.  The anticipated lower volumes resulted in management taking short term measures to reduce costs in the first half, including a period of short time working in the UK and US, an extended summer shutdown in France, a range of additional overhead control measures and rephasing of R&D spend.  In the second half the Group carried out consultation on its extensive restructuring programme in France and the UK and continued tight management of overhead and R&D spend.

 

Expenditure on research and development has decreased to £12.1m (2009: £17.1m). This is due to tighter management, rephasing of spend and greater focus on priorities.  Net research and development expenditure was reduced by £3.5m after excluding the impairment charge of £1.5m in the prior year.

 

Selling and distribution costs decreased by 15.5% to £15.2m (2009: £18.0m) reflecting the cost saving measures taken including head count reduction and lower marketing and communication spend.

 

Administrative expenses decreased to £40.0m (2009: £63.4m). Administrative expenses include a number of the items added back to adjusted* operating profit of £21.1m (2009: £45.4m) detailed below.  The remaining administrative expenses of £19.0m (2009: £18.0m) increased by 5.6% (£1.0m) reflecting a full year of QP partially offset by cost control measures including a reduction in headcount and short time working.

 

Overall, the Group reduced the headcount by 165 people during the year and achieved a reduction of £7.5m (14% on an annualised basis) in its run rate cost base.  Run rate costs include overheads, the costs of holding inventory and warranty.  In addition non recurring cost reductions including short time working and research and development were £5.5m. 

 

Adjusted* operating profit

The adjusted* operating profit is considered to reflect more accurately the underlying performance of the business and is calculated as follows:

	Year ended 31 March 2010 £000	Year ended 31 March 2009 £000
Operating loss	(6,037)	(19,535)
Included in administrative expenses:
Amortisation of acquired intangible assets	8,600	8,628
Impairment of acquired intangible assets	-	24,579
Impairment of plant and equipment	-	2,500
Business improvement programme expenses	18,682	6,826
Fair value (gains)/losses on foreign exchange contracts	(2,489)	2,894
Profit on the sale of the Lincoln site	(3,739)	-
Included in research and development costs:
Impairment of acquired intangible assets	-	1,548
Adjusted operating profit	15,017	27,440

 

Amortisation of acquired intangibles of £8.6m (2009: £8.6m) reflects the lower amortisation arising after the impairment charges made principally in the prior year of £24.6m, offset by a full year's amortisation of QP intangibles of £1.1m.  The Group has carried out its annual impairment reviews and considers that there is no impairment of acquired intangible assets to be recognised this year (2009: £24.6m).

 

The Business improvement programme costs of £18.7m, (2009: £6.8m) are in respect of the restructuring plans being undertaken by the Group and set out in more detail below.

 

The Group's policy is to put in place forward contracts to sell surplus currencies based on its trading forecasts, with the level of coverage decreasing over the next 12 months  The mark to market adjustment amounted to a gain of £2.5m (2009: loss of £2.9m) and is described as fair value gains on foreign exchange contracts.  The gain reflects the fair value of the forward US$ contracts held by the Group as at the 31 March 2010, which extend over a period of 12 months to March 2011.

 

The gain on fixed assets reflects the profit on the sale of the Lincoln site for £3.7m net of costs.  The first payment for the sale of this site of £2.2m was received on 31 March 2010 with the final payment of £2.0m to be received by 31 March 2011, following the site being fully vacated.

 

Key performance indicators ('KPIs')

The Group currently uses a range of financial and non financial KPIs to monitor the business on a monthly basis.  The current KPIs are rolling 12 month sales, rolling 12 month adjusted* operating profit, 12 month order book, rolling 12 month return on sales and rolling 12 month return on total assets, which is rolling 12 month adjusted* operating profit as a percentage of rolling 12 month total assets.  Sales profit and order book are covered in detail in this review of the Group and divisional performance.  Rolling 12 month return on sales was 7.5% (2009: 11.8%) and rolling 12 month return on total assets was 5.7% (2009: 9.9%).

 

Non financial KPIs are discussed in detail in the corporate responsibility report and include employee attendance percentage, the number of reportable accidents in a year, percentage reduction in our carbon footprint, Business in the Community 'BITC' Environmental Index and customer satisfaction.

 

Finance charges

Net finance costs before exceptional items were £5.7m (2009: £7.1m), a reduction of 20% compared to the prior year.  In the first half of the year lower bank base rates more than offset the increased borrowing.  In the second half the margin paid increased in the third quarter to 475 basis points ('bps') reflecting the terms of the new banking facility and this reduced to 275 bps in the final quarter as a result of the ratio of total borrowings to earnings before interest tax, depreciation and amortisation as defined in the facility agreement the 'leverage ratio' falling to below 2:1 on completion of the equity raise.  The reduction of the leverage ratio was a result of the operating cash generation of £40.6m and the net proceeds of the rights issue of £52.2m.

 

The Group's policy is to hedge a minimum of 75% of the interest due on its term loans and the Group's banking agreement requires the Group to follow this policy.  The fair value gain on the interest rate swaps held by the Group amounted to £0.1m (2009: loss of £1.8m).  The gain represents the fair value of the current interest rate swaps, net of the costs incurred on cancellation of one of the previous contracts.

 

The Group currently has a 3 month GBP Libor swap covering £26.3m of Sterling term loan fixed at 1.96% and a 3 month US dollar Libor swap covering $24.4m of US dollar term loan fixed at 1.38%.  The GBP Libor swap amortises in line with the scheduled term loan repayments.  In addition, at the year end, the Group also had a €24.7m Euro interest swap contract with a floor of 3.31% which was cancelled in May incurring a cancellation fee of €0.7m.  The interest rate swaps provide cover over 75% of the term loans which secures borrowing rates on the hedged amounts at a maximum of 4.7% based on the Group maintaining the leverage ratio below 2:1.

 

Exceptional interest costs include the write off of the unamortised debt issue costs relating to the previous banking facility of £0.7m as the Group entered into a new facility on the 29 October 2009.  Costs associated with the new facility of £3.6m will be amortised over the expected life of the facility.  Exceptional finance income included £2.6m of exchange gains on re-denomination of borrowings arising on the transfer of the Group's Euro denominated debt into Sterling in the summer of 2009.

 

Taxation

The tax credit for the year is £7.5m (2009: £7.1m).  The effective tax rate for the year ended 31 March 2010 amounts to 76.7% (2009: 25.0%) including adjustments relating to prior years.  The tax credit in the current year has benefited from tax credits for research and development in the UK and France of £2.3m (2009: £4.3m), and the benefit of the restructuring provisions in France which are subject to higher rates of taxation and the gain on the sale of the Lincoln site that was taxed under capital gains tax rules which resulted in a lower effective rate on the gain.

 

The Group generated profits in the UK and US which are subject to tax at 28% and c.40% (including state taxes) respectively.  In France the Group made losses.  The standard rate of tax in France is c.34%.  Tax losses totaling £10m have been carried back to prior periods and are available to be relieved against future tax payments.  In the event that future tax payments are not sufficient to relieve these amounts over the next five years, this would result in a refund of tax previously paid.  Tax losses of £4m arising in France have been carried forward and are available to be relieved against future taxable profits.  £13m of the restructuring provision in France will be deductible as the provision is utlilised.  In respect of research and development tax credits in France, these are received in cash based on the level of qualifying spend regardless of whether the Group has made taxable profits or losses.

 

Currency

The manufacturing operations in the UK, France, US and Switzerland sell through the Group's global distribution network, and are therefore subject to transactional and translational risks particularly in relation to the US dollar which accounts for 35% (2009: 38%) of the Group's sales.  Where US dollars are forecast to exceed US dollar costs, the surplus US dollars are sold under foreign exchange contracts in accordance with the Group's hedging policy.  In the year ended 31 March 2010 US dollars were sold under exchange contracts at an average rate of $1.61 = £1 (2009: $1.93 = £1).  The Euro denominated sales revenue is more than offset by Euro costs.

 

The Group is also subject to translational risks on the retranslation of its foreign currency denominated borrowings.  In the first half the Group put in place a forward contract to fix the rate at which it re-denominated the Euro denominated debt into Sterling generating a gain of £2.6m.  The Group does not currently hedge the retranslation of its US dollar denominated borrowings into Sterling, the presentational currency.  Currently 52% of the Group's borrowings are in US dollar with the remainder in Sterling. 

 

In the year ended 31 March exchange rates applied were:

	Average				Year end
Year ended 31 March	2010		2009		2010		2009
US dollar	1.59		1.75		1.51		1.43
Euro	1.13		1.22		1.12		1.07

 

Cash flow and net borrowings

At the 31 March 2010 net borrowings amounted to £44.8m (2009: £137.3m), a reduction of £92.5m since 31 March 2009 of which 44% was internally generated and 56% from the proceeds of the equity raise.

 

The net cash inflow generated from operations was £40.0m, a decrease of £3.0m over the year ended 31 March 2009. This has been achieved despite lower levels of profit, due to cash generation from working capital and cost control measures.  The continued focus on reducing inventory generated £5.9m (2009: £8.2m) and debtors reduced by £10.0m (2009: £1.7m).  The sale of the Lincoln site provided £2.2m in the year.  Restricting investment in tangible fixed assets and software reduced spend to £3.1m (2009: £10.8m), a reduction of 71%, and research and development spend to £0.7m (2009: £2.6m), a reduction of 73%.

 

The equity raise secured £52.2m net of costs and completed in December 2009.

 

Borrowing facilities

During the year, the Group agreed new banking facilities which, at 31 March 2010 rates, total £107.5m and expire in December 2012.  These comprise a term loan of $32.5m and £35.0m and three general purpose facilities of $32.5m, €22.0m and £10m respectively.  At 31 March 2010, a total of £72.6m had been drawn on these facilities consisting of $57m and £35m being the cash generating currencies of the business in the year.

 

The term loans are repayable in yearly instalments of £10m on 31 December 2010 and 2011 with the balance being repayable on 31 December 2012.  The facilities are available to the Group in full until 31 December 2012 subject to the terms of the facility and support their use for general corporate purposes. 

 

Interest is payable at 275bps over the interbank rates when the ratio of consolidated net borrowings to consolidated EBITDA is below 2:1 increasing to a maximum of 475bps if ratio of consolidated net borrowings to consolidated EBITDA is above 3:1.  Interest rate swaps are in place in accordance with the Group's hedging policy.

 

The facility is subject to the following key covenants as at 31 March 2010:

	Covenant	Actual
Consolidated net debt/consolidated EBITDA	<3.25 : 1	1.6 : 1
Consolidated EBITA/consolidated net interest payable	>2.25 : 1	3.8 : 1
Net operating cash flow/debt service	>1.50 : 1	4.0 : 1

 

In the coming year, headroom for the net operating cash flow/debt service covenant reduces significantly when loan repayments commence in December 2010.

 

The banking facility does not permit dividends to be paid until the Group's net cash flow after restructuring costs and debt service has been positive for 12 months.

 

Restructuring

The overall restructuring programme that was announced in October 2009 is now anticipated to cost £26m.  It comprised of £3.8m relating to accruals made in the prior year, £18.7m reflecting the provision made in the current financial year and £3.6m of other costs to be incurred in the future.  

 

The formal consultation period for the restructuring of the Grenoble facility was completed in March 2010 and this has now moved into implementation over the coming year with the closure of the front end CCD fab planned for February 2011.  This will result in a number of the products currently part of the Imaging division being subject to last time buys including all CCD dental intra and extra oral products, as well as some CCD industrial sensors.  Specialist semiconductors is also part of the restructuring programme in Grenoble, with phased headcount reductions in the areas of the business where volumes have decreased and also reflecting a sharpened focus where the division is investing in future R&D spend.

 

The benefit of the significant cost reductions associated with the headcount reduction and the closure of the Grenoble fab will not be realised in full until the following year.

 

In respect of Lincoln the consultation period was concluded during February 2010 and the plan is now being progressed to the implementation phase.   The existing site has been sold for £4.2m with £2.2m received in the financial year and a new property purchased in Lincoln which will house the microwave engineering centre.

 

The manufacturing activity of the Lincoln based microwave business is being transferred to Chelmsford and a microwave engineering centre will be established in a new facility in Lincoln.  From April 2010 the microwave and automotive businesses, based in Lincoln, will be reported as part of the EDS division where this was previously reported within the Sensors division.  Detailed plans have been agreed with customers with the focus placed on ensuring continuity of supply for the site to be vacated during the fourth quarter of this financial year.  The transfer will reduce headcount and overheads, with phased savings over the 2010/11 financial year with the full impact not being becoming effective until the last quarter when the current site in Lincoln will be vacated. 

 

In respect of the Sensors division, in the first half of the year the long term Biosensors R&D activity ceased.  From April 2010 the Lincoln based businesses will be reported in EDS division.  The balance of activity that remains in the Sensors division will be reported in the corporate centre whilst the portfolio continues to be reviewed.

 

The timing of the remaining spend in relation the restructuring programme is approximately £18m in the year ending 31 March 2011 and approximately £6m in the year ending 31 March 2012.

 

 

Electron devices & sub-systems division

 

Operations

Our Electron devices and sub-systems division which is based in the UK manufactures a range of high performance electron devices and sub-systems for medical & science, aerospace & defence and commercial & industrial markets.  The applications include radiotherapy cancer treatment machines, defence electronic countermeasures, radar systems, satellite communications amplifiers and digital television transmitters.

 

Financials

With reduced activity across all of its sectors sales in Electron devices and sub-systems decreased by 21.7% to £65.6m (2009: £83.7m).

 

The division's adjusted* operating profit was £11.5m (2009: £15.7m), a reduction of 27%.  This was due to lower volumes partially offset by savings achieved from headcount reduction, short time working and reductions in warranty, selling and administration costs.

 

The order book at 31 March 2010 was £68m (2009: £76m), the main drivers for the reduction were the impact of multi year radiotherapy orders which continue to run their term and decline in defence orders.  The order book relating to defence was £13m (2009: £17m), down 23%.  The orders due for delivery in this financial year improved to £48m (2009: £42m), up 14%.  The order book including the Lincoln business for delivery in this financial year is £60m (2009: £55m).

 

Markets

 

Medical and science

The medical and science customers served by the division require high performance high reliability products and have long term spares requirements.  The principal application served is the cancer radiotherapy market which is driven by the increasing improvement in cancer detection an ageing population and the desire for more accurately targeted treatment.  Our Original Equipment Manufacture ('OEM') customers are the most significant route to market and these include Tomotherapy, Elekta, Varian and Siemens.  Key drivers for the market include new equipment demand that was affected by the reduced level of investment in hospital facilities, whereas the underlying demand for spares is primarily driven by the installed base.  Spares represent c.65% of sales.

 

Within the medical market, the division supplies magnetrons, thyratrons, modulators and services mainly to the large OEMs but also to end users through distribution.  The division is the world's largest manufacturer of pulse magnetrons and a world leader in magnetron technology.  The division's modulator systems are specifically designed for use in linear accelerators, of the kind used in radiotherapy machines.  When combined with the division's magnetron, this subsystem provides a reliable, accurate, high energy, pulsed microwave source for electron acceleration.

 

During the year e2v entered into a unique support agreement with Tomotherapy, for an initial term of three years.  Under the agreement, Tomotherapy pays e2v a monthly fee per installed equipment to cover the purchase, repair and replacement of magnetrons.

 

e2v sales into radiotherapy applications were flat overall but adjusting for stock movements, reflected the overall trend of modest underlying growth.  In the first half there was lower demand for both new systems, due to lack of credit facilities for end-users and due to destocking amongst the OEMs, whereas second half volumes showed an improving trend for new build equipment and a return to run rate demand for spares.

 

The recently prototyped high power magnetron is designed specifically for the medical and industrial linear accelerator markets and provides an alternative to klystrons in high average and peak power applications.  When combined with the modulator in development, it provides a smaller, more flexible footprint than conventional approaches.  The focus for the division's ongoing R&D program for the medical market is the development of a subsystem incorporating this high power, tunable S-Band magnetron and the next generation modulator. 

 

Sales in the science market are usually for high power switching applications and were buoyed by the delivery of large quantities of hydrogen thyratrons to the prestigious Spring8 science facility in Japan - one of Japan's top infrastructure projects.

 

Aerospace and defence

Established long term relationships with industry leading defence primes are based on the division's ability to design and manufacture specialised high-reliability components and sub-systems.  The market is driven by the availability of governmental funding including urgent operational requirements for current conflicts, the changing threats to military assets and by political pressure to reduce casualties have an impact on demand.  Technology for some applications, like radar, is shifting from tube to solid state, whilst new applications are also emerging for vacuum tube technology.

 

The division provides magnetrons, coupled-cavity travelling wave tubes ('TWTs'), helix TWTs and modulators as well as design and development services. Key customers are the system level OEMs, including BAE Systems, Selex, Raytheon and Thales.  For some applications e2v also contracts directly with the end users or governmental laboratories and their technology groups.  A gradual shift to sub-systems fits with market opportunity as OEM customers implement increased buy vs. make decisions.  Product mix is being changed by end-user desire to extend the life of existing military assets - where e2v has significant legacy business.  e2v's non-International Traffic in Arms Regulation ('ITAR') technology is a key advantage verses US competitors, in our international markets.

 

The division's products and services are used in a range of electronic counter measures ('ECM') and radio frequency ('RF') radar applications.  Typical applications in ECM include TWTs and complete RF sub-systems.   There were lower levels of demand for new RF sub-systems in the year, but new orders for maintenance and upgrade of the installed base were secured.  The contract for supply of TWTs for towed decoys on the US Navy's Superhornets moved into the low rate initial production phase.  Other significant contracts included sub-systems for the Seawolf missile program in service support contract.

 

The UK Ministry of defence ('MOD') continues to contract directly with e2v for novel solutions, providing funding for the development of new technologies, including high power microwave sources.  Several new contract wins have been obtained, for development projects with the potential for future volume supply into new applications.

 

While the second half saw a significant upturn in bid activity, sales activity continued to weaken reflecting delays in order placement and the continued decline in traditional radar business, falling 11% year on year.

 

R&D programmes are focusing on the further development of RF sub-systems, along with other customer-funded programmes.

 

Commercial and industrial

Commercial and industrial markets served include broadcast communications, radar for commercial shipping, harbours & aircraft and industrial applications including RF processing, induction & dielectric welding, lasers and cargo screening.  The broadcast market has been affected adversely by the switch from analogue to digital TV but helped by the growth in satcom communications.  Commercial radar markets are driven by regulation for commercial shipping and have been affected by fewer launches and lower shipping activity.  Other sectors were also impacted by the general economic environment and lower industrial output and investment.  Overall sales fell 26% year on year.

 

The key products are triodes and tetrodes and gridded tubes for industrial applications, klystrons, Inductive Output Tubes ('IOTs') for digital and analogue Ultra High Frequency ('UHF') TV transmitters, satcom amplifiers for outdoor broadcast, high power linear accelerator ('LINAC') magnetrons for cargo screening and RF generator systems for industrial materials processing.  There are diverse routes to market through major OEMs for new systems and then through distributors and service partners to supply end-user spares.  OEM customers include Garmin, Honeywell and Huettinger while Alphatron is a key distribution partner.

 

The completion of the switch in summer 2009 from analogue to digital TV in the US reduced broadcast sales, which fell 42%.  Marine radar sales were down 6%, reflecting destocking and a reduction in the number of new vessels built.  Cargo screening activity was muted with a shift in security focus from cargo to passenger screening.  Other industrial markets were dampened by the general economic environment, but stabilised in the second half, with signs of recovery in both sales and enquiries in the last quarter.

 

In the Commercial and industrial sector the focus of the R&D effort is on high power RF applications, where we have engaged with a number of international companies involved in materials processing.  In collaboration with the University of Nottingham, we are addressing a number of opportunities presented by the availability of reliable, high power RF energy to improve fundamental process characteristics.  Orders have been received for complete generator and applicator subsystem prototypes.

 

 

Imaging division

 

Operations

Our Imaging division which is based in Chelmsford, UK and Grenoble, France,  supports advanced CCD and CMOS based imaging sensors and, at product level, cameras for a range of medical & science, aerospace & defence and commercial & industrial markets including high end applications in spectroscopy and scientific imaging, sensors and focal plane arrays for space exploration and earth observation, dental X-ray radiography, Optical Coherence Tomography ('OCT'), machine vision and Automated Data Collection Systems ('ADCS').  The division currently operates CCD fabs in Chelmsford and Grenoble.  As part of the previously announced restructuring, the front end CCD fab in Grenoble is scheduled to close in February 2011.

 

Financials

Sales in Imaging decreased by 18% to £53.8m (2009: £65.2m).

 

The division's adjusted* operating profit before taxation was £0.5m (2009: £4.3m), a reduction of 88%.  This was due to dramatically lower volumes in the dental market, offset by a reduction in R&D achieved by a re-phasing of some programmes and reductions in third party spend.

 

The order book at 31 March 2010 was £47m (2009: £40m), the main drivers were; Last Time Buy 'LTB' orders for CCD dental products, strong demand from OCT, and a ramp-up demand for CMOS sensors for Automatic Data Collection.   The LTB orders will be non recurring and reflect the decision to close the front end fab in Grenoble.  The orders relating to space activities were £23m (2009: £25m), down 7%.  The orders due for delivery in FY2011 were £43m (2009: £33m), up 31% and include £9m of LTB orders and c.£1.5m of overdue orders resulting from the industrial disruption in Grenoble in the last quarter.

 

Markets

 

Medical and science

The dental X-ray radiography market is a long established market, which we have been a major vendor since the beginning.  The market is driven by the ageing population increasing demand for healthcare, a drive to digital technologies to lower patient exposure to radiation and early detection of problems. 

 

e2v provides dental equipment manufacturers with custom design CCD and CMOS dental image sensors that drive electronics for inter oral and extra oral devices.  The route to market is through OEMs including Planmeca, Palodex, Cyber Medical who provide the equipment to the end users through their distribution networks.

 

The demand for dental CCD sensors has continued to fall, especially for intra oral applications, as CMOS solutions become available with more functionality enabling lower system costs.  e2v's  second generation CMOS sensors, introduced in September 2009, started to generate sales this year.  The segment has also been affected by the economic slow down and the impact of industry consolidation.  The CCD sensor business is expected to continue to decline, although the last time buys will offset this decline in the coming year.  The dental CCD market is becoming dominated by large vertically integrated suppliers.  With the closure of the front end fab e2v is  withdrawing from the dental CCD market to concentrate on our dental CMOS offering, by promoting our Demoniac USB family, that has been developed and is the result of the R&D investment over the last 2 years.

 

OCT applied to ophthalmology is a relatively new market, started in 1996 but which grew strongly in the following years when Spectral-Domain ('SD') OCT was introduced.  e2v supplies the line scan camera used in most SD-OCT engines on the market, the main customers include Optovue.  The growth in this market is fuelled by the ageing population generating a demand for early detection of eye diseases.  Furthermore this technique is non invasive, thus examination does not have a high cost, leading to better comfort for patients and savings for health providers. Equipment purchases have slowed down this year due to global economic downturn.

 

The science market is for high end applications in spectroscopy and scientific imaging where ultra-high sensitivity particularly in low light levels is needed. The division provides electron multiplication CCD ('EMCCD') sensors and cameras to OEMs including Andor, Roper, Spectral and Hamamatsu.  Sales in the science market declined partly due to one major customer moving to a second source.

 

Aerospace and defence

The division is a world leading supplier of high sensitivity image sensors to the global space sector.  The sector requires high reliability products for ground and space astronomy, space science, environmental observation and land observation. 

 

The need for countries to maintain independent observation capabilities is driving a growing demand for land observation, with several new programs started this year, especially in Europe. The analysis of climate change is also driving investment in new environmental programmes.  Overall, this market has not suffered from the general economic conditions, and has experienced a strong growth continuing in demand.

 

e2v provide mostly CCD sensors into this markets sourced from the fabs in Chelmsford and Grenoble. However, e2v has started to demonstrate the feasibility and performance advantage of CMOS in some applications including ocean imaging and hyperspectral imaging.  The route to market is direct with imaging equipment or satellite manufacturers including Ball Aerospace, Lockheed Martin, Thales and Astrium.  e2v are recognised for technical excellence by the world's major space agencies, including NASA, ESA, CNES, JAXA and CSA, with whom our R&D programs and roadmaps are discussed to support future requirements.

 

Revenues in the  space sector have grown by 30.5% in the year driven by major programs for earth land observation (including the first phase of the CSO strategic program that will be the successor of Helios France programme and for the  space science sector (including the final phase of the Gaia program, for ESA ).

 

Commercial and industrial

There are a wide variety of industries that have a requirement for our middle to high end specification machine vision sensors and cameras including for raw material production (paper, glass and metal), food sorting and electronic and semiconductor process inspection.  The products form part of larger industrial equipment and therefore significantly influenced by the cycles of investment in new capacity and replacement cycles in manufacturing plants, driven by demand in the general economy.  e2v is internationally recognized for the quality of its CCD sensors and cameras which we design and manufacture.  We are working on new generation of CMOS cameras for very high speed applications, which should be introduced in 2011.

 

The route to market is our network of dedicated local partners who integrate the industrial sensors and cameras into their products, including Rauscher, Chronix, but we also supply directly to OEMs including Cognex.  Machine vision sales have declined by 13% reflecting the reduction in capital spend in industrial markets, though in the second half there has been a strong  recovery particularly in the Asian markets. 

 

For the past 3 years, e2v has been working in close relationship with major players of the Automatic Data Collection Systems ('ADCS') market to develop standard and custom CMOS sensors with high performance shutter capabilities, and a high degree of functional integration.

 

The market segments are 1D/2D barcode scanning, with end products including hand-held readers, terminals, fixed scanners and OEM engines.  The end markets include logistics, transportation and retail.  Growth in this market is driven by a combination of the progressive replacement of laser technology by passive imaging detection, and the increasing number of applications opened by the adoption of 2D scanning as opposed to 1D.

 

Our recently launched CMOS ADCS product has generated orders from 2 major OEMs within this market.

 

 

Specialist semiconductors division

 

Operations

Our Specialist semiconductors division which is based in Grenoble, France and Santa Clara, US provides data convertors, microprocessors, assembly and test services, military spec high reliability legacy components, sensor signal conditioning ASICs and ASSPs for aerospace & defence and commercial & industrial markets, and operates QML certified semiconductor manufacturing facilities at both locations.

 

Financials

Sales in Specialist semiconductors decreased moderately by 4.5% to £50.9m (2009: £53.3m), which reflects the inclusion of QP Semiconductors Inc ('QP') for the full year although overall existing markets declined and sales were down 24% excluding the contribution from QP.

 

The division's adjusted* operating profit was £6.7m (2009: £13.1m), a decrease of 49%.  This was due to lower sales in the data converters, microprocessor and mixed signal ASIC product groups.  This was partially offset by cost reduction in Grenoble and by the benefit of a full year of QP's activity, compared to 6 months last year.

 

The order book at 31 March 2010 was £29m (2009: £20m).  The main reason for the increase is due to orders related to the end of life ('EOL') 68K processors for the Eurofighter programme.  The orders due for delivery in FY2011 were £26m (2009: £17m), up 49%, and include c.£2.0m of overdue orders resulting from the industrial disruption in Grenoble in the last quarter.

 

Markets

 

Aerospace and defence

The market demands high spec, high reliability components.  There is demand for improved performance and connectivity for embedded computers, increased bandwidth and higher resolution to acquire and process data; demand for long-term support, and redesign of discontinued products.  With our capabilities in both design of new semiconductor technologies as well as providing packaging and test services which can extend the life of otherwise obsolete semiconductors, both new and legacy systems and programmes are supported.

 

e2v designs high speed data converters, which are used in leading edge signal conversion applications such as wide-band satellite receivers, wireless LAN and RF infrastructures used in military and aerospace applications.  e2v offers market leading package and screening options; making high reliability semiconductors available to aerospace and defence platforms via OEMs and distribution channels. 

 

Sales for the data converters product group were down 17% over last year. The R&D investment in data converters is to continue to provide the highest performance analogue to digital converters available in the market targeted at aerospace and defence platforms.

 

In partnership with Freescale Semiconductor, e2v offers a range of high reliability microprocessors for use in avionics, defence and space applications.  e2v is working with Everspin to provide similar services for magnetic random access memory ('MRAM') devices. Sales of microprocessors were down 24% over the prior year, due to lower demand and the industrial dispute in our Grenoble plant. 

 

e2v's chip assembly and test business provides an outsourcing option to customers that want to move away from in-house testing, due to the efficiencies they can gain by focusing on pure manufacturing.  e2v has seen an increase in this business of 34% over last year within the aerospace market.  Medium term customer demand has increased the visibility of this activity and justified retention of staff that were originally planned to be included in the Grenoble site rationalisation.

 

The focus of development for the microprocessors is development of the existing products as well as new high reliability offerings based on Freescale Semiconductor's PowerPC ™ based microprocessor.

 

e2v provides obsolescence mitigation services by designing or re-engineering otherwise obsolete semiconductors along with wafer storage, foundry transfer facilities and assembly and test services.  These high reliability semiconductors are made available through a network of industrial distributors as well as direct OEMs. 

 

An important contribution in obsolescence mitigation is made by QP which has the second largest number of semiconductor components approved for use by the US military.  In the current year sales were £15.6 million, up 117% from last year, due to the benefit of having a full 12 months of sales.  The focus of the R&D developments for QP include die replacement (where no supply is otherwise available) for which there is ongoing product demand and new product design in order to expand its product offerings. 

 

In Grenoble, we have received a number of orders to the total value of £12.7m for the Eurofighter Tyhoon programme consisting of a number of orders from sub-contractors to the Eurofighter programme for 68K processors and additional services secured for a minimum of 10 years under an obsolescence mitigation programme for the Eurofighter programme.

 

Commercial and industrial

The smart sensor market for sensor signal conditioning ASICs and ASSPs is for applications in industrial automation, industrial detectors, automotive safety and security, engine management and climate control applications.  Demand in these markets has declined.

 

e2v designs products for selected customers selling directly to the large OEMs in the industrial and automotive markets.  There are only a limited number of new designs currently being worked on and a number of existing programmes are coming to an end.  Order demand for products has declined because of the downturn in the industrial and automotive markets.  The sales for these markets are down 50% on the prior year, and, as part of the reorganisation, support will be maintained for products developed for existing customers.

 

 

Sensors division

 

Operations

Our Sensors division in the year ended 31 March 2010 comprised a portfolio of businesses based in the UK and Switzerland covering thermal imaging, x-ray detectors, gas sensors and air quality sensors along with microwave, automotive and high speed electronic businesses at Lincoln.  The businesses sell into the range of the Group's markets, across the medical and science aerospace & defence and commercial & industrial sectors.  From April 2010 the sensors division has been reorganised with the businesses currently based in Lincoln reporting as part of the EDS division.  The remaining businesses will be reported in the corporate centre whilst the portfolio continues to be reviewed.

 

Financials

Across the portfolio of activities, sales in the Sensors division overall were stable at £30.9m (2009: £30.9m).  There were however changes in the mix with the non-Lincoln businesses demonstrating sales growth of 15% whilst the sales for the Lincoln based businesses declined by 14%.

 

The division's adjusted* operating loss was £0.4m (2009: loss £1.6m), an improvement of 74%.  In relation to the non Lincoln businesses the adjusted* operating loss was £0.1m (2009: loss £1.2m).  The improvement in performance was due to the closure of the Biosensors programme, substantial growth in the MiCS automotive business and improved profitability in the TiCS business through increased revenue and purchase price reductions in materials.

 

The order book at 31 March 2010 was £17m (2009: £18m), excluding the Lincoln business the order book was £4m (2009: £5m) reflecting a shift in the scientific instruments business where customers are buying in a 6 month rather than 12 month cycle.  The orders due for delivery in FY2011 were £14m (2009: £14m), and excluding the Lincoln businesses such orders were £3m (2009: £4m).

 

Portfolio

 

Lincoln based businesses

The Lincoln microwave business supplies electronic sub-systems, modules and components for defence, airborne radar, and communications systems, medical and automotive markets.  In line with the overall economy, the commercial sector was challenging during the year, though there are signs of recovery in commercial radar sales.  The defence sector was affected by programme phasing on several key platforms such as Eurofighter Typhoon.

 

The High speed electronics business also based in Lincoln has been developing and manufacturing Exploding Foil Initiators (EFIs) and Electronic Safety and Arming Units ('ESAU').  These products are manufactured in Lincoln with 100% European content, providing a key differentiator over competitive US-based products with ITAR restrictions.  The devices are predominantly used in complex weapon systems such as missiles and torpedoes developed by key European OEMs.  The business is growing by securing positions on a broad range of platforms and programmes.

 

Automotive

The MiCS Air Quality Sensors are manufactured in Switzerland.  The sales of the MiCS products have grown by 128% due to the adoption of air quality sensors on new car platforms particularly in the Chinese market.  This has moved the MiCS business to breakeven.

 

Thermal Imaging

The business's range of Argus™ Fire and security cameras has shown good underlying growth of 16%.  The route to market is direct to end users in the UK and through distributors for the rest of the world predominantly outside of North America.  The growth in the sale of cameras has been driven by an expansion of the routes to market in key emerging territories, the successful delivery of substantial orders to customers such as the London Fire Brigade and a new product launch.

 

Scientific Instruments

The scientific instrument business specialises in the manufacture of high specification x-ray detectors for a wide range of x-ray spectroscopy applications under the 'Sirius' brand.  The scientific business showed modest growth during the year driven from stronger demand from one key OEM.  However, a second OEM, who had been traditionally vertically integrated, has developed an in house product a little ahead of expectation so reducing demand in the second half.   The main route to market is direct to key accounts and major OEMs (including Jeol in Japan).  A key focus for the coming year will be on driving sales through the launch of new products into the XRF analysis market.

 

Gas Sensors

As an independent supplier of a range of quality gas sensors to OEMs, the division focuses on product reliability and support via specialist engineers.  The significant order from China in the prior year did not recur with the result that sales are down 37% from the prior year, exacerbated by poor market conditions in the US.  However there were some positive indications of improving demand during the later part of the year.

 

 

Central functions

 

The divisions are supported by an international sales organisation, group operations and central group functions including commercial, human resources, IT and finance.

 

Sales

The sales function has sales offices in 5 locations and supports the divisions through managing customer relationships and the global network of distributors and representatives.  The sales activity has refocused office reach and associated cost and but also adding channels in Asia in the year.  A flatter sales structure has been introduced increasing the number of member's of the sales force who are remunerated on individual sales targets.

 

Operations

The group operations function is responsible for the main manufacturing sites in Chelmsford, Grenoble, Santa Clara Lincoln, as well as the smaller sites in the UK and Switzerland.  Group operations are also responsible for supply chain and procurement and has a dedicated purchasing office in Taipei  The Group operation function has delivered a number of key initiatives during the year.  Supply chain has been focused on working in partnership with our key suppliers to lower the cost of materials used in production which has generated material savings against the prior year costs of £1.9m.  The inventory reduction program has seen inventory reduce by £5.9m (14%).  This has been achieved at the same time as improving the availability of finished goods stock for items that are sold from stock rather than against order.  The returns cycle has been significantly reduced with the result that the average time to deal with customer returns has decreased by 63 days since September 2009.  Operations are responsible for maintaining the manufacturing facilities whilst controlling spend on tangible assets and made a significant contribution to the reduction in capital spend in this financial year.

 

Central functions

Central functions include commercial, human resources, IT and finance.  These costs are allocated to the divisions.  The central costs of £2.6m (2009: £2.3m) are the costs relating to e2v technologies plc and are not allocated.  The increase in the unallocated costs reflects increased professional fees reflecting the level of corporate activity including the strategy review.

 

 

Board of Directors

 

Chris Geoghegan - Chairman

Chris joined the e2v Board as Chairman in October 2009.  Prior to this Chris was a group executive director of BAE Systems plc from 2002 until 2007 and a past president of the Society of British Aerospace Companies.  He has over 30 years' experience in the aerospace industry having spent most of his career in the commercial aircraft sector and was appointed one of three chief operating officers of BAE Systems plc.  Chris was a key player in the growth and establishment of Airbus as managing director of the Airbus Company and a member of the executive board of Airbus Industrie.  He also has substantial experience in the military aerospace sector, having been responsible for BAE Systems' European Defence joint ventures and its Defence Electronics companies.  He is currently the Chairman of Hampson Industries plc and senior independent director of Kier Group plc, Volex plc and SIG plc.

 

Keith Attwood - Chief Executive

Keith has over 25 years of commercial management experience, gained in telecommunications, avionics and electronic components.  He has held a range of senior positions within UK industrial companies, including Operations Director (GEC-Marconi Avionics Ltd) and Project Director (GPT Ltd), prior to joining the Group as Managing Director in 1998.  Keith led the MBO of e2v from Marconi plc in 2002 and floated the Company on the London Stock Exchange in July 2004.  He is past Chair and Vice Chairman of the CBI East of England Regional Council.

 

Charles Hindson - Group Finance Director

Charles joined the e2v Board in May 2009.  Charles' last role was Chief Executive, and prior to that Group Finance Director, of Filtronic plc, a UK listed specialist electronics manufacturing group.  Previously, he was Finance Director at Eutelstat S.A. and held various positions with the BT Group, British Gas plc, Price Waterhouse and 3i plc.

 

Anthony Reading MBE - Senior Independent Non-Executive Director

Anthony was appointed to the Board in 2004.  He was an Executive Director of Tomkins plc and Chairman and Chief Executive of Tomkins Corporation, USA, for eleven years, until the end of 2003.  He is currently a non-executive director of Laird plc and Taylor Wimpey plc, and previously a  non-executive director of George Wimpey plc and Spectris plc.

 

Jonathan Brooks - Independent Non-Executive Director

Jonathan is a non-executive director of Aveva Group plc, an LSE-listed engineering IT software provider to the plant, power and marine industries and Xyratex Limited, a NASDAQ-listed provider of enterprise class data storage sub-systems and network technology.  He is also Chairman of Picochip Inc., a venture capital-backed company developing wireless processors.  Between 1995 and 2002, he was Chief Financial Officer and a Director of ARM Holdings plc.  Jonathan was appointed to the Board in 2004.

 

Ian Godden - Independent Non-Executive Director

Ian, after being UK Managing Partner and European Board Member of Booz Allen and Hamilton, and UK Managing Partner of Roland Berger Strategy Consultants, started up a successful consultancy serving industrial and technology companies which he subsequently sold in the late 1990s.  Ian is now Chairman of ADS and its subsidiary, Farnborough International.  Ian is also President and CEO of Glenmore Energy (USA), non-executive director of KBC Advanced Technologies, and a non-executive director of Bristow Group Inc.  He was appointed to the Board in 2003.

 

 

DIRECTORS' REPORT

 

The Directors present their annual report and the audited financial statements for the year ended 31 March 2010.  The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union.  The Company financial statements have been prepared in accordance with UK generally accepted accounting practice ('UK GAAP').

 

Principal activity

The Group's principal activity is the design and supply of specialist components and sub-systems into niche sectors within the medical & science, aerospace & defence and the commercial and industrial markets.  As discussed in the Business Review, the Group is organised into business divisions which are supported by a number of Group functions.

 

The Group has manufacturing operations in the UK, France, USA and Switzerland and sales and distribution operations in the UK, USA, Germany, France and Hong Kong, as well as an established global network of agents and distributors covering the Americas, Europe, Middle East, Africa, Far East and Australia.

 

Review of business and future developments

A review of the year's operations, including the Group's key performance indicators, along with the outlook for the coming year, is contained in the Chairman's and Chief Executive's statement, Business Review and Corporate Responsibility Review.

 

Results and dividends

The loss before taxation amounted to £9,720,000 (2009: £28,405,000).  The loss attributable to ordinary shareholders amounted to £2,266,000 (2009: £21,299,000).

 

As detailed in Note 12, no dividends have been paid during the year (2009: £4,913,000).  The Directors do not recommend the payment of a final dividend (2009: £nil).

 

Directors and officers

Profiles of all Directors at the date of this report are set out above.  The current members of the Board are detailed above.  Chris Geoghegan was appointed Non-Executive Chairman with effect from 1 October 2009 following George Kennedy's retirement on the same day from the Board.  As previously reported, Mike Hannant stepped down from the Board of Directors on 28 May 2009 following a transition period with Charles Hindson who was appointed Group Finance Director with effect from 5 May 2009.

 
Sally Weatherall resigned as Company Secretary on 23 September 2009 when Charlotte Parmenter was appointed to the position. 

 

The beneficial and non-beneficial interests, including family interests, of the Directors in the share capital of the Company and details of Directors' share options are detailed in the Directors' Remuneration Report.

 

Directors' indemnity insurance

The Company has indemnified the Directors of the Company and all its subsidiaries against liability in respect of proceedings brought by third parties, subject to the conditions set out in the Companies Act 2006.  Such qualifying third party indemnity provision was in force during the year and is still in place as at the date of this report.

 

Principal risks and uncertainties

As noted in the Corporate Governance Report, the Board has adopted processes to identify, evaluate and manage the significant risks faced by the Group.  The more significant risks and uncertainties faced by the Group are set out below.

 

Global political and economic conditions

Demand for the Group's products and services are a factor of wider economic conditions.  During an economic slowdown it is possible that demand for certain products and services provided by the Group may reduce.  Furthermore the Group's products are supplied for use into industries which are dependent on and subject to, government policies, national and international political considerations and budgetary constraints which are outside the control of the Group.  These risks are mitigated to a degree by the diverse nature of the Group's products and its expanding geographical spread.  Furthermore the current economic climate may increase the risk that parties with whom the Group trades, both customers and suppliers, become unable to meet their commitments to the Group.  The Group seeks to manage this risk by performing credit checks and taking third party comfort, including letters of credit, where appropriate.

 

Financial risks

The Group is exposed to foreign currency and interest rate risks.  Functional currency transactional risk arises when operating subsidiaries enter into transactions denominated in currencies other than their functional currencies.  This risk is managed by hedging significant exposures, usually by means of forward exchange contracts.  Translational exposure arises on the translation of overseas earnings, investments and relevant borrowings into sterling for consolidated reporting purposes.  Net asset translational risk is mitigated, in part, by foreign currency borrowings.  The Group does not hedge translational exposure arising from profit and loss items.  Due to the Group's long term debt obligations, an exposure exists to movements in interest rates, which is managed by the use of hedging arrangements.  Furthermore the loan facilities entered into by the Group include a number of financial and non financial covenants.  Breach of these covenants would constitute events of default under such facilities which might result in these borrowings becoming immediately repayable.  The need to remain in compliance with these covenants could restrict flexibility in the management of the Group and may limit the Group's ability to pursue certain business opportunities.  Credit risk to financial institutions is limited by restricting the range of counterparties to those with high credit ratings.  Liquidity risk is managed by monitoring forecast and actual cash flows and ensuring that sufficient committed facilities are in place to meet possible downside scenarios.

 

Restructuring programmes

In response to the current global economic downturn, tougher trading conditions and their material impact on the Group's businesses and operating expenses, the Group has instigated various cost reduction and restructuring initiatives which affect the Group's operations primarily in France and in the UK.  The Group's expectations of the financial costs and benefits of these initiatives are based on certain assumptions reflecting the completed consultations and variables regarding, among other things, future market conditions in relation to the Group's principal businesses.  These variables may be subject to matters outside the control of the Group which may delay implementation or make these initiatives more costly or result in them not returning the anticipated cost savings.  Furthermore, these programmes have reduced staff morale and the disruption to production has resulted in increased overdue deliveries to customers.  The Group is seeking to minimise these risks through planned transition arrangements and increased levels of employee and customer engagement.

 

Markets and customers

The Group can be subject to variations in profitability attributable to individual product lines and markets as a result of the timing and quantum of orders, the introduction of new product lines and the applicable legislative and regulatory framework.  Specifically, the Group operates in a multiple number of diverse yet specialist markets supplying a small number of dominant customers in these markets.  As a result, the Group has specific sector dependencies which are influenced by changes in the sourcing policy of these customers which may result from changes in customer policy and re-positioning within the value chain.

 

Competition including advancement in technology

The Group's business is the design and manufacture of highly technical and specialised products requiring input from skilled personnel.  There can be no assurance that any of the Group's products will achieve the required specification or deliver to the customer's expectations and products are continually at risk of being superseded as a result of improvements in alternative technologies that provide the same or comparable functionality.  Thus the Group may incur significant liabilities for warranty claims, defects of its products or product recalls.  The future success of the Group also depends upon the Group's ability to retain and develop the skilled personnel.  The Group seeks to minimise these risks through managed and focussed research and development programmes, specification certainty, clear contractual arrangements and appropriate staff remuneration and incentive arrangements.

 

Production and supply

Across the Group there are a number of strategic partnerships, which in the event of cessation of these relationships or an interruption on the supply of these products could result in a disruption to the business.  The Group also relies on external suppliers for specialist materials and sub-assemblies, supply of foundry, packaging and test services, placing orders for small quantities of highly specialised products.  In periods of high demand for these services, the Group may experience delays in the supply as suppliers prioritise customers with volume orders.  Certain components are sourced from overseas.  Events outside of the Group's control could result in delayed deliveries of these products.  Events could also disrupt the Group's manufacturing capabilities at their various locations.  Irrespective of the adequacy of insurance coverage, this could cause delays in production and loss of sales and customers.  A range of hazardous materials is used at the manufacturing sites.  Failure to provide a safe work environment for its employees could have a number of negative outcomes, including: fines and penalties, loss of key customers and reputational damage.  The Group is committed to maintaining a safe place of work and has in place quality and safety processes.  Failure to protect the Group's intellectual property, principally confidential know-how, could result in a loss of sales.  The Group mitigates this risk by the use of operational and management systems, including a requirement that suppliers, customers and employees adhere to confidentiality obligations with respect to the treatment and disclosure of such know-how.  Furthermore, patent protection is used to protect certain products and manufacturing processes from competition. 

 

Environmental and regulatory

The Group is subject to numerous laws and regulations both in the United Kingdom and internationally, which regulate health and safety, employment, environmental, taxation, exports and other operating items.  Failure to comply with such legislation and regulations may harm the business or the Group's reputation.  The Group draws upon the experience of relevant employees and outside advisors in order to ensure compliance with the various requirements.  Additional environmental legislation may increase operating costs that the Group mitigates, where possible, through improved efficiencies.  Unforeseen changes in legislation can have an adverse impact on operations.

 

Property, plant and equipment

Land and buildings at the Group's facility in Grenoble were acquired at fair value in July 2006 and have not subsequently been revalued. The Group's site at Lincoln in the UK was sold during the period, for a price of £4.2 million resulting in an exceptional gain of £3,739,000 (See note 5).  Although there have been no formal valuations carried out for the remainder of the Group's land and buildings, the Directors believe the market value to be in excess of book values. 

 

The Group acquired a new site within the Lincoln area in May 2010 to house principally the engineering centre of the e2v Microwave Electronics business.

 

Research and development

The Group continues to commit significant resources to existing product enhancement as well as the introduction of new products for established and emerging markets.  Resource is also invested in a number of collaborative relationships with key universities to achieve leverage, knowledge exchange and access to and training of talented young scientists and engineers.  This is achieved through various mechanisms including a number of Knowledge Transfer partnerships.  Customers fund directly a proportion of expenditure on product enhancement and new product development whilst the amount funded by the Group amounted to £12,072,000 (2009: £17,133,000).

 

Takeover Directive

Pursuant to s992 of the Companies Act 2006, which implements the EU Takeovers Directive, the Company is required to disclose certain information.  Such disclosures, which are not covered elsewhere in this Annual Report, include the following:

 

·    The Company's Articles of Association ('Articles') give power to the Board to appoint directors, but require directors to submit themselves for election at the first Annual General Meeting following their appointment and for re-election where they have been a director at each of the preceding two Annual General Meetings and were not appointed or re-appointed by the Company at, or since either such meeting.  The Articles may be amended by special resolution of the shareholders and are available to view on the Company's website.

 

·    The Board of Directors is responsible for the management of the business of the Company and may exercise all the powers of the Company subject to the provisions of the relevant statutes, the Company's Memorandum of Association and the Articles.  The Articles contain specific provisions and restrictions regarding the Company's power to borrow money.  Powers relating to the issuing and buying back of shares are also included in the Articles and such authorities are renewed by shareholders each year at the Annual General Meeting.

 

·    Certain agreements of the Group take effect, alter or terminate upon a change of control of the Group following a takeover, including its bank loan agreements and company share plans and certain commercial trading contracts.

 

·    There are no restrictions on the transfer of securities, restrictions on voting rights and agreements between shareholders.

 

Share capital

Details of the issued share capital, together with movements in the Company's issued share capital are given in note 25. 

 

The Company launched a firm placing and rights issue in October 2009 which upon completion in November and December 2009 resulted in the issue of 152,283,353 new ordinary shares of 5p.  As a consequence of this and subsequent exercises under SAYE schemes the total number of issued ordinary shares in the Company, as at the latest practicable date prior to the publication of this report, is 214,854,056, with a nominal value of £10,742,000.

 

The Company has one class of ordinary share which carry no right to fixed income.  Each share carries the right to one vote at general meetings of the Company.

 

There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation.  The Directors are not aware of any agreement between the holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights.

 

Creditor payment policy

The Group does not have a standard or code of conduct which deals specifically with the payment of suppliers; however whenever the Group is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions it seeks to abide by the payment terms agreed with the individual supplier.  The Group's average creditor payment period at 31 March 2010 was 76 days (2009: 59 days). 

 

Charitable and political donations

Details of charitable donations are given in the Corporate Social Responsibility section of the annual report.  No donations were made to any political parties.

 

Interests in voting shares

At 27 May 2010 the Company had been notified of the following interests of 3% or more in the Company's ordinary shares.

 

	Percentage of ordinary share capital	No. of ordinary shares of 5p each
Aberforth Partners	21.23	45,617,522
SVG Advisers	9.93	21,334,148
AXA Investment Managers	9.02	19,378,316
Aviva Investors	6.78	14,571,898
Legal and General Investment Management	6.44	13,827,490
Hermes Pensions Management	5.55	11,931,099
Henderson Global Investors	4.94	10,615,322
Schroder Investment Management	4.57	9,816,370
Scottish Widows	3.48	7,482,779
Cazenove Capital Management	3.30	7,098,675

 

Disabled employees and employee involvement

The Group endeavours to provide equality of opportunity in recruiting, training, promoting and career development to all, irrespective of race, ethnicity, religion, sexual orientation, gender or age.  The Group gives full consideration to applications for employment from a person with a disability where a person with a disability can adequately fulfil the requirements of the role and workplace adjustments can be made to facilitate this appointment.

 

Where existing employees become disabled it is the Group's policy, wherever practicable, to provide workplace adjustments to ensure continuing employment under normal terms and conditions, and to provide training and career development and promotion opportunities, wherever appropriate.

 

A review of employee involvement is given in the Corporate Social Responsibility Review.

 

Going concern

As highlighted in the 2009 Annual Report and Accounts, the Board was working with finance providers and was reviewing a range of options for a more long term capital structure for the business.  Considerable progress has been made during the year ended 31 March 2010 and the Group has reduced net borrowings (excluding capitalised borrowing costs) from £137,290,000 at 31 March 2009 to £44,817,000 at 31 March 2010.  This has been achieved through the following:

 

·    Raising £55,839,000 gross of equity in December 2009 through a firm placing and rights issue, which was used to reduce borrowings;

 

·    The announcement in October 2009 of an extensive acceleration of its business improvement programme, involving a restructuring for which formal consultations have now been completed, and which are being implemented progressively over the period to June 2011;

 

·    Securing a new banking facility, on 29 October 2009, which runs to 31 December 2012, that became effective on 31 December 2009.  Under this agreement the Group continues to be subject to covenant undertakings that require operating performance to meet certain financial covenants; and

 

·    Other actions including the reduction of costs, the restriction of capital expenditure, the close control of working capital and the conversion of debt denominated in Euros to Sterling.

 

As discussed in the outlook section of the Chairman's and Chief Executive's report, the Group's markets appear to have largely stabilised and the Group's cost base has been, and is continuing, to be reduced.  The Group's plans also provide for the Group to support its likely initiatives to return to growth with higher levels of expenditure for research and development and capital expenditure for regular equipment replacement and new product introduction than in 2009/10.

 

The Group's banking facilities include quarterly covenants that the banks set across a wide ranging suite of measures that provide the Group with reduced headroom at certain times during the life of the facility.

 

The Directors of the Group have prepared detailed profit and cash flow forecasts through to 30 September 2011.  In preparing these plans, the Directors have considered the risks to the activities in the business including those arising from the focus on meeting customers' needs and the implementation of the major restructuring programme

 

Taking into account the level of the order book at 31 March 2010 (£161 million), the reduced likelihood of industrial disruption to the business, having completed the formal consultation process with staff, and the internal oversight of development expenditure, including capital expenditure, the Directors consider that the Group will remain within its covenant requirements for the forecast period, and therefore, the Directors believe that it is appropriate to prepare the financial statements on a going concern basis.

 

Directors' statement of responsibilities

The Directors are responsible for preparing the Annual Report and financial statements in accordance with law and regulations.

 

Company law requires the Directors to prepare financial statements for each year.  Under the provisions of this law, the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union and the Company financial statements in accordance with United Kingdom ('UK') Accounting Standards and applicable law.

 

In preparing those financial statements, the Directors are required to:

 

·    select suitable accounting policies and then apply them consistently;

 

·    make judgements and estimates that are reasonable and prudent;

 

·    state that the Group financial statements have complied with IFRS as adopted by the European Union, subject to any material
departures being disclosed and explained; and

 

·    state for the Company financial statements whether the applicable UK Accounting Standards have been followed, subject to
any material departures being disclosed and explained.

 

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

 

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Group financial statements comply with Companies Act 2006 and Article 4 of the IAS Regulation.  They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Annual Report for the year ended 31 March 2010 is published in hard-copy printed form and made available on the Group's website. The Directors are responsible for the maintenance and integrity of the annual report on the website in accordance with UK legislation governing the preparation and dissemination of financial statements. Access to the website is available from outside the UK, where comparable legislation may be different.

 

Responsibility statements under the Disclosure and Transparency Rules

Each of the Directors, as at the date of this report, confirms to the best of his knowledge that:

 

·     the financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company
 and the Group;

 

·     the Directors' Report includes a fair review of the development and performance of the business and the position of the
 Company and the Group together with a description of the principal risks and uncertainties that it faces.

 

Provision of information to the auditors

Having made enquiries of fellow Directors and of the Company's auditors, each of the Directors at the date of approval of this report confirms that:

 

·     To the best of his knowledge and belief, there is no information (that is information needed by the Group's auditors in
 connection with preparing their report) of which the Company's auditors are unaware; and

 

·     The Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit
 information and to establish that the Company's auditors are aware of that information.

 

Auditors

A resolution to reappoint Ernst & Young LLP as auditors will be put to the members at the Annual General Meeting.

 

 

By order of the Board

 

 

 

 

 

Charlotte Parmenter

Secretary

4 June 2010

 

e2v technologies plc

Company No: 4439718

Registered office: 106 Waterhouse Lane, Chelmsford CM1 2QU

 

 

CORPORATE GOVERNANCE REPORT

 

e2v technologies plc recognises the importance of, and is committed to, high standards of corporate governance and as such the Board acknowledges its contribution to achieving management accountability, improving risk management and creating shareholder value.  This statement explains how the Group has applied the main and supporting principles of corporate governance and describes the Group's compliance with the provisions set out in Section 1 of the Combined Code on Corporate Governance published by the Financial Reporting Council in June 2008.

 

Statement by the Directors on compliance with the Combined Code

The Group has complied with the provisions set out in Section 1 of the Combined Code throughout the year.

 

The Board of Directors

The Group is headed up by an effective Board which currently comprises the Chairman, Chief Executive, Group Finance Director and three non-executive Directors.  Anthony Reading is the Senior Independent Director and Chairman of the Remuneration Committee.  Jonathan Brooks, the Chairman of the Audit Committee, is the member of that Committee who is deemed to have recent and relevant financial experience.  The Chairman was considered to be independent upon appointment and all of the non-executive Directors are considered by the Board to be independent.  Their biographies above demonstrate sufficient experience to bring independent judgement to the Board and the success of the Group.

 

The Articles of Association require that Directors retire in the third calendar year following the year in which they were elected or re-elected.  Any Director appointed by the Board is required to submit themselves for re-election at the next Annual General Meeting after appointment.  Chris Geoghegan, Chairman, will therefore be submitting himself for election at the Annual General Meeting.  In addition Ian Godden will retire by rotation at this Annual General Meeting and submits himself for re-election.

 

Role of the Board members

The non-executive Directors' primary responsibilities are to:

 

·     Ensure the principles of Corporate Governance are applied;

 

·     Approve the strategy for the business;

 

·     Ensure the strategy is being implemented; and

 

·     Provide independent advice on the implementation of the strategy and other day to day matters where their experience is
 relevant.

 

The Executive Directors' primary responsibilities, together with members of the senior management team are to:

 

·     Formulate the strategy of the business and obtain Board approval; and

 

·     Implement the approved strategy subject to agreed levels of authority.

 

There exists a clear division of responsibilities between the Chairman and the Chief Executive.  The Chairman's primary role includes ensuring that the Board functions properly, that it meets its obligations and responsibilities and that its organisation and mechanisms are in place and are working effectively.  The Chief Executive's primary role is to provide overall leadership and vision in developing, with the Board, the strategic direction of the Group.  Additionally, the Chief Executive is responsible for the management of the overall business to ensure strategic and business plans are effectively implemented, the results are monitored and reported to the Board and financial and operational objectives are attained.

 

The Board's responsibilities are discharged by way of monthly Board reviews (except in August and December) and other Board meetings, as required to approve matters beyond the authority limits of the Chief Executive.  In addition there is attendance at meetings of the Committees of the Board as well as attendance at regular business division and function reviews when senior members of executive management, who are not Board members, attend.  Matters beyond the authority limits of the Chief Executive include, for example, the approval of customer quotes over the approved financial limit set by the Board, certain activities relating to mergers and acquisitions as well as approval of the annual budget.

 

Conflicts of interest

In line with the Companies Act 2006, the Company has established a robust procedure requiring Directors to seek appropriate authorisation prior to entering into any outside business interests,  Actual or potential conflicts of interest are reviewed by the Board,

 

Board meetings and attendance

In addition to the Committee meetings noted above, there were 17 general Board meetings during the year.  All Committee and Board meetings were quorate.  The Board also convened ad-hoc meetings during the year to deal with specific business requirements.  The full details of all Board and Committee meetings and attendances is shown in the following table:

 

	Board	Audit Committee	Remuneration Committee	Nomination Committee
Number of meetings	17	6	7	5
C Geoghegan (1)	8	-	3	-
G Kennedy (2)	8	-	2	4
K Attwood	17	-	-	5
C Hindson (3)	15	-	-	-
M Hannant (4)	3	-	-	-
A Reading	16	6	7	5
J Brooks(5)	16	6	7	2
I Godden	14	3	-	-

 

(1)   Appointed on 1 October 2009

(2)   Resigned on 1 October 2009

(3)   Appointed on 5 May 2009

(4)   Resigned on 28 May 2009

(5)   Appointed to the Nomination Committee during the period and following appointment attended all meetings

 

Principal Board committees

The Board has established the following committees whose individual terms of reference have been reviewed during the year.

 

Audit Committee

The Committee is chaired by Jonathan Brooks and has met six times during the year.  Other members of the Committee are Anthony Reading and Ian Godden.  The Chairman, Chief Executive and Group Finance Director attend Audit Committee meetings by invitation and the audit partner attended four meetings during the period.  At meetings reviewing the interim and full year results the Non-Executive Directors exercise their right for discussions with the audit partner where no Executive Directors are present.  The terms of reference of the Audit Committee include:

 

·     Keeping under review the effectiveness of the financial reporting and internal control policies and procedures for the
 identification, assessment and reporting of risks.

 

·     Reviewing the arrangements for what is commonly known as "whistle blowing".

 

·     Considering the requirements for establishing an Internal Audit function.

 

·     Making recommendations to the Board in relation to the appointment and re-appointment of the external auditors as well as
 overseeing the selection process of any new audit appointment.

 

·     Keeping under review the relationship with the external auditors including assessments of independence and objectivity as
 well as fee levels and terms of engagement.

 

·     Reviewing the findings of the audit with the external auditors.

 

·     Reviewing the consistency of accounting policies on a year to year basis and across the Group.

 

The Audit Committee monitors fees paid to the auditors for non-audit work.  During the year £399,000 of non-audit work fees were paid.  The Company engages other independent firms of accountants to perform tax consulting and other consulting work.  The Committee has monitored the level of non-audit services provided by the external auditor with a view to ensuring objectivity, independence and cost effectiveness.

 

The Board continues to review the key risks to the business through the Group's risk management process, managed by the Group Finance Director. 

 

Remuneration Committee

The Committee is chaired by Anthony Reading and has met seven times during the year.  Other members of the Committee are Jonathan Brooks and Chris Geoghegan.  The Chief Executive and senior human resources manager within the Group attend all meetings (but the Chief Executive is not involved in deciding his own remuneration).  The Group Finance Director attends when requested.  The terms of reference of the Committee include:

 

·     Agreeing with the Board the framework or broad policy for the remuneration of the Executive Directors and other members of
 executive management, as well as reviewing the appropriateness and relevance of the policy.

 

·     Determining targets for any performance related pay schemes and approving total annual payments under the schemes.

 

·     Reviewing all share incentive plans, the related performance targets and all awards made under the schemes.

 

·     Determining the individual remuneration packages of senior management within the agreed policy as well as contractual
 arrangements, including pension provisions.

 

·     Determining the procedure for vetting, authorising and re-imbursement of claims for expenses for all directors.

 

·     Establishing selection criteria, terms of reference and selection and employment of remuneration consultants.

 

Full details of Directors' remuneration and policies applied by the Board are set out in the Directors' Remuneration Report in the Annual Report.

 

Nomination Committee

The Committee is chaired by Chris Geoghegan.  The other members of the Committee are Keith Attwood, Anthony Reading and Jonathan Brooks who was appointed to the Committee during the year.  The Committee has met five times during the year.  The terms of reference of the Committee include:

 

·     Regular review of the structure, size and composition of the Board.

 

·     Formal, rigorous and transparent procedures for new appointments to the Board.

 

·     The formal selection and nominations for Board approval of any new Board appointments.

 

·     Provision of recommendations to the Board regarding succession, re-appointment and membership of the Audit and
 Remuneration Committees.

 

During the year specialist recruitment consultants advised on candidates for the role of Group Finance Director and Chairman based on a profile and detailed job description provided by the Group.  All short listed candidates were interviewed individually by the Directors before a final selection was made and a recommendation made to the Board.

 

Induction and training

Any new directors will receive induction upon their appointment to the Board covering the activities of the Group and its key business and financial risks, the terms of reference of the Board and its committees and the latest financial information of the Group.  Ongoing training is provided as necessary.  Directors may consult with the Company Secretary at any time on matters related to their role on the Board.  All directors have access to independent professional advice at the Group's expense where they judge it necessary to discharge their duties, with requests for such advice being authorised by the Chairman or the Company Secretary.

 

Performance evaluation of the Board

The Chairman and Company Secretary undertook a performance evaluation of the Board which required an assessment, by each individual director, of the performance of the Board and its Committees by way of an anonymous questionnaire and ratings process.  The results of this assessment were reviewed by the Board and there were no areas of concern.  The Senior Independent Non-Executive Director also led a performance review of the Chairman, which required an assessment, by each Director, of the performance of the Chairman.  This assessment was reviewed by the Board and there were no areas of concern.

 

Communication with shareholders

The Annual Report and Financial Statements and the Interim Report provide investors with a half yearly balanced view of the Group's activities and performance.  The interim results were distributed to all shareholders in October 2009.  Investors are also welcome to attend the Annual General Meeting.  Apart from the Annual General Meeting, the principal form of communication with private investors is the Company's web site which is updated regularly with Company information.

 

The Chairman is available to institutional investors and the principal contact points are the Chief Executive and Group Finance Director.  The Senior Independent Non-Executive Director, Anthony Reading, is also available to whom investors may address any concerns they may have.  Presentations are given to individual institutions, or on a Group basis if preferred, following the announcement of interim and full year results.  Site tours and ad-hoc meetings are also arranged where requested.

 

Control environment and internal controls

The Directors acknowledge that they are responsible for the Group's system of internal control and for reviewing its effectiveness.  The system is designed to manage rather than eliminate the risk of failure to achieve the Group's strategic objectives, and can only provide reasonable and not absolute assurance against material misstatement of loss.

 

An ongoing process, in accordance with the guidance of the Turnbull Committee on internal control, has been established for identifying, evaluating and managing the significant risks faced by the Group.  This process has been in place throughout the year under review and up to the date of approval of the financial statements.  The Board regularly reviews the process.

 

In addition the Board considers the significance of environmental, social and governance matters relevant to the business of the Group as part of its regular risk assessment procedures and Board constitution as detailed in the Governance Report and in this section.

 

The Group's key risk management processes and system of internal control procedures include the following:

 

Management structure: The Group has adopted procedures for the delegation of authority and authorisation levels, segregation of duties and other control procedures.  Appointments to the most senior management positions within the Group require Board approval.

 

Share capital structure: Information about the share capital structure of the Company is discussed in the Directors' Report and in note 25.

 

Identification and evaluation of business risks:  The major financial, commercial, legal, regulatory and operating risks within the Group are identified through a range of review meetings at the relevant management level.  Senior management are also involved in the preparation of an annual risk assessment report which is reviewed by the Board.

 

Information and financial reporting systems:The Group's comprehensive planning and financial reporting procedures include detailed operational budgets for the year ahead and a three year rolling business plan, both of which are approved by the Board.  Performance is monitored on a regular basis through monthly reporting and regular forecast updates.  Management and specialists within the Finance Department are responsible for ensuring the appropriate maintenance of financial records and processes that ensure all financial information is relevant, reliable, in accordance with the applicable laws and regulations, and distributed both internally and externally in a timely manner.  A review of the consolidation and financial statements is completed by management to ensure that the financial position and results of the Group are appropriately reflected.  All financial information published by the Group is subject to the approval of the Audit Committee.

 

Investment appraisal:  All capital expenditure and research and development projects require detailed written proposals and go through strict authorisation processes.  All acquisitions are subject to Board approval and commercial, legal and financial due diligence is carried out if a business is to be acquired.

 

Throughout the Group there are clear lines of delegated authority covering the full range of financial commitments.  A schedule of delegated authority for the Board to the Chief Executive is agreed annually and items requiring Board approval are either agreed at monthly Board meetings, or at intervening meetings specifically arranged for the purpose.

 

At the monthly Board meetings, the Non-Executive Directors review the reports presented to them by the Chief Executive and Group Finance Director, which include a review of the financial results.  This review compares current year to previous year and the annual operating plan as well as a current year forecast and order book levels.

 

At the current time the Board are of the opinion that a formal internal audit function is not considered necessary due to the structure and size of the Group, widespread executive involvement in the day to day business and the levels of review undertaken by the executive management and reported to the Board. 

 

A formal "whistle blowing" policy is operated and is included in the Group's employee handbook.

 

On behalf of the Board

 

 

 

 

Jonathan Brooks

Chairman of the Audit Committee

        4 June 2010

 

 

DIRECTORS' REMUNERATION REPORT

 

Remuneration Committee 

The Remuneration Committee is responsible for recommending to the Board the framework and broad policy for the remuneration of the Chief Executive, the Group Finance Director, and such other members of the executive management as it is requested to consider.  The remuneration of the Chairman and Non-Executive Directors is a matter reserved for the Executive Directors.

 

Members of the Committee are appointed by the Board and their terms of reference are available on the Company's website.  Anthony Reading currently chairs the Committee, which meets at least twice a year, and its other members are Chris Geoghegan and Jonathan Brooks.  George Kennedy was a member of the Committee prior to his resignation.  The Board considers that all members of the Committee are independent directors.  Chris Geoghegan is a member of the Committee because the Board considers it essential that the Chairman be involved in setting remuneration policy (although he is not party to any discussion directly relating to his own remuneration).  The Chief Executive is given notice of all meetings and has the right to attend them, and is consulted on the remuneration of other executives.  However, the Chief Executive does not take part in discussions that relate directly to his own remuneration.

 

In addition, the Chairman of the Remuneration Committee regularly consults with senior members of the Group's HR function (who also attend certain Committee meetings) to ensure that due account is taken of pay and conditions elsewhere in the Group when the remuneration policy of the Executive Directors is determined.

The Committee has no formally appointed advisers on remuneration policy.  However during the year it has sought advice from Hewitt New Bridge Street who provided services to the Company in connection with the operation of the Company's remuneration arrangements.  Hewitt New Bridge Street provide no other services to the Company.

 

Remuneration policy 

The overall policy applied for the year ended 31 March 2010 and that will apply for the year ending 31 March 2011 is to ensure that Executive Directors are fairly and competitively remunerated and incentivised in a manner consistent with the Group's strategic objectives.  The current remuneration packages combine basic salary, benefits and pension contributions together with a performance-related annual bonus and share incentive awards.  The Committee believes that the overall packages offered to Executive Directors should provide the right balance of fixed and performance-related pay and be appropriate for the size, scale and geographic scope of the organisation as well as be competitive relative to other companies within its sector.

 

In line with the Association of British Insurers' Guidelines on Responsible Investment Disclosure the Remuneration Committee will ensure that the incentive structure for Executive Directors and senior management will not raise environmental, social or governance ('ESG') risks.  More generally, with regard to the overall remuneration structure there is no restriction on the Committee which prevents it from taking into account ESG matters, nor more general operational risks.

 

The individual components of the remuneration arrangements offered are:

 

Basic salary and/or fees

Basic salary for each Executive Director is determined taking account of the individual's performance and responsibilities and comparable market rates.  More particularly, the Committee reviews benchmark data provided by independent remuneration consultants sourced from two groups of companies as follows (i) a group comprising broadly similar sized companies from the Electronic & Electrical Equipment, Aerospace & Defence and Technology Hardware & Equipment sectors and (ii) a group comprising companies from all sectors (excluding financial companies) of a broadly similar size in terms of market capitalisation, turnover and international scope.  The most recently conducted review showed that the base salaries payable to the Executive Directors in the year ended 31 March 2010 were below the median.  Basic salary is reviewed annually and is the only element of remuneration that is pensionable.  Notwithstanding the below median salary positioning, Executive Director salaries were reviewed on 24 March 2010 and no increases were proposed for the year ended 31 March 2011 (which follows no increase in the prior year).  Therefore, the salaries of the Executive Directors for the forthcoming year will be: Keith Attwood - £253,000, Charles Hindson - £200,000.  During the year all Board members volunteered to receive reduced levels of compensation during June, July and August 2009.  This reduction equated to an annual reduction of 6.2% and reflected the difficult economic conditions faced by the Group at that time and similar cost reduction initiatives volunteered by a number of operating businesses.

 

Fees for the Chairman and Non-Executive Directors are determined taking account of the individual's responsibilities including chairing committees of the Board, time required to devote to the role, and comparable market rates. 

 

Benefits 

Benefits comprise the provision of a company car or car allowance and health insurance.  Non‑Executive Directors do not receive any benefits.

 

Pensions 

The Group operates a defined contribution, HM Revenue and Customs approved, pension scheme and also makes contributions into individual personal pension arrangements where these are required.  The Company makes contributions of 15% of basic salary to the relevant pension schemes in respect of Executive Directors.  Executive Directors are entitled to enhance this through salary sacrifice arrangements and additional voluntary contributions subject to HM Revenue and Customs limits.  Non‑Executive Directors' fees are non-pensionable.

 

Performance related annual bonus

An annual bonus is payable to Executive Directors subject to the attainment of specific targets which are based on Group performance.  The normal maximum bonus opportunity is 100% of salary.  Non-Executive Directors are not entitled to a bonus.  As previously reported, the Remuneration Committee reserves the right, in exceptional circumstances, to amend the targets during the year if it feels that changes, in such factors as the marketplace or the Group's strategy, have resulted in the existing targets no longer providing an appropriate incentive to the individual.  The Committee believed that it was appropriate for the Earnings Per Share ('EPS') targets set at the start of the 2009/10 financial year to be replaced mid year by a set of challenging adjusted* operating profit targets that were considered by the Remuneration Committee as no less challenging, given the circumstances faced by the Group at the time of the adjustment, than the original EPS targets.  The threshold level of adjusted* operating profit, below which no bonus was payable, was set at £15 million.  To take account of the mid-year timing of this adjustment, there was a pro rata reduction in the size of the bonus opportunity to 50% of basic salary.  A similar treatment was made to all other management bonus schemes and arrangements during the year.

 

Share incentives 

The Group's policy is to align the interests of employees with those of shareholders.  To achieve this, the Remuneration Committee has established the following schemes:

 

·     Long Term Incentive Plan ('LTIP')

·     Executive Share Option Plan ('ExSOP')

·     Share Incentive Plan ('SIP')

·     Share Save Scheme ('SAYE')

 

The Committee is currently reviewing the operation of the Group's share incentive arrangements, with such review also incorporating a consultation with the Company's major shareholders, to ensure that they remain effective, fully reflect the Group's circumstances and take due account of market and best practice.  The results of this review will be explained in next year's Report, with details provided of the size and structure of any awards that are made following the conclusion of this review. 

 

Service contracts

In line with best practice it is the policy of the Committee to offer Executive Directors service agreements with notice periods not exceeding twelve months.  Current appointments are subject to rolling service agreements that can be terminated by twelve months' notice as detailed below.  Termination payments, based on basic salary and benefits only, are limited to contractual notice periods.  Chris Geoghegan, Anthony Reading and Jonathan Brooks do not have service contracts but have letters of appointment with the Group.  No notice is required to terminate their appointment.  The services of Ian Godden are provided under a consultancy agreement with Godden Associates Ltd under the same terms as the letters of appointment for the Chairman and other Non-Executive Directors.  A summary of the Directors' service contracts and letters of appointment is listed below:          

	Contract date	Notice period	Unexpired Term (1)
K Attwood	21 July 2004	12 months	13 months
C Hindson	5 May 2009	12 months	25 months
C Geoghegan	1 October 2009	1 month	2 months
A Reading	25 June 2004	None	25 months
J Brooks	2 August 2004	None	13 months
Former Directors
M Hannant	21 July 2004	12 months	Resigned 28 May 2009
G Kennedy	25 July 2004	None	Resigned 1 October 2009
	Consultancy Agreement Date	Notice period	Unexpired Term
I Godden	23 January 2005	None	2 months

 

(1) Term remaining until Director's retirement by rotation.

 

Executive Directors are permitted, with the agreement of the Board, to accept outside appointments provided that such appointments do not conflict with their duties as directors of the Company.  Whether any fees payable in respect of such outside appointments are retained by the Executive Director or remitted to the Company is determined on a case-by-case basis.  No Executive Director held any such appointment in the year ended 31 March 2010.

 

Mike Hannant resigned from his role as Group Finance Director on 5 May 2009 and as a Company Director on 28 May 2009; his employment terminated on the 30 June 2009 and he received total emoluments of £208,305 during the year; £28,762 whilst a Director, £14,381 whilst an employee, and £165,162 for payment in lieu of notice which was paid in 11 monthly instalments from July 2009.  He has been succeeded by Charles Hindson who commenced employment as the new Group Finance Director on 5 May 2009.  Subsequent to the termination of his employment Mike Hannant provided services to the Group on an interim consultancy basis to assist with the preparation of the required documentation for the equity and debt transactions.  Fees for this work totalled £99,735 in the year ended 31 March 2010.

 

George Kennedy resigned as Chairman of the Board on 1 October 2009 and has been succeeded by Chris Geoghegan who took position on 1 October 2009.

 

Shareholding guidelines

Under the Company's shareholding guidelines, which are operated to further align the interests of the Executive Directors and shareholders, Executive Directors will be expected to build up and retain shares equal in value to at least twice their respective basic salaries.  Where Executive Directors hold shares above these levels then, with the prior approval of the Chairman, they may undertake sales of these excess shares and this will not be viewed adversely.

 

Employee Benefit Trust ('EBT')

The Company established the EBT in 2004 as a discretionary employee benefit trust, in which all employees of the Group are potentially beneficiaries.  The Trustee is Lloyds TSB Offshore Trustee Limited, a professional offshore trustee.  The main purpose of the EBT is to operate the Long Term Incentive Plan ('LTIP') and share option schemes following recommendations from the Remuneration Committee or Board.  Shareholder approval has been given to allow the Trustee to hold no more than 5 per cent of the issued ordinary share capital of the Company, and as at 31 March 2010 the percentage was 0.37% (2009: 0.83%).

 

Directors' interests

The beneficial interests of the Directors in the ordinary share capital of the Company as at 31 March 2010 are set out in the table below, together with the beneficial interests at the end of the previous financial year.

 

	At 31 March 2010	At 31 March 2009
	Ordinary 5p shares	Ordinary 5p shares
K Attwood	2,976,664	1,375,643
C Hindson	1,460,000	-
C Geoghegan	203,512	-
A Reading	55,661	24,352
I Godden	100,034	43,765
J Brooks	33,142	14,500

 

There were no changes to the above interests between the year end and the date of this report.  The increase in Directors' holdings arose through Directors taking up allocations under the rights issue, with Charles Hindson participating in the firm placing, and the Chairman and Executive Directors also purchasing shares in the market subsequently. 

 

Performance graph

The graph below shows the change in the Total Shareholder Return ('TSR') (with dividends re-invested) for the period since flotation to 31 March 2010 of a holding of a £100 investment in the Group's shares against the corresponding change in a hypothetical holding of shares in the FTSE Electronics & Electrical Equipment sector.  This sector was chosen as it represents the equity market index in which the Company is a constituent member.

http://www.rns-pdf.londonstockexchange.com/rns/1384N_-2010-6-6.pdf

 

 

INFORMATION SUBJECT TO AUDIT

 

Long term incentive plan ('LTIP') 

Past awards will vest on the third anniversary of the date of award to the extent that the performance targets have been met.  The normal maximum annual award value under the Plan is one times basic annual salary.  To encourage participants to deliver above market returns to shareholders, for awards made to date, the targets relate to the Group's TSR relative to the TSR of a specified list of peer group companies.  25% of an award will vest for median performance and an award will only vest in full if the Group's TSR performance would place it in the top 20% compared to the peer group, with pro-rata vesting between 25% and full vesting.  However, no award will vest (irrespective of the Group's relative TSR performance) unless an adjusted EPS growth "underpin" of the Retail Price Index  ('RPI') plus 2% over the three year performance period has been satisfied (unless the Committee considers, in exceptional circumstances, that it would be inappropriate to apply this underpin).  There is also no provision for re-testing.  The Group uses independent advisors to assess the extent to which the TSR performance conditions are satisfied.

 

Grant date	Awards held 1 April 2009	Granted in the year	Lapsed in the year	Adjustment for rights issue	Awards held at 31 March 2010	Date from which exercisable
K Attwood
31.07.2006	69,700	-	(69,700)	-	-	31.08.2009
16.07.2007	63,250	-	-	36,838	100,088	14.07.2010
15.07.2008	99,850	-	-	58,154	158,004	15.07.2011
24.06.2009	-	126,000	-	73,384	199,384	24.06.2012
C Hindson
5.05.2009	-	66,750	-	38,876	105,626	05.05.2012
24.06.2009	-	100,000	-	58,242	158,242	24.06.2012
M Hannant
31.07.2006	37,700	-	(37,700)	-	-	31.08.2009
16.07.2007	39,875	-	-	23,223	63,098	14.07.2010
15.07.2008	62,950	-	-	36,663	99,613	15.07.2011

 

The number of shares subject to award was adjusted in December 2009 as a result of the placing and rights issue.  The adjustment was made using a standard HM Revenue and Customs formula, to negate the dilutionary impact of the capital raising events.  Pursuant to the terms of the LTIP, Mike Hannant retained his award following his cessation of employment.

 

All LTIP awards have been granted as nil exercise price options and have no end date by which they must be exercised.  The market price of the ordinary shares at 31 March 2010 was 39.5 pence (2009: 41 pence) and the range during the year was 36.25 to 110 pence.

 

The peer group for 2009 and 2008 awards comprises the following companies:                                            

 

Bodycote International	Invensys	Severfield-Rowen
Castings	Laird	Spectris
Charter	Meggitt	Spirax-Sarco Engineering
Chemring Group	Melrose	Tomkins
Chloride Group	Morgan Crucible Company	TT Electronics
Cookson Group	Oxford Instruments	Ultra Electronics Holdings
Domino Printing Sciences	PV Crystalox Solar	UMECO
Fenner	Qinetiq Group	Vitec Group
Halma	Raymarine	VT Group
Hampson Industries	Renishaw	Weir Group
Hill & Smith Holdings	Rotork	Xaar
IMI	Senior

 

For awards granted prior to 2008, the peer group comprised the following companies:

 

Abacus Group	Laird
Amstrad plc (until 8 October 2007)	NXT
Chemring Group	Oxford Instruments
Chloride Group	Renishaw
Dialight (formerly The Roxboro Group plc)	Spectris
Domino Printing Sciences	TT Electronics
Halma	Ultra Electronics Holdings

 

The LTIP awards granted in 2006 lapsed during the year as the minimum level of TSR performance was not achieved over the vesting period.

 

Executive Share Option Plan ('ExSOP')

The Group has an ExSOP for the granting of non-transferable market value options to certain employees over shares worth up to 100% of salary each year.  The vesting period for the ExSOP is finite allowing eligible employees to exercise the option in a fixed period, once conditions are met.  The options may not be exercised unless, over the vesting period, the Company's EPS has increased by a fixed percentage above RPI as detailed in note 28 to the financial statements.  No awards have been made to Executive Directors under this plan in the year ended 31 March 2010 (2009: Nil).  The Committee has no present intention of making grants under this plan to Executive Directors in the forthcoming year.

 

Share Incentive Plan ('SIP')

The Group has established a SIP which has been designed to qualify for approval by the HM Revenue and Customs.  The plan contains three elements:

 

·     Free shares, which are ordinary shares which may be allocated to an employee by the Company;

 

·     Partnership shares, which are ordinary shares which an employee may purchase out of their pre-tax earnings; and

 

·     Matching shares, which are ordinary shares which may be allocated to an employee following the purchase of partnership
 shares.

 

No awards have been made to any employees under this plan as at 31 March 2010.

 

Share Save Scheme ('SAYE')

The Group operates a HM Revenue and Customs approved Share Save Scheme for all UK employees and Executive Directors can apply to join the Scheme if they are UK employees.  The Chief Executive and Group Finance Director participate in the Scheme as detailed below:

 

Grant date	Awards held 1 April 2009	Granted in the year	Lapsed in the year	Adjustment for rights issue	Awards held at 31 March 2010	Date from which exercisable	Exercise price (pence)
K Attwood
11.01.2008	4,266	-	(4,266)	-	-	1.03.2011	225.00
14.08.2009	-	15,921	-	9,272	25,193	1.11.2012	36.02
C Hindson
14.08.2009	-	15,921	-	9,272	25,193	1.11.2012	36.02
M Hannant
11.01.2008	4,266	-	(1,066)	2,484	5,684	1.03.2011	225.00

 

Options under the plan were adjusted in December 2009 as a result of the placing and rights issue.  The adjustment was made using a standard HM Revenue and Customs formula, to negate the dilutionary impact of the capital raising events.

 

Directors' remuneration

The remuneration of Directors who served during the year was as follows:

 

	Salary and/ or fees	Performance  related bonuses	Car allowance/  benefits in kind		Payment in lieu of notice	2010 Total	2009 Total
	£000	£000	£000		£000	£000	£000
K Attwood	237	127	26		-	390	266
C Hindson(1)	169	100	12		-	281	-
C Geoghegan(2)	60	-	-		-	60	-
A Reading	34	-	-		-	34	36
I Godden	31	-	-		-	31	33
J Brooks	34	-	-		-	34	36
Former Directors
M Hannant(3), (4)	26	-	2		165	193	172
G Kennedy(5)	42	-	-		-	42	95
Total	633	227	40		165	1,065	638

 

(1)   From date of appointment on 5 May 2009.

(2)   From date of appointment on 1 October 2009.

(3)   For period to 28 May 2009, date of resignation as Company Director.

(4)   Payment in lieu of notice, for loss of office in line with his service agreement, is being paid in 11 monthly instalments commencing July 2009.  Mike Hannant was also employed and paid a month's salary and benefits in June 2009, at a total cost of £14,381 as an employee.  In addition, subsequent to the termination of Mike Hannant's employment he provided services to the Group on an interim consultancy basis to assist with the preparation of the required documentation for the equity and debt transactions.  Fees for this work totalled £99,735 in the year ended 31 March 2010.

(5)   For period to 1 October 2009, date of resignation.

 

During the year, a period of short-time working was agreed at a number of the Group's sites, whereby 16 days of unpaid leave were taken over a 4 month period.  The Directors participated in this programme with the effect being to reduce annual base salary by 6.2%.

 

Directors' pension benefits

The following pension contributions were made by the Company, either to the Company's defined contribution scheme or to personal pension arrangements on behalf of the Executive Directors:

 

	2010 £000	2009 £000
K Attwood	36	38
C Hindson	25	-
Former Director
M Hannant	4	24
Total	65	62

 

Approval              

This report was approved by the Remuneration Committee and has been approved subsequently by the Board of Directors.

 

On behalf of the Board

 

 

 

 

Anthony Reading

Chairman of the Remuneration Committee

4 June 2010

 

 

Independent Auditor's Report to the Members of e2v technologies plc

 

We have audited the group financial statements of e2v technologies plc for the year ended 31 March 2010 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Cash Flows and the Consolidated Statement of Changes in Equity and the related notes 1 to 32.  The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards ('IFRSs') as adopted by the European Union.

 

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.  Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Respective responsibilities of Directors and auditors

As explained more fully in the Statement of Directors' Responsibilities set out in the Directors' Report, the Directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view.  Our responsibility is to audit the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).  Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

 

Scope of the audit of the Group financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.  This includes an assessment of: whether the accounting policies are appropriate to the group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.

 

Opinion on financial statements

In our opinion the group financial statements:

·     give a true and fair view of the state of the group's affairs as at 31 March 2010 and of its loss for the year then ended;

·     have been properly prepared in accordance with IFRSs as adopted by the European Union; and

·     have been prepared in accordance with the requirements of Companies Act 2006 and Article 4 of the IAS Regulation.

 

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

·     the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent
 with the group financial statements; and

·     the information given in the Corporate Governance Statement with respect to internal control and risk management systems in
 relation to financial reporting processes and about share capital structures is consistent with the financial statements.

 

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

 

Under the Companies Act 2006 we are required to report to you if, in our opinion:

·     certain disclosures of Directors' remuneration specified by law are not made; or

·     we have not received all the information and explanations we require for our audit; or

·     a Corporate Governance Statement has not been prepared by the Company.

 

Under the Listing Rules we are required to review:

·     the Directors' statement in relation to going concern; and

·     the part of the Corporate Governance Statement relating to the Company's compliance with the nine provisions of the June
 2008 Combined Code specified for our review.

 

Other matter

We have reported separately on the parent company financial statements of e2v technologies plc for the year ended 31 March 2010 and on the Directors' Remuneration Report that is described as having been audited

 

 

 

 

 

Peter Bateson (Senior statutory auditor)

for and on behalf of Ernst & Young LLP, Statutory Auditor

Cambridge

4 June 2010

 

 

Consolidated income statement

Year ended 31 March 2010

 

		2010			2009
		Before exceptional items & acquired intangibles  amortisation	Exceptional items & acquired intangibles  amortisation (Notes 5 and 9)	Total	Before exceptional items & acquired intangibles  amortisation	Exceptional items & acquired intangibles  amortisation (Notes 5 and 9)	Total
	Notes	£000	£000	£000	£000	£000	£000
Revenue	3	201,247	-	201,247	233,193	-	233,193
Cost of sales		(139,999)	-	(139,999)	(154,223)	-	(154,223)
Gross profit		61,248	-	61,248	78,970	-	78,970
Research and development costs	6	(12,072)	-	(12,072)	(15,585)	(1,548)	(17,133)
Selling and distribution costs		(15,187)	-	(15,187)	(17,973)	-	(17,973)
Administrative expenses		(18,972)	(21,054)	(40,026)	(17,972)	(45,427)	(63,399)
Operating profit/(loss)		15,017	(21,054)	(6,037)	27,440	(46,975)	(19,535)
Finance costs	9	(5,818)	(719)	(6,537)	(7,735)	(1,819)	(9,554)
Finance revenue	9	160	2,694	2,854	684	-	684
Profit/(loss) before taxation		9,359	(19,079)	(9,720)	20,389	(48,794)	(28,405)
Income tax (expense)/credit	10	(246)	7,700	7,454	(1,704)	8,810	7,106
Profit/(loss) for the year		9,113	(11,379)	(2,266)	18,685	(39,984)	(21,299)
Attributable to:
Equity holders of the Company		9,113	(11,379)	(2,266)	18,685	(39,984)	(21,299)
Earnings/(loss) per share
Basic	11	6.67p		(1.66)p	19.08p		(21.75)p
Diluted	11	6.65p		(1.66)p	19.06p		(21.75)p

 

 

Consolidated statement of comprehensive income

Year ended 31 March 2010

		2010	2009
	Notes	£000	£000
Losses on cash flow hedges		-	(80)
Deferred tax on losses on cash flow hedges		-	22
Exchange differences on retranslation of foreign operations		(719)	6,519
Exchange differences on net investment hedges		529	(2,094)
Actuarial losses on post employment benefits	29	(345)	(195)
Deferred tax on losses on post employment benefits		118	-
Other comprehensive income and expense for the year		(417)	4,172
Loss for the year		(2,266)	(21,299)
Total comprehensive income and expense for the year		(2,683)	(17,127)
Attributable to:
Equity holders of the Company		(2,683)	(17,127)

 

 

Consolidated statement of financial position

At 31 March 2010

		2010	2009
	Notes	£000	£000
ASSETS
Non-current assets
Property, plant and equipment	13	31,366	40,251
Intangible assets	14	104,061	119,199
Income tax receivable		3,129	-
Deferred income tax asset	24	10,197	5,860
		148,753	165,310
Current assets
Inventories	17	35,481	42,433
Trade and other receivables	18	51,194	61,109
Income tax receivable		2,026	2,498
Cash at bank and in hand	19	27,811	6,373
Total current assets		116,512	112,413
TOTAL ASSETS		265,265	277,723
LIABILITIES
Current liabilities
Borrowings	21	-	(9,750)
Trade and other payables	20	(47,005)	(52,567)
Other financial liabilities	22	(1,515)	(4,200)
Income tax payable		(5,619)	(139)
Provisions	23	(20,534)	(6,567)
Total current liabilities		(74,673)	(73,223)
Net current assets		41,839	39,190
Non-current liabilities
Interest-bearing loans and borrowings	21	(69,471)	(132,822)
Other financial liabilities	22	(131)	(915)
Provisions	23	(6,028)	-
Employment and post-employment benefits	29	(2,839)	(3,355)
Deferred income tax liabilities	24	(8,498)	(13,729)
Total non-current liabilities		(86,967)	(150,821)
NET ASSETS		103,625	53,679
CAPITAL AND RESERVES
Called up share capital	25	10,742	3,128
Share premium		41,780	41,780
Merger reserve	26	44,579	-
Other reserves	26	269	269
Foreign currency translation reserve	26	5,218	5,408
Retained earnings		1,037	3,094
TOTAL SHAREHOLDERS' FUNDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY		103,625	53,679

These financial statements were approved by the Board of Directors and authorised for issue on 4 June 2010.  They were signed on its behalf by:

 

 

 

K Attwood                                                                                                                                             C Hindson

Chief Executive Officer                                                                                                                     Group Finance Director

 

 

Consolidated statement of cash flows

Year ended 31 March 2010

		2010	2009
	Notes	£000	£000
Cash flows from operating activities
Loss before tax		(9,720)	(28,405)
Net finance costs		3,683	8,870
Operating loss		(6,037)	(19,535)
Adjustments to reconcile to net cash inflows from operating activities:
Depreciation of property, plant and equipment		10,249	10,204
Impairment of plant and equipment		-	2,500
Amortisation of intangible assets		12,007	12,674
Impairment of intangible assets		-	26,127
Profit on sale of property, plant and equipment		(3,609)	-
Fair value losses on foreign exchange contracts		(2,489)	2,894
Share based payment charges		422	625
Decrease in inventories		5,854	8,173
Decrease in trade and other receivables		9,959	1,735
Decrease in trade and other payables		(1,827)	(3,224)
Increase in provisions		15,472	875
Cash generated from operations		40,001	43,048
Income taxes received/(paid)		632	(1,297)
Net cash flows from operating activities		40,633	41,751
Cash flows from investing activities
Proceeds from sale of property, plant and equipment		2,188	201
Interest received		160	684
Purchase of property, plant and equipment		(2,707)	(9,221)
Purchase of software		(372)	(1,531)
Expenditure on product development		(693)	(2,612)
Acquisition of subsidiary, net of cash acquired	16	(490)	(41,059)
Net cash flows used in investing activities		(1,914)	(53,538)
Cash flows from financing activities
Interest paid		(3,590)	(7,338)
Net proceeds from issue of shares		53,375	681
Dividends paid to equity shareholders of the parent		-	(4,913)
Payment of finance lease obligations		-	(13)
Proceeds from borrowings		-	38,152
Realised exchange gains on re-denomination of Euro borrowings		2,604	-
Payment of cancellation fee on interest rate swap		(890)	-
Repayment of borrowings		(65,175)	(15,451)
Transaction costs of new bank loans raised		(3,608)	(184)
Net cash flows (used in)/generated from financing activities		(17,284)	10,934
Net increase/(decrease) in cash and cash equivalents		21,435	(853)
Net foreign exchange difference		3	1,420
Cash and cash equivalents at 1 April	19	6,373	5,806
Cash and cash equivalents at 31 March	19	27,811	6,373

 

 

Consolidated statement of changes in equity

Year ended 31 March 2010

 

	Called up share capital	Share premium	Merger reserve	Other reserves	Foreign currency translation reserve	Retained earnings	Total equity
	£000	£000	£000	£000	£000	£000	£000
At 1 April 2008	3,111	41,116	-	326	983	28,914	74,450
Other comprehensive income	-	-	-	(58)	4,425	(195)	4,172
Loss for the year	-	-	-	-	-	(21,299)	(21,299)
Total comprehensive income	-	-	-	(58)	4,425	(21,494)	(17,127)
Issue of shares	17	664	-	-	-	-	681
Issue of shares by EBT on exercise of options	-	-	-	1	-	(1)	-
Share based payment	-	-	-	-	-	625	625
Deferred tax on share based payments	-	-	-	-	-	(37)	(37)
Equity dividends	-	-	-	-	-	(4,913)	(4,913)
At 31 March 2009	3,128	41,780	-	269	5,408	3,094	53,679
Other comprehensive income	-	-	-	-	(190)	(227)	(417)
Loss for the year	-	-	-	-	-	(2,266)	(2,266)
Total comprehensive income	-	-	-	-	(190)	(2,493)	(2,683)
Issue of shares	7,614	-	48,225	-	-	-	55,839
Issue costs	-	-	(3,646)	-	-	-	(3,646)
Share based payment	-	-	-	-	-	422	422
Deferred tax on share based payments	-	-	-	-	-	14	14
At 31 March 2010	10,742	41,780	44,579	269	5,218	1,037	103,625

 

As at 31 March 2010, other reserves includes: Capital Redemption Reserve, £274,000; and Own Shares Reserve, £(5,000), both of which remain unchanged from the previous year end.

 

 

1.     AUTHORISATION OF FINANCIAL STATEMENTS AND STATEMENT OF COMPLIANCE WITH IFRS             

 

e2v technologies plc (the 'Company') is a public limited company incorporated and domiciled in the United Kingdom under the Companies Act 2006.  The Company's shares are publicly traded on the London Stock Exchange.  The address of the registered office is given in the Directors' Report.  The nature of the Group's operation and its principal activities are set out in the Business Review.

 

The consolidated financial statements of the Company for the year ended 31 March 2010 comprise the results of the Company and its subsidiary undertakings (together referred to as the 'Group').

 

These financial statements are presented in Sterling because that is the currency of the primary economic environment in which the Group operates.  Foreign operations are included in accordance with the policies set out in note 2.  All values are rounded to the nearest thousand (£000) unless otherwise indicated.

 

The financial statements were approved for issue by the Board on 4 June 2010.

 

The principal accounting policies adopted by the Group are set out below.

 

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES        

 

Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') applied in accordance with the Companies Act 2006.  The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of EU IAS Regulation. 

 

The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments.  The principal accounting policies are set out below have been applied consistently to all periods presented in these financial statements.

 

Going concern

Following the firm placing and rights issue, the securing of a new banking facility and the progressive implementation of the accelerated restructuring plan, the Directors have concluded, based on the current cash flow and profit projections to 30 September 2011, that it is appropriate to prepare the financial statements on a going concern basis, as detailed in the Directors' Report. These financial statements have therefore been prepared on a going concern basis which assumes that the Group will be able to meet its liabilities as they fall due for the foreseeable future.

 

Basis of consolidation     

The consolidated financial statements incorporate the financial statements of e2v technologies plc and entities controlled by the Company (its subsidiaries) made up to 31 March each year.  Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefit from its activities and is achieved through direct or indirect ownership of voting rights.

 

The results of subsidiaries acquired or disposed during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.  Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group.  All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.  Any unrealised losses arising from intra-group transactions are eliminated to the extent that they are recoverable.

 

The acquisition of subsidiaries is accounted for using the purchase method of accounting.  The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination.  The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3, "Business Combinations" are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5, "Non-Current Assets Held for Sale and Discontinued Operations", which are recognised and measured at fair value less costs to sell.

 

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired.  If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement.

 

Foreign currency translation          

The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency).  For the purpose of the consolidated financial statements, the results and financial position of each group company are retranslated into Sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

 

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rate of exchange ruling at that date.  Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined.  Non-monetary items that are measured at historical cost in a foreign currency are not retranslated. 

 

All exchange differences are recognised in the income statement in the period in which they arise except for: exchange differences on transactions entered into to hedge certain foreign currency risks; and exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation) which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.

 

On consolidation, the assets and liabilities of overseas subsidiary undertakings are translated at the rate of exchange ruling at the balance sheet date.  Income and expense items are translated at the average exchange rate for the period, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the date of transactions are used.  The exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity, within the foreign currency translation reserve.  On disposal of a foreign operation, all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to the income statement.

 

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the rate of exchange ruling at the balance sheet date.

 

Property, plant and equipment      

Freehold buildings, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes are stated at cost less accumulated depreciation and any impairment in value.

 

Assets in the course of construction for production or administrative purposes are carried at cost, less any recognised impairment loss.  Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group's accounting policy.  Depreciation on these assets commences when the assets are available for use.

 

Freehold land is not depreciated and is held at historical cost.

 

Depreciation is recognised so as to write off the cost of assets (other than land and assets under construction) less their residual values on a straight-line basis over the estimated useful life, as follows:

 

Freehold buildings                                                                                              25 to 50 years

Leasehold improvements                                                                 over the remaining lease term

Plant and equipment                                                                                          3 to 10 years

Office equipment, fixtures and fittings                                                             3 to 10 years

 

The carrying values are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.  If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.  The recoverable amount of plant and equipment is the greater of net selling price and value in use.  In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.  For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.  Impairment losses are recognised in the income statement in the administrative expenses line item.

 

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.  Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised.

 

Goodwill               

Goodwill arising on consolidation represents the excess of the cost of an acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of the subsidiary. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.  Any impairment is recognised immediately in the income statement and is not subsequently reversed. 

 

For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination.  Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which goodwill relates.  If the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. 

 

On disposal of a cash-generating unit or part of the cash-generating unit the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

 

Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and will not be included in determining any subsequent profit or loss on disposal.

 

Intangible assets - research and development costs            

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

 

An internally generated intangible asset arising from the Group's development activities is capitalised only if all of the following conditions are met: an asset is created that can be identified (such as software and new processes); it is probable that the asset created will generate future economic benefits; and the development cost of the asset can be measured reliably.

 

Internally generated intangible assets are amortised on a straight line basis over their useful lives, the period of expected future sales, estimated at between three and five years. The amortisation is recorded as part of research and development costs in the income statement. Where no internally generated intangible asset can be capitalised, development expenditure is recognised as an expense in the period in which it is incurred.

 

When the asset is not in use, the carrying value of development costs is reviewed for impairment annually or more frequently when an indicator of impairment arises during the reporting period indicating that the carrying value may not be recoverable.

 

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

 

Other intangible assets   

Intangible assets acquired separately are capitalised at cost and intangible assets acquired from a business acquisition are capitalised at fair value as at the date of acquisition.  Following initial recognition, the cost model is applied to the class of intangible assets.  The useful lives of these intangible assets are assessed to be either finite or indefinite.  Where amortisation is charged on assets with finite lives, this expense is taken to the income statement through the following line items:

 

Patents, trade-marks and technology                                  administrative expenses

Customer relationships and agreements                          administrative expenses

Software                                                                                     cost of sales and administrative expenses

 

Intangible assets, excluding development costs and software, created within the business are notcapitalisedand expenditure is charged to the income statement in the period in which the expenditure is incurred. Intangible assets are tested for impairment annually either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. 

 

Computer software purchased (or internally generated) for use that is integral to the hardware (because without that software the equipment cannot operate) is treated as part of the hardware and capitalised as property, plant and equipment. Other software programs are treated as intangible assets. Amortisation is provided so as to write off the cost of intangible assets on a straight-line basis over the estimated useful life, as follows:

 

Patents, trade-marks and technology                                  5 to 10 years

Customer relationships and agreements                          4 to 10 years

Software                                                                                     2 to 7 years

 

Inventories          

Inventories are stated at the lower of cost and net realisable value.  Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition.  Cost is calculated using a first-in, first-out method.  Net realisable value represents the estimated selling prices less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

 

Provision is made for obsolete, slow-moving or defective items where appropriate.  A net increase in provision for the year as a whole is recognised as an expense in the year whilst a net reversal of provision for the year as a whole is recognised as a reduction in expense.

 

Trade and other receivables

Trade receivables, which generally have thirty to sixty day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.  An estimate for doubtful debts is made when collection of the full amount is no longer probable.  Bad debts are written off when identified.

 

Cash and cash equivalents            

Cash in the balance sheet comprises cash at bank and in hand and short-term deposits with an original maturity of three months or less.  For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash as defined above.

 

Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.  After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.  The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period.  The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

 

A financial liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.  Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of an existing liability and the recognition of a new liability.

 

Borrowings are classified as current liabilities unless, at the balance sheet date, the Group has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.

 

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. 

 

All other borrowing costs are recognised in the income statement using the effective interest method.

 

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

 

The amount recognised as a provision is based on the best reliable estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation and its carrying amount is the present value of those cash flows.

 

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

 

A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it.  The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity.

 

Provisions for the expected cost of warranty obligations under local sale of goods legislation or contract terms are recognised at the date of sale of the relevant products, at the Directors' best estimate of the expenditure required to settle the Group's obligation.

 

Present obligations arising under onerous contracts are recognised and measured as provisions.  An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

 

Pensions, other post-employment and other employment benefits    

The Group operates defined contribution pension schemes which require contributions to be made to a separately administered fund.  Payments to defined contribution pension schemes are charged as an expense as they fall due.  Payments made to a state-managed pension are dealt with as payments to defined contribution schemes where the Group's obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

 

The Group operates an unfunded defined benefit plan in France providing termination payments (post employment benefit) to employees upon retirement and long-service awards paid when the employee reaches certain lengths of service (other employment benefit).  The cost of providing benefits is determined with actuarial valuations being carried out on each balance sheet date.  Actuarial gains and losses are recognised in full in the period in which they occur.  Those related to the termination benefits are recognised outside the income statement and are presented in other comprehensive income.  Whilst those related to the long-service award are recognised in the income statement.  When a settlement or curtailment occurs, the obligation and related plan assets are re-measured using current actuarial assumptions and the resultant gain or loss is recognised in the income statement during the period in which the settlement or curtailment occurs.

 

Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.

 

The obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost. 

 

Share-based payment transactions            

Employees (including Directors) of the Company receive remuneration in the form of share based transactions, whereby employees render services in exchange for shares or rights over shares ('equity settled transactions').  The cost of equity settled transactions with employees is measured by reference to the fair value at the date at which they are granted.  The fair value is determined by an external valuer using a binomial model, further details of which are given in note 28.  In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company ('market conditions').

 

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ('vesting date').  The cumulative expense recognised for equity-settled transactions at each reporting date reflects the extent to which the vesting period has expired and management's best estimate of the number of awards that will ultimately vest.

 

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

 

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified.  In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

 

Where an equity-settled award is cancelled, it is treated as if it had invested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately.  If a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new shares are treated as if they were a modification of the original award.

 

The dilution effect of outstanding options is reflected as additional share dilution in the computation of earnings per share (see note 11).

 

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.  All other leases are classified as operating leases. 

 

Rental payments under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which the economic benefits from the leased asset are consumed.  Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

 

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability.  The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

 

Revenue               

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.

 

Sale of goods

Revenue from the sale of standard products is recognised when all the following conditions are satisfied:

·     the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

·     the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

·     the amount of revenue can be measured reliably;

·     it is probable that the economic benefits associated with the transaction will flow to the entity; and

·     the costs incurred or to be incurred in respect of the transaction can be measured reliably.

 

For the supply of non-standard products and services, revenue is recognised by reference to the stage of completion of the project.  The stage of completion is determined either by reference to the proportion that costs incurred for work performed to date bear to the estimated total project costs, or by reference to the completion of a physical proportion of the work, dependent upon the nature of the underlying project.  Revenues derived from variations on projects are recognised only when they have been accepted by the customer.  Full provision is made for losses on all projects in the period in which they are first foreseen.

 

Interest revenue

Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably.  Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition. 

 

Government grants           

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.  Government grants for research programmes are recognised as income over the periods necessary to match them with the related costs deducted in reporting the related expense.  Government grants related to property, plant and equipment are treated as deferred income and released to the income statement over the expected useful lives of the assets concerned.

 

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

 

Current tax

The tax currently payable is based on the taxable profit for the year.  Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items of income or expense that are never taxable or deductible.  The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

 

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.  Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that the taxable profits will be available against which deductible temporary differences can be utilised.  Such assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

 

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

 

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

 

Deferred tax is measured on an undiscounted basis and is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised.  Deferred tax charged or credited in the income statement, except when it relates to items charged or credited directly to other comprehensive income or equity, in which case the deferred tax is also dealt with in other comprehensive income or equity, respectively.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

 

Derivative financial instruments and hedging

The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts and interest rate swaps.  Further details of derivative financial instruments are disclosed in note 32.

 

Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date.  The resulting gain or loss is recognised in the income statement immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the income statement depends on the nature of the hedge relationship.  The Group designates certain derivatives as either hedges or the fair value of recognised assets or liabilities or firm commitments (fair value hedges), hedges of highly probably forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or hedges of net investments in foreign operations.

 

No derivative financial instruments have been designated as a fair value or cash flow hedge during the current or prior financial year.

 

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability.  A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months.  Other derivatives are presented as current assets or current liabilities. 

 

The Group uses foreign currency borrowings to hedge its investment in currency investments and classifies the hedging relationship as a net investment hedge.  To the extent that the hedge is effective, changes in the fair value of the hedging instrument are recognised in other comprehensive income.

 

Classification of shares as debt or equity

When shares are issued, any component that creates a financial liability of the Group is presented as a liability in the balance sheet, measured initially at fair value net of transaction costs and thereafter at amortised cost until extinguished on conversion or redemption.

 

Own shares

e2v technologies plc shares held by the employee benefit trust are classified in shareholders' equity as own shares and are recognised at cost.  Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken to retained earnings.  No gain or loss is recognised in the performance statements on the purchase, sale, issue or cancellation of equity shares.

 

Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, management must make judgments, estimates and assumptions concerning the carrying amounts of assets and liabilities that are not readily apparent from other sources.  The estimates and associated assumptions are based upon factors such as historical experience and other factors that are considered to be relevant.  Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

The following are the critical judgements and key sources of estimation uncertainty that the Directors have made in the process of applying the Group's accounting policies and have the most significant effect on the amounts recognised in the consolidated financial statements: measurement and impairment of goodwill and other intangibles arising on acquisition (see note 15), the measurement of provisions for business improvement programme costs (estimation of termination payments and other future costs) (note 23), the measurement of work in progress (stage of completion and total costs to complete);  the measurement of product warranty provisions (estimation of level of returns) (note 23) and the measurement of tax provisions and deferred tax assets (note 24).

 

Adjusted profit measures

In order to provide the users of the financial statements with a more relevant presentation of the Group's underlying performance, the layout of the income statement has been amended, including comparative information.  Adjusted profit measures at the operating profit and finance cost levels are now disclosed, whereas in previous years only adjusted profit before tax was shown.  Profit for the financial year is analysed between:

 

(a)   profit before exceptional items and amortisation of acquired intangibles; and

 

(b)   the effect of exceptional items and intangibles amortisation.

i.              Exceptional items are material items of income and expense which, because of the nature and infrequency of the events giving rise to them, merit separate presentation to allow a better understanding of the elements of the Group's performance for the financial year and are presented on the face of the income statement to facilitate comparisons with prior periods and assessments of trends in financial performance.  Exceptional operating items include: business improvement programme costs; gains on sale of property; fair value gains and losses on foreign exchange contracts.  Exceptional finance costs include: fair value gains and losses arising on interest rate swaps, realised gains on the redenomination of borrowings and write-off of debt issue costs.

ii.             Amortisation of acquired intangibles, including impairment, has been shown separately to provide increased visibility over the impact of acquisition activity on intangible assets.

 

Further analysis of exceptional operating and finance items are provided in notes 5 and 9, respectively.

 

New standards and interpretations applied during the year

In the current year, the following new and revised Standards and Interpretations have been adopted and have affected the amounts reported in these financial statements.

 

Amendments to IFRS 7, "Financial Instruments: Disclosures" - The amendments to IFRS 7 expand the disclosures required in respect of fair value measurements and liquidity risk.  The Group has elected not to provide comparative information for these expanded disclosures in the current year in accordance with the transitional reliefs offered in these amendments.  The amended disclosures are presented in notes 31 and 32.

 

IFRS 8, "Operating Segments" - Requires disclosure of information about the Group's operating segments and replaces the requirements to determine primary (business) and secondary (geographical) reporting segments of the Group.  The Group determined that the operating segments were the same as the business segments previously identified under IAS 14, "Segment Reporting".  Additional disclosures about each of these segments are shown in note 4 including revised comparative information.

 

IAS 1, "Presentation of Financial Statements (revised)" - Introduced the 'Consolidated statement of comprehensive income' which presents all items of recognised income and expense either in one single statement, or in two linked statements.  The Group has elected to present in two statements, the 'Consolidated income statement' formerly the Group income statement, and the 'Consolidated statement of comprehensive income', formerly the Group statement of recognised income and expense.  In addition it requires the reconciliation of movements in equity, previously disclosed in a note to the financial statements, to be presented as a primary statement, the 'Consolidated statement of changes in equity'.

 

In addition to the above, the following standards and interpretations have been adopted in these financial statements and have not had a material impact on the Group's financial statements in the period of initial application.

 

IFRS 2, "Share based payment" (revised) - The amendments clarify the accounting treatment of Group cash-settled share based payment transactions.

 

IAS 23, "Borrowing costs"-- The amendment requires borrowing costs attributable to the acquisition or construction of certain assets to be capitalised.

 

New standards and interpretations not applied

The International Accounting Standards Board ('IASB') and International Financial Reporting Committee ('IFRIC') have also issued the following standards and interpretations with an effective date after the date of these financial statements:

 

		Effective for periods commencing after
IFRS 3	Revised IFRS 3 Business Combinations	1 July 2009
IFRS 9	Financial Instruments: Classification and measurement	1 January 2013
IAS 24	Related Party Disclosure (revised)	1 January 2011
IAS 27	Amendment - Consolidated and Separate Financial Statements	1 July 2009
IAS 32	Amendment to IAS 32: Classification of Rights Issues	1 February 2010
IAS 39	Eligible hedged items	1 July 2009
	Improvements to IFRS (issued April 2009)	Various dates
IFRIC 17	Distribution of non-cash assets to owners	1 July 2009
IFRIC 18	Transfer of assets from customers	1 July 2009
IFRIC 19	Extinguishing Financial Liabilities with Equity Instruments	1 July 2010

 

The Group intends to adopt these standards in the first accounting period after the effective date.  The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application.

 

IFRS 3 (revised) will apply to business combinations arising from 1 April 2010.  This will require recognition of subsequent changes in the fair value of contingent consideration in the income statement rather than against goodwill.  In addition, transaction costs will be required to be recognised immediately in the income statement.  Contingent consideration which is assessed as having the characteristics associated with employment benefits would be expensed to the income statement rather than included in the calculation of goodwill.  IFRS 3 (revised) is not required to be applied retrospectively.

 

3.     REVENUE     

 

An analysis of the Group's revenue is as follows:

 

	2010	2009
	£000	£000
Revenue	201,247	233,193
Finance revenue	2,854	684
Total revenue	204,101	233,877

 

4.     SEGMENT INFORMATION         

 

In prior periods in accordance with IAS 14, "Segment Reporting", the Group's segment information was reported by business segments and geographical segments.  IFRS 8, "Operating Segments" has been adopted with effect from 1 April   2009, for the current financial year (and comparatives for the prior period) which requires operating segments to be identified on the basis of the internal reports about components of the Group that are regularly reviewed by the chief operating decision maker, which in the case of the Group is the Chief Executive, to allocate resources to the segments and to assess their performance.

 

The Group's operations comprise four operating divisions in line with the Group's divisional structure and which is consistent with the primary segments previously reported under IAS 14. 

 

The four reportable segments are:

 

·      Electron devices and sub-systems, high performance electronic devices and sub-systems for applications including:
radiotherapy cancer treatment machines; defence electronic countermeasures and radar systems; satellite communication amplifiers; digital television transmitters and industrial laser and welding machines.

·      Imaging devices, advanced CCD and Complimentary Metal Oxide Semiconductor imaging sensors and cameras for
applications including: earth observation, space science and life science imaging; military surveillance; industrial process control; advanced data collection and dental X-ray systems.

·      Specialist semiconductors, including: own design high speed data convertors; high reliability microprocessors in
partnership with Freescale Semiconductor, MRAMs in partnership with Everspin; packaging and test and obsolescence management services for high reliability integrated circuits for aerospace and defence programmes, and own design sensor data acquisition utilising mixed signal application specific devices. 

·      Sensors, a range of professional sensing products for applications including environmental safety; fire, rescue and security thermal imaging, x-ray spectroscopy; automotive alarm and security systems; microwave radar and safety and arming devices

 

In addition to the reportable segments, also reported is: Centre - Corporate, costs directly associated with the management of the Group's public quotation and other related costs arising for the corporate management of the Group along with financing related activities.

 

Information regarding the Group's operating segments is reported below.  Amounts reported for the prior year have been restated to conform to the requirements of IFRS 8.

 

Segment revenue and results

The following is an analysis of the Group's revenue and results by reportable segment:

	Electron devices and sub-systems	Imaging devices	Specialist semi-conductors	Sensors	Centre - Corporate	Total operations
Year ended 31 March 2010	£000	£000	£000	£000	£000	£000
Revenue
Revenue from external customers	65,559	53,814	50,936	30,938	-	201,247
Segment result
Adjusted segment profit/(loss)	11,483	516	6,715	(417)	-	18,297
Corporate costs	-	-	-	-	(2,625)	(2,625)
Exchange differences	-	-	-	-	(655)	(655)
Adjusted operating profit/(loss)	11,483	516	6,715	(417)	(3,280)	15,017
Exceptional operating items and intangibles amortisation	(364)	(13,302)	(10,871)	1,076	2,407	(21,054)
Operating profit/(loss)	11,119	(12,786)	(4,156)	659	(873)	(6,037)
Net finance costs						(3,683)
Loss before tax						(9,720)
Tax credit						7,454
Loss for the period						(2,266)

 

	Electron devices and sub-systems	Imaging Devices	Specialist semi-conductors	Sensors	Centre - Corporate	Total operations
Year ended 31 March 2009	£000	£000	£000	£000	£000	£000
Revenue
Revenue from external customers	83,739	65,224	53,323	30,907	-	233,193
Segment result
Adjusted segment profit/(loss)	15,686	4,292	13,074	(1,596)	-	31,456
Corporate costs	-	-	-	-	(2,349)	(2,349)
Exchange differences	-	-	-	-	(1,667)	(1,667)
Adjusted operating profit/(loss)	15,686	4,292	13,074	(1,596)	(4,016)	27,440
Exceptional operating items and intangibles amortisation	(2,358)	(23,681)	(15,217)	(2,825)	(2,894)	(46,975)
Operating profit/(loss)	13,328	(19,389)	(2,143)	(4,421)	(6,910)	(19,535)
Net finance costs						(8,870)
Loss before tax						(28,405)
Tax credit						7,106
Loss for the period						(21,299)

 

Since the year end and in conjunction with the transfer of work from the Lincoln facility, at the request of the Chief Executive , a number of changes to the internal reporting structure have been made such that a number of product lines that were previously considered as Sensors have been realigned to the Electron devices and sub-systems segment. Sensors is no longer a reportable segment and the remaining products are noted below as 'All other'.  The following is an analysis of the Group's revenue and results for the years ended 31 March 2010 and 31 March 2009 on the basis of the 2011 reportable segments.

 

The restated analysis is as follows:

Restated	Electron devices and sub-systems	Imaging devices	Specialist semi-conductors	All other	Centre - Corporate	Total operations
Year ended 31 March 2010	£000	£000	£000	£000	£000	£000
Revenue
Revenue from external customers	78,781	53,814	50,936	17,716	-	201,247
Segment result
Adjusted segment profit/(loss)	11,198	516	6,715	(132)	-	18,297
Unallocated expenses	-	-	-	-	(2,625)	(2,625)
Exchange differences	-	-	-	-	(655)	(655)
Adjusted operating profit/(loss)	11,198	516	6,715	(132)	(3,280)	15,017
Exceptional operating items and intangibles amortisation	1,546	(13,302)	(10,871)	(834)	2,407	(21,054)
Operating profit/(loss)	12,744	(12,786)	(4,156)	(966)	(873)	(6,037)
Net finance costs						(3,683)
Loss before tax						(9,720)
Tax credit						7,454
Loss for the period						(2,266)

 

Restated	Electron devices and sub-systems	Imaging devices	Specialist semi-conductors	All other	Centre - Corporate	Total operations
Year ended 31 March 2009	£000	£000	£000	£000	£000	£000
Revenue
Revenue from external customers	99,222	65,224	53,323	15,424	-	233,193
Segment result
Adjusted segment profit/(loss)	15,312	4,292	13,074	(1,222)	-	31,456
Corporate costs	-	-	-	-	(2,349)	(2,349)
Exchange differences	-	-	-	-	(1,667)	(1,667)
Adjusted operating profit/(loss)	15,312	4,292	13,074	(1,222)	(4,016)	27,440
Exceptional operating items and intangibles amortisation	(2,769)	(23,681)	(15,217)	(2,414)	(2,894)	(46,975)
Operating profit/(loss)	12,543	(19,389)	(2,143)	(3,636)	(6,910)	(19,535)
Net finance costs						(8,870)
Loss before tax						(28,405)
Tax credit						7,106
Loss for the period						(21,299)

 

Segment assets and liabilities and other segment information

The following is an analysis of the Group's assets, liabilities and other information by reportable segment:

	Electron devices and sub-systems	Imaging devices	Specialist semi-conductors	Sensors	Centre - Corporate	Total operations
Year ended 31 March 2010	£000	£000	£000	£000	£000	£000
Assets and liabilities
Intangible assets	589	334	80,681	9,516	12,941	104,061
Property, plant and equipment	4,591	10,082	6,384	2,566	7,743	31,366
Other segment assets	10,624	9,555	9,038	8,264	-	37,481
Centre - Corporate assets
- Trade and other receivables	-	-	-	-	49,194	49,194
- Income tax receivable	-	-	-	-	5,155	5,155
- Deferred income tax asset	-	-	-	-	10,197	10,197
- Cash at bank and in hand	-	-	-	-	27,811	27,811
Total assets	15,804	19,971	96,103	20,346	113,041	265,265
Segment liabilities	(3,647)	(18,489)	(7,189)	(2,555)	-	(31,880)
Centre - Corporate liabilities
- Borrowings	-	-	-	-	(69,471)	(69,471)
- Trade and other payables	-	-	-	-	(43,787)	(43,787)
- Other financial liabilities	-	-	-	-	(1,646)	(1,646)
- Income tax payable	-	-	-	-	(5,619)	(5,619)
- Provisions & benefits	-	-	-	-	(739)	(739)
- Deferred income tax liabilities	-	-	-	-	(8,498)	(8,498)
Net assets/(liabilities)	12,157	1,482	88,914	17,791	(16,719)	103,625
Other segment information
Capital expenditure:
Property, plant and equipment	318	502	539	654	694	2,707
Software	-	-	-	-	372	372
Product development	329	253	-	111	-	693
Depreciation	1,423	2,113	2,003	1,120	3,590	10,249
Amortisation	603	173	7,964	1,175	2,092	12,007
Warranty provision - net of arising and released in the year	1,509	1,385	117	399	-	3,410

 

	Electron devices and sub-systems	Imaging devices	Specialist semi-conductors	Sensors	Centre - Corporate	Total operations
Year ended 31 March 2009	£000	£000	£000	£000	£000	£000
Assets and liabilities
Intangible assets	866	253	92,815	10,570	14,695	119,199
Property, plant and equipment	6,312	15,574	8,275	3,392	6,698	40,251
Other segment	14,243	11,840	10,403	5,947	-	42,433
Centre - Corporate assets
- Trade and other receivables	-	-	-	-	61,109	61,109
- Income tax receivable	-	-	-	-	2,498	2,498
- Deferred income tax asset	-	-	-	-	5,860	5,860
- Cash at bank and in hand	-	-	-	-	6,373	6,373
Total assets	21,421	27,667	111,493	19,909	97,233	277,723
Segment liabilities	(4,025)	(4,658)	(2,118)	(409)	-	(11,210)
Centre - Corporate liabilities
- Borrowings	-	-	-	-	(142,572)	(142,572)
- Trade and other payables	-	-	-	-	(50,506)	(50,506)
- Other financial liabilities	-	-	-	-	(5,115)	(5,115)
- Income tax payable	-	-	-	-	(139)	(139)
- Provisions & benefits	-	-	-	-	(773)	(773)
- Deferred income tax liabilities	-	-	-	-	(13,729)	(13,729)
Net assets/(liabilities)	17,396	23,009	109,375	19,500	(115,601)	53,679
Other segment information
Capital expenditure:
Property, plant and equipment	1,305	3,508	1,361	653	2,394	9,221
Software	-	-	-	-	1,531	1,531
Product development	482	1,295	379	456	-	2,612
Depreciation	2,383	3,935	1,674	1,237	975	10,204
Amortisation	790	1,878	6,691	1,405	1,910	12,674
Impairment	360	19,930	6,994	1,343	-	28,627
Warranty provision - net of arising and released in the year	3,242	2,491	445	280	-	6,458

 

The Group is organised such that Centre-Corporate is responsible for the management of operations (including production, supply chain and IT) and sales (including credit control).  Assets and liabilities associated with these activities are designated against Centre-Corporate in the above analysis.  Centre Corporate recharges the segments for the provision of these services.  Centre-Corporate is also responsible for the Group's treasury function.

 

Geographical information

The Group's revenue from external customers and information about its non-current assets by geographical location are detailed below:

		2010	2009
		£000	£000
Revenue by destination
United Kingdom		41,654	44,409
North America		67,002	79,953
Europe		66,700	83,639
Asia Pacific		24,202	22,150
Rest of the world		1,689	3,042
		201,247	233,193

 

		2010	2009
		£000	£000
Non-current assets (excluding taxes)
United Kingdom		33,780	40,652
North America		38,795	43,052
Europe		62,825	75,683
Asia Pacific		27	63
		135,427	159,450

 

5.     EXCEPTIONAL OPERATING ITEMS AND INTANGIBLES AMORTISATION       

 

		2010	2009
		£000	£000
Amortisation of acquired intangible assets		8,600	8,628
Impairment of acquired intangible assets		-	26,127
Impairment of plant and equipment		-	2,500
Business improvement programme expenses		18,682	6,826
Profit on the sale of Lincoln site		(3,739)	-
Fair value (gains)/losses on foreign exchange contracts		(2,489)	2,894
		21,054	46,975

 

Amortisation of acquired intangibles was £8,600,000 (2009: £8,628,000) and is analysed in note 14.

 

After periods of consultations, business improvement programmes have commenced at the Group's Grenoble and Lincoln sites.  Costs of the programmes are principally redundancy and associated costs (see note 8), plant decommission costs and receivable provisions.  These costs are offset by the credit resulting from the curtailment of the termination allowance and long service award plans (see note 29). 

 

On 31 March 2010, the Group agreed the sale of its Lincoln site.  During the remainder of the 2010 calendar year, the Group will continue to occupy the site, under licence, as work is transferred to Chelmsford, the new engineering design centre in Lincoln or is outsourced.

 

The Group, in part, hedges its exposure to foreign currency risks through the use of forward exchange contracts.  The changes in the fair value of the instruments are recorded as exceptional items in the income statement.  Fluctuations in the exchange rates have resulted in net fair value gains of £2,489,000 (2009: losses £2,894,000).

 

During the previous financial year impairments were recorded against acquired intangible assets in relation to QP Semiconductors, French imaging business unit, Dynex microwave alarms and Siemens high power satcom units (see note 14).  An impairment charge was also recorded against tangible fixed assets in the Imaging business (see note 13).

 

6.     LOSS FOR THE YEAR

 

Loss from continuing operations is stated after charging/ (crediting):

	2010	2009
	£000	£000
Research and development expenditure expensed	10,757	13,414
Amortisation of capitalised development expenditure	1,315	2,171
Impairment of capitalised development expenditure (note 14)	-	1,548
Total research and development expense	12,072	17,133
Included in cost of sales:
Depreciation of property, plant and equipment	9,641	9,666
Included in distribution and administrative expenses:
Depreciation of property, plant and equipment	608	538
Amortisation of software	2,092	1,875
Amortisation of acquired intangibles	8,600	8,628
Impairment of plant, equipment and acquired intangibles	-	27,079
Total depreciation, amortisation and impairment expense	20,941	47,786
Foreign currency (gains)/losses arising from fair value adjustments	(2,489)	2,894
Other net foreign currency losses	655	1,667
Total net foreign currency (gains)/losses	(1,834)	4,561
Government grants receivable	(1,773)	(1,707)
Increase in provision for impairment of trade receivables recognised in administrative expenses	830	722
Costs of inventories recognised as an expense	128,261	137,974
Including:  Write-down of inventories to net realisable value	1,152	2,921
Reversals of impairments in inventories*	(1,156)	(251)
Minimum lease payments recognised as an operating lease expense	1,424	923

*The reversal of impairments arose as a result of changes in demand for products.

 

7.     AUDITOR'S REMUNERATION

 

	2010	2009
	£000	£000
Audit of the company financial statements	206	315
Statutory audit fees of subsidiary undertakings	179	233
Local non-statutory audit services in relation to subsidiary undertakings	13	46
Other services	386	535
Total other fees paid to auditors	578	814

 

During 2010, £386,000 of the other services fees relate to the work required by the reporting accountant on the Group's firm placing and rights issue.  These fees have been included in share issue costs which have been allocated against the merger reserve.

 

In the prior year, of the other services of £535,000, £519,000 related to transaction advisory costs in connection with the acquisition of QP Semiconductor Inc.  These fees were included in the cost of acquisition of QP Semiconductor Inc.

 

8.     STAFF COSTS AND DIRECTORS' REMUNERATION

 

The average monthly number of employees (including Directors) during the year was made up as follows:

 

	2010	2009
	No.	No.
Manufacturing	1,195	1,215
Administration	471	499
	1,666	1,714

 

Their aggregate remuneration comprised:

	2010	2009
	£000	£000
Ongoing remuneration costs
Wages and salaries	59,688	58,295
Social security costs	12,303	12,885
Share based payment charges (see note 28)	356	625
Defined contribution pension costs (see note 29)	1,310	1,575
Termination allowance and long service awards costs (see note 29)	346	(15)
	74,003	73,365
Exceptional remuneration
Termination payments	15,287	4,632
Share based payment charges (see note 28)	66	-
Termination allowance and long service awards curtailment gains (see note 29)	(1,165)	-
Exceptional remuneration	14,188	4,632
Total remuneration	88,191	77,997

 

Details of Directors' remuneration for the year are provided in the Directors' Remuneration report in the annual report.

 

9.     FINANCE COSTS AND REVENUE

 

	2010	2010	2010	2009	2009	2009
	Before exceptional items	Exceptional items	Total	Before exceptional items	Exceptional items	Total
	£000	£000	£000	£000	£000	£000
Bank loan interest	4,626	-	4,626	7,323	-	7,323
Other interest	210	-	210	-	-	-
Interest on defined benefit liabilities (see note 29)	189	-	189	-	-	-
Amortisation of debt issue costs	793	719	1,512	412	-	412
Total interest expense for financial liabilities not at fair value through the income statement	5,818	719	6,537	7,735	-	7,735
Fair value adjustments to interest rate swaps	-	-	-	-	1,819	1,819
Total finance costs	5,818	719	6,537	7,735	1,819	9,554
Bank interest receivable	160	-	160	684	-	684
Fair value adjustments to interest rate swaps	-	90	90	-	-	-
Realised exchange gains on re-denomination of Euro borrowings	-	2,604	2,604	-	-	-
Total finance revenue	160	2,694	2,854	684	-	684

 

For the year ended 31 March 2010, the Group has elected to record interest cost arising on defined benefit liabilities as finance costs.  Previously it had been recorded as an administrative cost.

 

In completing the new bank facility in December 2009, unamortised debt issue costs of £719,000 related to the prior facility were written off and have been treated as an exceptional item.

 

The Group, in part, hedges its exposure to interest rate risks through the use of interest rate swap agreements.  The changes in the fair value of the instruments are recorded as exceptional items in the income statement. During the year ended 31 March 2010, fluctuations in the interest rates have resulted in net fair value gains of £90,000 (2009: losses £1,819,000). 

 

In June and September 2009, the Group repaid its Euro denominated debt and utilised forward exchange contracts to fix the rate at which it would purchase the required Euros.  Net exceptional gains of £2,604,000 were recorded on these contracts.

 

10.  INCOME TAX

 

Major components of income tax expense for the years ended 31 March 2010 and 2009 are:

 

	2010	2009
	£000	£000
Consolidated income statement
Current income tax
Current income tax charge - UK corporation tax	3,558	2,603
Current income tax credit - foreign tax	(2,614)	(571)
Current income tax charge	944	2,032
Adjustments in respect of current income tax of previous years	1,005	(1,882)
Total current income tax	1,949	150
Deferred income tax
Relating to origination and reversal of temporary differences	(8,298)	(8,143)
Adjustment in respect of the abolition of Industrial Buildings Allowances	-	983
Adjustments in respect of deferred income tax of previous years	(1,105)	(96)
Total deferred income tax	(9,403)	(7,256)
Income tax credit reported in the Group income statement	(7,454)	(7,106)

 

In addition to the amount charged to the income statement, the following amounts relating to tax have been recognised directly in other comprehensive income:

	2010	2009
	£000	£000
Deferred tax
Relating to cash flow hedges	-	(22)
Relating to actuarial losses on post employment benefits	(118)	-
Income tax credit recognised directly in other comprehensive income	(118)	(22)

 

In addition to the amount charged to the income statement and other comprehensive income, the following amounts related to tax have been recognised directly in equity:

	2010	2009
	£000	£000
Deferred tax
Change in estimated excess tax deductions related to share-based payments recognised directly in equity	(14)	37

 

A reconciliation of income tax expense applicable to the accounting loss before income tax at the statutory income tax rate to income tax expense at the Group's effective income tax rate for the years ended 31 March 2010 and 2009 is as follows:

 

	2010	2009
	£000	£000
Accounting loss before income tax	(9,720)	(28,405)
At UK statutory income tax rate of 28% (2009: 28%)	(2,722)	(7,954)
Permanent differences	32	420
Permanent difference in relation to goodwill impairment	-	5,003
Permanent difference in relation of gain on sale of property	(904)	-
Tax relief on research and development - current year	(2,332)	(3,457)
Tax relief on research and development - prior year	-	(866)
Impact of higher taxes on overseas earnings	(1,428)	(123)
Impact of abolition of Industrial Buildings Allowances	-	983
Adjustments in respect of current income tax of previous years	1,005	(1,016)
Adjustments in respect of deferred income tax of previous years	(1,105)	(96)
Total tax credit reported in the income statement	(7,454)	(7,106)

 

11.  EARNINGS PER SHARE

 

Basic earnings per share amounts are calculated by dividing net loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.  The denominators for the purposes of calculating both basic and diluted earnings per share have been adjusted to reflect the rights issue in December 2009.

 

Diluted earnings per share amounts are calculated by dividing the net loss for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year adjusted for the effects of dilutive options.  As a result of the loss for the year, the share options are anti-dilutive and hence have not been taken into account for the purposes of calculating diluted basic earnings per share.

 

Adjusted earnings per share is considered to more appropriately reflect the underlying performance of the business year on year.

 

The following reflects the income and share data used in the basic and diluted earnings per share computations:

 

	2010	2009
	£000	£000
Loss for the year	(2,266)	(21,299)
Amortisation of acquired intangible assets	8,600	8,628
Impairment of acquired intangible assets	-	26,127
Impairment of plant and equipment	-	2,500
Business improvement programme expenses	18,682	6,826
Profit on the sale of Lincoln site	(3,739)	-
Write-off of debt issue costs	719	-
Fair value (gains)/losses on financial instruments	(2,579)	4,713
Realised exchange gains on re-denomination of Euro borrowings	(2,604)	-
Impact of abolition of Industrial Buildings Allowances	-	983
Tax impact of the above	(7,700)	(9,793)
Adjusted profit attributable to Ordinary shareholders	9,113	18,685

 

	2010	2009
	No. 000	No. 000
Weighted average number of ordinary shares
For basic earnings per share	136,698	97,906
Effect of dilution:
Share options	319	142
For diluted earnings per share	137,017	98,048

 

No further shares have been issued since the reporting date and before the completion of these financial statements as a result of exercises under share option schemes (2009: nil shares issued).  The weighted average number of ordinary shares excludes shares held by the Employee Benefit Trust.

 

12.  DIVIDENDS PAID AND PROPOSED

               

	2010	2009
	£000	£000
Declared and paid during the year:
Equity dividends on ordinary shares:
Final dividend for 2008: 5.25p (2007: 4.75p)	-	3,234
Dividend for 2009: 2.70p (2008: 2.45p)	-	1,679
	-	4,913

 

The Employee Benefit Trust has waived its right to receive dividends.

 

Based on the terms of the Group's banking facility, the Board has not proposed a final dividend (2009: £nil).

 

13.  PROPERTY, PLANT AND EQUIPMENT

               

	Land  and buildings	Plant and equipment	Office equipment, fixtures and fittings	Assets under construction	Total
	£000	£000	£000	£000	£000
COST
At 1 April 2008	11,530	53,764	4,628	1,159	71,081
Additions	631	7,715	875	-	9,221
Acquisition of subsidiary	428	524	36	-	988
Disposals	(13)	(294)	(141)	-	(448)
Reclassifications between categories	-	283	7	(290)	-
Exchange adjustment	1,607	3,452	338	-	5,397
At 1 April 2009	14,183	65,444	5,743	869	86,239
Additions	58	1,410	71	1,168	2,707
Disposals	(559)	(4,792)	(316)	-	(5,667)
Reclassifications between categories	88	1,797	134	(2,041)	(22)
Exchange adjustment	(614)	(2,618)	(225)	33	(3,424)
At 31 March 2010	13,156	61,241	5,407	29	79,833
DEPRECIATION
At 1 April 2008	2,074	25,789	3,027	-	30,890
Provided during the year	1,224	8,116	864	-	10,204
Impairment during the year	-	2,500	-	-	2,500
Disposals	-	(122)	(126)	-	(248)
Exchange adjustment	527	1,965	150	-	2,642
At 1 April 2009	3,825	38,248	3,915	-	45,988
Provided during the year	1,378	8,082	789	-	10,249
Disposals	(508)	(4,251)	(310)	-	(5,069)
Reclassifications between categories	58	(74)	5	-	(11)
Exchange adjustment	(236)	(2,321)	(133)	-	(2,690)
At 31 March 2010	4,517	39,684	4,266	-	48,467
CARRYING AMOUNT
At 31 March 2008	9,456	27,975	1,601	1,159	40,191
At 31 March 2009	10,358	27,196	1,828	869	40,251
At 31 March 2010	8,639	21,557	1,141	29	31,366

 

A review of the overall Imaging business in the year ended 31 March 2009 has identified plant and equipment, where the fair value was considered to be £nil, resulting in an impairment charge of £2,500,000.

 

14.  INTANGIBLE ASSETS

 

	Patents, trade marks and technology	Development costs	Software	Customer relationships and agreements	Goodwill	Total
	£000	£000	£000	£000	£000	£000
COST
At 1 April 2008	15,674	11,160	10,839	24,427	58,416	120,516
Additions	-	2,612	1,531	-	-	4,143
Acquisition of subsidiary	2,238	-	-	13,205	26,027	41,470
Exchange adjustment	2,837	976	62	6,413	12,804	23,092
At 1 April 2009	20,749	14,748	12,432	44,045	97,247	189,221
Additions	-	693	372	-	490	1,555
Disposals	-	-	(267)	-	-	(267)
Reclassifications between categories	-	-	22	-	-	22
Exchange adjustment	(736)	(232)	(130)	(2,041)	(3,776)	(6,915)
At 31 March 2010	20,013	15,209	12,429	42,004	93,961	183,616
AMORTISATION
At 1 April 2008	3,836	6,599	5,554	11,490	-	27,479
Charge in year	2,478	2,399	1,875	5,922	-	12,674
Impairment loss	4,478	2,158	-	320	19,171	26,127
Exchange adjustment	804	429	17	2,492	-	3,742
At 1 April 2009	11,596	11,585	7,446	20,224	19,171	70,022
Charge in year	1,773	1,446	2,092	6,696	-	12,007
Disposals	-	-	(253)	-	-	(253)
Reclassifications between categories	-	-	11	-	-	11
Exchange adjustment	(399)	(123)	(97)	(760)	(853)	(2,232)
At 31 March 2010	12,970	12,908	9,199	26,160	18,318	79,555
CARRYING AMOUNT
At 31 March 2008	11,838	4,561	5,285	12,937	58,416	93,037
At 31 March 2009	9,153	3,163	4,986	23,821	78,076	119,199
At 31 March 2010	7,043	2,301	3,230	15,844	75,643	104,061

 

The amortisation of acquired intangible assets presented in note 5 as an exceptional item relates to amortisation of intangibles acquired through business combinations as follows:

 

		2010	2009
		£000	£000
Patents, trade marks and technology		1,773	2,478
Development costs		131	228
Customer relationships and agreements		6,696	5,922
		8,600	8,628

 

During the 2009 financial year, the economic downturn in the last quarter of that year and the ongoing impact resulted in write downs of the acquired intangible assets with respect to the imaging business in Grenoble, which served primarily the industrial and medical markets, of £17,430,000 (comprising: patents, trade marks and technology £4,478,000; development costs £2,158,000; customer relationships and agreements £320,000 and goodwill £10,474,000).  Provisions were also made during the 2009 financial year against goodwill with regard to the QP Semiconductor business acquired in October 2008 of £6,994,000 and goodwill of £1,703,000 was also written off, with regard to acquisitions made before the Group was listed, as the associated products were within approximately five years of their commercially exploitable term.

 

Goodwill is not amortised but is annually tested for impairment (see note 15).  All other assets have finite lives.

 

Impairment losses on development costs are included within research and development costs in the income statement.

 

15.  IMPAIRMENT TESTING OF GOODWILL

 

Goodwill acquired through business combinations has been allocated to individual cash-generating units for impairment testing is detailed below:

 

	Siemens high power satcom	e2v techno-logies	Dynex micro-wave alarms	e2v Scientific Instru-ments	e2v semi-conductors SAS - Imaging	e2v semi-conductors SAS - Specialist Semi-conductors	MICS	QP Semi-conductors	Total
	£000	£000	£000	£000	£000	£000	£000	£000	£000
COST
At 1 April 2008	359	9,709	1,344	2,002	8,955	32,503	3,544	-	58,416
Additions in year	-	-	-	-	-	-	-	26,027	26,027
Exchange adjustment	-	-	-	-	1,519	5,514	761	5,010	12,804
At 1 April 2009	359	9,709	1,344	2,002	10,474	38,017	4,305	31,037	97,247
Additions in year	-	-	-	-	-	-	-	490	490
Exchange adjustment	-	-	-	-	(461)	(1,674)	63	(1,704)	(3,776)
At 31 March 2010	359	9,709	1,344	2,002	10,013	36,343	4,368	29,823	93,961
IMPAIRMENT
At 1 April 2008	-	-	-	-	-	-	-	-	-
Impairment loss in year	359	-	1,344	-	10,474	-	-	6,994	19,171
At 1 April 2009	359	-	1,344	-	10,474	-	-	6,994	19,171
Exchange adjustment	-	-	-	-	(461)	-	-	(392)	(853)
At 31 March 2010	359	-	1,344	-	10,013	-	-	6,602	18,318
CARRYING AMOUNT
At 31 March 2008	359	9,709	1,344	2,002	8,955	32,503	3,544	-	58,416
At 31 March 2009	-	9,709	-	2,002	-	38,017	4,305	24,043	78,076
At 31 March 2010	-	9,709	-	2,002	-	36,343	4,368	23,221	75,643

 

The goodwill associated with the Dynex and Siemens products was written off in full in the year ended 31 March 2009 as these products were within approximately five years of their commercially exploitable term.  Goodwill associated with the e2v Semiconductors SAS Imaging cash generating unit was also written off in full in the year ended 31 March 2009 due to its loss making status.

 

The recoverable amount of the goodwill for all cash-generating units has been determined based on a value in use calculation.  To calculate this, cash flow projections are based on financial budgets and forecasts approved by the Board covering a four-year period (2009: five-year period).  The discount rate applied to cash flow projections is 15% (2009: 15%).

 

Key assumptions used in valuations

The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill:

 

Operating margins - the basis used to determine the value assigned to the budgeted operating margins is the average margin achieved in the year immediately before the budgeted year, adjusted for any expected changes due to current restructuring programmes, sales mix or efficiency improvements. 

 

Discount rates - discount rates reflect the management's estimate of the return on capital employed required in every cash generating unit.  This is the benchmark used by management to assess operating performance and to evaluate future capital investment proposals.  Whilst LIBOR rates are lower than 12 months earlier the Group's new banking facility is subject to higher margins than the previous arrangements; hence a 15% (2009: 15%) discount rate is still considered appropriate for the purpose of impairment reviews as it is consistent with the rates used in all investment appraisals.  It is considered that the weighted average cost of capital for the cash generating unit concerned would not be materially different.

 

Growth rates - have been considered separately for every cash generating unit and are based on financial budgets and forecasts for the next four years.  After four years, growth rates of between 2.5% and 3.0% (2009: after five years between 1.0% and 3.0%) have been used.

 

Considering the sensitivity levels on the various cash generating units:

 

Both e2v technologies and e2v Scientific Instruments have sufficient headroom not to be at risk of creating impairment on the usual range of sensitivity tests.

 

e2v Semiconductors SAS - Imaging

Whilst the cash generating unit remained loss making in the current year, a strategic and operational review has now been completed for this cash generating unit based in Grenoble.  The result of this review has been the announcement of the business improvement programme as discussed in note 5.  In the year ended 31 March 2009, goodwill and intangible assets (including capitalised research and development costs) of €18,727,000 (£17,430,000) were written off.

 

e2v Semiconductors SAS - Specialist Semiconductors

This cash generating unit is also based in Grenoble and its operating margins will benefit from the business improvement programme being implemented at this site. Headroom for goodwill based on the current forecast is €6.7 million (£6.0 million) (2009: €18.3 million). Sensitivity levels on these calculations indicate impairment would need to be considered if:

 

·     revenue reduced by 10% (2009: 20%); or

·     projected medium term operating margin reduced by 12% (2009: 30%); or

·     discount rate of 16.5% or higher had been selected (2009: 18.25%); or

·     long term growth rate reduced to 0.5% from the assumed rate of 2.5% (2009: no impairment at a nil growth rate, 1% long
 term growth rate assumption).

 

MICS

This cash generating unit continues to operate in line with the long-term expectations as identified as part of a detailed review of the business last year and the unit's newly introduced products are currently showing signs of gaining traction in the market.  The headroom over goodwill from the impairment test is CHF 3.5 million (£2.2 million) (2009: CHF 4.7 million). Sensitivity levels on these calculations indicate an impairment would need to be considered if:

 

·     revenue reduced by 25% (2009:15%); or

·     projected medium term operating margin reduced by 13% (2009: 30%); or

·     discount rate of 16.5% or higher had been selected (2009: 18.5%); or

·     long term growth rate reduced to 1.0% from the assumed rate of 3.0% (2009: no impairment at a nil growth rate, 3% long
 term growth rate assumption).

 

QP Semiconductors

At 31 March 2009, due to the decline in market conditions and reductions in demand from a major customer, this cash generating unit was not performing in line with expectation at the time of acquisition (October 2008) and an impairment charge of $10,000,000 was recorded.  A strategic review of the business has been conducted during the year and enhanced medium term prospects have been identified such that the headroom over goodwill has been identified to be of the order of $31m.  Sensitivity levels on these calculations indicate an impairment would need to be considered if:

 

·     revenue reduced by 30% (2009: 5%); or

·     operating margin reduced by 30% (2009: 5%); or

·     discount rate of 21% or higher had been selected (2009: 16.0%); or

·     at a long term growth rate of 0% no impairment would be recorded (2009:  long term growth rate reduced to 1.5% from the
 assumed rate of 2.5%).

 

16.  BUSINESS COMBINATIONS

 

No business combinations have been completed during the current year. 

 

Acquisition of QP Semiconductor Inc

On 10 October 2008, e2v Holdings inc. acquired 100% of the voting shares of QP Semiconductor Inc (QP), an unlisted company based in North America, specialising in the manufacture and distribution of specialist semiconductor components and sub-systems.  Additional consideration of £490,000 became due during the year ended 31 March 2010 on the realisation of certain tax assets and consequently goodwill has increased by this amount.  Agreement has now been reached with the former owners with regard to the net worth and earn out calculations.

 

The fair value of the identifiable assets and liabilities of QP as at the date of acquisition was:

 

	Fair value recognised on acquisition	Book value
	£000	£000
Property, plant and equipment	988	988
Intangible assets	15,443	-
Deferred income tax asset	782	782
Income tax recoverable	245	245
Inventories	3,261	3,261
Trade debtors	1,127	1,127
Other debtors	163	163
Cash and cash equivalents	5,265	5,265
	27,274	11,831
Trade payables	(135)	(135)
Other creditors	(498)	(498)
Provisions	(156)	(156)
Deferred income tax liability	(6,188)	-
	(6,977)	(789)
Fair value of net assets	20,297	11,042
Goodwill arising on acquisition	26,517
Total consideration	46,814
	2010	2009
Consideration:	£000	£000
Cash paid	490	43,421
Costs associated with the acquisition	-	2,903
Total consideration	490	46,324
	2010	2009
The cash outflow on acquisition is as follows:	£000	£000
Net cash acquired with the subsidiary	-	5,265
Cash paid	(490)	(46,324)
Net cash outflow	(490)	(41,059)

 

Included in the £26,517,000 of goodwill recognised above were certain intangible assets that cannot be individually separated and reliably measured from the acquiree due to their nature.  These items include the anticipated growth in market share, expected value of synergies and an assembled workforce.

From the date of acquisition, QP contributed £3.1 million profit to the loss before tax and net finance costs of the Group for the year ended 31 March 2009.  Had the acquisition occurred on the first day of that year, the consolidated loss from continuing operations before tax and net finance costs of the Group would have been £15,619,000 and the revenue from continuing operations would have been £240,451,000.

               

17.  INVENTORIES

               

	2010	2009
	£000	£000
Raw materials and consumables	17,351	18,027
Work-in-progress	10,465	12,117
Finished goods	7,665	12,289
Total inventories at lower of cost and net realisable value	35,481	42,433

               

18.  TRADE AND OTHER RECEIVABLES (current)

               

	2010	2009
	£000	£000
Trade receivables	41,246	51,163
Other debtors	8,358	7,531
Prepayments and accrued income	1,590	2,415
	51,194	61,109

 

Trade receivables are non-interest bearing and are generally on 30 or 60 day terms and are shown net of provision for impairment.  Before accepting any new customer, the Group uses an external credit scoring system to assess the potential customer's credit quality and defines credit limits by customers.  As at 31 March 2010 trade receivables with a value of £1,254,000 (2009: £1,230,000) were impaired and provided for due to poor payment history, insolvency of the debtor or their age profile.  The movements on the provision for impairment of receivables were as follows:

 

	2010	2009
	£000	£000
Provision at 1 April	1,230	692
Amounts written off	(201)	(172)
Unused amounts reversed	(572)	(40)
Provisions created in the year	830	722
Foreign exchange on retranslation	(33)	28
Provision at 31 March	1,254	1,230

 

	Trade receivables past due but not impaired		Impaired trade receivables
	2010	2009	2010	2009
	£000	£000	£000	£000
0-30 days overdue	2,072	1,954	11	5
31-60 days overdue	690	1,566	3	3
61-90 days overdue	230	459	11	67
91-120 days overdue	-	90	52	181
120+ days overdue	924	1,109	1,177	974
Total	3,916	5,178	1,254	1,230

 

The credit quality of the receivables which are neither past due nor impaired is assessed on an ongoing basis and as at the balance sheet date, the risk of impairment was not considered significant.

 

The Directors consider the carrying amount of trade and other receivables is approximately equal to their fair value.

 

19.  CASH

               

	2010	2009
	£000	£000
Cash at bank and in hand	22,011	6,373
Short term deposits	5,800	-
	27,811	6,373

 

Cash at bank earns interest at floating rates based on daily bank deposit rates.  Short term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group and earn interest at the respective short term deposit rates.  The book value of cash also represents its fair value.

 

20.  TRADE AND OTHER PAYABLES

 

	2010	2009
	£000	£000
Trade payables	24,593	24,229
Taxation and social security costs	3,470	2,908
Payments received on account	3,218	2,061
Other payables	578	504
Accruals and deferred income	15,146	22,693
Employment and post employment benefits	-	172
	47,005	52,567

 

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.  Trade payables and other payables are non-interest bearing and are normally settled on 60-day terms or within 6 months, respectively.  Interest payable is settled monthly, quarterly or half-yearly throughout the year depending upon the draw down periods of the term loans and revolving credit facilities.

 

The Directors consider that the carrying amount of trade payables approximates to their fair value.

 

21.  BORROWINGS

 

			2010	2009
			£000	£000
Current
Bank debt			-	9,750
Non-current
Bank debt			69,471	132,822
			69,471	142,572

 

The Group signed a new banking facility effective 31 December 2009.  At 31 March 2010 exchange rates, the total facility is £107,486,000 and comprises: £56,455,000 of term loans (denominated in Sterling and US dollars) and a revolving credit facility of £51,031,000 (denominated in Sterling, US dollars and Euros).  The facility expires on 31 December 2012.  Repayments of £10,000,000 against the term loan facility are scheduled annually on 31 December, commencing on 31 December 2010.  In conjunction with the sale of the Lincoln property, the Group is required to repay £1,525,000 on 30 June 2010. Provided covenants continue to be met, the draw down under the revolving credit facility is at the discretion of the Group and consequently the loan is therefore treated as non-current. 

 

As at 31 March 2010, £16,173,000 (2009: £86,822,000) was drawn down under the revolving credit facility and £56,455,000 (2009: £56,841,000) was drawn down as term loans.  As at 31 March 2010, unamortised debt issue costs were £3,157,000 (2009: £1,091,000).  During the year, issue costs of £3,608,000 (2009: £184,000) were incurred in conjunction with arranging the new facility, which are being amortised over the expected life of the debt.

 

The term loan facility can be drawn down for periods of three or six months, at which point the interest rate is set for the draw down period.  The revolving credit facility is repaid and re-drawn at periodic intervals ranging from one to six months, with the interest rate set at each draw down date.  Interest is set by reference to LIBOR plus a margin.  The margin is determined based on the level of the reported leverage covenant (defined as net borrowings: earnings before interest, tax, depreciation and amortisation).

 

At 31 March 2010, the Group had available £34,858,000 (2009: £31,714,000) of un-drawn committed borrowing facilities in respect of which all conditions precedent had been met. 

 

The bank loans are secured by a floating charge over the net assets of the Group.

 

22.  OTHER FINANCIAL LIABILITIES

 

			2010	2009
			£000	£000
Interest rate swap			708	904
Forward currency contracts			807	3,296
			1,515	4,200
Non-current
Interest rate swap			131	915

Further details of the derivative financial instruments are included in note 32.

 

23.  PROVISIONS

               

	Onerous project losses	Environmental	Business Improvement Programme	Product warranty	Total
	£000	£000	£000	£000	£000
At 1 April 2009	647	323	-	5,597	6,567
Transferred from accruals	-	-	3,778	-	3,778
Arising during the year	-	200	18,625	5,006	23,831
Utilised	-	(40)	(1,558)	(3,895)	(5,493)
Released during the year	(139)	(73)	-	(1,596)	(1,808)
Exchange adjustment	(28)	-	(208)	(77)	(313)
At 31 March 2010	480	410	20,637	5,035	26,562
Current 2010	480	212	14,807	5,035	20,534
Non-current 2010	-	198	5,830	-	6,028
	480	410	20,637	5,035	26,562
Current 2009	647	323	-	5,597	6,567
Non-current 2009	-	-	-	-	-
	647	323	-	5,597	6,567

 

The effect of the time value of money is not material and therefore the above provisions are not discounted.

 

Onerous project losses

A provision is recognised for expected losses on projects in progress at the balance sheet date.  It is expected that the losses will be incurred in the next financial year.

 

Environmental

A provision is recognised for expected environmental costs relating to UK manufacturing operations.  It is expected that these costs will be incurred within two years of the balance sheet date.

 

Business Improvement Programme

A provision is recognised for expected termination and other costs relating head count reduction at the Group's Grenoble facility and to the closure of the existing Lincoln facility. At Grenoble, the 'fab' will be closing in February 2011, after the completion of the last-time build programmes, and completion of the operational restructuring is expected to be achieved by June 2011.  Due to the structure of the payments under the restructuring programme, payments associated with the programme are expected to be incurred over the period to March 2012.  It is expected that the costs of the Lincoln programme will be incurred within 10 months of the balance sheet date. 

 

Product warranty

A provision is recognised for expected warranty claims on products sold that are within their warranty period at the end of the year.  The warranty period can be date based or hours usage based.  It is expected that these costs will be incurred in the next financial year.  Assumptions used to calculate the provision for warranties were based on relevant sales levels and current information available about warranty claims.

 

24.  DEFERRED TAX

 

The movements on deferred tax liabilities and (assets) during the year are as follows:

 

					Total
					£000
At 1 April 2009					7,869
Credited to income statement					(9,403)
Credited to other comprehensive income					(118)
Credited direct to equity					(14)
Exchange adjustment					(33)
At 31 March 2010					(1,699)

 

Deferred income tax balances relate to the following:

 

	2010	2009
	£000	£000
Deferred income tax liabilities
Accelerated depreciation for tax purposes	599	1,833
Fair value of intangible assets	8,500	11,310
Fair value of land and buildings	757	586
Gross deferred income tax liabilities	9,856	13,729
Deferred income tax assets
Employment benefits	323	160
Revaluation of cash flow hedges	461	1,433
Share based payment charges	99	50
Deferred tax allowances on provisions and accruals	9,368	4,217
Losses carried forward	1,304	-
Gross deferred income tax assets	11,555	5,860
Net deferred income tax (asset)/liability	(1,699)	7,869
Deferred tax asset	(10,197)	(5,860)
Deferred tax liability	8,498	13,729
	(1,699)	7,869

 

There are no income tax consequences attaching to the payment of dividends by e2v technologies plc to the shareholders of the Company.

 

Management have reviewed the situation for those jurisdictions where deferred assets arise and have determined, based on current forecasts prepared by management, that these assets can be recovered through future taxable profits within a reasonable time horizon.

 

As at 31 March 2010, the aggregate amount of undistributed earnings of overseas subsidiaries for which deferred tax liabilities have not been recognised is approximately £66 million (2009: £56 million).  No liability has been recognised in respect of these differences because the Group is in the position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future.  It is likely that the majority of the overseas earnings would qualify for the UK dividend exemption.

 

As at 31 March 2010, the Group has unused tax losses arising in Switzerland of £8 million (2009: £10 million) available for offset against future profits.  No deferred tax asset has been recognised in respect of these losses.  They expire between 2011 and 2016.

 

25.  CALLED UP SHARE CAPITAL

               

	2010	2010
	No.	£000
Ordinary shares issued and fully paid
At 1 April 2008	62,217,416	3,111
Issued for cash on exercise of share options	352,177	17
At 31 March 2009	62,569,593	3,128
Shares issued - share placing November 2009	31,428,571	1,571
Shares issued - rights issue December 2009	120,854,782	6,043
Issued for cash on exercise of share options	1,110	-
At 31 March 2010	214,854,056	10,742
	2010	2010
	No.	£000
Own shares
At 1 April 2008	626,239	6
Issued during the year in respect of LTIP awards	(107,383)	(1)
At 31 March 2009	518,856	5
Rights acquired during the year	268,877	-
At 31 March 2010	787,733	5

 

The market value of the Own Shares at 31 March 2010 was £311,000 (2009: £214,000). See notes 26 and 28.

 

31,428,571 new ordinary shares of 5p each were placed with institutions at a price of 70 pence per share on 22 November 2009.  120,854,782 new ordinary shares of 5p each were issued under a rights issue with existing shareholders on 6 December 2009.  The gross proceeds of these issues were £55,839,000 and issue costs of £3,646,000 have been incurred (some of which had been accrued but not paid at 31 March 2010) resulting in net proceeds of £52,193,000.  The firm placing and rights issue were enacted via the use of a new subsidiary Eberry Limited, registered in Jersey; in each transaction RBS Hoare Govett subscribed for greater than 10% of the ordinary shares and 100% of 3 classes of preference shares in the subsidiary, which was subsequently exchanged for an allotment of the newly issued ordinary shares in the Company. 

 

The Company increased the issued share capital during the year due to the exercise of options under share option schemes.  Total proceeds from shares issued under exercise of share options amounts to £400 (2009: £681,558).

 

Under the terms of the Group's various share option schemes, the following options to subscribe for ordinary shares are outstanding.  Options under the plans were adjusted in December 2009 as a result of the placing and rights issue.  The adjustment was made using a standard HM Revenue and Customs formula, to negate the dilutionary impact of the capital raising events.  The option price, except for those schemes which had lapsed prior to the date of adjustment, and options outstanding at 31 March 2010 stated below are the adjusted positions after the amendment for the capital raising events.

 

Date of Grant	Option price (pence)	Exercise period	2010 No.	2009  No.
Long Term Incentive Plan
31 July 2006	-	From 31 August 2009	-	179,200
10 January 2007	-	From 10 January 2010	-	15,000
16 July 2007	-	From 14 July 2010	318,997	204,475
15 July 2008	-	From 15 July 2011	567,676	373,650
1 October 2008	-	From 1 October 2011	-	20,400
16 April 2009	-	From 16 April 2012	63,296	-
5 May 2009	-	From 5 April 2012	105,626	-
24 June 2009	-	From 24 June 2012	742,423	-
Executive Share Option Plan
1 August 2005	215.50	3 August 2008 to 30 June 2009	-	140,000
12 January 2007	250.56	1 February to 31 December 2010	71,199	52,500
20 December 2007	160.51	1 January to 31 December 2011	287,960	211,000
Sharesave Scheme
1 September 2005	194.30	1 September 2008 to 28 February 2009	-	2,925
9 February 2007	222.12	1 April to 30 September 2010	69,255	105,408
11 January 2008	142.18	1 March to 31 August 2011	142,458	423,357
4 February 2009	142.18	1 March to 31 August 2012	37,168	159,698
14 August 2009	36.02	1 November 2012 to 30 April 2013	3,975,687	-
			6,381,745	1,887,613

 

For further details of the Group's share option schemes see note 28.

 

26.  RESERVES

 

Nature and purpose of reserves

 

Merger reserve

As discussed above, both the placing and the rights issue were affected through a structure which resulted in the excess of the net proceeds over the nominal value of the share capital being recognised within a merger reserve, which the Directors' believe is currently distributable.

 

Other reserves

Other reserves consist of the Capital redemption reserve, Own shares reserve and Hedge reserve.  The Capital redemption reserve is used to record reserve transfers required on the redemption of shares whilst the own share reserve records movements in shares held by the Employee Benefit Trust ('EBT').  The balance on the Capital redemption reserve at 31 March 2010 was £274,000 (2009: £274,000).  The balance on the Own shares reserve at 31 March 2010 was £(5,000) (2009: £(5,000)).  The hedge reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge.  The balance at 1 April 2008 was £58,000 which was subsequently released during the year ended 31 March 2009.  These reserves are not distributable.

 

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.  It is also used to record the net investments hedged in these subsidiaries. 

 

27.  COMMITMENTS AND CONTINGENCIES

 

Operating lease commitments - Group as lessee

The Group has entered into commercial leases on certain properties, motor vehicles and items of machinery where it is not in the best interest of the Group to purchase these assets.  Renewals are at the option of the specific entity that holds the lease.  There are no restrictions placed upon the lessee by entering into these leases.

 

Future minimum rentals payable under non-cancellable operating leases as at 31 March are as follows:

 

	2010	2009
	£000	£000
No later than one year	1,471	1,192
After one year but not more than five years	2,947	2,388
	4,418	3,580

 

Capital commitments

At 31 March 2010, the Group has commitments of £727,000 (2009: £2,035,000) principally relating to the acquisition of new plant and equipment.

 

Contingent liabilities

In the ordinary course of business, the Group may issue performance and advance payment guarantees to third parties.  As at 31 March 2010, guarantees of £3,790,000 (2009: £3,601,000) were outstanding.  The Directors are of the opinion that the risk to the Group associated with these guarantees is not material and consequently no provision is recorded.

 

28.  EQUITY SETTLED SHARE BASED PAYMENTS

 

The Group operates four share based award schemes as follows:

 

Long-Term Incentive Plan ('LTIP')

Awards under this scheme vest on the third anniversary of the date of the award subject to performance targets being met.  Targets relate to Total Shareholders' Return ('TSR') relative to the TSR of a specified list of peer group companies.  In addition, no award will vest (irrespective of the Group's relative TSR performance) unless an adjusted EPS growth "underpin" of Retail Price Index ('RPI') plus 2% over the three year performance period has been satisfied (unless the Remuneration Committee considers, in exceptional circumstances, that it would be inappropriate to apply this underpin).  All awards under this scheme have a £nil exercise price and have no end date by which they must be exercised.  The following table provides details of awards made under this scheme:

	2010	2009
	No.	No.
Outstanding at the beginning of the year:	792,725	709,525
Granted in the year	647,350	422,700
Awards exercised during the year	-	(107,383)
Awards lapsed during the year	(341,049)	(232,117)
Adjustment for rights issue	698,992	-
Outstanding at the end of the year	1,798,018	792,725
Weighted average share price on date of exercise of options	n/a	259.00p

 

Shares in relation to the LTIP will initially be issued from those currently held by the EBT.  The EBT owns 787,733 ordinary shares (2009: 518,856) in e2v technologies plc.  These shares are recorded in the balance sheet as own shares at a cost of £5,000 (2009: £5,000).  Dividends on the shares owned by the trust, the purchase of which was funded by an interest-free loan to the trust from e2v technologies plc, are waived.  There were no options exercisable at the balance sheet date(2009: nil).

 

Executive Share Option Plan ('ExSOP')       

The Group has an ExSOP for the granting of non-transferable options to certain employees.  Options granted under the plan vest on the first day on which they become exercisable which is typically three years after the grant date.  The overall life of the options is under four years.  The vesting period for the ExSOP is finite allowing eligible employees to exercise the option in a fixed period, once conditions are met.  These options are settled in equity once exercised.  The options may not be exercised unless, over the vesting period, the adjusted earnings per share ('EPS') has increased by a fixed percentage above the retail price index ('RPI') as detailed below: 

 

For a period of three years, commencing with the financial year in which the option is granted, the increase in earnings per share EPS must be more than the increase in RPI as follows:

 

	Tier 1	Tier 2	Tier 3
EPS exceeds RPI by 15%	20%	40%	100%
EPS exceeds RPI by 20%	50%	100%
EPS exceeds RPI by 25%	100%

 

The EPS is adjusted EPS, calculated on a consistent basis over the three year period, and excludes amortisation of acquired intangibles, business improvement programme costs and other items determined to be of a non-recurring nature.  The percentages in the above table are the percentages of the option that will vest should the performance criteria be achieved.  The table below details the number of options granted under each tier of the plan.

 

The following table illustrates the number, weighted average remaining contractual life and the weighted average exercise prices '(WAEP') of share options for the ExSOP.

 

	2010	2010	2009	2009
	No.	WAEP	No.	WAEP
Outstanding at the beginning of the year	403,500	258.08p	680,000	241.44p
Exercised during the year	-	n/a	(165,000)	201.68p
Lapsed during the year	(180,575)	224.34p	(111,500)	236.12p
Granted during the year	-	n/a	-	-
Adjustment for rights issue	136,234	n/a	-	-
Outstanding at the end of the year	359,159	178.36p	403,500	258.08p
Exercisable at the end of the year	79,110	241.56p	140,000	215.50p
Weighted average share price on date of exercise of options		n/a		260.30p
Weighted average remaining contractual life		19 months		21 months

 

Share Incentive Plan ('SIP')            

No awards have been made to date under this scheme.

 

Sharesave Scheme ('SAYE')          

The Group operates an HM Revenue and Customs approved Sharesave Scheme for all UK employees and Executive Directors and managers can apply to join the scheme.

 

The following table illustrates the number (No.), weighted average remaining contractual life and the weighted average exercise prices (WAEP) of share options for the SAYE.

 

	2010	2010	2009	2009
	No.	WAEP	No.	WAEP
Outstanding at the beginning of the year	691,388	244.16p	935,277	234.51p
Exercised during the year	(1,110)	36.02p	(187,177)	186.34p
Lapsed during the year	(654,507)	198.98p	(220,576)	238.07p
Granted during the year	2,595,296	57.00p	163,864	225.00p
Adjustment for rights issue	1,593,501	n/a	-	-
Outstanding at the end of the year	4,224,568	43.58	691,388	244.16p
Exercisable at the end of the year	-	n/a	2,925	194.30p
Weighted average share price on date of exercise of options		39.50p		260.70p
Weighted average remaining contractual life		30 months		29 months

 

The fair value of all share option plans is estimated as at the date of grant using the binomial model.  The following table gives the assumptions made.  No subsequent amendments have been made to assumptions estimated at the date of grant.

 

	Dividend yield %	Expected volatility  %	Risk free interest rate %	Expected life of option Years	Fair value of option Pence
LTIP
Awards granted 15 July 2008	3.1%	38.0%	4.8%	3 years	143.2p
Awards granted 1 October 2008	3.1%	39.8%	4.0%	3 years	158.6p
Awards granted 16 April 2009	4.0%	51.7%	2.08%	3 years	57.6p
Awards granted 5 May 2009	4.0%	57.6%	1.98%	3 years	77.7p
Awards granted 24 June 2009	4.0%	61.5%	2.06%	3 years	35.2p
SAYE
Awards granted 4 February 2009	10.4%	62.4%	2.20%	3 .25 years	6.4p
Awards granted 14 August 2009	4.0%	60.2%	2.23%	3 .25 years	14.6p

 

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur.  The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.  No other features of options granted were incorporated into the measurement of fair value.

 

29.  PENSIONS, OTHER POST-EMPLOYMENT AND OTHER EMPLOYMENT BENEFITS

 

Defined contribution plans

The Group has defined contribution plans in the UK and North America, covering substantially all of its employees, which require contributions to be made to a separately administered fund.  The Group contributes to state schemes for European activities.  Such schemes are defined contribution schemes and there is no Group exposure to any scheme liabilities.  Contributions of £155,000 were outstanding at the end of the financial year and have been included in other creditors.

 

Other post employment and other employment benefits

In addition to the state pension scheme, the French overseas subsidiary based in Grenoble has arrangements where there are obligations to provide termination allowances and benefits called 'Medailles du Travail' - long service awards.  These are unfunded arrangements and the liability has been calculated at 31 March 2010 by a qualified actuary using the projected unit credit method.  The cost of providing these benefits is charged to the income statement in the period in which those benefits have been earned by the employees.  Actuarial gains and losses are recognised in full in the period in which they arise.  For the termination allowance they are recorded in other comprehensive income whereas for the long service award the actuarial gains and losses are recorded in the income statement.

 

The main assumptions used in determining the liabilities of the arrangements include the discount rate for discounting scheme liabilities, the expected rate of salary inflation, staff turnover rates and future mortality in service assumptions.  For each of these assumptions, there is a range of possible values.  Relatively small changes in some of these variables can have a significant impact on the level of the total obligation.

 

As at 31 March 2010, a non-current liability of £2,839,000 has been recognised with respect to the termination allowance and long service award.  At as 31 March 2009 a non-current and a current liability of £3,355,000 and £172,000, respectively, have been recognised.

 

The current portion of the liability represents management's best estimate of the contributions expected to be paid in the next financial year.

 

The table below details the combined present value of the termination allowance and long service awards plan obligations and experience adjustments recognised.

 

	2010	2009	2008	2007	31 July 2006(1)
	£000	£000	£000	£000	£000
Present value of plan's obligations	2,839	3,527	3,206	2,792	3,019
Experience (losses)/gains recognised in the period	(114)	(336)	(108)	226

(1) Date of acquisition

 

The total expense recognised within administrative expenses in the income statement is made up as follows:

	Long service award		Termination allowance		Total
	2010 £000	2009 £000	2010 £000	2009 £000	2010 £000	2009 £000
Service cost	62	59	142	140	204	199
Interest on defined benefit liabilities	55	56	134	144	189	200
Actuarial gains and losses	142	-	-	-	142	-
Curtailment	(324)	(107)	(841)	(307)	(1,165)	(414)
Total (income)/ expense	(65)	8	(565)	(23)	(630)	(15)

 

The actuarial gains and losses relating to the long service award are recorded in the income statement whilst those relating to the termination allowance are recorded in other comprehensive income.  The actuarial loss recognised for the current and prior year can be analysed as follows:

 

	Long service award		Termination allowance		Total
	2010 £000	2009 £000	2010 £000	2009 £000	2010 £000	2009 £000
Demographic changes	51	16	71	(88)	122	(72)
Staff turnover	12	5	18	7	30	12
Salary increases	(29)	9	(87)	109	(116)	118
Discount rate	119	5	253	61	372	66
Beginning work life age	-	(23)	-	(184)	-	(207)
Difference between the benefits paid	(11)	(12)	90	290	79	278
	142	-	345	195	487	195

 

The cumulative amount of actuarial gains and losses recognised since 1 August 2006 in the Consolidated statement of comprehensive income and expense is £23,000 (2009: £368,000).

 

Changes in the present value of the defined benefit obligation are given below:

 

	Long service award		Termination allowance		Total
	2010 £000	2009 £000	2010 £000	2009 £000	2010 £000	2009 £000
Opening defined benefit obligation	1,060	934	2,467	2,272	3,527	3,206
Exchange rate movement	(47)	173	(112)	333	(159)	506
Service cost	62	59	142	140	204	199
Interest expense	55	56	134	144	189	200
Benefits paid	(72)	(55)	(172)	(310)	(244)	(365)
Impact of business improvement programme	(324)	(107)	(841)	(307)	(1,165)	(414)
Actuarial loss	142	-	345	195	487	195
Closing defined benefit obligation	876	1,060	1,963	2,467	2,839	3,527

 

The valuation assumptions used to estimate the defined benefit obligation are:

 

	2010	2009
	£000	£000
Retirement age	64 years	64 years
Discount rate	4.59%	5.75%
Salary increases - administration	2.54%	3.55%
Salary increases - operators	3.12%	3.12%
Salary increases - engineers	3.19%	3.65%
Staff turnover rates - administration	1.85%	1.65%
Staff turnover rates - operators	1.2%	1.3%
Staff turnover rates - engineers	2.5%	3.5%

 

The actuarial valuation takes account of estimated mortality rates up to the date of retirement.  The mortality rates are based on the French mortality tables TF 2000-2002 (women) and TH 2000-2002 (men).  No account is taken of post retirement mortality rates as there is no liability after the date of retirement.

 

30.  RELATED PARTY DISCLOSURES

 

Compensation of key management personnel of the Group

Key management comprises the Board of Directors.  Further details of their remuneration can be found in the Directors' Remuneration Report. 

 

	2010	2009
	£000	£000
Short-term employee benefits (including social security)	1,008	720
Compensation for loss of office (including social security)	186	-
Defined contribution pension costs	65	62
Share based payments	59	209
Total compensation paid to key management personnel	1,318	991

 

No Director had any material interest in any contract connected with the Group's business during the year or at the end of the year.

 

31.  FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

 

The Group's principal financial instruments, other than derivatives, comprise bank loans and cash.  The main purpose of these financial instruments is to raise finance for the Group's operations.  The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations.

 

The Group also enters into derivative transactions, principally interest rate swaps and forward currency contracts.  The purpose is to manage the interest rate and currency risks arising from the Group's operations and its sources of finance.

 

It is, and has been throughout the year under review, the Group's policy that no trading in financial instruments shall be undertaken.

 

The main risks arising from the Group's financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk.  The Board reviews and agrees policies for managing each of these risks and they are summarised below.  The Group also monitors the market price risk arising from all financial instruments.  The magnitude of this risk that has arisen over the year is discussed in note 32.  The Group's accounting policies in relation to derivatives are set out in note 2.

 

Interest rate risk

The Group's exposure to market risk for changes in interest rates relates primarily to the Group's long-term debt obligations.

 

The Group's policy is to manage its interest cost using a mix of fixed and variable rate debt.  To manage this mix in a cost-efficient manner, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount.  At 31 March 2010, after taking into account the effect of interest rate swaps, approximately 99% (2009: 37%) of the Group's borrowings were at a fixed rate of interest.  In May 2010, one of the interest rate swaps was cancelled.  If this instrument had been cancelled at the year end date, approximately 65% of the Group's borrowings were at a fixed rate of interest.

 

Based on the borrowings and interest rate swaps outstanding at the end of the year and assuming constant exchange rates, it is estimated that an increase of 1% in interest rates on the Group's borrowings would increase the annual interest payable by £nil (2009: £0.9m).  Taking into account the cancellation of the interest rate swap in May 2010, a 1% increase in interest rates would increase annual interest payable by £0.2m.  The impact of an increase in interest rates on bank deposits is estimated to be less than £0.1m (2009: less than £0.1m).

 

Foreign currency risk

The Group has operations in the United States, Europe, Canada and Hong Kong.  As a result the Group's balance sheet can be affected significantly by movements in the US dollar and Euro exchange rates.  The Group does not currently hedge this exposure, other than by using foreign currency borrowings to finance overseas investments.

 

The Group also has transactional currency exposures.  Such exposure arises from sales by an operating unit in currencies other than the unit's functional currency.  Approximately 79% (2009: 81%) of the Group's sales are outside of the UK and a significant proportion of these sales are not Sterling and therefore subject to foreign exchange.  The Group also incurs operational costs in both US dollars and Euro.  The Group manages its transactional currency exposures centrally by using forward currency contracts to minimise the net currency exposures.  It is the Group's policy to enter into forward exchange contracts to cover specific foreign currency receipts and payments within the next 12 months on a reducing proportion basis.

 

The following table demonstrates the Group's sensitivity to a reasonably possible strengthening in the US dollar and a weakening of the Euro exchange rates in relation to Sterling with all other variables held constant.  The obverse movements would be of the same magnitude.  The sensitivity analysis includes only outstanding foreign currency denominated monetary items at the balance sheet date.  The sensitivity excludes external loans as exchange gains and losses on retranslation do not impact profit before taxation.

 

	Change in US$/Euro rate	Impact on profit before tax
		£000
2010 - US$	20% strengthening in US$	(2,890)
2010 - Euro	20% weakening in Euro	(2,580)
2009 - US$	20% weakening in US$	3,627
2009 - Euro	20% weakening in Euro	(744)

 

The loss (2009: gain) in profit before tax in respect of US dollar sensitivity includes a loss of £4,472,000 (2009: gain £2,954,000) in relation to the estimated impact on the valuation of forward foreign currency exchange contracts.  The loss in profit before tax in respect of the Euro sensitivity includes a loss of £949,000 (2009: £ nil) in relation to the estimated impact on the valuation of forward foreign currency exchange contracts.

 

The impact of translating the net assets of foreign operations into Sterling is excluded from the sensitivity analysis.  The Group has no foreign currency exposure with regard to transactions accounted for directly within equity.

 

The Group's net borrowings are subject to currency risk due to cash and bank borrowings held in foreign currencies.  The analysis of net borrowings by currency is shown in the table below:

 

		Year end exchange rate	2010 £000
Denominated in Euro	€5,674,000	1.12	5,049
Denominated in US dollar	$(47,055,000)	1.52	(31,063)
Denominated in Sterling	£(18,965,000)	1	(18,965)
Other currencies			162
			(44,817)

 

		Year end exchange rate	2009 £000
Denominated in Euro	€(93,150,000)	1.07	(86,704)
Denominated in US dollar	$(61,154,000)	1.43	(42,826)
Denominated in Sterling or other currencies	£(7,760,000)		(7,760)
			(137,290)

 

Credit risk

The Group trades only with recognised, creditworthy third parties.  It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification procedures.  In addition, receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant.  Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. 

 

With respect to credit risk arising from financial assets of the Group, which comprise trade and other receivables and cash, the Group's exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments.  There are no significant concentrations of credit risk within the Group.

 

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.  The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and finance lease contracts.  The Group's policy is to use funds in excess of the ongoing operating requirements to make early repayments against the bank borrowings on an annual basis.

 

The Group's objective is to maintain a positive cash balance at a level adequate for daily operations while retaining the option to use revolving credit facilities for short term flexibility as necessary. 

 

The table below summarises the maturity profile of the Group's non-derivative financial liabilities at 31 March 2010 and 2009 based on contractual undiscounted payments.

 

	Carrying Amount	Contractual Cash flows	Within 1 year	1-2 years	2-3 years
	£000	£000	£000	£000	£000
31 March 2010
Interest bearing loans and borrowings (see note 21)	69,471	72,628	11,525	10,000	51,103
Interest payable on loans and borrowings	1,265	8,413	4,516	2,336	1,561
Trade and other payables	45,740	45,740	45,740	-	-
Total	116,476	126,781	61,781	12,336	52,664
31 March 2009
Interest bearing loans and borrowings	142,572	143,663	10,222	11,926	121,515
Interest payable on loans and borrowings	17	8,792	3,923	3,831	1,038
Trade and other payables	50,335	50,335	49,892	443	-
Total	192,924	202,790	64,037	16,200	122,553

 

The carrying value of interest bearing loans and borrowings is after a deduction for unamortised debt issue costs of £3,157,000 (2009: £1,091,000).  Interest payable on loans and borrowings is calculated on an undiscounted basis at borrowing rates applicable at the end of the year and only takes into account scheduled repayments on the term loan.

 

The maturity analysis of provisions and derivative financial liabilities are detailed in notes 23 and 32, respectively.

 

Capital management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern whilst maximising the return to stakeholders through the optimisation of the debt and equity balance.  The Group's capital comprises shareholders' funds as detailed in notes 25 and 26 and net borrowings as detailed above and in note 21.  The Group manages its capital structure through maintaining close relationships with its bankers who provide the majority of funds used for operational requirements.

 

During the year, the Group completed a bank refinancing exercise, details of the resulting facility are disclosed in note 21 and also completed a firm placing and rights issue with net proceeds of £52,193,000.  Further details are disclosed in note 25.  The purpose of the equity raising was to enable the repayment of a proportion of the Group's bank debt.  The Group is required to maintain covenant ratios in respect of: net debt to earnings before interest, tax, depreciation and amortisation; net interest costs to earnings before interest, tax and amortisation and operating cash flow to debt servicing costs.  There is also a limit on the annual level of capital expenditure.  The Group has met its covenant ratios for the year ended 31 March 2010. 

 

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

 

32.  FINANCIAL INSTRUMENTS

 

Fair values

Set out below is a comparison by category of carrying amounts and fair values of the Group's financial instruments that are carried in the financial statements.

 

	Carrying amount		Fair value
	2010	2009	2010	2009
	£000	£000	£000	£000
Financial assets
Loans and receivables
Cash	27,811	6,373	27,811	6,373
Financial liabilities
Interest bearing loans and borrowings
Floating rate borrowings	69,471	142,572	72,628	137,639
Held for trading at fair value through profit or loss
Forward currency contracts	807	3,296	807	3,296
Interest rate swaps	839	1,819	839	1,819

 

The carrying value of interest bearing loans and borrowings is after a deduction for debt issue costs of £3,157,000 (2009: £1,091,000).

 

Fair value hierarchy

In accordance with IFRS 7, the Group classifies fair value measurement using a fair value hierarchy that reflects the significance of inputs used in making measurements of fair value.  The fair value hierarchy has the following levels:

 

Level 1       quoted prices (unadjusted) in active markets for identifiable assets or liabilities;

Level 2       inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices); and

Level 3       inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

The fair value of interest rate swap contracts and forward currency contracts are calculated by management based on external valuations received from the Group's bankers and are based on future interest yields and forward exchange rates, respectively.  The fair value measurement basis of the instruments is categorised within Level 2. The carrying amount of the other financial instruments of the Group, i.e. short term trade receivables, payables and provisions that are not included in the above table, is a reasonable approximation of fair value.

 

Currency - Forward exchange contracts   

The Group holds several forward exchange contracts designated to reduce the transactional exchange risk of US dollar denominated sales to customers.  The terms of these contracts are as follows:

 

Total currency value of contracts	Average Exchange rate	Maturing within 1 year £000
31 March 2010
US$17,850,000	US$ : £ 1.6227	11,000
US$8,600,000	US$ : € 1.3641	5,610
31 March 2009
US$31,646,549	US$ : £ 1.685	18,777

 

Interest rate swaps          

The Group has interest rate swap agreements in place in relation to its term loan whereby it pays a fixed or secured rate of interest and receives a variable rate equal to the notional amount.

 

Notional amount	Maturity	Secured rate	Variable rate
31 March 2010
£26,250,000	31 December 2011	1.955%	3 month GBP LIBOR
US$24,400,000	31 December 2011	1.38%	3 month USD LIBOR
€24,710,063	12 July 2011	3.31% - 5.00%	6 month EUR Euribor
31 March 2009
€27,455,625	12 July 2011	3.88%	6 month EUR Euribor
€30,201,188	12 July 2011	3.31% - 5.00%	6 month EUR Euribor

 

The Euro interest swap contract, which was subject to a capped rate, has been cancelled in May 2010 for a cancellation fee of €675,000.

 

The US dollar and Sterling swap contracts are effective from 1 July 2010.  Furthermore the Sterling swap contract is amortising with the principal reducing to £18,750,000 with effect from 31 December 2010.  Based on exchange rates and interest rates on the balance sheet date the Group's liability under the interest rate swap arrangements on an undiscounted basis is a payment of £130,000 on a quarterly basis through to 31 December 2010 and £105,000 through to 31 December 2011 for the unexpired term of the loan.  The Group's equivalent liability at 31 March 2009, was half yearly payments of £452,000, through to the expiration of the loan agreement.

 

Hedging activities - net investment hedges

As at 31 March 2009, bank loans on the balance sheet date included a loan of €15,503,000, which had been designated as a hedge of the net investment in e2v technologies SAS.  This loan was being used to hedge the Group's exposure to foreign exchange risk on this investment.  Gains or losses on the retranslation of this borrowing were transferred to equity to offset any gains or losses on translation of the net investment in this subsidiary undertaking.  This loan was repaid in the first quarter of the 2010 financial year.

 

 

FIVE YEAR HISTORY

	2010	2009	2008	2007	2006
	£000	£000	£000	£000	£000
Revenue
Electronic devices and sub-systems	65,559	83,739	75,776	69,639	62,118
Imaging devices	53,814	65,224	60,578	53,096	27,326
Specialist semiconductors	50,936	53,323	39,826	28,044	-
Sensors	30,938	30,907	28,427	23,146	22,832
Total revenue	201,247	233,193	204,607	173,925	112,276
Adjusted(1) operating profit	15,017	27,440	29,092	24,653	14,953
Amortisation of acquired intangible assets	(8,600)	(8,628)	(7,310)	(6,047)	(369)
Impairment of acquired intangible assets	-	(26,127)	-	-	-
Impairment of plant and equipment	-	(2,500)	-	-	-
Business improvement programme costs	(18,682)	(6,826)	(1,996)	-	(819)
Profit on sale of Lincoln site	3,739	-	-	-	-
Fair value gains/(losses) on foreign exchange contracts	2,489	(2,894)	(357)	-	-
Acquisition and integration costs	-	-	-	(1,055)	-
(Loss)/profit before tax and net finance costs	(6,037)	(19,535)	19,429	17,551	13,765
Net finance charges	(3,683)	(8,870)	(5,682)	(3,835)	(1,849)
(Loss)/profit before tax	(9,720)	(28,405)	13,747	13,716	11,916
Income tax credit/(charge)	7,454	7,106	(1,948)	(4,048)	(3,768)
(Loss)/profit for the year attributable to equity holders of the parent company	(2,266)	(21,299)	11,799	9,668	8,148
Basic (loss)/earnings per share(2)	(1.66)	(21.75)p	12.23p	10.40p	9.36p
Adjusted(3)basic earnings per share(2)	6.67	19.08p	19.03p	16.31p	10.68p
Interim dividend paid	Nil	2.70p	2.45p	2.20p	2.00p
Final dividend proposed	Nil	Nil	5.25p	4.75p	4.25p
Cash generated from operations	40,001	43,048	29,669	19,539	26,469
Net debt (net of debt issue costs)	41,660	136,199	93,198	78,657	17,757
Average employee numbers	1,666	1,714	1,828	1,621	1,292

(1)   Adjusted operating profit is before amortisation of acquired intangibles and operating exceptional items.

 

(2)   Earnings per shares have been updated to take account of the rights issue during the year ended 31 March 2010.

(3)   Adjusted earnings is (loss)/profit for the year before amortisation of acquired intangibles and all exceptional items less tax impacts where applicable.