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Psion plc : 2011 Annual Results

03/01/2012 | 02:42am US/Eastern

For immediate release1 March 2012

PSION PLC

Results for the year ended 31 December 2011

Psion PLC, the mobile computing solutions company, today announces audited results for the year ended 31 December 2011.

FINANCIAL OVERVIEW

£m (except per share amounts)

2011

2010

Revenue

176.0

174.5

Gross margin %

38.2%

38.2%

Adjusted EBITDA3

11.9

10.6

Normalised operating profit/(loss)3

-

(1.9)

Profit before tax

0.1

5.7

Adjusted EPS (Diluted) 3

1.8

2.1

EPS (Diluted)

(1.3)

1.8

Dividend Per Share (pence)

4.0

4.0

Cash

25.2

36.9

HIGHLIGHTS

· Revenue growth in H2 2011 of 16.2% over H1 2011 was driven by successful impact of new products.


· Proportion of sales through indirect channel increased to 63% in 2011 (2010: 54% indirect). First OEM framework established with major industrial partner.


· Actions taken to reduce costs in H1 2012 will provide annualised reduction of £6m when complete. £4m expected benefit in 2012, before restructuring costs.


· New lower cost PDA device (EP10) successfully launched in first half opens up addressable market.


· XT15 and RT15 variants of Omnii modular products launched in Q1 2012.


· Settlement of largest element of Japanese legal actions dating back to 2008 reduces potential liability by £13.6m to only £1.8m at net cash cost of £3.9m to the Group.


· Cash balances at 31 December 2011 of £25.2m (2010: £36.8m) in line with expectations.


· Full year dividend maintained at 4.0p per share (2010: 4.0p).



John Conoley, Psion Chief Executive Officer, said:

"We recovered significant ground in the second half of the year and grew the business. This improvement was driven mainly by growing sales of our new products, allied to our ongoing focus on efficiency. The stronger second half result was achieved despite the weakening economic situation and represents a substantial improvement over the first half performance. We anticipate continuing challenging market conditions in 2012.

Early in 2012, we launched a new addition to the Omnii™ family, the XT15, a highly rugged, modular, handheld device for the Supply Chain. New product releases are critical to driving growth and market share, especially in the US market. To take the Group forward with the right resources we are significantly reducing our cost base, primarily in support functions. These actions will enable us to maintain or improve our profit levels.

As such we expect that our performance will, in all but the severest of recessionary conditions, improve. Our investors and our staff deserve success."

For further enquiries, please contact:

Psion

John Conoley - CEO

Adrian Colman - CFO

+44 (0) 207 025 6860

Buchanan

Charles Ryland

Suzanne Brocks

Louise Hadcocks

+44 (0) 207 466 5000

psion@buchanan.uk.com

Notes

1.

Psion is a pioneer in quality mobile handheld computers and their application in industrial markets around the world. We've innovated in the field of mobile computing since 1980, starting with the invention of the PDA; through to helping our global customers solve their business problems today. Our clients include Volkswagen, RWE nPower, E.ON, BMW, Goodyear, Copenhagen Airports, and many others.

Through our open innovation business model, we have the ability to work directly with our customers and partners to co-create new variants of our mobile hardware, software and services that meet the specific needs of the marketplace. This collaboration is made possible by our open innovation community site, www.ingenuityworking.com .

Psion PLC is a public company on the London Stock Exchange. It is headquartered in London with corporate offices located in Europe, North America, Asia, Latin America, Africa and the Middle East.

2.

Certain statements in this announcement are forward looking statements. Such statements are based on current expectations and by their nature are subject to a number of risks and uncertainties that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement. The information does not assume any responsibility or obligation to update publicly or revise any of the forward-looking statements contained herein.

3.

Definitions

Adjusted EBITDA is calculated as profit before interest, taxation, depreciation, amortisation, profit/loss on disposal of property, plant and equipment, share based payments charge and exceptional items.

Adjusted EPS is based on profit after tax before share based payments charge, net of tax and exceptional items, net of tax.

Normalised operating profit is defined as operating profit before exceptional operating costs and share based payments charges and after deducting the net capitalisation of development expenditure. The reconciliation of operating profit to normalised operating profit/(loss) from continuing operations is presented below:


Year

ended 31.12.11

£m



Year ended 31.12.10

£m

Operating profit from continuing operations

0.2



5.7

Add back share based payments charge / (deduct share based payments credit)

0.6



(0.1)

Add back/(deduct) exceptional operating costs / (credit) related to Japan legal settlement

3.9



(0.2)

Add back other exceptional operating costs

-



0.5

Deduct capitalised development costs net of amortisation

(4.7)



(7.8)

Normalised operating profit/(loss)

-



(1.9)

The reconciliation of (loss)/profit from continuing operations to adjusted EBITDA is presented below:


Year

ended 31.12.11

£m



Year

ended 31.12.10

£m

(Loss)/profit from continuing operations

(2.0)



2.7

Tax

2.1



3.0

Net finance costs

0.1



-

Profit/(loss) on disposal of fixed assets

-



(0.1)

Share based payments

0.6



(0.1)

Depreciation and amortisation

7.2



4.8

Exceptional operating costs

3.9



0.3

Adjusted EBITDA

11.9



10.6



Chairman's statement

Introduction

In 2011 Psion made significant strides forward to enable growth through the launch of a new rugged PDA product, the Psion EP10, which addresses the fastest growing segment in our market place. Product and partnership launches in the US will also enable the Group to address this major market for rugged mobile devices. Against this good progress we observed a deteriorating economic environment in the second half of the year across the territories that we serve, leading to longer customer decision cycle times and elongated deployment timetables. Despite that, we were very pleased that our new products drove 16.2% revenue growth half over half in 2011.

Financial results

Revenues in 2011 were £176.0m (2010 - £174.5m) representing growth of 0.9% year over year (1.6% in constant currency terms). The business demonstrated more significant revenue growth in the second half of 4.6% over the same period in 2010 which is an encouraging sign, driven by the prospects that we have from an increasingly refreshed product set. The normalised operating result for the year was breakeven (2010 - loss of £1.9m). The profit before tax was £0.1m (2010 - profit £5.7m). The Group's cash balances at the end of the year were £25.2m (2010 - £36.9m).

Dividend

The Board is cognisant of the importance of the dividend to shareholders and seeks to apply a progressive dividend policy, taking into account the performance of Psion's business and underlying growth, as well as its capital requirements and cash flows, while looking to build an appropriate level of dividend cover. The Board believes that the beneficial impact on the trading prospects of the Group from the increasingly refreshed product set and the positive actions taken to reduce operating costs in early 2012 will support the future sustainability of the dividend. The proposed final dividend is 2.7p per share for the year ended 31 December 2011, which will be paid, subject to shareholder approval, on 11 May 2012 to shareholders on the register at 13 April 2012. This will bring the total proposed dividend for 2011 to 4.0p per share (2010: 4.0p per share).

Board

In May Adrian Colman was appointed to the Board as Chief Financial Officer. In December we further strengthened our Board with the addition of Peter Bertram and Gotthard Haug who both bring significant additional technology industry knowledge and experience, particularly in the area of service businesses. In March, Toby Redshaw resigned as a non-executive director of the Company following his appointment as the CIO of American Express and move to the US.

As Chairman, my principal responsibility is to ensure that the Board operates effectively in meeting its primary responsibilities to develop and agree strategy, to hold the executive team accountable for execution of that strategy and to set the tone for governance, culture, vision and values for the Group.

During the year the Board conducted a rigorous process for evaluating the performance of individual directors, the Board and its Committees. This process confirmed that the Board operates in a culture of openness and transparency which enables better quality debate and decision making and highlighted that directors remain wholly committed and enthusiastic in supporting the Group's progress.

Our People

The success of the Group rests on the skills and dedication of our people, particularly as we adapt to changing market conditions. They have played an active role in the Group's progress during the year and I would take this opportunity to extend my thanks to our employees who have played such a vital role in our progress during the year.

Psion Transformation

The business has been substantially transformed over the last three years with a major focus on:

· Introducing new products to market more quickly

· Enhancing the technical capabilities, reliability and quality of our products

· Streamlining and centralising group operations and processes to deliver efficiency savings

· Leveraging our ability to access new customers and markets by moving to an increasingly indirect sales model

· Improving collaboration, openness and access with our partners through channels such as IngenuityWorking.com

The effectiveness of this transformation will be judged by the Group's ability to grow revenues, capture market share, deliver improved financial performance going forward and the standing of the Group within the industry through its thought leadership and innovation.

Performance in the year

Throughout 2011 we continued to evolve and differentiate our business. Our Omnii™ modular platform continues to stimulate opportunities to provide customisable solutions for our customers, particularly in our core supply chain logistics markets.

In 2011 we successfully launched our high performance, low cost PDA device (EP10). This opens up significant new markets for the Group. The worldwide market for smaller form, handheld PDA style devices for mobile workers is recognised to be a fast growing segment in the rugged computing market. In the second half of 2011 the Group also launched an EP10 product with CDMA (roaming technology for the USA). For the first time this will enable Psion to address the US market place for such products.

In addition to the new product launches we have continued to develop new partnerships through which we can access our marketplace. In 2011 these included an OEM (Original Equipment Manufacturer) framework agreement with a major industrial partner. This will facilitate the sale of Psion products, carrying this partner's brand into areas of the market such as the US Government and Defence sectors where there is little overlap with Psion's existing customers.

Cost reduction actions

Notwithstanding our aspirations for growth in 2012, the operational progress we have made in the past two years has enabled us to deliver significant additional efficiency savings in our support functions in the first half of 2012 to mitigate against weak economic scenarios. These are expected to reduce the cost base by approximately £6m on an annualised basis. The restructuring costs to be incurred in the first half of 2012 are expected to represent a cash cost of approximately £4m. Together with the anticipated savings this programme is expected to be cash neutral by the end of 2012 and deliver a full year of benefit in 2013.

Outlook

We believe that the Group will achieve growth in 2012 even in the anticipated challenging macro economic conditions, primarily as a result of the introduction of new products such as the EP10 which are accessing markets that we have not previously addressed, particularly in the US.

John Hawkins

Chairman



CEO's Statement

We recovered significant ground in the second half of the year and grew the business. This improvement was driven mainly by growing sales of our new products, allied to our ongoing focus on efficiency. Despite the improved second half performance, our sales were compromised by the weakening economic situation and the lower than anticipated performance in the first half of the year, principally attributable to the supply issues which affected sales of one legacy product.

We have invested in improving processes and performance, reshaping the Group for the future and launching important new products, services and software.

New product development will continue to receive investment. In 2011, we launched the EP10 PDA device which, for the first time, included full wireless network coverage for the US market. The launch of the Psion EP10 was particularly significant due to its ability to strengthen our position in the important US market, and also globally, by ensuring that we have a stronger foothold in the critical PDA product category.

Early in 2012, we launched a new addition to the Omnii™ family, the XT15, a highly rugged, modular, handheld device for the Supply Chain. New product releases are critical to driving growth and market share, especially in the US market.

Another achievement was Psion's first OEM agreement. Our customer is a major American multinational company, which primarily serves markets where we have little existing presence. It will now sell, under its own brand, a version of our EP10 and XT15 devices. This OEM agreement is a major endorsement of our strategy and products, and we anticipate doing more of this business in the years ahead.

Our Open Source Mobility (OSM) strategy has three elements, each of which are realising tangible benefits: Modularity, Customisation and Open Innovation;

Modularity

The EP10 PDA product shares a substantial amount of technology with both the Omnii™ XT10 and the new Omnii™ XT15. This allows us to bring products to market more quickly.

"Customers are looking for mobile business solutions that will continue to drive productivity and extend product life beyond 3 years. Psion's Omnii XT15 provides customers with the flexibility to adapt their handheld devices in the future, by replacing modules with the latest technology available, thus extending the life of the product."David Krebs, Vice-President, Mobile & Wireless VDC Research.

Customisation

We helped the international transportation and logistics company, Dachser, by co-developing a tailor-made version of the Omnii™ XT10 keyboard for use in their business. Dachser uses the worldwide standard Systems Application Architecture (SAA) software from IBM. This includes a uniform assignment of twelve function keys on all devices. They needed new handheld computers from Psion, used for warehouse picking, to follow exactly the same SAA key arrangement.

"Our employees are used to dealing with the twelve function keys so it was important to us that we made it easy for them to do their work by adapting our mobile hardware. The modularity and flexibility of Omnii XT10 enabled us to adapt our new hardware to our existing systems and not vice versa." Thomas von Jan, Head of IT Front-End Systems, Dachser.

Open Innovation

This is most easily demonstrated by our open, online, community, IngenuityWorking.com where customers, partners, employees and resellers support each other by designing solutions and evaluating choices. It has become a critical part of our support infrastructure, as well as the place where new solutions are launched. Here are two examples:

In September 2011, Blackroc Technology announced a new range of integrated Global Navigation Satellite System (GNSS) handheld devices by integrating a high specification positioning receiver into the Psion Workabout Pro™ 3 handheld computer.This product, the Blackroc Technology Procyon™ can achieve location accuracy of up to 1 to 2 centimetres. This product is now available via IngenuityWorking's own "app store", called IngenuityLive! and is evidence of our ability to access new markets through Open Innovation.

In December 2011, theU.S. Forest Service selected Psion Workabout Pro™ 3 as the mobile platform for the National Forest System.

"We looked at more than 25 devices from 12 companies for the U.S. Forest Service, and the Workabout Pro was the clear choice not only for its technical capabilities, but also because of the service and support that Psion offers. As an active participant in Psion's online community, IngenuityWorking, I can attest to the outstanding support that Psion delivers to partners and that is exactly the type of partnership we need for this relationship with the USFS." Mike Berg, president of Handheld Systems, Inc.

In the last three years we have driven out a significant amount of complexity and workload from the business which has substantially reduced the cost base. These actions now provide us with the opportunity to take further steps to reduce costs mainly in support functions in early 2012. These reductions, in the first half of 2012, will deliver an expected £6m of full year benefit from 2013, with approximately two thirds of this amount delivered in 2012. These actions will enable us to maintain or improve our profit levels.

In 2012, we will continue to build on these achievements. We will get better at commercialising the unique opportunities enabled by our Open Source Mobility strategy. There will be a growing shift to our new products as partners, customers, developers and software vendors become more familiar with our strategy and the compelling value it creates. To grow our channel, we will develop more reseller partner agreements.

Finally, we should all expect that our performance will, in all but the severest of recessionary conditions, improve. Our investors and our staff deserve success.

At Psion, we are all highly motivated, encouraged and ready for the challenge of 2012.

John Conoley

Chief Executive Officer



Financial Review

Financial Performance Summary


2011

2010

+/-

2010 Constant Currency

+/-

£m

£m

£m

£m

£m

Revenue

176.0

174.5

1.5

173.2

2.8

Gross profit

67.2

66.7

0.5

68.6

(1.4)

Gross profit %

38.2%

38.2%

-

39.6%

(1.4)%

Normalised operating profit/(loss) (see note 4)

-

(1.9)

1.9

0.2

(0.2)

Adjusted EBITDA (see note 1)

11.9

10.6

1.3



Operating profit

0.2

5.7

(5.5)



Basic EPS (Pence)

(1.35)

1.81

(3.16)



Adjusted EPS (Pence) (see note 2)

1.77

2.07

(0.30)



Net cash (see note 3)

22.5

34.8

(12.3)



Note 1 - Adjusted EBITDA is defined as profit before interest, taxation, depreciation, amortisation, share based payments charge and exceptional items.

Note 2 - Adjusted EPS is based on profit after tax before share based payments charge, net of tax and exceptional items, net of tax.

Note 3 - Net cash includes loans and obligations under finance leases.

Note 4 - Normalised operating profit is defined as operating profit before exceptional operating costs and share based payments charge and after deducting the net capitalisation of development expenditure.

Group revenue for the year increased by 0.9% to £176.0m (2010: £174.5m). On a constant currency basis this was equivalent to growth of 1.6% year over year. The second half of 2011 showed significant growth over the first half of the year with revenues increasing 16.2% principally due to shipments of the EP10 rugged PDA. Other contributing factors were the impact on first half revenues of supply issues and the slight seasonal weighting in the Group's results towards the second half. The second half of 2011 also demonstrated growth against the second half of 2010 of 4.6% on a constant currency basis, again predominantly reflecting the impact of new products gaining traction in the market place.

Orders represent bookings received for all lines of business, except for ad hoc service repairs not covered by maintenance agreements. In 2011 the level of orders received increased 5.7% from £158.4m to £167.4m driven by orders for new products in the year, primarily in EMEA where the new EP10 product was first released. On a constant currency basis this represents an increase of 6.9% compared to 2010. The closing value of the order book at 31 December 2011 was £30.4m, an increase of 10.5% over the prior year (2010: £27.5m).

Adjusted EBITDA for the year increased by 12.3% to £11.9m from £10.6m in 2010.

Normalised operating profit is an important operational performance measure for the Group. This states Group performance before the impact of development costs capitalisation, amortisation of previously capitalised development costs, share based payment charges and exceptional items. In 2011 the Group's normalised operating result was breakeven, an improvement on the normalised operating loss of £1.9m reported in 2010. Total operating expenses charged in calculating normalised operating profit were 2.0% lower than the prior year at £67.2m (2010: £68.6m).

The Group reported an operating profit from continuing operations of £0.2m (2010: £5.7m). The reduction year over year was primarily attributable to the £3.9m (2010: credit of £0.2m) settlement of Japanese litigation arising from unauthorised transactions in 2008 and higher amortisation of development costs of £3.0m (2010: £0.6m). A reconciliation from normalised operating profit to operating profit from continuing operations is set out below:



2011

£m


2010

£m

Normalised operating profit/(loss)


-


(1.9)






Development costs capitalised in year

7.7


8.4


Amortisation of capitalised development costs

(3.0)


(0.6)


Net capitalisation of development costs


4.7


7.8

Japan litigation settlement


(3.9)


0.2

Restructuring


-


(0.5)

Share based payment charges


(0.6)


0.1

Operating profit from continuing operations


0.2


5.7

The tax charge for the year of £2.1m (2010: £3.0m charge) results in a loss from continuing operations of £2.0m (2010: profit of £2.7m).

Segmental operating performance

The Group is organised around three regional segments supported by the Group's global functions. Each region has a Vice President who is primarily responsible for growing revenue and profitability and who reports directly to the Chief Executive.


2011

20101

+/-


2010 Constant Currency

+/-

Revenue

£m

£m

£m


£m

£m

EMEA

106.1

101.9

4.2


103.2

2.9

Americas

53.2

56.2

(3.0)


54.0

(0.8)

Asia

16.7

16.4

0.3


16.0

0.7

Total

176.0

174.5

1.5


173.2

2.8


2011

20101



2010 Constant Currency


Gross profit

£m

£m

+/-


£m

+/-

EMEA

47.6

45.2

2.4


47.8

(0.2)

Americas

19.9

22.4

(2.5)


21.7

(1.8)

Asia

7.4

6.7

0.7


6.7

0.7

Corporate

(7.7)

(7.6)

(0.1)


(7.6)

(0.1)

Total

67.2

66.7

0.5


68.6

(1.4)


2011

20101

+/-


2010 Constant Currency

+/-

Normalised operating profit

£m

£m

£m


£m

£m

EMEA

28.2

26.1

2.1


28.4

(0.2)

Americas

9.3

11.6

(2.3)


11.3

(2.0)

Asia

5.4

4.8

0.6


4.7

0.7

Corporate

(42.9)

(44.4)

1.5


(44.2)

1.3

Total

-

(1.9)

1.9


0.2

(0.2)

Note 1: Due to changes in the management of the operating segments of the Group the results for operations in Dubai have transferred in 2011 from EMEA to Asia. The impact of this change to present the 2010 results on this basis is a transfer of £1.9m of revenue, gross margin of £0.6m and normalised operating profit of £0.3m from EMEA to Asia in the comparative results. There was no impact on consolidated revenue, gross profit, normalised operating profit or net assets as a result of this reclassification.

EMEA showed constant currency revenue growth of 2.8% year over year despite the tough trading environment in the Euro zone in the second half of 2011. The growth was primarily driven by new product introductions, in particular the EP10 rugged PDA device launched at the end of the first half, which helped to eliminate the impact of the supply issues which had affected shipments of one legacy product in the first half. France remains our largest country in revenue terms within EMEA and globally. EMEA also encompasses other European operations plus Africa and Middle East.

Americas revenues were 1.5% lower in constant currency when compared to 2010 which largely reflects the half over half shortfall in the first half of the year. Our core customers in North America have been focused around the Supply Chain Logistics markets. North America represents the largest single growth opportunity area for Psion, particularly in the mobile product arena for products such as the EP10 rugged PDA. New channel partners and routes to market together with the new sales management team should allow Americas to return to growth going forward. North America is the largest territory within Americas however we also trade successfully in Brazil, Argentina, Mexico and other Latin and South American countries.

Asia experienced solid constant currency revenue growth of 4.4%. Similar to North America the Asian business has been primarily focused on Supply Chain Logistics customers with particular strength in solutions for ports and yards. China is our largest market within Asia with broad coverage of other key countries in Asia Pacific.

Gross margins in the year were consistent with 2010 at 38.2% (2010 - 38.2%) resulting in gross profits of £67.2m (2010: £66.7m).

Operating expenses

Operating expenses (before exceptional operating costs) were £63.1m (2010: £60.7m). The increase is largely attributable to the additional marketing efforts in launching the new EP10 PDA product, higher amortisation of development costs, higher share based payments charges and costs associated with minor reshaping of overhead functions to drive further efficiencies going forward.

Research and development

Research and development costs (excluding amortisation) recorded in the income statement in the year amounted to £8.5m (2010: £8.7m). Total research and development expenses (including amounts capitalised) were £16.2m (2010: £17.1m). Capitalised product development amounted to £7.7m (2010: £8.4m) and principally related to the development of the Omnii XT15, the Omnii RT15 and the EP10 rugged PDA device. Amortisation of capitalised development costs amounted to £3.0m (2010 £0.6m).

Exceptional operating costs

Exceptional operating costs in the period of £3.9m (2010: £0.3m) reflect the settlement cost and legal fees, net of insurance proceeds, associated with the Japanese legal actions initiated against the Group in 2008 in relation to unauthorised trades and a guarantee of third party obligations. The settlement paid in June 2011 reduced the maximum level of potential claims against the Group from £15.4m at 31 December 2010 to £1.8m (at 31 December 2011 exchange rates). No further negotiations have taken place in relation to the remaining claims since that date. An analysis of exceptional costs is set out below;




2011

2010

Exceptional operating costs

£m

£m




Settlement costs

5.4

0.9

Insurance settlement

(1.5)

(1.0)

Japan costs - net

3.9

(0.1)

Restructuring costs (inc board changes)

-

0.4

Total exceptional operating costs

3.9

0.3

Revenue analysis by type


2011

20101

+/-


2010 Constant Currency

+/-

Line of business

£m

£m

£m


£m

£m

Hardware

129.3

128.7

0.6


127.9

1.4

Customer Service

37.8

37.3

0.5


36.9

0.9

Software & Professional Services

8.9

8.5

0.4


8.4

0.5

Total

176.0

174.5

1.5


173.2

2.8

Note 1 - The comparative analysis has been re-presented to reflect the change in management's own categorisation of revenues, with Software now reported within Software and Professional Services.

Hardware revenues of £129.3m for 2011 are £0.6m above prior year. Unit volumes grew 11% from approximately 108,000 units in 2010 to approximately 120,000 units with the lower revenue growth reflecting the sales mix change to new products such as the EP10 rugged PDA device which is a smaller and lower priced product addition to the Psion product portfolio.

Customer service revenues increased by £0.5m compared to 2010 reversing the trend from the first half of 2011.

New products continued to gain momentum with EP10 and Omnii representing 19.8% of total volume (2010: 1.3%). In the final quarter these two product families accounted for 30.9% of product shipments.

Interestand taxation

Finance costs in the year were £0.2m (2010 - £0.1m) arising mainly from interest on obligations under finance leases which offset interest received on cash balances of £0.1m (2010 - £0.1m).

The taxation charge for 2011 was £2.1m (2010: £3.0m). The Group recorded a profit before tax of £0.1m. The £2.1m charge arises as a result of taxable profits in a number of jurisdictions, whilst the Group's reported profit before tax of £0.1m reflects the offsetting impact of losses before tax in other jurisdictions, where deferred tax assets have not been recognised. In particular the impact of the exceptional item of £3.9m in respect of the settlement with a major claimant regarding unauthorised transactions in Japan in 2008 on the results has not given rise to a corresponding tax credit. Additionally, the charge reflects £0.4m (2010: £2.6m) relating to deferred tax, being the net effect of utilisation of losses, additional deferred tax assets recognised, and a reduction in deferred tax assets arising from tax rate changes.

Profit/(loss) after taxand earnings/(loss) per share

The Group's loss after tax from continuing operations for the year was £2.0m (2010: profit of £2.7m). Basic and diluted earnings per share in 2011 was a loss of 1.35p (2010: earnings 1.81p for basic and diluted). For continuing operations only, basic and diluted earnings per share in 2011 was a loss of 1.42p (2010: earnings 1.90p). The Board believes that a better appreciation of the continuing operations of the Group is given by adjusting for the charge for share based payments and exceptional operating costs. Adjusted basic earnings per share on this basis was 1.77p (2010 - earnings 2.07p).

Dividends

The Board has recommended a final dividend for 2011 of 2.7p, to bring the total dividend for 2011 to 4.0p (2010: 4.0p).

Post balance sheet events

On 12 January 2012, the Group announced that management had completed a detailed formal plan to make further efficiency savings in its administrative and support functions in the first half of 2012. Implementation commenced in January 2012 and is expected to reduce the Group's cost base by approximately £6.0m on an annualised basis. In 2012, the Group expects to deliver approximately two thirds of these savings, with the full impact expected to come through in 2013. Restructuring costs of approximately £4.0m when taken together with the anticipated savings are expected to be cash neutral in 2012. The restructuring charge and cash impact of £4.0m will be recorded in the first half 2012.

Employees

The number of employees at 31 December 2011 was 895, a reduction of 51 from 31 December 2010 as a result of general staff attrition rates and some minor reshaping of overhead functions undertaken during the year to drive further efficiencies from operations.

Financial position

The Group's balance sheet at 31 December 2011 can be summarised as set out below






2011


2010


Change






£m


£m


£m

Property, plant and equipment




11.9


11.5


0.4

Goodwill




103.5


103.1


0.4

Intangible assets




20.4


15.4


5.0

Other non-current assets and liabilities


(0.9)


(1.2)


0.3

Current assets and liabilities




11.1


11.2


(0.1)

Deferred tax





3.3


3.7


(0.4)

Total excluding net cash




149.3


143.7


5.6

Cash and cash equivalents




25.2


36.9


(11.7)

Finance lease obligations




(2.0)


(2.1)


0.1

Grant funding loan




(0.7)


-


(0.7)

Net cash




22.5


34.8


(12.3)

Net assets




171.8


178.5


(6.7)

The main movements in the balance sheet items were principally due to additional capitalised development costs and the change in net cash driven by the Japan settlement and the dividend payments discussed below.

Capital structure

The Group has no bank debt or other borrowings save for limited finance lease obligations of £2.0m (2010: £2.1m) and a small interest free loan received as part of a Spanish Government grant initiative of £0.7m (2010: £nil). The Group held cash balances of £25.2m at the end of 2011 (2010: £36.9m). The directors believe that maintaining a sound capital structure based around access to liquid assets provides support to the Group's share price and the ability to fund any necessary investments to meet the Group's objectives.

The share capital structure of the Group remains unchanged in the year.

Cash flow

The primary cash outflows in the year were in respect of dividends paid of £5.6m (2010: £5.5m) and the net settlement costs related to the Japanese legal actions of £3.9m (2010: credit of £0.1m).

Net cash from operations amounted to £5.6m (2010: £9.9m) with a net working capital outflow of £0.4m (2010: outflow of £0.4m). Debtors days outstanding at 31 December 2011 reduced by 2 days to 70 days (2010: 72 days).

Intangible asset purchases relating to capitalised product development costs, primarily in relation to the EP10 product launched in the first half and the new modular variants in the Omnii family, as well as other intangibles such as software and patents amounted to £8.9m (2010: £10.2m). Cash outflows from property, plant and equipment purchases amounted to £2.3m (2010: £2.6m) principally related to production tooling equipment.

The Group had net obligations under finance leases at 31 December 2011 of £2.0m (31 December 2010: £2.1m). Additionally the Group received loan financing of £0.7m (2010: £nil) as part of its participation in a Spanish Government grant funded project into RFID development. Net of these obligations the Group's net cash position at 31 December 2011 was £22.5m (2010: £34.8m).

Cash balances in excess of the day to day working capital needs of the business are deposited in Liquidity Funds managed by HSBC plc to spread the counterparty risk across a number of institutions.

Foreignexchange exposures and group hedging strategy

The Group's financial transactions are heavily weighted towards EUR (Euro) denominated revenues with USD (US Dollar) and CAD (Canadian Dollar) denominated expenses constituting the majority of the cost structure.

The key foreign exchange rate movements that impacted the Group year over year are as set out below.

Exchange rate

2011
Average

2010
Average

+/-

2011
Closing

2010
Closing

+/-

EUR:GBP

0.87

0.86

1%

0.84

0.86

(3)%

USD:GBP

0.62

0.65

(4)%

0.64

0.64

0%

CAD:GBP

0.63

0.62

1%

0.63

0.64

(2)%

EUR:USD

1.40

1.33

(5)%

1.30

1.32

(2)%

When looking at average rates revenues were principally affected by the year over year depreciation of the USD against GBP partly mitigated by the year over year appreciation of EUR against GBP.

As can be seen from the currency analysis of revenue and costs the Group generates a net excess of EUR revenues over EUR costs and has a net shortfall of USD and CAD revenues relative to USD and CAD costs. The Group uses short term forward contracts to manage this transactional exposure that exists by selling forward a proportion of its six month expected net EUR cash receipts to buy USD and CAD in even quantities. The Group believes this six month timeframe is appropriate as it broadly matches the overall transaction cycle from publication of price list through to order, shipment and cash collection. The Group regularly reviews the impact of currency movements on its costs of operations and the currencies in which transacts as part of the periodic process of refreshing its price lists which allows further mitigation of the impact of currency movements.

Given the current uncertainty over economic conditions the Group seeks to maintain only necessary levels of surplus funds in Euros to meet Euro denominated expenses. At 31 December 2011 these Euro denominated balances amounted to £6.2m (2010: £7.4m).



Consolidated Statement of Comprehensive Income

For the year ended 31 December 2011



2011

£m


2010

£m

CONTINUING OPERATIONS






Revenue

2


176.0


174.5

Cost of sales



(108.8)


(107.8)

GROSS PROFIT



67.2


66.7







Distribution costs



(36.3)


(34.4)

Administrative expenses



(26.8)


(26.3)

Exceptional operating costs

3


(3.9)


(0.3)

Total administrative expenses



(30.7)


(26.6)

OPERATING PROFIT



0.2


5.7







Investment income



0.1


0.1

Finance costs



(0.2)


(0.1)

PROFIT BEFORE TAX



0.1


5.7







Tax charge

4


(2.1)


(3.0)

(LOSS) / PROFIT FROM CONTINUING OPERATIONS



(2.0)


2.7







DISCONTINUED OPERATIONS






Profit / (loss) for the year from discontinued operations



0.1


(0.2)

(LOSS) / PROFIT FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT



(1.9)


2.5







OTHER COMPREHENSIVE INCOME






Exchange gain on translation of goodwill in foreign operations



0.4


3.5

Exchange (loss) / gain on translation of foreign operations



(0.2)


0.3

TOTAL COMPREHENSIVE INCOME



(1.7)


6.3







(LOSS) /EARNINGS PER SHARE






From continuing operations






Basic

6


(1.42p)


1.90p

Diluted

6


(1.42p)


1.90p







From continuing and discontinued operations






Basic

6


(1.35p)


1.81p

Diluted

6


(1.35p)


1.81p



Consolidated Balance Sheet

As at 31 December 2011



2011

£m


2010

£m

NON-CURRENT ASSETS





Goodwill


103.5


103.1

Other intangible assets


20.4


15.4

Property, plant and equipment


11.9


11.5

Prepayments


0.6


0.9

Deferred tax assets


3.3


3.7



139.7


134.6

CURRENT ASSETS





Inventories


18.2


18.2

Trade and other receivables


48.5


47.4

Current tax assets


0.4


0.6

Derivative financial assets


0.5


-

Cash and cash equivalents


25.2


36.9



92.8


103.1

TOTAL ASSETS


232.5


237.7






CURRENT LIABILITIES





Trade and other payables


53.8


52.3

Tax liabilities


1.3


1.2

Obligations under finance leases


0.7


0.6

Derivative financial instruments


-


0.1

Provisions


1.4


1.5



57.2


55.7

NON-CURRENT LIABILITIES





Tax liabilities


-


0.2

Other loans


0.7


-

Obligations under finance leases


1.3


1.5

Provisions


1.5


1.8



3.5


3.5

TOTAL LIABILITIES


60.7


59.2

NET ASSETS


171.8


178.5






EQUITY





Share capital


21.1


21.1

Share premium


15.7


15.7

Capital reserve


98.7


98.7

Translation reserve


22.7


22.5

Retained earnings


13.6


20.5

TOTAL EQUITY


171.8


178.5



Consolidated Statement of Changes in Equity

For the year ended 31 December 2011








2011

£m


2010

£m

SHARE CAPITAL





Balance at start and end of year


21.1


21.1






SHARE PREMIUM





Balance at start of year


15.7


15.6

Exercise of equity share options


-


0.1

Balance at end of year


15.7


15.7






CAPITAL RESERVE





Balance at start and end of year


98.7


98.7






TRANSLATION RESERVE





Balance at start of year


22.5


18.7

Exchange difference on translation of goodwill in foreign operations


0.4


3.5

Exchange difference on translation of foreign operations


(0.2)


0.3

Balance at end of year


22.7


22.5






RETAINED EARNINGS





Balance at start of year


20.5


23.6

(Loss) / profit for the year


(1.9)


2.5

Recognition of share based payment expense / (credit)


0.6


(0.1)

Dividends (note 5)


(5.6)


(5.5)

Balance at end of year


13.6


20.5






TOTAL





Balance at start of year


178.5


177.7

Exercise of equity share options


-


0.1

Exchange difference on translation of goodwill in foreign operations


0.4


3.5

Exchange difference on translation of foreign operations


(0.2)


0.3

(Loss) / profit for the year


(1.9)


2.5

Recognition of share based payment expense / (credit)


0.6


(0.1)

Dividends (note 5)


(5.6)


(5.5)

Balance at end of year


171.8


178.5



Consolidated Cash Flow Statement

For the year ended 31 December 2011




2011

£m


2010

£m







OPERATING PROFIT FOR THE YEAR



0.2


5.7

Adjustments for:






Depreciation of property, plant and equipment



3.0


3.1

Amortisation of other intangible assets



4.2


1.7

Share-based payment expense charge / (credit)



0.6


(0.1)

Loss on disposal of property, plant and equipment



-


(0.1)

Decrease in provisions



(0.3)


(0.5)

Cash impact of discontinued operations



-


(0.9)

Operating cash flows before movements in working capital



7.7


8.9

(Increase) / decrease in inventories



(0.4)


0.2

Increase in receivables



(1.5)


(2.3)

Increase in payables



1.5


1.7

Cash generated by operations



7.3


8.5

Tax received



0.2


3.8

Tax paid



(1.7)


(2.3)

Interest paid



(0.2)


(0.1)

NET CASH FROM OPERATING ACTIVITIES



5.6


9.9

INVESTING ACTIVITIES






Interest received



0.1


0.1

Proceeds on disposal of property, plant and equipment



-


0.2

Purchases of intangible assets



(8.9)


(10.2)

Purchases of property, plant and equipment



(2.3)


(2.6)

NET CASH USED IN INVESTING ACTIVITIES



(11.1)


(12.5)







FINANCING ACTIVITIES






Dividends paid (note 5)



(5.6)


(5.5)

Loans received



0.7


-

Repayment of capital element of finance leases



(0.7)


(0.7)

Proceeds from issue of new shares



-


0.1

NET CASH USED IN FINANCING ACTIVITIES



(5.6)


(6.1)

NET DECREASE IN CASH AND CASH EQUIVALENTS



(11.1)


(8.7)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR



36.9


45.3

Effect of foreign exchange rate changes



(0.6)


0.3

CASH AND CASH EQUIVALENTS AT END OF YEAR



25.2


36.9



Notes to the Consolidated Financial Statements

for the year ended 31 December 2011

1. Basis of Preparation

The preliminary results have been prepared under the historical cost convention. Whilst the information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. The Group expects to publish full financial statements that comply with IFRS in March 2012.

The financial information in the preliminary announcement does not constitute the Group's statutory financial statements for the years ended 31 December 2011 or 2010, but has been extracted from the audited financial statements for the year ended 31 December 2011 and the audited financial statements for the year ended 31 December 2010, and, as such, does not contain all information required to be disclosed in the financial statements prepared in accordance with IFRS. Statutory financial statements for 2010 have been delivered to the Registrar of Companies and the statutory financial statements for 2011 will be delivered following the Company's Annual General Meeting. The auditors have reported on these financial statements; their reports were unqualified and did not contain statements under section 498 (2) or (3) of the Companies Act 2006 but their report on the 2010 financial statements drew attention to uncertainty related to ongoing litigation in Japan.

The preliminary announcement is prepared on the basis of the accounting policies set out in previous annual financial statements.

The preliminary announcement was approved by the Board of Directors on 29 February 2012.

2. Segmental Analysis

The Group is managed on a geographical basis using a regional structure. The geographical segments are the basis on which the Group reports its results within its internal reporting to the Chief Executive Officer (the chief operating decision maker) and the Board for the purposes of resource allocation and assessment of segmental performance. Inter-segment revenues are eliminated in such internal reporting prior to reporting the regional performance. Segment balance sheet information is not included in the Group's internal reporting.

The Psion corporate activity segment comprises the Group's development centre to which goodwill is attributed, together with expensed development costs, amortisation of capitalised development costs and associated staff costs, together with costs of Group functions.

The 2010 analyses have been re-presented to conform with the current year presentation. The Dubai market has been moved from EMEA to Asia, reallocating £1.9m revenue and £0.3m operating profit.

Revenue by geographical market

2011

£m


2010 £m

EMEA

106.1


101.9

Americas

53.2


56.2

Asia Pacific

16.7


16.4

Total revenue from continuing operations

176.0


174.5

Revenue earned from sales made to the UK amount to £8.3m (2010: £11.1m)



Results by geographical market








Operating profit before exceptional items




EMEA

28.2


26.1

Americas

9.3


11.6

Asia Pacific

5.4


4.8


42.9


42.5

Corporate activities

(38.8)


(36.5)

Exceptional operating costs (Note 4)

(3.9)


(0.3)

Operating profit from continuing operations

0.2


5.7

Investment income

0.1


0.1

Finance costs

(0.2)


(0.1)

Profit before tax

0.1


5.7

Tax

(2.1)


(3.0)

(Loss) / profit for the year from continuing operations

(2.0)


2.7

Non-current assets by segment (excluding deferred tax)




EMEA

0.7


0.7

Americas

0.5


0.5

Asia Pacific

0.2


-

Corporate activities

135.0


129.6


136.4


130.8

Within EMEA UK comprise £0.1m (2010: £0.2m).








Depreciation and amortisation




EMEA

0.4


0.2

Americas

0.2


0.4

Asia Pacific

0.1


-

Corporate activities

6.5


4.2


7.2


4.8

Additional voluntary disclosures

The following disclosures are provided for additional information purposes only and do not form part of the Group's segmental reporting under IFRS 8.

The Group segregates revenue into three main categories - hardware, software and professional services and customer services and support which arise in all geographical segments. The following table provides an analysis of the Group's revenue according to these categories.

The 2010 analyses have been re-presented to conform with the current year presentation. This has reduced 2010 Hardware by £2.1m, increased Software and Professional services by £4.8m and decreased Customer service by £2.7m


2011 £m


2010 £m

Hardware

129.3


128.7

Software and Professional services

8.9


8.5

Customer services and support

37.8


37.3


176.0


174.5



3. Exceptional operating costs


2011

£m


2010

£m

Restructuring costs (a)

-


0.5

Japanese costs / (credit) (b)

3.9


(0.2)


3.9


0.3





(a) A redundancy programme in various countries undertaken to realign costs in light of revenue reductions and Board changes.

(b) The charge to profit or loss for Japanese costs in 2011 comprised £5.4m of settlement and other costs relating to claims relating to unauthorised trades in the Japanese business offset by an insurance recovery of £1.5m. See note 7 for more detail, including outstanding contingencies.

4. Tax charge



Continuing operations


Discontinued operations


Total



2011


2010


2011


2010


2011


2010



£m


£m


£m


£m


£m


£m














Current tax

1.7


0.4


-


-


1.7


0.4

Deferred tax

0.4


2.6


-


-


0.4


2.6














Total

2.1


3.0


-


-


2.1


3.0








UK corporation tax is calculated at 26.5% (2010 - 28.0%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.



The charge for the year can be reconciled to the profit and loss as follows:












2011




2010





£m




£m



Profit before tax





continuing operations

0.1




5.7




discontinued operations

0.1




(0.1)





0.2




5.6












Tax at the domestic tax rate of 26.5% (2010 - 28.0%)

0.1




1.5



Tax effect of expenses / (income) that are not deductible /(taxable) in determining taxable profit

(0.2)




0.7



Tax effect of utilisation of tax losses

-




(2.0)



Losses carried forward

2.6




2.0



Timing differences

-




(0.1)



Reassessment of recognition of deferred tax assets

(0.1)




2.6



Overseas withholding tax

-




(0.8)



Effect of different tax rates of subsidiaries operating in









other jurisdictions

(0.2)




(0.4)



Prior year adjustments

(0.1)




(0.5)












Tax charge for the year

2.1




3.0



A number of changes to the UK corporation tax system were announced in the June 2010 Budget Statement. The Finance (No 2) Act 2010 includes legislation to reduce the main rate of corporation tax from 28% to 26% from 1 April 2011. Further reductions to the main rate have been proposed to reduce the rate to 24% by 1 April 2014. These further reductions in the tax rate had not been substantively enacted at the balance sheet date and, therefore, are not reflected in these financial statements.

There was no significant effect on the tax charge from changes in local rates of tax in jurisdictions where deferred taxes were recognised.

5.Dividends


2011

£m


2010

£m

Amounts recognised as distributions to equity holders in the year:

Paid final dividend for the year ended 31 December 2010 of 2.7p (2010 - final dividend for 2009 - 2.6p) per share

3.8


3.7

Paid interim dividend for 2011 of 1.3p per share

1.8


1.8


5.6


5.5





Final dividend proposed for the year ended 31 December 2011 of 2.7p per share

3.8



Second interim dividend declared for the year ended 31 December 2010 of 2.7p per share



3.8





The proposed final dividend has not been included as a liability in these financial statements. The dividend, subject to shareholder approval, will be paid on 11 May 2012 to shareholders on the register on 13 April 2012.

6. (Loss) / earnings per share


2011

Number


2010

Number

Number of shares




Weighted average number of ordinary shares for the purposes of basic earnings per share

140,764,815


140,650,796

Dilutive effect of potential ordinary shares:




Share options

119,123


66,773

Weighted average number of ordinary shares for the purposes of diluted earnings per share

140,883,938


140,717,569





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





FROM CONTINUING OPERATIONS





£m


£m

(Loss) / earnings for the purposes of basic and diluted earnings per share from continuing operations

(2.0)


2.7





(Loss) / earnings per share from continuing operations

Pence


Pence

Basic (loss) / earnings per share

(1.42)


1.90

Diluted (loss) / earnings per share

(1.42)


1.90

FROM CONTINUING AND DISCONTINUED OPERATIONS





£m


£m

(Loss) / earnings for the purposes of basic and diluted earnings per share being net (loss) / profit attributable to equity holders of the parent

(1.9)


2.5

(Loss) / earnings per share from continuing and discontinued operations

Pence


Pence

Basic (loss) / earnings per share

(1.35)


1.81

Diluted (loss) / earnings per share

(1.35)


1.81

ADJUSTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS





£m


£m

(Loss) / earnings from continuing operations

(2.0)


2.7

Adjustment to exclude exceptional operating costs net of tax

3.9


0.3

Adjustment to exclude share based payment charge (credit) net of tax

0.6


(0.1)

Adjusted earnings from continuing operations

2.5


2.9





Adjusted earnings per share from continuing operations

Pence


Pence

Basic earnings per share

1.77


2.07





7. Japan

On June 2, 2011, the Group reached agreement to settle the largest of the Japanese legal actions initiated against the Group in 2008 in relation to unauthorised trades and a guarantee of third party obligations. The net cost in 2011 to the Group of this settlement, including legal costs, is £3.9m (after insurance proceeds of £1.5m). This net cost is reported as exceptional operating costs in the Consolidated Statement of Comprehensive Income (Note 3). In the 2010 Annual Report the total contingent liability estimated in relation to such claims and actions amounted to £15.4m (JPY 1.95bn at 31 December 2010 exchange rates). After this settlement the remaining contingent liability is estimated at a maximum of £1.8m (JPY 0.23bn at 31 December 2011 exchange rates). No developments have taken place in relation to the remaining claims in 2011 or since the year end.

8. Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Financial Review. The financial position of the Group, its cash flows and liquidity position are also described in the Financial Review.

The Group has £25.2 million of cash and a strong balance sheet, and its rigorous approach to operations and working capital management will continue to provide sufficient sources of liquidity to fund its business risks. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the current economic outlook, which remains uncertain.

After reviewing the forecast cash flow and working capital requirements for the period until March 2013, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the revised annual report and accounts

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