Introduction

We took extensive actions to enable us to emerge from the economic downturn as a more competitive company, and to afford Psion the opportunity to further enhance its market position. All in all, it has been quite a year and I would like to thank all staff for their work during 2009.

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

Results and dividend

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

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

The company made further progress in the second half of 2009, improving the normalised operating margin from a negative 1.3% in the first half to positive 6.6% in the second half. Operating cash generation in 2009 demonstrated progress in better management of our assets and signalled an improvement in efficiency in the business. Psion exceeded its internal cash targets for the year through improvements in supply chain and debtor management processes. This has enabled the Group to maintain its strong balance sheet. The Group’s cash balance at the end of the year increased to £45.3m (2008: £41.3m). This increase in cash and cash equivalents has been delivered after restructuring costs, capital expenditure, tax, the currency impact on opening balance and dividends which together have absorbed £28.0m in 2009. We remain confident in our ability to generate significant operating cash in future.

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

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

Board

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

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

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

Objectives

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

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

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

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

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

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

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

Outlook

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

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

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