Directors' Report

The directors present their annual report on the affairs of the Group, together with the financial statements and auditors’ report for the year ended 31 December 2009. The Report on Corporate Governance forms part of this report.

Principal Activities

The principal activities of the Group are providing mobile computer hardware, integration services and product support and maintenance to customers for their enterprise systems. The subsidiary undertakings principally affecting the profits and net assets of the Group in the year are listed in note 17 to the financial statements.

Business Review and Directors’ Remuneration Reports

The Company is required by law to include a business review in this report. The information that fulfils this requirement can be found in the Chairman’s Statement, the Chief Executive Officer’s Review and the Operational Review which are incorporated into this report by reference.

The Directors Remuneration Report has been prepared in accordance with Schedule 8 (Quoted Companies: Directors’ Remuneration Report) to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board has applied the principles relating to directors’ remuneration as outlined in the Combined Code. As required by the Companies Act 2006 (“the Act”) a resolution to approve the report will be proposed at the forthcoming Annual General Meeting of the Company.

The Act requires the auditors to report to the Company’s members on certain parts of the Directors’ Remuneration Report and to state whether in their opinion those parts of the report have been properly prepared in accordance with the Act. The part of the report subject to audit can be found in the Directors Remuneration Report and is marked ‘audited information’.

Results and Dividends

The audited financial statements for the year ended 31 December 2009 are set out in the Accounts. The loss after taxation from continuing operations was £7.8m (2008 – £10.3m). The directors have declared a second interim dividend of 2.6p per share in lieu of a final interim dividend for 2009 (2008 – final dividend of 2.5p). This dividend will be paid on 1 April 2010 to shareholders on the register on 12 March 2010. This together with the interim dividend of 1.2p per share (2008 – 1.2p) paid on 18 September 2009 makes a total dividend for the year of 3.8p per share (2008 – 3.7p).

Research and Development

The directors consider that research and development is vital to the Group’s success in the future. Research and development expenditure, which includes the costs of the Group’s engineering staff, approval costs and external contracts for specialist engineering such as design for manufacture, of £11.9m (2008 – £13.7m) was charged to the Statement of Comprehensive Income. As reported in the Operational Highlights of 2009 the development costs of the modular platform which will form the basis of a number of new and replacement products over the coming years have been capitalised under IAS 38 “Intangible Assets” guidelines, and will continue to be capitalised in 2010. The amount capitalised in 2009 was £3.5m. Capitalised costs will be amortised over 4 years from the time of introduction of the first product. The Board monitors major development projects both during product development and after launch.

Directors

The directors who held office at the date of this report and during the year are set out in Board of Directors and the Report on Corporate Governance. In accordance with article 82 of the Articles of Association, John Hawkins, who was appointed as Chairman during the year and has not retired at the previous two annual general meetings, retires from office by rotation and offers himself for re-appointment by shareholders. In accordance with article 82 (i), Stuart Cruickshank, who was appointed by the Board during the year, retires from office by rotation and offers himself for re-appointment by shareholders. In accordance with article 82 (ii), Mike O’Leary, who has not retired at the previous two annual general meetings, retires from office by rotation and offers himself for re-appointment by shareholders. Biographical information and terms of appointment for each of the directors are set out in Board of Directors and the Directors’ Remuneration Report.

Capital Structure and Substantial Shareholders

The authorised share capital of the Company is divided into Ordinary Shares of 15 pence each, a full analysis is given in note 27 to the financial statements. The Ordinary Shares have voting rights attached, holders are entitled to receive notice and attend shareholder meetings and receive dividends once declared and approved.

As at 3 March 2010, the Company has been notified of the following interests in its Ordinary Shares of 15p each, excluding directors’ interests, which represent 3% or more of the issued Ordinary Share Capital:

Directors’ Interests

The directors’ interests in the Ordinary Shares of the Company at 31 December 2009 and details of directors’ share options are detailed in the Directors Remuneration Report.

Charitable and Political Donations

No contributions have been made to political parties. Donations are made to charities close to our facilities or to which the Group has some connection, for example, through the voluntary work of an employee. The total charitable donations in 2009 were £22,000 (2008 – £17,000).

Going Concern

The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in Reviews. The financial position of the group, its cash flows and liquidity position are described in the Financial Review. In addition notes 20, 21 and 22 to the financial statements include details of the policies and processes for managing the Group’s capital, financial instruments and exposures to credit risk, treasury risk and market risks.

The Group has in excess of £45m of cash and a strong, debt free balance sheet, and its rigorous approach to operations and working capital management will continue to provide sufficient sources of liquidity to fund its business risks. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the current economic outlook, which remains uncertain.

After reviewing the forecast cash flow and working capital requirement for the period until March 2011, including the most up to date information available on the dispute in Japan as disclosed in note 32, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

Disclosure of Information to Auditors

Each of the persons who is a director at the date of approval of this report confirms that:

• so far as the director is aware, there is no relevant information of which the Company’s auditors are unaware.
• the director has taken all steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of Section 418(2) of the Companies Act 2006.

Auditor

Deloitte LLP has expressed its willingness to continue in office as auditor and a resolution to reappoint Deloitte LLP will be proposed at the forthcoming AGM. The Audit Committee confirms that it has conducted an assessment of the external auditors and determined that adequate policies and safeguards are in place to ensure that their independence and objectivity has not been impaired.

Directors’ indemnities

The Company has made qualifying third party indemnity provisions for the benefit of its directors which were made during the year and remain in force at the date of this report.

Supplier payment policy

The Group’s policy for supplier payment is set out in the Financial Review.

Disabled employees

Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees.

Employee consultation

The Group places considerable value on the involvement of its employees and has continued to keep them informed on matters affecting them as employees and on the various factors affecting the performance of the Group through regular email communications from the Chief Executive, formal and informal meetings and through the Group intranet. A comprehensive all employee survey is conducted annually to obtain employees’ views on a wide range of matters affecting their current and future interests. All employees, including directors, have access to the newly created Psion Community website and are encouraged to participate in discussion on matters relating to the business.

Annual General Meeting (“AGM”)

The AGM is to be held at The Lincoln Centre, 18 Lincoln’s Inn Fields, London WC2A 3ED on 7 May 2010 at 10am. Notice of the AGM is set out in a separate document enclosed with this report. An outline of special business to be dealt with at the AGM is given below.

Special business

Authority to allot shares

At the AGM held on 8 May 2009, members gave authority to the directors, which will expire on 7 May 2010, to allot a maximum of £14,053,989 in nominal value of relevant securities. The term ‘relevant securities’ included the Company’s unissued ordinary shares and any securities convertible into ordinary shares.

Resolution 8 in the notice of AGM replaces the authority granted in 2009. Paragraph (a) of this resolution would give the directors the authority to allot ordinary shares or grant rights to subscribe for or convert any securities into ordinary shares up to an aggregate nominal amount equal to £7,028,641 (representing 46,857,609 ordinary shares). This amount represents approximately one-third of the issued ordinary share capital of the Company as at 3 March 2010, the latest practicable date prior to publication of this report (‘the Latest Practicable Date’).

Paragraph (b) of this resolution would give the Board authority to allot ordinary shares or grant rights to subscribe for or convert any securities into ordinary shares in connection with a rights issue, to existing shareholders in proportion (as nearly as many be practicable) to their existing holdings, up to an aggregate nominal amount equal to £14,057,283 (representing 93,715,218 ordinary shares), as reduced by the nominal amount of any shares issued under paragraph (a) of this resolution. This amount (before any reduction) represents approximately two-thirds of the issued ordinary share capital of the Company as at the Latest Practicable Date.

The authorities sought under paragraphs (a) and (b) of this resolution will expire at the earlier of the conclusion of next year’s AGM or 7 August 2011.

The Board will continue to seek to renew these authorities at each AGM, in accordance with current best practice. The Board has no present intention to exercise either of the authorities sought under resolution 8, except, under paragraph (a), to satisfy options under the Company’s share option schemes. In the event that the authority granted under paragraph (b) was used, all directors would seek re-election at the following AGM, in accordance with the guidance issued by the Rights Issue Review Group in connection with the ABI.

Articles of Association

It is proposed in Resolution 9 to adopt new articles of association (the “New Articles”) in order to update the Company’s current articles of association (the “Current Articles”) primarily to take account of the Shareholders’ Rights Regulations 2009 and the implementation of the last parts of the Companies Act 2006.

The principal changes introduced in the New Articles are summarised in Appendix 1 of the Notice of Meeting. Other changes, which are of a minor, technical or clarifying nature and also some more minor changes which merely reflect changes made by the Companies Act 2006 and the Shareholders’ Rights Regulations or conform the language of the New Articles with that used in the model articles for public companies produced by the Department for Business, Innovation and Skills have not been noted in Appendix 1. The New Articles showing all the changes to the Current Articles are available for inspection at the Company’s registered office during normal business hours and for 30 minutes prior to, and during, the AGM.

Disapplication of pre-emption rights

Resolution 10 would give the Board the authority to allot ordinary shares (or sell any ordinary shares with the company elects to hold in treasury) for cash without first offering them to existing shareholders in proportion to their existing shareholdings.

This authority would be limited to:

• pursuant to a rights issue or a sale equivalent to a rights issue up to an aggregate nominal value of £7,028,641 representing approximately one-third of the issued ordinary share capital as at the Latest Practicable Date; or
• the allotment of shares (other than as part of a rights issue) or the sale of treasury shares for cash up to an aggregate nominal value of £1,054,296 representing 7,028,641 ordinary shares, such amount being equivalent to 5% of the issued share capital as at the Latest Practicable Date.

The Board will continue to seek to renew this authority at each AGM, in accordance with current best practice. This authority will expire at the earlier of the conclusion of the next year’s AGM or 7 August 2011.

Authority for market purchases

At the AGM held on 8 May 2009, the members granted authority for the company to buy up to a maximum of 14,053,989 of its own ordinary shares in the market.

Resolution 11 in the Notice of AGM renews and replaces that authority and would allow the company to buy back up to 14,057,283 ordinary shares (i.e. £2,108,592 in nominal value) in the market (10% of the issued ordinary share capital at the Latest Practicable Date). The resolution sets out the lowest and highest prices that the Company can pay for the ordinary shares. The authority will expire at the conclusion of next year’s AGM or on 7 August 2011, if earlier. Any shares ordinary shares so purchased would be either held as treasury shares or cancelled.

The Board has no present intention of exercising the authority to make market purchases. The Board would only authorise such purchases after careful consideration of whether the effect would be in the best interests of shareholders generally.

By order of the Board

Louise Meads
Company Secretary
16 March 2010

Registered office
48 Charlotte Street
London W1T 2NS