Introduction

The results for the first half of the year demonstrate the continued progress that Psion is making, both in operational and financial terms. The Company has maintained a strong focus on costs while improving efficiency. It continues to balance the need to deliver satisfactory financial performance with the need to invest in the company’s product portfolio for the medium and long-term. We have continued to invest in key areas of the business, in order to give Psion the best chance of exploiting any economic upturn, increasing its market share and establishing a platform for satisfactory, sustainable profit delivery.

The 10% depreciation in the average £ exchange rate against the Canadian $ has presented a considerable headwind in the first six months of 2010, as we have been at pains to point out. Furthermore, at 30 June 2010, the exchange rates between the £ and the Canadian $ and the £ and the US $ were 14% and 11% lower than 30 June 2009. While this had a marked effect on our financial forecasts for the second half, as previously disclosed, we carefully manage our trading and balance sheet exposures and will continue to do so. It is also worth noting that the strengthening of £ since 30 June 2010 is somewhat advantageous, although some of the benefit of £ strength against the Canadian and US $ is offset by £ strength against the €. We will continue to monitor exchange rates closely in the second half of 2010, given the sensitivity of reported results to relatively small changes in exchange rates.

We are seeing a continued improvement in market conditions, and the Board remains confident that Psion is well placed to deliver strong growth in the years ahead, as a result of the actions we have taken to reposition the Company and to redesign its products and services.

The Board is grateful for everyone’s continuing hard work in implementing our strategy of Open Source Mobility. This is evident in the manner in which all have embraced IngenuityWorking.com, our community website where we interact with our customers and partners. It is through their collective efforts that the launch of our modular product in the third quarter of 2010 remains on track and on budget, as do the launches of further modular products, CDMA wireless products for the US market and a lower-cost PDA product family.

Results

Revenues for the first half of 2010 were on budget at £84.7m (H1 2009: £84.5m).

An operating profit from continuing operations of £4.8m was recorded for the period (H1 2009: loss of £13.9m).

However, after deducting exceptional operating income of £0.5m and deducting share based payment credits of £0.4m, adjusted operating profits from continuing operations were £3.9m (2009: loss of £7.2m). Exceptional operating income is the net of ongoing costs relating to the previously disclosed legal situation in Japan and some residual costs from the restructuring programmes offset by further insurance recoveries against costs incurred in respect of Japan and a small gain on the sale of the Group’s Dubai business. See note 3 for a more detailed summary.

After deducting net capitalisation of development expenditure, normalised operating profits from continuing operations were £0.7m (H1 2009: loss of £1.1m). Psion is capitalising expenditure incurred in the development of its modular technology platform, and will write this asset off over 4 years from the date that the first modular product is launched, expected to be in the third quarter of 2010.

Basic earnings per share were 3.1p (H1 2009: loss per share 10.9p) in the period and adjusted basic earnings per share from continuing operations were 2.5p (H1 2009: loss per share 6.9p).

Cash generated by operations was £2.0m (H1 2009: £8.1m). After restructuring costs, capital expenditure, tax, the currency impact on opening balances and the second interim dividend for 2009, cash absorbed since December 2009 was £5.8m, leaving a closing cash balance of £39.5m.

Inventory increased to £19.2m (December 2009: £18.4m) reflecting efforts to improve customer lead times and the effect of currency movements.

Improvements in working capital management are expected in the second half of the year.

Open Source Mobility Strategy

Following Psion’s successful Change Programme, we have made considerable progress in implementing our plans to improve competitiveness by deploying ‘Open Source Mobility’ (OSM). OSM is our differentiation strategy that leverages our modular technology platform, and extends the benefits of modularity to our customers. The work we have undertaken in developing the underlying platform has had the desired effect of increasing the speed and reducing the cost of developing related products. It has also increased our portfolio of intellectual property, generating a marked increase in patent filings in the first half of 2010. Our first modular product will be launched in the third quarter of 2010, and subsequent products remain on track for subsequent release. We will launch the first of a lower cost PDA family in China in the fourth quarter of 2010. This will be a Psion branded offer, customised to local technology and ergonomic requirements, and will widen our addressable market in this important region and other emerging markets. We also remain on track and on budget in the development of CDMA wireless variants which will allow us to address the sizeable US market for users who require the ability to roam.

We continued to make good progress with our indirect channel strategy, with 52.7% of product revenues being delivered through distribution partners and value-added resellers. Indeed, sales through distribution partners increased from 26.8% of product revenues for the year ended 31 December 2009 to 32.1% in the six months ended 30 June 2010 with value added resellers accounting for 20.6% of product revenues in the period.

We launched our open community, IngenuityWorking.com, in the first quarter of 2010 and it is proving to be a great success. We are at the forefront of deploying such an agile approach, and are seeing notable increases in its membership, the volume and quantity of interesting content, and the willingness of users to collaborate on a wide range of topics. One example is a recent request by our Chief Technology Officer, Mike Doyle, on the development of products that will use the Google developed Android operating system. Our partners have commented favourably on this community, and we will launch a partner solution offer (similar to an applications store) in the second half of 2010, providing them with profitable growth opportunities for hardware, software and service add-ons to Psion products.

We remain convinced that our OSM concept provides us with differentiation from our competitors. Our strategy of widening our addressable market and improving our operational excellence will deliver improved financial returns.

Dividends

The Board of Directors is increasing the interim dividend to 1.3p (2009: 1.2p) to be paid on 17 September 2010 to those shareholders on the register at close of business on 20 August 2010.

Board

We announced on 7 May 2010 that Mr. Toby Redshaw would join us with effect from 10 May 2010. Toby is currently Global Chief Information Officer at insurance group Aviva. He has previously held a range of management roles at companies including Motorola and Fedex Corporation. Toby has already made a strong contribution to the Board and has agreed to be Chairman of our recently formed Technology Committee to coordinate our process to evaluate and exploit emerging technologies.

Outlook

Psion continues to make good progress, both in terms of product development and constant currency financial performance. Having reduced our cost base, improved the positive operating leverage in our business and enhanced our channel sales activity, we are now bringing a range of new products to market. These are on time and on budget; they are also generating considerable customer interest ahead of shipping in volume.

Our order book is growing strongly and the order pipeline is also improving. The Board expects a moderate improvement in revenue in the second half, although exchange rates will continue to impact reported results. We remain confident of strong growth in 2011, based on anticipated demand for our new products, our improved North American offer and the rapidly expanding scope for selling through channel partners.