Final Results

SEPURA PLC (LSE: SEPU)

22 JUNE 2011

SEPURA PLC

AUDITED PRELIMINARY RESULTS

FOR THE PERIOD ENDED 1 APRIL 2011

Sepura plc (the "Company"), a leading global provider of TETRA digital radios, today announces its preliminary results for the period ended 1 April 2011.

A presentation of the preliminary results to analysts will be held today at 9.00 am at the offices of Goldman Sachs, 7th Floor, River Court, 120 Fleet Street, London EC4A 2BB. The presentation will be available on the investor relations page of our web-site following the event at http://investors.sepura.com.

Position strengthened against challenging market backdrop

Significant H2 gross margin improvement

Cost reduction programme underway to drive further operational efficiencies

Operational highlights

·; Continued growth in emerging markets and commercial sector, with 16 countries each generating over £1m of revenue (FY10: 13)

·; Contracted German shipments pushed out by slower than expected infrastructure roll out,with increase in closing contracted pipeline to over 100,000 radios

·; Addressable market increased with ATEX product launch and US FCC approval for TETRA

Financial highlights

·; Revenue of £70.5m, down 11% from £78.9m

·; Gross margin for the year strengthened to 46.5%, with second half margin of 48.3%

·; Adjusted diluted EPS down 35% to 3.3p

·; Net cash up £4.9m to £6.7m

·; Dividend increased 7% to 1.36p

1 Re-presented to reflect the classification of gains and (losses) on forward currency contracts as a component of financial expense.

2 Adjusted to exclude the capitalisation of development costs (together with associated amortisation) and the IFRS 2 share option charge.

3 Adjusted to exclude the capitalisation of development costs (together with associated amortisation), the IFRS 2 share option charge and other gains and losses arising on marking open foreign exchange contracts to market value, all net of Corporation Tax at the standard rate.

Gordon Watling, Chief Executive Officer of Sepura, commenting on the results for the year, said:

"Certain TETRA markets have been subject to macro-driven delays which have impacted our own radio shipments over the last year. Against this challenging backdrop the Company has grown its market share and continued to broaden its business outside its traditional TETRA markets, both geographically and by end-user segment.

We remain confident about our long term organic growth prospects, with clear and attractive opportunities opening for the Company, including North America, Latin America and the global commercial sector, where we expect our new ATEX products to deliver significant incremental revenues over time."

The 2011 Notice of the Annual General Meeting to be held on Wednesday 25 July 2011 will be distributed to Shareholders on 23 June 2011, and the 2011 Annual Report will be distributed on 30 June 2011.

For further information please contact:

Sepura Tel: 01223 876 000

Gordon Watling, Chief Executive Officer

Paul Goodridge, Chief Financial Officer

Powerscourt (Media Enquiries) Tel: 020 7250 1446

Paul Durman / Rob Greening

CAUTIONARY STATEMENT:

This Preliminary Statement contains certain forward-looking statements with respect to the operations, performance and financial condition of Sepura. By their nature, future events and circumstances can cause results and developments to differ materially from those anticipated. No undertaking is given to update the forward-looking statements whether as a result of new information, future events or otherwise. Nothing in this Preliminary Results announcement should be construed as a profit forecast.

NOTES TO EDITORS:

About Sepura

Sepura is a global leader in the design, manufacture and supply of TETRA (TErrestrial Trunked RAdio) digital radios, which are used predominantly by the emergency services around the world and in the transport, utilities and commercial sectors.

Sepura offers one of the broadest ranges of TETRA products available, is often first to market with innovative products and features, and is a market leader in the supply of surveillance and other specialist TETRA radios and accessories. Founded in the UK in 2002, Sepura has expanded rapidly across the world with a network of regional partners that sell and provide local support for our market-leading products.

Based in Cambridge, England and employing some 300 employees, Sepura was admitted to the Official List of the London Stock Exchange on 3 August 2007. For further information please visit www.sepura.com.

Chairman's Statement

A small number of albeit important TETRA markets have been subject to macro-driven delays which have impacted our radio shipments and reported revenues during this financial year, especially in Germany. Against this challenging backdrop the Company has secured significant new and recurring business, enabling us to grow our market share modestly in our traditional TETRA markets, and broaden our business beyond them. We have expanded into new geographies, grown our presence outside public safety into the commercial sector, and launched exciting new products - all of which we expect to deliver profitable growth in the coming year.

At the same time our cash generation has improved, with closing net cash up £4.9m. We have also delivered a clear improvement in gross margin, which we expect to sustain moving forward. Furthermore, we expect our future profitability to be underpinned by our other initiatives focused on product cost reductions, higher margin opportunities, and our own internal cost reduction programme. This will free additional resources to invest in our longer term growth strategy, such as our entry into North America, where the Federal Communications Commission's waiver permitting the use of TETRA in the United States, combined with similar approval by Industry Canada, increases our addressable market over the longer term.

Having completed a strategic review we therefore remain confident about our long term organic growth prospects, with clear and attractive opportunities opening for the Company. These include some specific niches in the public safety sector, North America, Latin America and the global commercial sector, where we expect our new ATEX products to deliver significant incremental revenues over time. We will also consider modest inorganic expansion to supplement our current core activities should appropriate opportunities arise, and are committed to delivering above median shareholder value creation over the medium term. We are also pleased to announce an increase in the final dividend to 0.91p per share, up 7% on last year's figure and equating to 1.36p per share.

John Hughes, CBE, Chairman

21 June 2011

Chief Executive's Operational Review

TETRA continues to be the digital communications standard of choice for Private Mobile Radio users, with more networks and end-users than ever before. However, the last twelve months have been challenging for the overall TETRA market with continuing pressure on many public sector budgets, together with previously reported delays to the network rollout in Germany, the largest single market for TETRA. Sepura has not been immune to these macro-level challenges, with delays to deliveries under our existing contracts in Germany, originally scheduled for the final quarter of the year, having a significant impact on our results for the period. However, the short-term disappointment in Germany - where revenue has slipped rather than been lost - should not overshadow a strong underlying performance in other markets where we have increased our revenues despite the difficult economic backdrop. We have maintained our market share, continued to invest in new products, such as our recently launched ATEX range, expanded our market reach, and successfully lobbied for the acceptance of TETRA in North America. We start the new year positioned to capitalise on the recovery in the TETRA market, which we expect to return to double digit growth next calendar year.

Germany: External factors delayed contracted revenues

The German Public Safety network has a forecast market size of over 500,000 users, making it the largest TETRA market in the world for the foreseeable future, and to date contracts have been awarded to supply approximately half of the required terminals. We have won over 60% of the volumes awarded to date, with new contract wins during the period of 36,000 radios for Rheinland-Pfalz and a second contract for a further 17,000 radios for Bavaria. However, we saw lower than expected call-offs under our frame contracts in the last quarter of the year as end-users in several major States waited for the outcome of elections in March before committing funds, as well as ongoing delays to the construction and sign-off of the physical infrastructure on which our radios will be used. We delivered 37,000 radios to German customers, fewer than both last year and the number awarded under frame contracts in the period, and we closed the period with an increase in our contracted backlog in Germany to over 100,000 radios. While tendering is underway for further contracts in several States, and we are confident that we will maintain our leading position in this important market, the exact timing of both new contract decisions and call-offs under existing contracts remain difficult to predict pending the completion and hand-over of more infrastructure. This has led us to reflect a flat level of demand in our plans for Germany for the coming financial year prior to an expected resumption of modest growth, most likely later in calendar 2012.

UK: Expected cyclical reduction in demand

The UK has the oldest TETRA network in the world, and the first major "refresh" cycle of police forces replacing ageing fleets of first generation TETRA radios is nearing completion. We delivered 14,000 radios to such police force customers during the period, out of a total of 22,000 radios delivered in the UK. The UK represented 15% of volumes and 19% of revenues compared to 22% and 27% respectively last year. Although we do not expect UK radio volumes to grow in the short-term until other users commence their own refresh cycles, our installed base of over 150,000 radios in the UK generates significant ongoing revenues from replacement batteries, earpieces and other peripherals, which contributed £5m to revenue for the period. We expect other markets to deliver equivalent revenue streams as they mature.

TETRA: Increasing globalisation

TETRA's geographical reach is reflected in the 83 countries we supplied during the period, seven of which were new territories for us. Shipments to markets outside the UK and Germany increased 12% from 79,000 to 88,000 radios, which is a considerable achievement as there were no new national public safety networks launched this year while last year's volumes included 17,000 radios to Portugal and 10,000 radios to Pakistan.

Geographical diversity is the first step towards longer-term market growth as many of these new markets will take several years to reach maturity. The development of these emerging TETRA markets is evidenced by 16 countries having generated revenues of over £1m during the period while 20 countries purchased over 1,000 radios, compared to 13 and 16 respectively in the previous financial year. The strengthening of this, our middle order business, is an encouraging sign that the long term drivers for migration to TETRA remain valid, and builds an installed base which will deliver strong recurring revenues - such as the €1m order for replacement batteries placed by one of our Asian customers.

This progress reflects a continuation of the trend that we reported in November of increasing business from emerging economies such as India and Brazil, combined with strong demand from several of our established markets in Northern Europe, especially Scandinavia. We also saw significant volumes in the Netherlands, where we refreshed one of our oldest customers, the Dutch Royal Military Police, and the Rotterdam Police switched their existing fleet to Sepura radios.

Beyond Public Safety: Commercial users investing in TETRA

Sporting events continue to act as catalysts for investment in secure communications. Significant wins during the year included the supply of radios for the World Military Games in Brazil, together with a subsequent contract for radios for 16 airports in Brazil which are being upgraded to TETRA for the 2014 World Cup and 2016 Olympics. Since the end of the period we have also won the first contract for radios to be deployed at the 2014 Winter Olympics in Sochi, which should generate over £1m of revenues in the coming year.

The wider recovery in private sector confidence has generated increasing demand from commercial users across a range of market segments. During the period we delivered 4,000 radios to mining companies in Australia, 5,700 radios to transport customers in France, and 3,500 radios for oil companies in the Middle East and Latin America.

Delivering innovation: ATEX

Product development remains critical to our strategy of developing new markets, and last month we launched our range of ATEX products targeted at the opportunities we are seeing in the oil, gas and petro-chemical industries. These markets increasingly require radios which comply with the rigorous standards set for Intrinsically-Safe ATEX / IECEx certified products, reducing the risk of sparks in "explosive atmospheres" such as flammable gases. The STP8X is the culmination of over 18 months of development effort to adapt our market-leading STP8000 to meet these standards. Volume production is scheduled to commence in the last quarter of the current financial year and we expect this niche product to attract a premium which will help us to maintain our overall ARPUS. We already have substantial interest from end-users, and in due course we expect ATEX to represent approximately 10% of annual TETRA volumes, as the challenging environments in which these mission critical radios operate drive a significantly shorter refresh cycle than that of conventional radios. We also released Radio Manager 2, a significant upgrade to our fleet management solution, and expanded our accessories portfolio.

Investing in the future: Our new platform

Investment in our next generation platform continued during the period. We expect this to be substantially completed in 2014, whereupon we expect our overall development cost to reduce as a percentage of revenues to a more normal level. The platform will deliver materially lower product cost and improve development efficiency. It will also be the platform we use for DMR, and have the capability to extend to other carriers in the longer term.

Strengthening gross margins

During the year we have seen a decrease in the impact of the competitively priced high volume contracts which we saw last year, stabilising pricing and improving our gross margin. We continue to take cost out of our products, including reducing the cost of third party IPR, and since the end of the year we have contracted with a leading Tier 2 contract manufacturer to commence production of some of our products as we seek to improve product margins still further.

Proactively controlling costs

We have today announced a restructuring programme to reduce costs across the business. We expect this exercise, which will be completed during the first half of the year, to yield substantial annual cost savings and improve our operating margins over time.

The TETRA opportunity in North America

The recent decision by the Federal Communications Commission in the United States to provide a limited licence for TETRA, followed by Industry Canada's endorsement of TETRA, opens up a significant and exciting new market for us, with an estimated 11m PMR radio users of whom 85% have yet to migrate to digital. We do not expect significant shipments to the US in the coming year, while we complete regulatory product approval for our radios and infrastructure suppliers and end-users undertake the detailed groundwork required before terminal procurement can begin. However, we believe that TETRA will be an attractive option for similar transport and utility customers to those we currently serve in other parts of the world and are establishing our local routes to market ahead of the first tenders expected later this year.

Outlook

We expect the trends in existing markets from the second half of the year to continue into the current financial year, with strong demand from emerging markets and commercial customers balanced by weak economies in Southern Europe, lower cyclical demand in the UK and delays in large scale terminal procurement in Germany. However, we expect calendar 2012 to bring a return to stronger growth in volumes, driven by the opening of the US, resumed demand in Germany, the scheduled completion of major new TETRA networks currently under construction in Saudi Arabia, Indonesia and India, and a full year contribution from our new ATEX products.

Gordon Watling, Chief Executive Officer

21 June 2011

Financial Review

Revenue

Overall terminal volumes decreased by 5% to 147,000 radios, while ARPUS ("Average Revenue Per Unit Shipped") for the full year declined 7% at reported exchange rates to £480 (at constant currency ARPUS would have reduced by 4% to £491) as a result of changing product and customer mix, together with the impact of offering volume discounts to larger customers. However, ARPUS in the second half of the year increased as expected to £502 from £456 in the first half, and we expect ARPUS to remain at the FY11 ending level for the coming year. As a result, total revenues for the year decreased 11% to £70.5m from £78.9m. On a constant currency basis the decrease year on year was 9%.

Gross margin

Gross margins increased as expected in the second half of the period by 4% to 48.3%, resulting in the full year margin increasing to 46.5% compared to 46.0% the previous year. This was a result of a move to higher margin, low volume business, especially in the commercial sector, cost reduction programmes and the diminishing impact of the high volume competitive tenders seen last year, as the prices for products supplied under these contracts is fixed. We expect product margins for the coming year to strengthen slightly from the level seen in the second half of the period, with future price declines offset by favourable product and customer mix and further planned product cost reductions.

Research and development costs

Investment in R&D increased by 4% to £14.0m from £13.5m in FY10, representing 20% of revenues (2010: 17%). Significant investments during the year included our ATEX product, launched after the end of the financial year, additional software for German customers and continuing work on our new platform and DMR portfolio.

The income statement charge reflects the timing of the capitalisation and subsequent amortisation of development expenditure, and increased during the period by 14% to £12.8m (2010: £11.3m). This reflected a 22% increase in the annual amortisation charge as a result of the commencement of amortisation on software released to German customers during the period. The increasing amortisation charge continues to converge with the value of costs capitalised each year, with the difference between the gross cash spend and the income statement charge being £1.2m, compared to £2.2m last year. We capitalised 77% of research and development expenditure in 2011 (2010: 75%), reflecting the investment in longer-term projects.

Selling, marketing, distribution and administrative expenses

During the period we invested in additional sales resources in key markets such as India, Latin America and Asia Pacific, resulting in an increase in selling, marketing and distribution costs from £9.0m to £9.9m. We will continue to target resources at key growth markets to enable us to take full advantage of TETRA's continuing roll-out around the world.

Administrative costs, excluding the IFRS2 share option charge, decreased 12% from £6.4m to £5.6m as a result of continued tight control of cash operating costs.

Total selling, marketing, distribution and administrative costs, excluding the IFRS2 share option charge, increased as a percentage of revenue to 22% (2010: 20%). The cost reduction programme announced today is expected to result in a reduction in current year operating costs compared to the financial period just ended of approximately £1.7m, with an annualised saving of approximately £2.5m, at a cash cost of approximately £1.0m.

Operating profit

Adjusted operating profit was £3.2m (2010: £7.4m) while the reported operating profit for the period was £3.8m (2010: £9.5m). The reported operating margin was 5.4% (2010: 12.1%).

EPS

Adjusted diluted earnings per share, based on expensing our development costs as they are incurred and excluding both the impact of the IFRS 2 share option charge and the unrealised gain or loss on marking our open foreign exchange contracts to market value, was 3.3p (2010: 5.1p). Diluted earnings per share was 3.0p (2010: 6.2p).

Balance sheet and cashflows

The balance sheet reflects the normal high proportion of annual revenue that is invoiced in March, with closing trade receivables (net of provisions) of £24.3m representing 45 days sales (2010: £32.8m and 72 respectively; trade receivables at 31 March 2010 included c. £8m relating to outstanding receivables under the Portuguese frame contract which were received during the current period). Closing inventory was higher than planned as a result of lower than expected revenue in the final quarter of the period and stood at £10.4m (2010: £6.6m). As a result stock turns have temporarily deteriorated to 4 times compared to 9 times in 2010.

Net assets were £46.2m (2010: £43.3m) including £11.1m (2010: £9.1m) of cash. The balance sheet remains strong, enabling us to respond to opportunities as they arise.

Cash generated in the year improved significantly to £2.0m (2010: £6.6m consumed); prior to loan repayments and dividend payments cash generated was £6.8m (2010: £1.9m consumed). Cash generated by trading operations was £19.4m (2010: £9.9m) as a result of a reduction in working capital of £3.5m compared to an increase in working capital of £9.9m in 2010. Working capital was particularly high at March 2010 as a result of the administrative delay in the Finance Court approval for payment under the Portuguese contract which was released in 2011.

Capital expenditure comprised:

£0.9m (2010: £1.0m) spent on property, plant and equipment;

£0.6m (2010: £0.5m) on software and other intangible assets; and

£10.8m (2010: £10.1m) of capitalised development costs.

During the year we made net interest payments on our debt of £0.2m (2010: £0.2m), including interest received on cash balances, and paid £0.1m (2010: £Nil) in relation to corporate income taxes.

After allowing for these payments we increased our net funds by £4.9m (2010: £3.7m reduction). We made scheduled repayments of £3.0m (2010: £3.0m) of borrowings, and paid dividends totalling £1.8m (2010: £1.7m).

Treasury and taxation

1. Financing

At the end of the year the Group had net funds of £6.7m (2010: £1.7m) consisting of £11.1m of cash and cash equivalents, net of £4.4m of borrowings representing the outstanding balance on the initial £15m drawn down from our loan facility. All of the covenants associated with the loan were complied with during the year. The Group also has in place a further £15m of unused credit facilities. We propose to maintain this facility, which runs through to September 2012, as it provides additional flexibility while the macroeconomic environment remains uncertain. We will continue to ensure that we have the necessary financing structures in place to support the implementation of our strategic plans.

2. Tax

There is a tax credit for the period, as the enhanced tax relief on our research and development expenditure offset the taxable profit generated for the period. We also continue to benefit from the taxable losses created on the exercise of employee share options immediately prior to listing, which means there is no UK tax payable in respect of 2011 and we have £7.8m (net) of losses available for offset against future taxable profits (2010: £7.0m). We also have deferred tax liabilities of £6.3m (2010: £6.5m) in relation to the development costs capitalised under IFRS, which do not represent future tax cash payments and will be released to income as the related costs are amortised.

3. Treasury

The interest charge for the year was £0.2m (2010: £0.3m), giving interest cover of 16 times (2009: 32 times). Interest rates continue to be at post-war lows and we have in place an interest cap arrangement covering all our remaining loans to maturity, reducing our exposure to any future significant increases in LIBOR.

The Group's results are increasingly subject to the strength or weakness of the Euro relative to Sterling as the proportion of overseas business grows. The period under review has seen significant volatility in the Euro/Sterling exchange rate, which was 1.124 at the end of March 2010 and reached a high of 1.235 during June before strengthening to 1.133 at the end of the period. In the light of this volatility, we decided during the first quarter of the period to take out a series of forward currency contracts to cover approximately 90% of the forecast net Euro cash inflows relating to the period under review, maturing at monthly intervals through to June 2011 at rates between 1.166 and 1.194. Under IFRS the contracts outstanding at the end of the period have been valued at the market rate on that date of 1.133, resulting in an unrealised loss of £1.1m being recognised during the period as a financial expense. We are reviewing our approach to hedging our foreign exchange exposures. In particular, as our current forward cover unwinds and the Sterling denominated revenue becomes a lower proportion of our overall revenues, we are reviewing the functional currency of the business.

We continue to monitor our credit exposure in the current difficult economic environment, although our end users are largely Government organisations and hence our counterparty credit exposure is minimal. We mitigate the risk of default by distributors by use of advance payments and letters of credit where appropriate.

Dividends

The Board has proposed a final dividend of 0.91p per Ordinary share in respect of the year (2010: 0.85p), payable on 12 August 2011 to shareholders on the register at the close of business on 15 July 2011, giving a total dividend of 1.36p per Ordinary share (2010: 1.27p).

Accounting policies

There have been no changes in accounting policies during the year, and we do not anticipate any material impact on earnings or net assets for the coming year as a result of the implementation of forthcoming accounting standards.

Paul Goodridge, Chief Financial Officer

21 June 2011

Consolidated Statement of Comprehensive Income

1Re-presented to reflect the classification of gains and (losses) on forward currency contracts as a component of financial expense (see Note 2).

Consolidated Statement of Changes in Equity

Consolidated Balance Sheet

Consolidated Statement of Cash Flows

1. General information

Sepura plc ("the Company") is a public limited company incorporated and domiciled in England and Wales with the registered number 04353801, and whose Ordinary shares of £0.0005 each are traded on the Main Market of the London Stock Exchange. The Company's registered office is Radio House, St Andrew's Road, Cambridge, CB4 1GR, England.

The Board of Directors approved the preliminary announcement on 21 June 2011. Whilst the financial information included in this preliminary announcement has been prepared in accordance with International Financial Reporting Standards ("IFRS") as endorsed by the European Union, this announcement does not itself contain sufficient information to comply with all the disclosure requirements of IFRS and does not constitute statutory accounts of the Company within the meaning of section 435 of the Companies Act 2006.

The auditors have reported on the results for the periods ended 1 April 2011 and 31 March 2010. Their reports were not qualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Statutory accounts for the period ended 1 April 2011 will be delivered to the Registrar of Companies following the Company's Annual General Meeting on 25 July 2011. Details of the resolutions to be proposed at that meeting will be included in the notice of Annual General Meeting to be sent to shareholders. Further copies of the report will be available from the Company Secretary and on the Company's website at www.sepura.com.

2. Basis of preparation

This financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, International Financial Reporting Interpretations Committee ("IFRIC") interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

This consolidated financial information has been prepared on the historical cost basis as modified by the revaluation of financial assets and liabilities (including derivative financial instruments) at fair value through profit or loss.

The Company has prepared this consolidated financial information for the period to 1 April 2011, being the nearest Friday to the end of the period. The Company will prepare future financial statements to the nearest Friday to the period end, to align external reporting dates with internal reporting periods and in accordance with industry practice.

Effective from 1 April 2010 the Company changed the presentation of gains and losses on forward currency contracts in the consolidated statement of comprehensive income. Such contracts are classified under IAS 39, "Financial Instruments: Recognition and Measurement" as "at fair value through profit or loss". They are recognised initially and re-measured throughout the contract's life at fair value, with changes in fair value taken to the consolidated statement of comprehensive income. Historically, these changes in fair value have been included within operating profit as other gains or losses. During the period the Company amended its Treasury Policy to hedge non-specific future cashflows and therefore considered it to be more appropriate to present the gains and losses on the associated forward currency contracts within financial income and expense. The comparative figures have been re-presented accordingly.

For the purposes of the preparation of the consolidated financial information, the Group has applied all standards and interpretations that are effective for accounting periods beginning on or after 1 April 2010. The following new standards and amendments to published standards are effective for accounting periods beginning on or after 1 January 2010 and have been adopted during the current period:

·; IAS 27 (Revised) "Consolidated and Separate Financial Statements"

·; IAS 32 (Amended) "Classification of Rights Issues"

·; IAS 39 (Amended) "Financial Instruments: Recognition and Measurement: Eligible Hedged Items"

·;   IFRS 2 (Amended) "Share-based Payment - Group Cash-settled Share-based Payment Transactions"

·; IFRS 3 (Revised) "Business Combinations"

·; IFRIC 17 "Distributions of Non-cash Assets to Owners"

·; IFRIC 18 "Transfer of Assets from Customers"

·; Annual improvements 2009

None of these have had any impact on the reported results of the Group.

3. EBITDA and adjusted operating profit

Earnings before interest, tax, depreciation and amortisation has been calculated as follows:

Adjusted operating profit has been calculated as follows:

4. Income tax (credit) expense

The tax (credit) expense for both periods is different from the standard rate of corporation tax in the UK, which is 28% (2010: 28%). The differences are explained below:

On 23 March 2011 the Chancellor announced that with effect from 1 April 2011 the standard rate of UK corporation tax will reduce from 28% to 26% and deferred tax balances have been remeasured at this rate as the decrease was substantively enacted on 29 March 2011. The UK government has also announced its intention to reduce the main rate of corporation tax by 1% per annum to 23% by 1 April 2014. These further proposed rate reductions had not been substantively enacted at the balance sheet date and are therefore not reflected in these financial statements. The proposed reductions in the rate are expected to be enacted separately each year, and are not expected to have a material impact on the Group's annual tax charge.

5. Earnings per share

Basic earnings per share has been calculated by dividing earnings attributable to ordinary shareholders by the weighted average number of shares of the Company for each period. For diluted earnings per share, the weighted average number of shares is adjusted to allow for the conversion of all dilutive equity instruments.

The Group presents an adjusted earnings per share figure which excludes the capitalisation of development costs (together with associated amortisation), the IFRS 2 share-option charge and other gains and losses arising on marking open foreign exchange contracts to market value, all net of UK Corporation Tax at the standard rate. This adjusted earnings per share figure has been based on adjusted basic earnings for each financial period and on the same number of diluted weighted average shares in issue as the GAAP earnings per share calculation above.

6. Dividends

The Directors have proposed a final dividend in respect of the financial period ended 1 April 2011 of 0.91p per Ordinary share, or £1,251,000 based on the Ordinary shares in issue at 1 April 2011. The proposed dividend is subject to approval by shareholders and has not been included as a liability in these financial statements.

During the period the Company paid an interim dividend of 0.45p per Ordinary share, totalling £618,000, in respect of the financial period ended 1 April 2011 and a final dividend in respect of the financial period ended 31 March 2010 of 0.85p per Ordinary share, totalling £1,167,000. During the prior period the Company paid an interim dividend of 0.42p per Ordinary share, totalling £573,000, in respect of the financial period ended 31 March 2010 and a final dividend in respect of the financial period ended 31 March 2009 of 0.85p per Ordinary share, totalling £1,160,000.

7. Intangible assets

8. Borrowings

On 27 October 2006 the Group entered into a £30,000,000 multi-currency term loan and revolving facilities agreement with a floating interest rate of 1.5% over LIBOR. £15,000,000 was drawn down against the facility on 27 October 2006, and is repayable in 20 equal quarterly instalments commencing in December 2007. The outstanding capital at 1 April 2011 was £4,500,000 (2010: £7,500,000), and unamortised issue costs were £74,000 (2010: £122,000).

The unused facility of £15,000,000 expires on 11 September 2012.

9. Share capital

At the end of the period the Company's issued share capital comprised 137,318,580 Ordinary shares of £0.0005 each (2010: 136,478,580). During the period the Company issued 840,000 Ordinary shares of £0.0005 each following the exercise of options under employee share option schemes.

10. Cash generated from operations

11. Reconciliation of cash flows to movements in net funds