E2V.L Regulatory News (E2V)

6 June 2011

e2v technologies plc

Results for the year ended 31 March 2011

e2v technologies plc, the provider of specialist technology for high performance systems and equipment, announces its results for the year ended 31 March 2011:

Results

·; Over 9% underlying sales growth, 14% reported.

·; Adjusted* operating margin at 17% - exceeding previous target.

·; Restored progressive dividend programme.

·; Good traction in new applications and geographies.

·; Net borrowings of £28m, down from £45m last year.

·; Order book of £137m (2010: £132m) for delivery in coming 12 months.

Strategy

·; Revalidated strategy.

·; Increased medium term growth targets:

·; Underlying revenue growth to above 10% per annum.

·; Adjusted* operating profit margin to c.17% per annum.

* Adjusted operating profit is before amortisation of acquired intangible assets and operating exceptional items. Adjusted profit before tax is before amortisation of acquired intangible assets and all exceptional items.

** Adjusted earnings is profit before amortisation of acquired intangible assets and all exceptional items less tax where applicable.

Commenting on the results, Keith Attwood, Chief Executive said:

"e2v has performed strongly in overall improving markets and has exceeded the targets for growth and profitability that we set for the Group back in July 2010. As a result we were pleased to be able to announce in April a return to full dividend significantly earlier than plan. We have revalidated our strategy and remain confident that this will deliver longer term growth for the Group.

Given our order cover for the coming 12 months and the current strength of our markets, we anticipate that the Group will show modest headline growth through continuing activities replacing the high level of one-off revenues last year.

Given the overall improving markets and the progress we have made in implementing our strategy, we announce today that we have increased our medium term revenue growth and adjusted* operating profit margin targets."

Further enquiries:

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

We are pleased to report on our last financial year in which e2v has delivered a strong trading performance in improving markets overall and we believe that the business is well positioned to deliver further growth.

We have built on e2v's heritage as a speciality technology group so that we now provide specialist technology for high performance systems and equipment. Our portfolio has been selected for the platform it provides to achieve revenue growth and adjusted* operating profit margin performance. We are positioned as an attractive provider of enabling components, sub-systems and services within these worldwide specialist sectors.

In the last financial year we returned to growth, with underlying revenue increasing by over 9%. Our adjusted* operating profit also grew strongly to a margin of 17%, so exceeding our target.

We fully recognise the support given by shareholders during the recession and we are very aware of the importance that shareholders attach to dividends. We returned to paying dividends earlier than planned, with total dividends proposed for the year of 3.6p per share.

During the year, we have made progress on implementing the growth strategy that we announced last July. This strategy is intended to accelerate our growth in revenue above that of our overall markets. We will achieve this through repositioning our product offerings at a higher level in the value chain, our focus on the two new applications we introduced last year, and through geographic expansion, in particular in the US aerospace and defense and Asia.

We consider that our strategy has substantially expanded our addressed markets. We currently assess the scale of our global markets to be c.£3.7bn. Our markets are growing at c.6% currently, up from c.3% per annum last year. Given our growth initiatives, we envisage that the Group is capable of achieving an underlying revenue growth profile of more than 10% per annum over the next three years along with further upside potential and we believe that this strategy will permit us to continue with our dividend policy on a progressive basis.

Financial performance

The Group's revenue for last year increased 14% to £229m, reflecting over 9% underlying growth in revenue from our continuing products and a strong level of last time buy demand related to the closure of our front end fab facility in France.

Adjusted* operating profit improved considerably from £15m to £38m for the year, reflecting both the improvement of the cost base in the ongoing business and the benefit of incremental contribution from one-off business, including last time buy orders, estimated at £10m. This was also reflected in operating profit that improved to £30m (2010: loss £6m).

Adjusted** earnings per share were 11.26p (2010: 6.67p) and earnings per share were 9.14p (2010: loss 1.66p), from which the Board has proposed dividends for the year of 3.6p per share.

Our level of net borrowings has reduced by £17m in the year to £28m at 31 March 2011, reflecting the improved operating performance and a slow restart to capital expenditure, offsetting additional working capital to support the increasing level of activity and inventory to support last time buy orders.

The Group's total order book at 31 March 2011 was £167m (2010: £161m), an increase of 4%. Our order book for delivery over the coming 12 months also increased to £137m (2010: £132m) of which £8m is for the remaining last time buy orders (2010: one-off orders £12.5m) and so represents an underlying growth of 8%.

The Board

We welcomed to the Board as Non-Executive Directors Dr Krishnamurthy Rajagopal and Kevin Dangerfield. Our thanks are extended to Ian Godden, who resigned this year, for six years of service as a Non-Executive Director.

Our people

For our people, last year has been one of transition as we have mostly completed our major restructuring programme in the UK and France. The Board wishes to thank the staff for their positive support during its implementation and energy to deliver the growth in the business over this period.

Outlook

e2v has performed strongly in overall improving markets and has exceeded the targets for growth and profitability that we set for the Group back in July 2010. As a result we were pleased to be able to announce in April a return to full dividend significantly earlier than plan. We have revalidated our strategy and remain confident that this will deliver longer term growth for the Group.

Given our order cover for the coming 12 months and the current strength of our markets, we anticipate that the Group will show modest headline growth through continuing activities replacing the high level of one-off revenues last year.

Given the overall improving markets and the progress we have made in implementing our strategy, we announce today that we have increased our target for underlying revenue growth to above 10% per annum and adjusted* operating profit margin to c.17%.

Chris Geoghegan Keith Attwood

Chairman Chief Executive

BUSINESS REVIEW

Strategy overview

e2v delivers specialist technology for high performance systems and equipment at a component, sub-system and service level. Our business is built on two core technologies of firstly Radio Frequency (RF) and microwave products, sub-systems and solutions and secondly semiconductor based products and solutions.

The Group is organised into three divisions supported by group functions. The divisions deliver solutions targeted at specialist global application segments. The application segments we have chosen as our focus enable us to leverage our strong technology and market position to provide sub-systems and solutions, thereby expanding our addressable market. We are often a leader in these specific applications. In addition, the Group is focused on increasing our market share in both Asia and the US aerospace and defense sector, from a well established European base.

Business structure

The Group is organised into three divisions that are supported by group functions:

RF power solutions (RFP) - high performance electron devices and sub-systems in three main application segments: radiotherapy, electronic countermeasures and Industrial Processing Systems (IPS) (formerly bulk materials processing).

High performance imaging solutions (HPI) - advanced Charged Coupled Device (CCD) and Complementary Metal Oxide Semiconductor (CMOS) imaging sensors and cameras in three main application segments: machine vision, space imaging and scientific imaging.

Hi-rel semiconductor solutions (HRS) - high reliability semiconductors and services in two main application segments: aerospace and defence semiconductors and semiconductor lifecycle management under the Group's SLiM™ brand.

The three main product divisions have responsibility for product design and development, sales and customer service and work closely with the recently strengthened regional teams in the US and Asia.

Group functions cover:

·; Global operations with responsibility for all manufacturing and supply chain activity across the three main manufacturing sites based in Chelmsford (UK), Grenoble (France) and Santa Clara (California, US).

·; Support services including group marketing and technology, finance, commercial, IT and human resources.

·; The remaining two non-core businesses which provide a range of professional sensing products for x-rayspectroscopy and gas sensing for automotive and environmental safety applications.

Market and growth profile

Last year OC&C assisted the Group to develop our implementation plans for our growth strategy and this included a review of our addressed markets. From 2008 to 2009 we consider that the addressed market fell to c.£2bn. The strategic plan we announced last July expanded this to over £3.5bn with a targeted growth rate of c.3% per annum. With improving end user markets, the markets are demonstrating increased underlying growth of c.6%. The specific growth initiatives and geographic expansion are better defined and with our growing confidence, we consider that we will grow faster than the overall market. We plan to achieve this through our move up the value chain including introduction of our two new applications in the last year and through expansion in our newer geographies by 2% to 4% per annum and 2% to 5% per annum respectively. We are therefore now targeting underlying revenue growth of at least 10% with further upside potential. Underlying revenue excludes one-off revenue in the year, arising mainly from last time buys on the Grenoble front end fab and non-core business and products (principally servicing the automotive sector).

RF power solutions

Financials

Revenue grew by 4% to £82.1m (2010: £78.8m) and underlying revenue growth (excluding the non-core automotive alarms business) was 5%. Continued strong demand for new systems and spares in radiotherapy and industrial products more than offset the anticipated weakness in demand in Europe for electronic countermeasures. In respect of electronic countermeasures we now have good customer engagement building, which is driven by our ultra wideband Traveling Wave Tube (TWT) and Microwave Power Module (MPM).

The division's adjusted* operating profit was £12.8m (2010: £11.2m), an increase of 14%. This reflected the planned savings from headcount reduction and the benefit from specific programmes to improve efficiency and reduced warranty costs as well as the contribution from higher volumes and improved pricing on some low margin products.

The order book at 31 March 2011 was £73m (2010: £82m). The reduction reflected the run-out of multi-year radiotherapyorders and the anticipated decline in defence related orders, partially offset by increased industrial business, which has grown but typically has shorter order cycles than the radiotherapy and defence applications. The orders due for delivery in 12 months as at the 31 March 2011 were £54m (2010: £60m), down 10% in line with the total order book reflecting the changing mix in the order book.

Application segments

Radiotherapy

We deliver high performance, high reliability products and provide the continuity for long term spares requirements that our radiotherapy customers require. e2v is established as the market leader for the supply of magnetrons, thyratrons, modulators and services. Our principal customers are the radiotherapy system Original Equipment Manufacturers (OEMs) including Tomotherapy, Elekta, Varian and Siemens. Key drivers for the market include new equipment demand which is dependant on healthcare spending, whereas the underlying demand for spares is primarily driven by the installed base and the spares replacement cycle which can be between five to ten years after a new system is commissioned.

Last year the division's radiotherapy revenue grew strongly, in part reflecting some restocking by the OEMs but also increased demand for both new build equipment and spares. For the coming years we anticipate that spares revenue will grow in line with the past expansion of the installed base over the last five to ten years. Growth is anticipated to be driven by continued new build demand which accounts for approximately one third of the growth along with the growing installed base that underpins the other two thirds of the anticipated growth. We consider further upside potential is available from moving up the value chain if we were to develop two new RF generating sub-systems. These could include the next generation tunable S-band magnetron and modulator that offers a smaller, more flexible footprint than conventional approaches and provides an alternative to the principal alternative technology, klystrons, in high average and peak power applications.

Electronic countermeasures

We provide components and sub-systems for electronic countermeasure protection of high value air, land and naval platforms. e2v manufactures key components, such as magnetrons and coupled-cavity TWTs, and, at a sub-system level, MPMs as well as delivering design and development services. Our products are typically European originating, so are not restricted under the US's International Traffic in Arms Regulation (ITAR) which is a key advantage in our international markets. In the US, our operations are now authorised for defence programmes. Key customers are the system level OEMs, including BAE Systems, Selex Galileo, Raytheon, Saab, EADS and Thales. For some applications e2v also contracts directly with the end users or governmental laboratories through their technology groups.

Sales into electronic countermeasure applications reflected the anticipated lower demand in Europe. The engagement in the US is building with a further contract award within the ALE-55 programme as well as a new development contract for our ultra wideband TWT. Growth is anticipated to come in Europe from contracts to supply MPMs to two OEMs, one of which has been secured since the year end and from the two existing US programmes. Potential for faster growth may be achieved through contracts for sub-systems in the US, faster sub-system growth in Europe and developing markets such as India. e2v's unique technology, including the new ultra wideband TWT and the recently launched MPM, is gaining traction in Europe and the US because of the products size, weight and performance.

Industrial processing systems

Our novel application of microwave and high power RF to the processing of bulk materials delivers transformational economics in energy consumption and material yield in established sectors. Industrial processing systems can provide RF generators or complete systems, which include a RF generator, material handling system and process control. The current focus is applications for mining and drill cuttings decontamination, where we are providing an RF generator, and vermiculite processing, where e2v provides a complete system. Our customers for the mining and drill cuttings decontamination applications are leading players for each market and are protected through licensing arrangements. e2v has exclusively licensed key intellectual property for vermiculite processing and is free to address this sector.

During the year e2v has secured orders of c.£1m for development work with our customers in the mining and offshore drill cuttings decontamination sectors. Since the year end we have secured further orders, including one for an in-mine trial deployment. We have also demonstrated our vermiculite processing system to the Vermiculate Association, the global body which draws together miners, exfoliators and end users of this mineral. We are now exploring with a number of these companies conditions under which we could conduct trials on their production sites.

We are also developing a second generation product which will be smaller, less costly and more closely aligned with high power users in mining and drill cuttings decontamination applications.

Growth in vermiculite processing is anticipated to come from new installation and replacement markets which we consider to support the sale of c.30 systems per year. It is also anticipated that the development programmes for mining will progress to equipment orders for full scale production installation of a full system. Accelerated growth may be achieved through faster take up in the vermiculite market, deployment in drill cuttings decontamination and the possibility of applying the technology to one or two new markets.

In April 2011 e2v was pleased to announce that, subject to due diligence, we have been successful in our application for a £6.2m grant from the Regional Growth Fund. The grant will allow us to accelerate our Research and Development (R&D) programme in conjunction with the University of Nottingham and investment in the infrastructure that supports this opportunity for growth. It will also open up faster deployment for the technology into one or two further markets from amongst applications in food processing, bitumen and soil remediation.

Other applications

The remaining business in the division is principally focused on a range of applications in commercial and industrial markets including, radar for commercial shipping and industrial applications including, induction and dielectric welding, lasers and cargo screening along with satellite communication amplifiers.

Revenue for the remaining business has shown strong growth reflecting recovery in industrial end user markets and increased pricing on selected low margin products.

High performance imaging solutions

Financials

Reported revenue increased by 21% to £64.9m (2010: £53.8m). This included one-off revenue of £17.5m (one-off revenue includes Last Time Buys (LTB) and recovery of the overdue orders related to the restructuring in Grenoble). Underlying revenue growth (excluding mainly the products subject to LTB) was 8%. Demand for machine vision cameras for process control applications in Asia was strong, more than offsetting a decline in space imaging, which experienced programme delays due to technical issues. Good progress has been made during the year on the recovery plan, although certain programmes remain challenging. Demand recovered in the second half for scientific imaging products. The remaining business benefited from LTB activity and underlying growth in the continuing portfolio, particularly e2v's second generation CMOS based dental sensors.

The division's adjusted* operating profit before taxation was £12.7m (2010: £0.5m), a significant increase of £12.2m. This was due to significantly higher volumes in part due to LTB activity, combined with cost savings from the restructuring plan which will be completed with the closure of the Grenoble front end fab in June 2011. R&D spend was maintained in line with the prior year level.

The order book at 31 March 2011 was £54m (2010: £47m), which includes LTB orders of £7.8m (2010: one-off £10.5m) following the decision to close the front end fab in Grenoble. The order book relating to space activities was £34m (2010: £23m), up 48% reflecting order intake and programme delays. The orders due for delivery in 12 months as at 31 March 2011 were £46m (2010: £43m), up 7%.

Application segments

Machine vision

Our camera platforms provide sensitive, high speed performance for high end inspection processes where quality and reliability are key customer requirements for applications such as semiconductor and electronics manufacturing inspection, food and beverage processing, ophthalmology and document imaging. Our products include line scan cameras for high end machine vision and optical coherence tomography ophthalmological applications based on CCD sensor technology. Each end user markets has specialised inspection equipment suppliers that are e2v's customers, including Carl Zeiss, Meditec, Canon Optopol and Orbotech, and there are a large number of integrators which we access via distributors and our agents.

Sales in machine vision have grown significantly with strong demand for cameras for process control applications in Asia. The increased sales resources in Asia provide a platform to support these important and growing markets. Growth is anticipated to be achieved by the expansion of our Asian markets and the widening machine vision product portfolio for which we intend to launch our own line of high end CMOS cameras in the coming year. The upside potential for accelerated customer demand would arise from earlier adoption of e2v's product range including the new CMOS high end cameras.

Space imaging

We have a long established heritage of providing reliable, high performance, high quality space qualified imaging sensors and arrays for space science and astronomy applications and high speed, high resolution sensors for earth observation satellites. Countries wish to maintain independent observation capabilities and the increasing investment in monitoring climate change are driving a growing demand for new observation satellite programmes. We have a strong position in Europe for these CCD sensors and our product remains attractive for this application due to the long proven performance in flight. We are also developing our own CMOS based technology platform. The main end users are worldwide space agencies including NASA, ESA and CNES as well as the prime satellite manufacturers including Astrium, TAS, Boeing and Lockheed.

Delays to project milestones have resulted in lower revenue than the prior year due to the technical nature of the programmes which typically involve significant development work and testing. Good progress has been made on a number of programmes where the development phase is now nearing completion, although certain programmes remain challenging. Growth is underpinned by delivery against secured major European projects. The upside potential would be achieved through earlier projects in the US and securing projects in India and China.

Scientific imaging

Our high performance sensors are particularly well suited for use in high end cameras used in scientific instruments. The market for high end scientific cameras is currently highly concentrated with three manufacturers Andor, Hamamatsu and Roper, all of whom we support. e2v has a significant market share, proprietary technology and has strong relationships with these major customers.

In the first half scientific imaging experienced lower demand due to one major customer that moved to a second source during the prior financial year. In the second half demand recovered strongly. It is anticipated that growth will be by the introduction of new higher performance sensors for the top-end applications. The adoption of our CMOS sensors for mid- range systems has the potential for further accelerating growth.

Other applications

e2v supports a range of other specialist applications for its technology including CMOS dental intra-oral sensors and CMOS area array sensors for use in automatic data collection systems including 2D barcode reading. From 1 April 2011 the thermal imaging product line has been transferred to the High performance imaging solutions division.

Underlying growth has come from the continuing portfolio including the CMOS dental sensors and thermal imaging cameras. Growth is anticipated from new customers for the e2v CMOS dental sensors, the launch of a hand held thermal imaging camera for the security market and from demand for 2D bar code reading that is replacing laser technology and facilitating new applications. The possibility for higher rates of customer demand due to the strength of the product offering and a dental system designed for the Asian market offer a base for upside potential.

Hi-rel semiconductor solutions

Financials

Reported revenue increased by 23% to £62.7m (2010: £50.9m). Underlying revenue growth (excluding one-off revenue and non-core products) was 19%. The semiconductor lifecycle management contract for the 68K series microprocessor on the Eurofighter Typhoon programme secured revenue estimated at £30m over the next ten years of which £14m has been delivered during the current year. The European test and assembly business also grew offsetting lower assembly and test activity in the US operations which was due to lower demand principally from European end users.

The division's adjusted* operating profit was £15.6m (2010: £6.7m), an increase of 133%. This was due to the higher volumes and margins principally due to the 68K contract for Eurofighter Typoon and one-off revenue in the first half, as well as anticipated cost savings from the restructuring in Grenoble and lower R&D spend reflecting the re-prioritisation of R&D. This is part of our strategy for the managed withdrawal from the smart sensor market for sensor signal conditioning Application Specific Integrated Circuits (ASICs) and Application Specific Standard Products (ASSPs) provided mainly to the automotive industry.

The order book at 31 March 2011 was £35m (2010: £29m). The increase includes £2m of orders related to the 68K processors for the Eurofighter programme. The orders for delivery within 12 months as at 31 March 2011 were £33m (2010: £26m which included c.£2m of one-off orders).

Application segments

Aerospace and defence semiconductors

We provide high reliability semiconductors, analogue to digital convertors and packaging and test services that meet the demanding specifications of our aerospace and defence customers and have an established reputation for providing long term support. We partner with Freescale Semiconductor and Everspin, to provide a range of high reliability versions of their standard products. We provide market leading package and screening options and redesigned End of Life (EOL) military specification integrated circuit s. The routes to market for the semiconductor components are generally through distributors and we have strong relationships with two of the major worldwide component distributors, Arrow and Avnet. There are also some direct sales to major defence primes.

Revenue from aerospace and defence semiconductors relating to the European test and assembly business grew offsetting lower assembly and test activity in the US operations reflecting lower demand principally from its European end users. We currently have market leading positions which should underpin future growth, in addition we are also seeking to secure a further partnership with a semiconductor OEM, the ongoing development and redesign programmes and with the possibility for acquisition of strategic EOL products. The potential for further growth is anticipated to be achieved through the support provided into the SLiM™ programmes.

Semiconductor lifecycle management

SLiM™ is a new approach to obsolescence management for our aerospace and defence customers, which provides a longer term proactive approach for managing critical components in aerospace and defence systems, and offers the potential for lower cost and reduced risk over the lifetime of the assets. The defence primes have long term support and maintenance commitments to ensure that the high value military assets they supply continue to perform throughout their life. Semiconductor obsolescence management is a particularly significant and costly issue that needs to be managed within these lifetime support programmes. Our capabilities in design of semiconductors, as well as providing packaging and test services, can extend the availability of otherwise obsolete semiconductors providing our customers with the security of supply of the components they require. The customers for SLiM™ are the large defence primes, including to date Raytheon Space and Airline systems and European OEMs on the Eurofighter Typhoon programme.

The ongoing successful obsolescence mitigation programme for the 68K series microprocessors demonstrates the value of the SLiM™ approach to managing obsolescence. In the US we have partnered with Raytheon Space and Airline Systems to provide semiconductor lifecycle management services to support the F15 radar system with a five year contract with an estimated value of £3m. We are also developing a broad range of other programmes with Raytheon and other leading US based OEMs with potential contract value of c.£35m over five years. Growth is anticipated from contracts with OEMs and we are targeting five contract wins per year with a gradual start to supply of product and also, as referred to above, we are seeking to secure a further partnership with a semiconductor OEM. We anticipate that there is the upside potential for further growth from faster take up of supply by the OEMs and securing a further additional partnership with a semiconductor OEMs.

Other applications

The other applications are in the smart sensor market for sensor signal conditioning ASICs and ASSPs for applications in industrial automation, industrial detectors, automotive safety and security, engine management and climate control applications. These are not considered to be strategic products and are we now managing our exit from these non-core product lines.

Corporate centre

The corporate centre comprised a portfolio of businesses based in the UK and Switzerland covering thermal imaging, x-ray detectors, gas sensors and air quality sensors. The review of the portfolio of these businesses has been completed during the year. From 1 April 2011, the thermal cameras product line will be reported as part of our High performance imaging division. The remaining businesses are confirmed as non-core activities. These non-core businesses, representing 6% of the Group's turnover, have achieved reported growth of c.4% and break even in the year after the allocation of corporatecosts.

Financial overview

Revenue and adjusted* operating profit by division were as follows:

Review of trading performance

The Group's reported revenue increased by 14% compared with the last financial year, with underlying revenue growth of over 9%. There was growth across all of the divisions. By geographical spread, revenue grew in North America, Asia Pacific, Continental Europe and the Rest of World with lower sales in UK. Geographic reach reflects the proportion of sales outside Western Europe (including UK) and increased to 48% in line with our strategy to grow in these markets. New business in the year from new products or customers over three years, made up approximately 21% of revenue, an increase of seven percentage points in the year. Business mix, which reflects the percentage of sales from sub-systems and solutions was 34%.

Adjusted* gross profit increased by 42% to £86.7m (2010: £61.2m) and represented 38% of revenue (2010: 30%). The improved gross margin reflects the increased volumes and the planned reduction in the fixed cost base as a result of the nearly complete restructuring programme. These cost savings were on plan and completion of the plan in the coming year should offset the margin contribution, estimated at £10m, arising from one-off revenue in the year.

Expenditure on R&D has marginally increased to £12.4m (2010: £12.1m). The rate of spend has increased in the second half of the year as the investment in the key programmes is accelerating with the focus on the programmes supporting the growth opportunities. These programmes include the MPM development, the next generation of the high power RF generator for use in IPS, and product lines that are anticipated to be launched in the coming year including the high end CMOS camera for machine vision.

Selling and distribution costs increased by 7% to £16.3m (2010: £15.2m) reflecting the costs associated with the expansion of the sales and distribution function in the US and Asia and incentive payments which flow from the strong performance of sales and order intake.

Administrative expenses decreased to £26.7m (2010: £40.0m). Administrative expenses include a number of the items added back to adjusted* operating profit of £7.0m (2010: £21.1m) detailed below.  The remaining administrative expenses of £19.7m (2010: £19.0m) increased by 4% (£0.7m) with cost savings from the restructuring having been offset by planned expenditure to support our growth strategy including deployment of IT systems.

Adjusted* operating profit

The adjusted* operating profit is considered to reflect more accurately the underlying performance of the business and is calculated as follows:

Adjusted* operating profit increased to £38.2m (2010: £15.0m) and represented 17% of revenue (2010: 7%). The July 2010 target for adjusted* operating profit margin was 15% to be delivered in 18 months. The Group has exceeded this target some 12 months ahead of schedule. Return on capital employed (adjusted* operating profit divided by net operating assets along with intangibles at 31 March 2009 and acquired thereafter) increased to 24% (2010: 9%) reflecting the improved level of profitability of the Group.

Amortisation of acquired intangible assets of £5.8m (2010: £8.6m) has reduced from the prior year and reflects a number of intangible assets recognised on the acquisition of Grenoble and QP Semiconductor Inc. which are now fully amortised. The Group has carried out its annual impairment reviews and considers that there is no further impairment of acquired intangible assets as at 31 March 2011.

The business improvement programme expenses reported within this year were £2.5m (2010: £18.7m) and were as anticipated in the restructuring programmes. A last time build programme, principally in support of machine vision and space imaging product lines, commenced during the year to manufacture product that will no longer be manufactured once the front end fab in Grenoble is closed in June 2011. A provision of £0.8m has been made for these products in line with the Group's accounting policy.

Overall the Group's policy is to put in place forward contracts to sell surplus currencies based on its trading forecasts, with the level of coverage decreasing over the next 12 months. The mark to market adjustment on this cover amounted to a gain of £1.3m (2010: £2.5m) and is described as fair value gains on foreign exchange contracts. The gain reflects the fair value of the forward US$ contracts held by the Group as at the 31 March 2011, which extend over a period of 12 months to March 2012.

Finance charges

Net finance costs before exceptional items were £4.6m (2010: £5.7m), a reduction of 19% compared with the prior year reflecting the lower level of borrowing during the year.

The Group's policy is to manage its interest cost using a mix of fixed and variable rate debt. The movement in the fair value gain of the interest rate swaps held by the Group was negligible (2010: gain of £0.1m). The interest rate swaps held by the Group at 31 March 2011 provide cover for over 65% of the Group's borrowings.

Taxation

The tax charge for the year is £6.3m (2010: credit £7.5m). The effective tax rate on reported profit for the year ended 31 March 2011 amounts to 24.5% including adjustments relating to prior years. The tax charge in the current year has benefited from tax credits for research and development in the UK and France of £2.3m (2010: £2.3m).

The Group generated profits in the UK and US which are subject to tax at 28% and c.40% (including state taxes) respectively. In France, where the standard rate of tax is c.34% the Group made profits, compared to losses in the prior year. French tax losses totaling £10m that were carried back to prior periods last year have been relieved against current year tax payments. In addition the loss of £4m arising in the prior year in France has been relieved against this year's taxable profits. There remains £10m of the French restructuring provision which is only deductible as the expense is incurred.

The effective tax rate on adjusted* profit before tax is 29% including adjustments relating to prior years. The Group is reviewing its tax strategy this year, to ensure that as it expands into new markets the Group's approach to management of taxation remains efficient.

Profit for the year

The profit for the year is £19.5m (2010: loss £2.2m). The return to profitability underlines the significant progress made by the Group during the last year. As a result of the significant improvement in profits, we have restored our progressive dividend programme with an interim dividend of 1.2p per share, paid on 27 May 2011, and a proposed final dividend of 2.4p per share.

Currency

The manufacturing operations in the UK, France, US and Switzerland sell through the Group's global sales and distribution network, and are therefore subject to transactional and translational risks particularly in relation to the US dollar which accounts for 39% (2010: 35%) of the Group's sales. Where US dollars are forecast to exceed US dollar costs, the surplus US dollars are sold under foreign exchange contracts to cover costs incurred in the UK and France in accordance with the Group's hedging policy. In the year ended 31 March 2011, US dollars were sold under exchange contracts at an average rate of $1.62 = £1 (2010: $1.76 = £1).

For the year ended 31 March exchange rates applied were:

The Group repaid its US dollar borrowings during the year and currently all of the Group's borrowings are in Sterling.

Cash flow and net borrowings

At 31 March 2011, net borrowings amounted to £28.1m (2010: £44.8m), a reduction of £16.7m since 31 March 2010. The net cash inflow generated from operations was £36.6m, a decrease of £3.4m over the year ended 31 March 2010. The higher levels of profit in the year have been offset by funding the planned payments of £12.7m associated with restructuring along with the increase in inventory supporting the restructuring programmes and revenue growth. The final instalment of £2m for the sale of the Lincoln site was received during the year. Investment in tangible fixed assets and software increased although at a lower level than planned, to £9.4m (2010: £3.1m), maintaining the manufacturing and support infrastructure but also starting the investment in the facilities to support growth primarily in the UK for IPS and the expansion in US and Asia.

There was the payment of the balance of costs of £1.2m associated with the equity raise completed in the prior year and on the 15 November 2010 the Company purchased 2,400,000 of its own shares at a price of 90p to hedge part of the potential obligations under long term incentive plans.

Borrowing facilities

The Group's banking facilities expire in December 2012. In January, the Group agreed changes to the financial covenants in these banking facilities. The primary result of these changes was to return the control of timing of declaration of any dividends to the Board.

£10m of the term loans is repayable on 31 December 2011 with the balance being repayable on 31 December 2012. The facilities are available to the Group in full until 31 December 2012. We plan to refinance these facilities in the first half of the financial year ending 31 March 2012.

Interest is payable at 275bps over the interbank rates when the ratio of consolidated net borrowings to consolidated EBITDA is below 2:1. Interest rate swaps are in place in accordance with the Group's hedging policy.

The facility is subject to the following key covenants as at 31 March 2011:

If the leverage ratio (defined as the ratio of consolidated net debt to consolidated EBITDA) is above 1.25:1 then the Group is also required to comply with a cash cover covenant (defined as the ratio of net operating cash flow to debt service).

Restructuring

The overall restructuring programme that was announced in October 2009 has progressed in line with our plan. The UK restructuring programme has been completed and the last part of the French restructuring plan will be completed with the closure of the front end fab in June 2011. The total cost of the restructuring programme is now anticipated to be £24m with the remaining payments of up to £11.3m being made through to December 2012.

Central functions

The divisions are supported by group operations and central group functions including group marketing and technology, finance, commercial, IT and human resources.

Sales

Our sales activities are undertaken from sales offices in seven locations, supporting e2v's divisions through managing customer relationships and our global network of distributors and representatives. In the year we opened new offices in China, Japan and South Korea. Since 1 April 2011 the three divisions are responsible for their specific sales teams.

Operations

The group operations function is responsible for the main manufacturing sites in Chelmsford (UK), Grenoble (France), Santa Clara (California, US), as well as the smaller sites in the UK and Switzerland. Group operations are also responsible for supply chain and procurement and have a dedicated purchasing office in Taipei. Group operations are responsible for maintaining the manufacturing facilities whilst controlling spend on tangible fixed assets. The facility that we have secured in China includes provision for assembly activities and its fit out has commenced.

Central functions

The costs of the central functions are allocated to the divisions. The central costs, excluding exchange differences, of £1.5m (2010: £2.6m) are the costs relating specifically to the management of e2v technologies plc and are not allocated. The reduction in unallocated cost in part reflects lower professional fees than the prior year which included the refinancing and the external advice on our strategy review.

Key performance indicators (KPIs)

Our KPIs to monitor financial performance have been covered in detail in this Business Review. The table below provides a summary of our KPIs. Non-financial KPIs are discussed in detail in the Corporate Responsibility Report and include, customer satisfaction, number of reportable accidents in the year, percentage reduction in our carbon footprint and Business in the Community (BITC) Environmental Index.

Board of Directors

Chris Geoghegan - Chairman

Chris joined the e2v Board as Chairman in October 2009. He has over 30 years of experience in the aerospace industry having spent most of his career in the commercial aircraft sector and was appointed one of three chief operating officers of BAE Systems plc. Chris was a key player in the growth and establishment of Airbus as managing director of the Airbus Company and a member of the executive board of Airbus Industrie. He also has substantial experience in the military aerospace sector, having been responsible for BAE Systems' European defence joint ventures and its defence electronics companies. He is currently the Chairman of Hampson Industries plc and senior independent director of Kier Group plc, Volex plc and SIG plc and a past president of the Society of British Aerospace Companies.

Keith Attwood - Chief Executive

Keith joined the Group as Managing Director in 1998, having previously worked at a senior level within the telecommunications, defence and aerospace sectors. Keith led a management buy out of e2v from Marconi plc in 2002 and subsequently floated the company on the London Stock Exchange in 2004. He is former Chairman of the CBI East of England Regional Council and is currently chair of the CBI Education and Skills Committee.

Charles Hindson - Group Finance Director

Charles joined the e2v Board in May 2009. Charles' last role was Chief Executive, and prior to that Group Finance Director, of Filtronic plc, a UK listed specialist electronics manufacturing group. Previously, he was Finance Director at Eutelstat S.A. and held various positions with the BT Group, British Gas plc, Price Waterhouse and 3i plc.

Anthony Reading MBE - Senior Independent Non-Executive Director

Tony was appointed to the Board in 2004. He was an Executive Director of Tomkins plc and Chairman and Chief Executive of Tomkins Corporation, USA, for 11 years, until the end of 2003. He is currently a non-executive director of Laird plc and Taylor Wimpey plc, and previously a non-executive director of George Wimpey plc and Spectris plc.

Jonathan Brooks - Independent Non-Executive Director

Jonathan is a non-executive director of AVEVA Group plc, an LSE-listed engineering IT software provider to the plant, power and marine industries and Xyratex Limited, a NASDAQ-listed provider of enterprise class data storage sub-systems and network technology. He is also Chairman of Picochip Inc., a venture capital-backed company developing wireless processors and a non-executive director of Skrill Holdings Ltd, a provider of online payment systems. Between 1995 and 2002, he was Chief Financial Officer and a director of ARM Holdings plc. Jonathan was appointed to the Board in 2004.

Dr Krishnamurthy Rajagopal - Independent Non-Executive Director

Krishnamurthy joined the Board in November 2010 and has considerable experience of senior engagement in global engineering operations and in the supply of materials, equipment and services to the global semiconductor and other high technology industries. He is currently Chairman of both UMIP Ltd and HHV Pumps Ltd and a non-executive director of Spirax-Sarco Engineering plc, Bodycote plc and WS Atkins plc. He was an executive director of the BOC Group plc and is a Fellow of the Royal Academy of Engineering. Dr Rajagopal is a past Commissioner with the Audit Commission, an appointment he held for three years.

Kevin Dangerfield - Independent Non-Executive Director

Kevin was appointed to the Board in January 2011. He is currently Chief Financial Officer of The Morgan Crucible Company plc. He has held a number of senior appointments including European Finance Manager for Virgin Retail Europe Group from 1996 to 1998 before becoming firstly Northern Europe Division Finance Manager in 1998 and then Group Finance Operations Manager for London International Group plc from 1998 to 2000. Kevin was then Group Financial Controller with The Morgan Crucible Company plc from 2000 to 2006 before being appointed to his current role.

DIRECTORS' REPORT

The Directors present their annual report and the audited financial statements for the year ended 31 March 2011. The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The Company financial statements have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).

Principal activity

The Group's principal activity is the design and supply of specialist components and sub-systems into niche sectors within the medical and science, aerospace and defence and the commercial and industrial markets. As discussed in the Business Review, the Group is organised into business divisions which are supported by a number of group functions.

The Group has manufacturing operations in the United Kingdom (UK), France, United States of America (US) and Switzerland. During the year the Group has expended its sales and distribution operations into Japan and China, complimenting its existing operations in the UK, US, Germany, France and Hong Kong. The Group also has an established global network of agents and distributors covering the Americas, Europe, Middle East, Africa, Far East and Australia.

Review of business and future developments

A review of the year's operations, including the Group's key performance indicators, along with the outlook for the coming year, is contained in the Chairman's and Chief Executive's Statement, Business Review and Corporate Responsibility Review.

Results and dividends

The consolidated profit before taxation amounted to £25,832,000 (2010: loss £9,720,000). The profit attributable to ordinary shareholders amounted to £19,492,000 (2010: loss £2,266,000).

As detailed in note 12, no dividends have been paid during the year (2010: £nil). An interim dividend of £2,540,000 was paid on 27 May 2011. The Directors recommend the payment of a final dividend of £5,080,000 (2010: £nil).

Directors

The current members of the Board and the profiles of all Directors at the date of this report are set out above. They all served throughout the year and thereafter except for Krishnamurthy Rajagopal and Kevin Dangerfield who were appointed as Non-Executive Directors on 1 November 2010 and 28 January 2011, respectively. Ian Godden also served as a Non-Executive Director prior to his resignation on 28 January 2011.

The beneficial and non-beneficial interests, including family interests, of the Directors in the share capital of the Company and details of Directors' share options are detailed in the Directors' Remuneration Report.

Directors' indemnity insurance

The Company has indemnified the Directors of the Company and all its subsidiaries against liability in respect of proceedings brought by third parties, subject to the conditions set out in the Companies Act 2006. Such qualifying third party indemnity provision was in force during the year and is still in place as at the date of this report.

Principal risks and uncertainties

As noted in the Corporate Governance Report, the Board has adopted processes to identify, evaluate and manage the significant risks faced by the Group. This is coupled with the significant risks and uncertainties faced by the Group that are set out below.

Global political and economic conditions

Demand for the Group's products and services are a factor of wider economic conditions. During an economic slowdown it is possible that demand for certain products and services provided by the Group may reduce. Furthermore the Group's products are supplied for use into industries which are dependent on and subject to, government policies, national and international political considerations and budgetary constraints which are outside the control of the Group. These risks are mitigated to a degree by the diverse nature of the Group's products and its expanding geographical spread. Furthermore the current economic climate may increase the risk that parties with whom the Group trades, both customers and suppliers, become unable to meet their commitments to the Group. The Group seeks to manage this risk by performing credit checks and taking third party comfort, including letters of credit, where appropriate.

Achievement of growth strategy

The Group has undertaken a strategic review during the year. The strategy is focused on market expansion into sub-systems and solutions, with particular focus on six base applications and two growth applications (Semiconductor lifecycle management and Industrial processing systems) combined with geographic expansion in the Asian and North American markets. The Group's future growth and success depends upon the successful implementation of this strategy and its ability to gain traction in these markets. To be competitive in these areas the Group is investing in its research and development, manufacturing, marketing, customer service support and distribution networks in these areas.

Markets and customers

The Group can be subject to variations in profitability attributable to individual product lines and markets as a result of the timing and level of orders, the introduction of new product lines and the applicable legislative and regulatory framework. The Group operates in a number of diverse yet specialist markets supplying a small number of dominant customers in these markets. As a result, the Group has specific sector dependencies which are influenced by changes in the sourcing policy of these customers which may result from changes in customer policy and re-positioning within the value chain.

Competition including advancement in technology

The Group's business is the design and manufacture of highly technical and specialised products requiring input from skilled personnel. There can be no absolute assurance that any of the Group's products will achieve the required specification or deliver to the customer's expectations and products are continually at risk of being superseded as a result of improvements in alternative technologies that provide the same or comparable functionality. Thus the Group may incur significant liabilities for warranty claims, defects of its products or product recalls. The future success of the Group also depends upon the Group's ability to retain and develop the skilled personnel. The Group seeks to minimise these risks through managed and focused research and development programmes, specification certainty, clear contractual arrangements and appropriate staff remuneration and incentive arrangements.

Production and supply

Across the Group there are a number of strategic partnerships, which in the event of cessation of these relationships or an interruption to the supply of these products could result in a disruption to the business. The Group also relies on external suppliers for specialist materials and sub-assemblies, supply of foundry, packaging and test services and small quantities of highly specialised products. In periods of high demand for these services, the Group may experience delays in the supply as suppliers prioritise customers with volume orders. Certain components are sourced from overseas. Events outside of the Group's control, including natural disasters, could result in delayed deliveries of these products. This was apparent following the Japanese earthquake, where a Group wide team was established to evaluate, monitor and contain any supply chain disruption. Events could also disrupt the Group's manufacturing capabilities at their various locations. Irrespective of the adequacy of insurance coverage, this could cause delays in production and loss of sales and customers. A range of hazardous materials is used at the manufacturing sites. Failure to provide a safe work environment for its employees could have a number of negative outcomes, including: fines and penalties, loss of key customers and reputational damage. The Group is committed to maintaining a safe place of work and has in place quality and safety processes. Failure to protect the Group's intellectual property, principally confidential know-how, could result in a loss of sales. The Group mitigates this risk by the use of operational and management systems, including a requirement that suppliers, customers and employees adhere to confidentiality obligations with respect to the treatment and disclosure of such know-how. Furthermore, patent protection is used to protect certain products and manufacturing processes from competition.

Environmental and regulatory

The Group is subject to numerous laws and regulations both in the United Kingdom and internationally, which regulate health and safety, employment, environmental, taxation, exports and other operating items. Failure to comply with such legislation and regulations may harm the business or the Group's reputation. The Group draws upon the experience of relevant employees and outside advisors in order to ensure compliance with the various requirements. A particular focus forthe Group's US growth aspirations is the defence market. These are dependent upon the Group's US facility maintaining its Special Security Agreement which allows it to handle classified and controlled unclassified materials. The Group employs individuals with relevant experience in this area to ensure compliance with the various requirements of this agreement. Additional environmental legislation may increase operating costs that the Group mitigates, where possible, through improved efficiencies. Unforeseen changes in legislation can have an adverse impact on operations.

Financial risks

The Group is exposed to foreign currency and interest rate risks. Functional currency transactional risk arises when operating subsidiaries enter into transactions denominated in currencies other than their functional currencies. This risk is managed by hedging significant exposures, usually by means of forward exchange contracts. Translational exposure arises on the translation of overseas earnings, investments and relevant borrowings into Sterling for consolidated reporting purposes. Net asset translational risk is mitigated, in part, by foreign currency borrowings. The Group does not hedge translational exposure arising from profit and loss items. Due to the Group's debt obligations, an exposure exists to movements in interest rates, which is managed by the use of hedging arrangements. Furthermore the loan facilities entered into by the Group include a number of financial and non-financial covenants. Breach of these covenants would constitute events of default under such facilities which might result in these borrowings becoming immediately repayable. Forecasts indicate that the current organic growth plan can be managed within existing covenant levels. Credit risk to financial institutions is limited by restricting the range of counterparties to those with high credit ratings. Liquidity risk is managed by monitoring forecast and actual cash flows and ensuring that sufficient committed facilities are in place to meet possible downside scenarios.

Restructuring programmes

During the previous financial year the Group had instigated various cost reduction and restructuring initiatives which affect the Group's operations primarily in France and the United Kingdom. The programme in the United Kingdom is now complete and that in France is expected to be completed in the first half of the year ending 31 March 2012. The advanced nature of these programmes is such that the level of risk associated with the execution and financial implications of these programmes is considerably reduced compared with the prior year, with the current forecast costs of undertaking the programmes being £24 million, compared with the estimated cost of £26 million this time last year. These programmes temporarily reduced staff morale and production was disrupted in the first half of the year ended 31 March 2011 and resulted in increased overdue deliveries to customers. The Group continues to seek to minimise these risks through planned transition arrangements and increased levels of employee and customer engagement.

Property, plant and equipment

Land and buildings at the Group's facility in Grenoble were acquired at fair value in July 2006 and have not subsequently been revalued. In May 2010, following the sale of the Group's site in Lincoln at the end of the previous financial year, it has acquired a new site in the area which principally houses the e2v Microwave Technology Centre.

Although there have been no formal valuations carried out for the remainder of the Group's land and buildings, the Directors believe the market value to be in excess of book values.

Research and development

The Group continues to commit significant resources to existing product enhancement as well as the introduction of new products for established and emerging markets. Resource is also invested in a number of collaborative relationships with key universities to achieve leverage, knowledge exchange and access to and training of talented young scientists and engineers. This is achieved through various mechanisms including a number of Knowledge Transfer partnerships. Customers fund directly a proportion of expenditure on product enhancement and new product development whilst the amount funded by the Group amounted to £12,390,000 (2010: £12,072,000).

Takeover Directive

Pursuant to s992 of the Companies Act 2006, which implements the EU Takeovers Directive, the Company is required to disclose certain information. Such disclosures, which are not covered elsewhere in this Annual Report, include the following:

·; The Company's Articles of Association (Articles) give power to the Board to appoint directors, but require directors to submit themselves for election at the first Annual General Meeting following their appointment and for re-election where they have been a director at each of the preceding two Annual General Meetings and were not appointed or re-appointed by the Company at, or since either such meeting. The Articles may be amended by special resolution of the shareholders and are available to view on the Company's website.

·; The Board of Directors is responsible for the management of the business of the Company and may exercise all the powers of the Company subject to the provisions of the relevant statutes, the Company's Memorandum of Association and the Articles. The Articles contain specific provisions and restrictions regarding the Company's power to borrow money. Powers relating to the issuing and buying back of shares are also included in the Articles and such authorities are renewed by shareholders each year at the Annual General Meeting.

·; Certain agreements of the Group take effect, alter or terminate upon a change of control of the Group following a takeover, including: its bank loan agreements; company share plans; and certain commercial trading contracts.

·; There are no restrictions on the transfer of securities, restrictions on voting rights and agreements between shareholders.

Share capital

Details of the issued share capital, together with movements in the Company's issued share capital are given in note 25.

As at the latest practicable date prior to the publication of this report, the Company's issued share capital is 214,865,300, with a nominal value of £10,743,265.

The Company has one class of ordinary share which carries no right to fixed income. Each share carries the right to one vote at general meetings of the Company.

There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles and prevailing legislation. The Directors are not aware of any agreement between the holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights.

Creditor payment policy

The Group does not have a standard or code of conduct which deals specifically with the payment of suppliers; however whenever the Group is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions it seeks to abide by the payment terms agreed with the individual supplier. The Group's average creditor payment period at 31 March 2011 was 59 days (2010: 76 days).

Charitable and political donations

Details of charitable donations are given in the Corporate Responsibility Review of the annual report. No donations were made to any political parties.

Interests in voting shares

At 18 May 2011 the Company had been notified of the following interests of 3% or more in the Company's ordinary shares.

Disabled employees and employee involvement

The Group endeavours to provide equality of opportunity in recruiting, training, promoting and career development to all, irrespective of race, ethnicity, religion, sexual orientation, gender or age. The Group gives full consideration to applications for employment from a person with a disability where a person with a disability can adequately fulfil the requirements of the role and workplace adjustments can be made to facilitate this appointment.

Where existing employees become disabled it is the Group's policy, wherever practicable, to provide workplace adjustments to ensure continuing employment under normal terms and conditions, and to provide training and career development and promotion opportunities, wherever appropriate.

A review of employee involvement is given in the Corporate Responsibility Review.

Going concern

As discussed in the Chairman's and Chief Executive's Statement, the Group's markets appear to have largely stabilised and the Group's cost base has been, and is continuing, to be reduced. The Group's plans also provide support for its growth initiatives with higher levels of expenditure for research and development and capital expenditure for regular equipment replacement and new product introduction than in the current year.

As a result, in part due to improving markets, the Group has returned to underlying growth, this performance has enabled the Group to negotiate an amendment to its banking facilities to enable the Group to take control of dividend payments and enable an earlier than anticipated return to dividend payments.

The Directors of the Group have prepared detailed profit and cash flow forecasts through to 30 September 2012 and have reviewed the level of the order book and order intake. In preparing these plans, the Directors have considered the risks to the activities in the business including those arising from the focus on meeting customers' needs and the implementation of the Group's strategy initiatives.

The Directors consider that the Group will remain within its covenant requirements for the forecast period and that there is increased headroom against all covenants, and therefore, the Directors believe that it is appropriate to prepare the financial statements on a going concern basis.

Directors' statement of responsibilities

The Directors are responsible for preparing the Annual Report and financial statements in accordance with law and regulations.

Company law requires the Directors to prepare financial statements for each year. Under the provisions of this law, the Directors have prepared the consolidated financial statements in accordance with IFRS as adopted by the European Union and the Company financial statements in accordance with United Kingdom (UK) Accounting Standards and applicable law.

In preparing those financial statements, the Directors are required to:

·; select suitable accounting policies and then apply them consistently;

·; make judgements and estimates that are reasonable and prudent;

·; state that the consolidated financial statements have complied with IFRS as adopted by the European Union, subject to any material departures being disclosed and explained; and

·; state for the Company financial statements whether the applicable UK Accounting Standards have been followed, subject to any material departures being disclosed and explained.

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the consolidated financial statements comply with Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Annual Report for the year ended 31 March 2011 is published in hard copy printed form and made available on the Group's website. The Directors are responsible for the maintenance and integrity of the annual report on the website in accordance with UK legislation governing the preparation and dissemination of financial statements. Access to the website is available from outside the UK, where comparable legislation may be different.

Responsibility statements under the Disclosure and Transparency Rules

Each of the Directors, as at the date of this report, confirms to the best of his knowledge that:

·; the financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the Group; and

·; the Directors' Report includes a fair review of the development and performance of the business and the position of the Company and the Group together with a description of the principal risks and uncertainties that it faces.

Provision of information to the auditor

Having made enquiries of fellow Directors and of the Company's auditor, each of the Directors at the date of approval of this report confirms that:

·; to the best of his knowledge and belief, there is no information (that is information needed by the Group's auditor in connection with preparing their report) of which the Company's auditor are unaware; and

·; the Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Auditor

A resolution to reappoint Ernst & Young LLP as auditor will be put to the members at the Annual General Meeting.

By order of the Board

Charlotte Parmenter

Secretary

3 June 2011

e2v technologies plc

Company No: 4439718

Registered office: 106 Waterhouse Lane, Chelmsford CM1 2QU

CORPORATE GOVERNANCE REPORT

e2v technologies plc recognises the importance of, and is committed to, high standards of corporate governance and as such the Board acknowledges its contribution to achieving management accountability, improving risk management and creating shareholder value. This statement explains how the Group has applied the main and supporting principles of corporate governance and describes the Group's compliance with the provisions set out in Section 1 of the Combined Code on Corporate Governance published by the Financial Reporting Council in June 2008.

Statement by the Directors on compliance with the Combined Code

The Group has complied with the provisions set out in Section 1 of the Combined Code throughout the year.

The Board of Directors

The Group is headed up by a Board which comprises the Chairman, Chief Executive, Group Finance Director and the Non-Executive Directors. Anthony Reading is the Senior Independent Director and Chairman of the Remuneration Committee. All of the Non-Executive Directors are considered by the Board to be independent. Their biographies above demonstrate sufficient experience to bring independent judgement to the Board and the success of the Group. The Board evaluates its own performance and considers itself effective and has not identified any areas of concern.

The Articles of Association require that Directors retire in the third calendar year following the year in which they were elected or re-elected. Any Director appointed by the Board is required to submit themselves for re-election at the next Annual General Meeting after appointment. Krishnamurthy Rajagopal and Kevin Dangerfield, Non-Executive Directors, will therefore be submitting themselves for election at the Annual General Meeting. In addition Keith Attwood will retire by rotation at this Annual General Meeting and submits himself for re-election. Jonathan Brooks also retires by rotation; however he will not be offering himself for re-election and will retire from the Board at the Annual General Meeting.

Role of the Board members

The Non-Executive Directors' primary responsibilities are to:

·; ensure the principles of Corporate Governance are applied;

·; approve the strategy for the business;

·; ensure the strategy is being implemented; and

·; provide independent advice on the implementation of the strategy and other day to day matters where their experience is relevant.

The Executive Directors' primary responsibilities, together with members of the senior management team, are to:

·; formulate the strategy of the business and obtain Board approval; and

·; implement the approved strategy subject to agreed levels of authority.

There exists a clear division of responsibilities between the Chairman and the Chief Executive. The Chairman's primary role includes ensuring that the Board functions properly, that it meets its obligations and responsibilities and that its organisation and mechanisms are in place and are working effectively. The Chief Executive's primary role is to provide overall leadership and vision in developing, with the Board, the strategic direction of the Group. Additionally, the Chief Executive is responsible for the management of the overall business to ensure strategic and business plans are effectively implemented, the results are monitored and reported to the Board and financial and operational objectives are attained.

The Board's responsibilities are discharged by way of monthly Board reviews (except in August and December) and other Board meetings, as required to approve matters beyond the authority limits of the Chief Executive. In addition there is attendance at meetings of the Committees of the Board as well as attendance at regular business division and function reviews when senior members of executive management, who are not Board members, attend. Matters beyond the authority limits of the Chief Executive include, for example, the approval of customer quotes over the approved financial limit set by the Board, the acquisition and disposal of property, certain activities relating to mergers and acquisitions as well as approval of the annual budget.

Conflicts of interest

In line with the Companies Act 2006, the Company has established a robust procedure requiring Directors to seek appropriate authorisation prior to entering into any outside business interests. Actual or potential conflicts of interest are reviewed by the Board.

Board meetings and attendance

In addition to the Committee meetings noted above, there were 16 general Board meetings during the year. All Committee and Board meetings held in the year were quorate. The Board also convened ad-hoc meetings during the year to deal with specific business requirements. The full details of all Board and Committee meetings and attendances is shown in the following table:

(1) Appointed on 1 November 2010.

(2) Appointed on 28 January 2011.

(3) Resigned on 28 January 2011.

Principal Board committees

The Board has established the following committees whose individual terms of reference have been reviewed during the year.

Audit Committee

The Committee is chaired by Jonathan Brooks and has met three times during the year. Ian Godden was a member of the Committee prior to his resignation as a Non-Executive Director. The other members of the Committee are Anthony Reading and Kevin Dangerfield, who was appointed to the Committee upon his appointment on 28 January 2011. Jonathan Brooks and Kevin Dangerfield are deemed to have recent and relevant financial experience. The Chairman, Chief Executive and Group Finance Director attend Audit Committee meetings by invitation and the audit partner attended two meetings during the period. At meetings reviewing the interim and full year results the Non-Executive Directors exercise their right for discussions with the audit partner where no Executive Directors are present. The terms of reference of the Audit Committee include:

·; keeping under review the effectiveness of the financial reporting and internal control policies and procedures for the identification, assessment and reporting of risks;

·; reviewing the arrangements for what is commonly known as "whistle blowing";

·; considering the requirements for establishing an internal audit function;

·; making recommendations to the Board in relation to the appointment and re-appointment of the external auditors as well as overseeing the selection process of any new audit appointment;

·; keeping under review the relationship with the external auditors including assessments of independence and objectivity as well as fee levels and terms of engagement;

·; reviewing the findings of the audit with the external auditors; and

·; reviewing the consistency of accounting policies on a year to year basis and across the Group.

The Audit Committee monitors fees paid to the auditors for non-audit work. During the year £18,000 of non-audit work fees were paid. The Company engages other independent firms of accountants to perform tax consulting and other consulting work. The Committee has monitored the level of non-audit services provided by the external auditor with a view to ensuring objectivity, independence and cost effectiveness.

The Board continues to review the key risks to the business through the Group's risk management process, managed by the Group Finance Director.

Remuneration Committee

The Committee is chaired by Anthony Reading and has met nine times during the year. Other members of the Committee are Jonathan Brooks and Chris Geoghegan. The Chief Executive and Human Resources Director within the Group attend all meetings (but the Chief Executive is not involved in deciding his own remuneration). The Group Finance Director attends when requested. The terms of reference of the Committee include:

·; agreeing with the Board the framework or broad policy for the remuneration of the Executive Directors and other members of executive management, as well as reviewing the appropriateness and relevance of the policy;

·; determining targets for any performance related pay schemes and approving total annual payments under the schemes;

·; reviewing all share incentive plans, the related performance targets and all awards made under the schemes;

·; determining the individual remuneration packages of senior management within the agreed policy as well as contractual arrangements, including pension provisions;

·; determining the procedure for vetting, authorising and re-imbursement of claims for expenses for all Directors; and

·; establishing selection criteria, terms of reference and selection and employment of remuneration consultants.

Full details of Directors' remuneration and policies applied by the Board are set out in the Directors' Remuneration Report.

Nomination Committee

The Committee is chaired by Chris Geoghegan. The other members of the Committee are Keith Attwood and Anthony Reading. Jonathan Brooks had in the previous year joined the Committee for the purposes of appointing a new Chairman of the Board, following this he attended one further Committee meeting during the year at which point he stepped down from the Committee. The Committee has met three times during the year. The terms of reference of the Committee include:

·; regular review of the structure, size and composition of the Board;

·; formal, rigorous and transparent procedures for new appointments to the Board;

·; the formal selection and nominations for Board approval of any new Board appointments; and

·; provision of recommendations to the Board regarding succession, re-appointment and membership of the Audit and Remuneration Committees.

During the year specialist recruitment consultants advised on candidates for the two Non-Executive Director roles based on a profile and detailed job description provided by the Group. All short listed candidates were interviewed individually by the Directors before a final selection was made and a recommendation made to the Board.

Induction and training

Any new directors will receive induction upon their appointment to the Board covering the activities of the Group and its key business and financial risks, the terms of reference of the Board and its Committees and the latest financial information of the Group. Ongoing training is provided as necessary. Directors may consult with the Company Secretary at any time on matters related to their role on the Board. All Directors have access to independent professional advice at the Group's expense where they judge it necessary to discharge their duties, with requests for such advice being authorised by the Chairman or the Company Secretary.

Performance evaluation of the Board

The Chairman and Company Secretary undertook a performance evaluation of the Board which required an assessment, by each individual director, of the performance of the Board and its Committees by way of an anonymous questionnaire and ratings process. The results of this assessment were reviewed by the Board and there were no areas of concern. The Senior Independent Non-Executive Director also led a performance review of the Chairman, which required an assessment, by each Director, of the performance of the Chairman. This assessment was reviewed by the Board and there were no areas of concern.

Communication with shareholders

The Annual Report and Financial Statements and the Half-Yearly Financial Report provide investors with a balanced view of the Group's activities and performance. The half-yearly results were distributed to all shareholders in November 2010. Investors are also welcome to attend the Annual General Meeting. Apart from the Annual General Meeting, the principal form of communication with private investors is the Company's web site which is updated regularly with Company information.

The Chairman is available to institutional investors and the principal contact points are the Chief Executive and Group Finance Director. The Senior Independent Non-Executive Director, Anthony Reading, is also available to whom investors may address any concerns they may have. Presentations are given to individual institutions, or on a Group basis if preferred, following the announcement of half-yearly and full year results. Site tours and ad-hoc meetings are also arranged where requested.

Control environment and internal controls

The Directors acknowledge that they are responsible for the Group's system of internal control and for reviewing its effectiveness and have accordingly reviewed the effectiveness of this during the year. The system is designed to manage rather than eliminate the risk of failure to achieve the Group's strategic objectives, and can only provide reasonable and not absolute assurance against material misstatement of loss.

An ongoing process, in accordance with the guidance of the Turnbull Committee on internal control, has been established for identifying, evaluating and managing the significant risks faced by the Group. This process has been in place throughout the year under review and up to the date of approval of the financial statements. The Board regularly reviews the process.

In addition the Board considers the significance of environmental, social and governance matters relevant to the business of the Group as part of its regular risk assessment procedures and Board constitution as detailed in the Corporate Responsibility Review and in this section.

The Group's key risk management processes and system of internal control procedures include the following:

Management structure: The Group has adopted procedures for the delegation of authority and authorisation levels, segregation of duties and other control procedures. Appointments to the most senior management positions within the Group require Board approval.

Share capital structure: Information about the share capital structure of the Company is discussed in the Directors' Report and in note 25.

Identification and evaluation of business risks: The major financial, commercial, legal, regulatory and operating risks within the Group are identified through a range of review meetings at the relevant management level. Senior management are also involved in the preparation of an annual risk assessment report which is reviewed by the Board.

Information and financial reporting systems:The Group's comprehensive planning and financial reporting procedures include detailed operational budgets for the year ahead and a three year rolling business plan, both of which are approved by the Board. Performance is monitored on a regular basis through monthly reporting and regular forecast updates. Management and specialists within the Finance Department are responsible for ensuring the appropriate maintenance of financial records and processes that ensure all financial information is relevant, reliable, in accordance with the applicable laws and regulations, and distributed both internally and externally in a timely manner. A review of the consolidation and financial statements is completed by management to ensure that the financial position and results of the Group are appropriately reflected. All financial information published by the Group is subject to the approval of the Audit Committee.

Investment appraisal:  All capital expenditure and research and development projects require detailed written proposals and go through strict authorisation processes. All acquisitions are subject to Board approval and commercial, legal and financial due diligence is carried out if a business is to be acquired.

Throughout the Group there are clear lines of delegated authority covering the full range of financial commitments. A schedule of delegated authority for the Board to the Chief Executive is agreed annually and items requiring Board approval are either agreed at monthly Board meetings, or at intervening meetings specifically arranged for the purpose.

At the monthly Board meetings, the Non-Executive Directors review the reports presented to them by the Chief Executive and Group Finance Director, which include a review of the financial results. This review compares current year with previous year and the annual operating plan as well as a current year forecast and order book levels.

At the current time the Board are of the opinion that a formal internal audit function is not considered necessary due to the structure and size of the Group, widespread executive involvement in the day to day business and the levels of review undertaken by the executive management and reported to the Board.

A formal "whistle blowing" policy is operated and is included in the Group's employee handbook.

On behalf of the Board

Jonathan Brooks

Chairman of the Audit Committee

3 June 2011

DIRECTORS' REMUNERATION REPORT

Remuneration Committee 

The Remuneration Committee is responsible for recommending to the Board the framework and broad policy for the remuneration of the Chief Executive, Group Finance Director and such other members of the executive management as it is requested to consider. The remuneration of the Chairman and Non-Executive Directors is a matter reserved for the Executive Directors.

Members of the Committee are appointed by the Board and their terms of reference are available on the Company's website. Anthony Reading currently chairs the Committee, which meets at least twice a year, and its other members are Chris Geoghegan and Jonathan Brooks. The Board considers that all members of the Committee are independent directors. Chris Geoghegan is a member of the Committee because the Board considers it essential that the Chairman be involved in setting remuneration policy (although he is not party to any discussion directly relating to his own remuneration). The Chief Executive is given notice of all meetings and has the right to attend them, and is consulted on the remuneration of other executives. However, the Chief Executive does not take part in discussions that relate directly to his own remuneration.

When determining the pay of Executive Directors, the Committee takes into account the pay and employment conditions of employees throughout the Group. In this regard, the Committee ensures (via regular interaction with the Group's human resources teams) that it is kept fully informed of all relevant group-wide remuneration related issues and ensures that the same broad remuneration principles are used when designing the wider employee remuneration policies. The Chairman of the Remuneration Committee regularly consults with the Group HR Director, who also attends Committee meetings.

Following a tender process, the Committee appointed Deloitte LLP in March 2011 as its independent adviser. Prior to this, the Committee had no formally appointed adviser on remuneration policy. However it has sought advice from Hewitt New Bridge Street who provided services to the Company in connection with the operation of the Company's remuneration arrangements. Hewitt New Bridge Street provide no other services to the Company.

Remuneration policy 

The overall policy applied for the year ended 31 March 2011 and which will apply for the year ending 31 March 2012 is to ensure that Executive Directors are fairly and competitively remunerated and incentivised in a manner consistent with the Group's strategic objectives. The current remuneration packages combine basic salary, benefits and pension contributions together with a performance-related annual bonus and share incentive awards. The Committee believes that the overall packages offered to Executive Directors should provide the right balance of fixed and performance-related pay and be appropriate for the size, scale and geographic scope of the organisation as well as be competitive relative to other companies within its sector. The Committee considers general pay conditions of employees in the Group when determining remuneration levels for the Executive Directors.

In line with the Association of British Insurers' Guidelines on Responsible Investment Disclosure the Committee will ensure that the incentive structure for Executive Directors and senior management will not raise environmental, social or governance (ESG) risks. More generally, with regard to the overall remuneration structure there is no restriction on the Committee which prevents it from taking into account ESG matters, nor more general operational risks.

During March and April 2011, the Committee conducted an independent review of the executive remuneration arrangements. The findings of this review were:

·; basic salaries for the Executive Directors were positioned below the median - for the Chief Executive, the salary was positioned below the lower-quartile; and

·; on a total remuneration basis, positioning was also below median (and below lower-quartile for the Chief Executive).

Following this review, the Committee considered how best to ensure that the remuneration packages are sufficiently competitive whilst maintaining a strong link to Group performance. After consultation with key investors, the Committee concluded that moderate salary adjustments would be made as well as certain changes to the annual bonus plan. This was considered to be a more appropriate approach than making significant salary adjustments which would constitute a fixed and ongoing cost to the Group. The result of the changes is to position the Chief Executive's remuneration package closer to (but still below) the median and the Group Finance Director's package at the median. More details of the changes are provided in the sections below.

Basic salary and/or fees

Basic salary for each Executive Director is determined taking account of the individual's performance and responsibilities and comparable market rates. More particularly, the Committee reviews benchmark data provided by independent remuneration consultants sourced from two groups of companies as follows:

·; a group comprising broadly similar sized companies from the Electronic & Electrical Equipment, Aerospace & Defence and Technology Hardware & Equipment sectors; and

·; a group comprising companies from all sectors (excluding financial companies) of a broadly similar size in terms of market capitalisation, turnover and international scope. Basic salary is reviewed annually and is the only element of remuneration that is pensionable.

Following the review outlined above, the Committee approved an increase of 6% for the Executive Directors, with the increase taking effect from 1 October 2011. These were the first such adjustments for three years. It is anticipated that similar adjustments will be made next year, subject to continued performance. Therefore, the salaries of the Executive Directors for the forthcoming year, effective 1 October 2011, will be: Keith Attwood - £268,000, Charles Hindson - £212,000.

Fees for the Chairman and Non-Executive Directors are determined taking account of the individual's responsibilities including chairing Committees of the Board, time required to devote to the role and comparable market rates.

Benefits 

Benefits comprise the provision of a company car or car allowance and health insurance. Non‑Executive Directors do not receive any benefits.

Pensions 

The Group operates a defined contribution, HM Revenue and Customs approved, pension scheme and also makes contributions into individual personal pension arrangements where these are required. The Company makes contributions of 15% of basic salary to the relevant pension schemes in respect of Executive Directors. Executive Directors are entitled to enhance this through salary sacrifice arrangements and additional voluntary contributions subject to HM Revenue and Customs limits. Non‑Executive Directors' fees are non-pensionable.

Performance-related annual bonus

An annual bonus is payable to Executive Directors subject to the attainment of specific targets which are based on Group performance. The normal maximum bonus opportunity is 100% of basic salary. Non-Executive Directors are not entitled to a bonus. As previously reported, the Remuneration Committee reserves the right, in exceptional circumstances, to amend the targets during the year if it feels that changes, if such factors as the marketplace or the Group's strategy, have resulted in the existing targets no longer providing an appropriate incentive to the individual. No target amendments were made in the current financial year.

For the year ended 31 March 2012, the Committee intends to maintain the cash bonus opportunity that is immediately payable following the year end at 100% of basic salary for maximum performance. However, as a result of maintaining basic salaries at relatively low levels, a further bonus in the form of the Company's shares for a value of up to 40% of basic salary may be earned for maximum performance, but deferred for a three year period.

This additional opportunity is intended to improve the overall competitiveness of the package and, through the introduction of a 'clawback' mechanism (see below), encourage greater focus on long term performance.

In addition, having considered the recommendation in the new Corporate Governance Code, in order to protect the Group and shareholders in exceptional circumstances of misstatement or misconduct a 'clawback' provision will be introduced to allow the Group to reclaim the deferred element under certain circumstances.

The percentage of maximum potential bonus that is payable for on target performance will be reduced so that the target bonus opportunity (as a percentage of basic salary) also remains broadly unchanged. This will ensure that the Executive Directors only receive additional reward if superior performance is achieved.

Share incentives 

The Group's policy is to align the interests of employees with those of shareholders. To achieve this, the Remuneration Committee has established the following schemes:

·; Long Term Incentive Plan (LTIP);

·; Executive Share Option Plan (ExSOP);

·; Share Incentive Plan (SIP); and

·; Share Save Scheme (SAYE).

In Summer 2010, the Committee conducted a review of the operation of the Group's share incentive arrangements during the year, which incorporated a consultation with the Company's major shareholders, to ensure that they remain effective, fully reflect the Group's circumstances and take due account of market and best practice. The results of this review are discussed below.

Service contracts

In line with best practice, it is the policy of the Committee to offer Executive Directors service contracts with notice periods not exceeding 12 months. Current appointments are subject to rolling service contracts that can be terminated by 12 months notice as detailed below.  Termination payments, based on basic salary and benefits only, are limited to contractual notice periods. The Chairman and Non-Executive Directors do not have service contracts but have letters of appointment with the Company. No notice is required to terminate their appointment. The services of Ian Godden were provided under a consultancy agreement with Godden Associates Ltd under the same terms as the letters of appointment for the Chairman and the other Non-Executive Directors. A summary of the Directors' service contracts and letters of appointment is provided below:

(1) Term remaining until Director's retirement by rotation.

Executive Directors are permitted, with the agreement of the Board, to accept outside appointments provided that such appointments do not conflict with their duties as directors of the Company. Whether any fees payable in respect of such outside appointments are retained by the Executive Director or remitted to the Company is determined on a case-by-case basis. No Executive Director held any such appointment in the year ended 31 March 2011.

Shareholding guidelines

Under the Company's shareholding guidelines, which are operated to further align the interests of the Executive Directors and shareholders, Executive Directors will be expected to build up and retain shares equal in value to at least twice their respective basic salaries. Where Executive Directors hold shares above these levels then, with the prior approval of the Chairman, they may undertake sales of these excess shares and this will not be viewed adversely.

Employee Benefit Trust (EBT)

The Company established the EBT in 2004 as a discretionary employee benefit trust, in which all employees of the Group are potentially beneficiaries. The Trustee is Lloyds TSB Offshore Trustee Limited, a professional offshore trustee. The main purpose of the EBT is to operate the LTIP and other share option schemes following recommendations from the Remuneration Committee or Board. Shareholder approval has been given to allow the Trustee to hold no more than 5 per cent of the issued ordinary share capital of the Company, and as at 31 March 2011 the percentage was 0.37% (2010: 0.37%). In addition to the shares held by the EBT, the Company purchased 2,400,000 of its own shares during the year, which are being held in treasury, also to facilitate the operation of the LTIP. This holding represents 1.12% of the issued share capital of the company. No treasury shares were held as at 31 March 2010.

Directors' interests

The beneficial interests of the Directors in the ordinary share capital of the Company as at 31 March 2011 are set out in the table below, together with the beneficial interests at the end of the previous financial year, or date of appointment if later.

There were no changes to the above beneficial interests between the year end and the date of this report. The increase in Directors' holdings arose through Directors purchasing shares in the market.

Performance graph

The graph below shows the change in the Total Shareholder Return (TSR) (with dividends re-invested) for the five year period to 31 March 2011 of a holding of a £100 investment in the Group's shares against the corresponding change in a hypothetical holding of shares in the FTSE Electronics & Electrical Equipment sector. This sector was chosen as it represents the equity market index in which the Company is a constituent member.

INFORMATION SUBJECT TO AUDIT

Long Term Incentive Plan (LTIP)

As indicated in the 2010 Directors' Remuneration Report, the Committee has during the year undertaken a review of the Group's share incentive arrangements, and in particular the LTIP. After consultation with major shareholders, a one-off award was made under the LTIP on 3 August 2010. Historically awards under the LTIP were made to Executive Directors and the Executive Committee, but this one-off award has also included key senior management such that 47 individuals received a one-off award, with 5 million performance shares being granted. The awards received by the Executive Directors and the Executive Committee are at double the normal annual award rate. For Executive Directors the normal award rate is 100% of basic salary. No awards are expected to be made in the forthcoming year to 31 March 2012 to individuals who received an award in August 2010. The 2010 awards vest according to a performance condition based on the Company's absolute TSR calculated as an average over the three month period ending on the last day of the performance period. Participants have been granted a nil price share option, 50% of which have a three year performance period and 50% of which have a four year performance period. The performance condition will be tested at the end of each performance period. The number of shares vesting shall be determined in accordance with the following:

Awards made prior to 2010 will vest on the third anniversary of the date of award to the extent that the performance targets have been met with performance conditions comparing Company's TSR relative to the TSR of a specified list of peer group companies, which are detailed below. 25% of an award will vest for median performance and an award will only vest in full if the Company's TSR performance would place it in the top 20% compared with the peer group, with pro-rata vesting between 25% and full vesting. No award will vest (irrespective of the Company's relative TSR performance) unless an adjusted earnings per share (EPS) growth underpin which is based on Retail Price Index (RPI) plus 2% over the three year performance period, has been satisfied (unless the Committee considers, in exceptional circumstances, that it would be inappropriate to apply this underpin). There is also no provision for re-testing.

The market price of the ordinary shares at 31 March 2011 was 115.5 pence (2010: 39.5 pence) and the range during the year was 39.5 to 125.0 pence.

The peer group for 2009 and 2008 awards comprises the following companies:

• Bodycote International • Invensys • Severfield-Rowen

• Castings • Laird • Spectris

• Charter • Meggitt • Spirax-Sarco Engineering

• Chemring Group • Melrose • Tomkins

• Chloride Group • Morgan Crucible Company • TT Electronics

• Cookson Group • Oxford Instruments • Ultra Electronics Holdings

• Domino Printing Sciences • PV Crystalox Solar • UMECO

• Fenner • QinetiQ Group • Vitec Group

• Halma • Raymarine • VT Group

• Hampson Industries • Renishaw • Weir Group

• Hill & Smith Holdings • Rotork • Xaar

• IMI • Senior

Outstanding awards under the LTIP relating to Directors are summarised below:

The LTIP awards granted in 2007 lapsed during the year as the minimum level of EPS growth underpin had not been achieved.

Executive Share Option Plan (ExSOP)

The Group has an ExSOP for the granting of non-transferable market value options to certain employees over shares worth up to 100% of basic salary each year. The vesting period for the ExSOP is finite allowing eligible employees to exercise the option in a fixed period, once conditions are met. The options may not be exercised unless, over the vesting period, the Company's EPS has increased by a fixed percentage above RPI as detailed in note 28 to the consolidated financial statements. No awards have been made to Executive Directors under this plan in the year ended 31 March 2011 (2010: nil) and all options previously issued under the ExSOP lapsed during the year. The Committee has no present intention of making grants under this plan to Executive Directors in the forthcoming year.

Share Incentive Plan (SIP)

The Group has established a SIP which has been designed to qualify for approval by the HM Revenue and Customs. The plan contains three elements:

·; free shares, which are ordinary shares which may be allocated to an employee by the Company;

·; partnership shares, which are ordinary shares which an employee may purchase out of their pre-tax earnings; and

·; matching shares, which are ordinary shares which may be allocated to an employee following the purchase of partnership shares.

No awards have been made to any employees under this plan as at 31 March 2011.

Share Save Scheme (SAYE)

The Group operates an HM Revenue and Customs approved Share Save Scheme for which all employees and Executive Directors can apply to join if they are UK employees. The Chief Executive and Group Finance Director participate in the Scheme as detailed below:

Directors' remuneration

The remuneration of Directors who served during the year was as follows:

(1) From date of appointment on 5 May 2009.

(2) From date of appointment on 1 October 2009.

(3) From date of appointment on 1 November 2010.

(4) From date of appointment on 28 January 2011.

(5) For period to 28 January 2011, date of resignation.

(6) For period to 28 May 2009, date of resignation as Company Director.

(7) Mike Hannant was employed and paid a month's salary and benefits in June 2009, at a total cost of £14,381 as an employee. In addition, subsequent to the termination of Mike Hannant's employment he provided services to the Group on an interim consultancy basis to assist with the preparation of the required documentation for the equity and debt transactions. Fees for this work totalled £99,735 in the year ended 31 March 2010.

(8) For period to 1 October 2009, date of resignation.

During the previous financial year, a period of short time working was agreed at a number of the Group's sites, whereby 16 days of unpaid leave were taken over a four month period. The Directors participated in this programme with the effect being to reduce annual basic salary by 6.2% in that year.

Directors' pension benefits

The following pension contributions were made by the Company, either to the Company's defined contribution scheme or to personal pension arrangements on behalf of the Executive Directors:

Approval 

This report was approved by the Remuneration Committee and has been approved subsequently by the Board of Directors.

On behalf of the Board

Anthony Reading

Chairman of the Remuneration Committee

3 June 2011

Independent Auditor's Report to the Members of e2v technologies plc

We have audited the consolidated financial statements of e2v technologies plc for the year ended 31 March 2011 which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated statement of financial position, the Consolidated statement of cash flows, the Consolidated statement of changes in equity and the related notes 1 to 32. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditor

As explained more fully in the Directors' statement of responsibilities set out in the Directors' Report, the Directors are responsible for the preparation of the consolidated financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the consolidated financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the consolidated financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Financial Statements to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the consolidated financial statements:

·; give a true and fair view of the state of the Group's affairs as at 31 March 2011 and of its profit for the year then ended;

·; have been properly prepared in accordance with IFRSs as adopted by the European Union; and

·; have been prepared in accordance with the requirements of Companies Act 2006 and Article 4 of the IAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

·; the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

·; the information given in the Corporate Governance Report with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

·; certain disclosures of Directors' remuneration specified by law are not made; or

·; we have not received all the information and explanations we require for our audit; or

·; a Corporate Governance Report has not been prepared by the Company.

Under the Listing Rules we are required to review:

·; the Directors' Report in relation to going concern;

·; the part of the Corporate Governance Report relating to the Company's compliance with the nine provisions of the June 2008 Combined Code specified for our review; and

·; certain elements of the report to shareholders by the Board on Directors' remuneration.

Other matter

We have reported separately on the parent company financial statements of e2v technologies plc for the year ended 31 March 2011 and on the Directors' Remuneration Report that is described as having been audited.

Robert Forsyth (Senior statutory auditor)

for and on behalf of Ernst & Young LLP, Statutory Auditor

Cambridge

3 June 2011

Notes:

1. The maintenance and integrity of the e2v website is the responsibility of the Directors; the work carried out by the auditor does not

involve consideration of these matters and, accordingly, the auditor accept no responsibility for any changes that may have occurred

to the financial statements since they were initially presented on the website.

2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in

other jurisdictions.

Consolidated income statement

Year ended 31 March 2011

Consolidated statement of comprehensive income

Year ended 31 March 2011

Consolidated statement of financial position

As at 31 March 2011

These financial statements were approved by the Board of Directors and authorised for issue on 3 June 2011. They were signed on its behalf by:

K Attwood C Hindson

Chief Executive Group Finance Director

Consolidated statement of cash flows

Year ended 31 March 2011

Consolidated statement of changes in equity

Year ended 31 March 2011

Notes to the financial statements

1. Authorisation of financial statements and statement of compliance with IFRS

e2v technologies plc (the Company) is a public limited company incorporated and domiciled in the United Kingdom under the Companies Act 2006. The Company's shares are publicly traded on the London Stock Exchange. The address of the registered office is given in the Directors' Report. The nature of the Group's operation and its principal activities are set out in the Business Review.

The consolidated financial statements of the Company for the year ended 31 March 2011 comprise the results of the Company and its subsidiary undertakings (together referred to as the Group).

These financial statements are presented in Sterling as that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out in note 2. All values are rounded to the nearest thousand (£000) unless otherwise indicated.

The financial statements were approved for issue by the Board on 3 June 2011.

The principal accounting policies adopted by the Group are set out below.

2. Summary of significant accounting policies

Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) applied in accordance with the Companies Act 2006. The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the consolidated financial statements comply with Article 4 of EU IAS Regulation.

The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. The principal accounting policies are set out below and have been applied consistently to all periods presented in these financial statements.

Going concern

The Directors, having considered all of the relevant information, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and as such believe that it is appropriate to prepare the financial statements on a going concern basis, as detailed in the Directors' Report. These financial statements have therefore been prepared on a going concern basis which assumes that the Group will be able to meet its liabilities as they fall due for the foreseeable future.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of e2v technologies plc and entities controlled by the Company (its subsidiaries) made up to 31 March each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefit from its activities and is achieved through direct or indirect ownership of voting rights; currently exercisable or convertible potential voting rights; or by way of contractual agreement.

The financial statements of subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting period as the parent company. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group. The results of subsidiaries acquired or disposed during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Any unrealised losses arising from intra-group transactions are eliminated to the extent that they are recoverable.

For acquisitions undertaken after 1 April 2010, the acquisition of subsidiaries is accounted for using the purchase method of accounting. The cost of the acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. The choice of measurement of non-controlling interest, either at fair value or at the proportionate share of the acquiree's identifiable net assets is determined on a transaction by transaction basis. Acquisition costs incurred are expensed and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of aggregate of the acquisition date fair value of the consideration transferred and the amount recognised for the non-controlling interest over the net identifiable amounts of the assets acquired and the liabilities assumed in exchange for business combination. Assets acquired and liabilities assumed in transactions separate to the business combinations, such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements are accounted for separately from the business combination in accordance with their nature and applicable IFRSs. Identifiable intangible assets meeting either the contractual, legal or separability criterion are recognised separately from goodwill. Contingent liabilities representing a present obligation are recognised if the acquisition date fair value can be measured reliably.

If the aggregate of the acquisition date fair value of the consideration transferred and the amounts recognised for the non-controlling interest is lower than the fair value of the assets, liabilities and contingent liabilities and the fair value of any pre-existing interest held in the business acquired, the difference is recognised in the income statement.

Acquisitions undertaken prior to 1 April 2010 were also accounted for under the purchase method of accounting. However transaction costs directly attributable to the acquisition formed part of the acquisition costs. Furthermore, contingent consideration was recognised if, and only if, the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognised as part of goodwill.

Foreign currency translation

The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are retranslated into Sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rate of exchange ruling at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured at historical cost in a foreign currency are not retranslated. 

All exchange differences are recognised in the income statement in the period in which they arise except for: exchange differences on transactions entered into that hedge certain foreign currency risks; and exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.

On consolidation, the assets and liabilities of overseas subsidiary undertakings are translated at the rate of exchange ruling at the balance sheet date. Income and expense items are translated at the average exchange rate for the period, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the date of transactions are used. The exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity, within the foreign currency translation reserve. On disposal of a foreign operation, all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to the income statement.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the rate of exchange ruling at the balance sheet date.

Property, plant and equipment

Freehold buildings, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes are stated at cost less accumulated depreciation and any impairment in value.

Assets under construction for production or administrative purposes are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group's accounting policy. Depreciation on these assets commences when the assets are available for use.

Freehold land is not depreciated and is held at historical cost.

Depreciation is recognised so as to write-off the cost of assets (other than land and assets under construction) less their residual values on a straight-line basis over the estimated useful life, as follows:

Freehold buildings 25 to 50 years

Leasehold improvements over the remaining lease term

Plant and equipment 3 to 10 years

Office equipment, fixtures and fittings 3 to 10 years

The carrying values are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount. The recoverable amount of plant and equipment is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs. Impairment losses are recognised in the income statement in the administrative expenses line item. Where an impairment loss subsequently reverses, the carrying value of the asset is increased to the revised estimate of its recoverable amount, not to exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for this asset in prior years. A reversal of impairment loss is recognised immediately in the income statement.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of an acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of the subsidiary. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Any impairment is recognised immediately in the income statement and is not subsequently reversed.

For the purpose of impairment testing, goodwill is allocated to each of the Group's cash generating units expected to benefit from the synergies of the combination. Impairment is determined by assessing the recoverable amount of the cash generating unit, to which goodwill relates. If the recoverable amount of the cash generating unit is less than the carrying amount, an impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

On disposal of a cash generating unit or part of the cash generating unit the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous amounts recorded under UK Generally Accepted Accounting Practice (UK GAAP) subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and will not be included in determining any subsequent profit or loss on disposal.

Intangible assets - research and development costs

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally generated intangible asset arising from the Group's development activities is capitalised only if all of the following conditions are met: an asset is created that can be identified (such as software and new processes); it is probable that the asset created will generate future economic benefits; and the development cost of the asset can be measured reliably.

Internally generated intangible assets are amortised on a straight-line basis over their useful lives, the period of expected future sales, estimated at between three and five years. The amortisation is recorded as part of research and development costs in the income statement. Where no internally generated intangible asset can be capitalised, development expenditure is recognised as an expense in the period in which it is incurred.

When the asset is not in use, the carrying value of development costs is reviewed for impairment annually or more frequently when an indicator of impairment arises during the reporting period indicating that the carrying value may not be recoverable.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

Other intangible assets

Intangible assets acquired separately are capitalised at cost and intangible assets acquired from a business acquisition are capitalised at fair value as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets.

Computer software purchased or internally generated for use that is integral to the hardware (because without that software the equipment cannot operate) is treated as part of the hardware and capitalised as property, plant and equipment. Other software programmes are treated as intangible assets. Intangible assets, excluding development costs and software, created within the business are notcapitalisedand expenditure is charged to the income statement in the period in which the expenditure is incurred.

Intangible assets are tested for impairment annually either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. 

The useful lives of these intangible assets are assessed to be either finite or indefinite. Where amortisation is charged on assets with finite lives, it is provided so as to write-off the cost of intangible assets on a straight-line basis over the estimated useful life, as follows:

Patents, trademarks and technology 5 to 10 years

Customer relationships and agreements 4 to 10 years

Software 2 to 7 years

This expense is taken to the income statement through the following line items:

Patents, trademarks and technology administrative expenses

Customer relationships and agreements administrative expenses

Software cost of sales and administrative expenses

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using a first-in, first-out method. Net realisable value represents the estimated selling prices less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Provision is made for obsolete, slow-moving or defective items where appropriate. A net increase in provision for the year as a whole is recognised as an expense in the year whilst a net reversal of provision for the year as a whole is recognised as a reduction in expense.

Trade and other receivables

Trade receivables, which generally have 30 to 60 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.

Cash and cash equivalents

Cash in the balance sheet comprises cash at bank and in hand and short term deposits with an original maturity of three months or less. For the purpose of the Consolidated statement of cash flows, cash and cash equivalents consist of cash as defined above.

Borrowings

All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

A financial liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of an existing liability and the recognition of a new liability.

Borrowings are classified as current liabilities unless, at the balance sheet date, the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in the income statement using the effective interest method.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is based on the best reliable estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation and its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and that the amount of the receivable can be measured reliably.

A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity.

Provisions for the expected cost of warranty obligations under local sale of goods legislation or contract terms are recognised at the date of sale of the relevant products, at the Directors' best estimate of the expenditure required to settle the Group's obligation.

Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

Pensions, other post-employment and other employment benefits

The Group operates defined contribution pension schemes which require contributions to be made to a separately administered fund. Payments to defined contribution pension schemes are charged as an expense as they fall due. Payments made to a state-managed pension are dealt with as payments to defined contribution schemes where the Group's obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

The Group operates unfunded defined benefit plans in France providing termination payments (post-employment benefit) to employees upon retirement and long service awards paid when the employee reaches certain lengths of service (other employment benefit). The cost of providing benefits is determined with actuarial valuations being carried out on each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. Those related to the termination benefits are recognised outside the income statement and are presented in other comprehensive income, whilst those related to the long service award are recognised in the income statement. When a settlement or curtailment occurs, the obligation and related plan assets are re-measured using current actuarial assumptions and the resultant gain or loss is recognised in the income statement during the period in which the settlement or curtailment occurs.

Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.

The obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost.

Share based payment transactions

Employees (including Directors) of the Company receive remuneration in the form of share based transactions, whereby employees render services in exchange for shares or rights over shares (equity settled transactions). The cost of equity settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined using a binomial model, further details of which are given in note 28. In valuing equity settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company (market conditions).

The cost of equity settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). The cumulative expense recognised for equity settled transactions at each reporting date reflects the extent to which the vesting period has expired and management's best estimate of the number of awards that will ultimately vest.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

Where an equity settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. If a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new shares are treated as if they were a modification of the original award.

The dilution effect of outstanding options is reflected as additional share dilution in the computation of earnings per share (note 11).

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Rental payments under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which the economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

Revenue

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes.

Revenue from the sale of standard products is recognised when all the following conditions are satisfied:

·; the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

·; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

·; the amount of revenue can be measured reliably;

·; it is probable that the economic benefits associated with the transaction will flow to the entity; and

·; the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Revenue in respect of long term contracts for non-standard products and services is recognised by reference to the stage of completion of the project. The stage of completion is determined either by reference to the completion of a physical proportion of the work, dependent upon the nature of the underlying project, or by reference to the proportion that costs incurred for work performed to date bear to the estimated total project costs. Revenues derived from variations on projects are recognised only when they have been accepted by the customer. Full provision is made for losses on projects in the period in which they are first foreseen.

Finance revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Finance revenue income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.

Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants for research programmes are recognised as income over the periods necessary to match them with the related costs deducted in reporting the related expense. Government grants related to property, plant and equipment are treated as deferred income and released to the income statement over the expected useful lives of the assets concerned.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax. Income tax is charged or credited to other comprehensive income if it relates to items that are charged or credited to other comprehensive income. Similarly, income tax is charged or credited directly to equity if it relates to items that are charged or charged directly to equity. Otherwise income tax is recognised in the income statement.

Current tax

The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items of income or expense that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that the taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arising from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is measured on an undiscounted basis and is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Derivative financial instruments and hedging

The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts and interest rate swaps. Further details of derivative financial instruments are disclosed in note 32.

Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in the income statement immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the income statement depends on the nature of the hedge relationship. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedges), hedges of highly probably forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or hedges of net investments in foreign operations.

No derivative financial instruments have been designated as a fair value or cash flow hedge during the current or prior financial year.

A derivative with a positive fair value is presented as a financial asset whereas a derivative with a negative fair value is presented as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

The Group uses foreign currency borrowings to hedge its investment in currency investments and classifies the hedging relationship as a net investment hedge. To the extent that the hedge is effective, changes in the fair value of the hedging instrument are recognised in other comprehensive income.

Classification of shares as debt or equity

When shares are issued, any component that creates a financial liability of the Group is presented as a liability in the balance sheet, measured initially at fair value net of transaction costs and thereafter at amortised cost until extinguished on conversion or redemption.

Own shares

e2v technologies plc shares held by the EBT and the Company are classified in shareholders' equity as own shares and are recognised at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken to retained earnings. No gain or loss is recognised in the income statement or the Statement of comprehensive income on the purchase, sale, issue or cancellation of equity shares.

Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, management must make judgments, estimates and assumptions concerning the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based upon factors such as historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the critical judgements and key sources of estimation uncertainty that the Directors have made in the process of applying the Group's accounting policies and have the most significant effect on the amounts recognised in the consolidated financial statements: measurement and impairment of goodwill and other intangible assets arising on acquisition (note 15); the measurement of provisions for business improvement programme costs (estimation of termination payments and other future costs) (note 23): the measurement of work in progress (stage of completion and total costs to complete); the measurement of product warranty provisions (estimation of level of returns) (note 23); the measurement of environmental provisions (estimation of remediation costs) (note 23); and the measurement and recognition of tax liabilities and deferred tax assets (note 24).

Adjusted profit measures

Profit for the financial year is analysed between:

(a) profit before exceptional items and amortisation of acquired intangible assets; and

(b) the effect of exceptional items and acquired intangible assets amortisation.

i. Exceptional items are material items of income and expense which, in the opinion of the Directors, because of the nature and infrequency of the events giving rise to them, merit separate presentation to allow a better understanding of the elements of the Group's performance for the financial year and are presented on the face of the income statement to facilitate comparisons with prior periods and assessments of trends in financial performance. Exceptional operating items include: business improvement programme expenses; last time build inventory provisions; gains and losses on sale of property; acquisition costs; and fair value gains and losses on foreign exchange contracts. Exceptional finance items include: fair value gains and losses arising on interest rate swaps; realised exchange differences on the re-denomination of borrowings; and write-off of debt issue costs. Exceptional tax items include the tax effect on: exceptional operating items; exceptional finance items; and amortisation of acquired intangibles.

ii. Amortisation of acquired intangible assets, including impairment, has been shown separately to provide increased visibility over the effect of acquisition activity on intangible assets.

Further analysis of exceptional operating and finance items are provided in notes 5 and 9, respectively.

New standards and interpretations applied during the year

In the current year, the following new and revised Standards and Interpretations have been adopted and have not had a material effect on the consolidated financial statements in the period of initial application.

IFRS 3 (revised), "Business Combinations", requires the recognition of subsequent changes in the fair value of contingent consideration in the income statement rather than against goodwill. In addition, transaction costs are required to be recognised immediately in the income statement and contingent consideration which is assessed as having the characteristics associated with employment benefits is expensed to the income statement rather than included in the calculation of goodwill. IFRS 3 (revised) is not required to be applied retrospectively and may significantly affect profit or loss reported in the period of an acquisition, the amount of goodwill recognised in a business combination and profit or loss reported in future periods.

IAS 27(amended), "Consolidated and Separate Financial Statements", requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners and these transactions will no longer give rise to goodwill or gains and losses. The standard also specifies the accounting when control is lost and any retained interest is remeasured to fair value with gains or losses recognised in profit or loss.

IAS 32, "Financial Instruments: Presentation - Classification of Rights Issues (amendment)", amends the definition of a financial liability in order to classify rights issues as equity instruments in cases where such rights are given pro-rata to all of the existing owners of the same class of an entity's non-derivative equity instruments, or to acquire a fixed number of the entity's own equity instruments for a fixed amount in any currency.

Amendment to IAS 39, "Financial Instruments: Recognition and Measurement - Eligible hedged items", clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations.

IFRIC 17, "Distribution of Non-cash Assets to Owners", provides guidance of the accounting arrangements whereby an entity distributes non-cash assets to shareholders as either a distribution or reserves or as dividends. There have been no such transactions.

IFRIC 18, "Transfer of Assets from Customers", applies to instances where entities receive items of property, plant and equipment or cash from customers for the acquisition of such items which are subsequently used to connect the customers to a network or provide access to ongoing services.

Improvements to IFRSs (issued April 2009) deals primarily with removing inconsistencies and clarifying wording.

New standards and interpretations not applied

The International Accounting Standards Board (IASB) and International Financial Reporting Committee (IFRIC) have also issued the following Standards and Interpretations with an effective date after the date of these financial statements:

The Group intends to adopt these standards in the first accounting period after the effective date. The Directors do not anticipate that the adoption of these Standards and Interpretations will have a material effect on the consolidated financial statements in the period of initial application.

3. Revenue

An analysis of the Group's revenue is as follows:

The following balances relate to contracts in progress at the balance sheet date: