Imagination Full Year Results 2013/14

IMG delivered broadly in-line results today (on reduced expectations following a disastrous previous 18 months), which were perhaps more about a message of medium-term recovery and trying to restore confidence in the management and HY in particular. Good to see the 1 billion (ex-MIPS) target re-stated though of course pushed out by a year;( I was expecting them to quietly drop it.). Royalties should be back on track in H2 2014/15 and ARR is being well maintained. 64-Bit warriors should be with us later this year it seems, though big names are required (not just ecosystem announcements) to establish credibility and momentum in the CPU game.Look forward to listening to the CC today.

Financial highlights

• Group revenues up 13% to £170.8m (2013: £151.5m)
• Good performance in Technology Business with revenues increased 17% to £147.5m (2013: £125.7m)
• Licensing revenues up 32% to £38.3m (2013: £29.1m)
• Royalty revenues up 15% to £109.0m (2013: £95.1m)
• Pure revenues of £23.2m (2013: £25.8m)

• Adjusted operating profit* of £24.1m (2013: £33.5m)
• Reported operating profit of £0.02m (2013: profit £11.3m)
• Adjusted earnings per share* 8.1p (2013: 9.4p)
• Reported earnings per share 0.3p (2013: 2.4p)
• Cash generated from operations before working capital of £28.3m (2013: £34.0m)
• Net debt of £5.0m (30 April 2013: Excluding MIPS tax liabilities £10.7m)
• Cash of £19.2m. Bank facilities renewed to 2018

* Adjusted profit excludes non-recurring items, items relating to acquisitions and investments, non-cash based share incentive charges and amortization of intangible assets acquired from acquisitions. The reconciliation from reported results to adjusted results is set out in note 2.

Business highlights

Technology business

Licensing & design wins

• Strong and growing licensing activities across all IP families involving many existing and new customers
• 115 licenses including 51 for PowerVR (37 GPU, 11 video and 3 camera vision IP), 48 for MIPS CPU, 11 for Ensigma RPU (3x last year), two for Ensigma VoIP and three for FlowCloud
• Accelerating growth in customer base with new licences involving over 50 partners:
• Existing customers included:- Actions, Allwinner, CSR, Freescale, HiSilicon, Intel, LG, MediaTek, Microchip, Mobileye, Realtek, Renesas, ST and others
• New customers included Atomos, Avago, Ineda, I&C Micro Systems, Lenovo, Toshiba and others
• Increasing number of customers signing licenses for IP from multiple families
• Licensing activity has resulted in around 60 new SoC design-wins which will contribute to future royalties
• Continued active and growing pipeline of prospects across all IP families

Partner chip shipments & royalties

• Total partner chip shipments of 1,259m
• Significant volume shipments in: all mobile segments (performance, mainstream and entry smartphones); tablet/personal computing; networking & enterprise; industrial; TV/STB & automotive
• Smartphone market continued to grow albeit with lower growth rates
• Average royalty rate maintained at prior year’s level due to the mix
• PowerVR Series6 graphics shipping in volume across all key segments including mobile, TV and automotive
• Growing MIPS volume in developing 32-bit microcontroller and Internet of Things (IoT) markets, with MIPS 64-bit architecture well established in multiple markets
• Strong PowerVR video processing IP unit shipments

Pure business

• Continues to drive key markets
• Launch of Jongo wireless speaker products in key UK and US markets
• Continued refresh of DAB product line-up
• Strategic interest from key players in our wireless and multi-room speaker technologies resulted in a number of licenses signed
• Organisational changes to reduce costs and better align with our IP business

Hossein Yassaie, Chief Executive, commented:

“The significant growth in the licensing deal closure and the growing customer base confirm the strong alignment of our technologies to the existing and emerging markets as well as our partners’ needs.

“The strong and growing demand across all IP areas, including PowerVR graphics & video, MIPS processors and Ensigma communications coupled with growing trends of customers opting for multiple IP families or IP platforms, validate the strength of our strategy and the relevance of our roadmaps.

“All the indications from existing and new customers are that the alternative that MIPS processors offer is credible, respected and welcome, both for the technological benefits and the much needed industry balance they can help to bring about. The active licensing trends and the strong support from the industry leaders for the recently launched prpl foundation, focused on MIPS ecosystem, are clear indications of our real and continued progress.

“As the licensing deal closures show, the demand for Ensigma communications technology is accelerating. This is driven by the emerging trends in the Internet of Things and home connectivity.

“Whilst there will continue to be fluctuations and changes in the markets in which we operate, we are confident that our comprehensive and complementary IP families, and the solution-centric IP platforms they are enabling, will allow us to take advantage of the numerous growth opportunities ahead.”

Results presentation slides are here:

http://www.imgtec.com/investors/presentations/24062014/Imagination_Full_Year_Results_2014.pdf