Imagination Technologies Group plc -- Trading Update

April 13, 2007 -- Imagination Technologies Group plc (LSE: IMG, "Imagination"), the leading provider of System-on-Chip (SoC) Intellectual Property (IP), today announces its trading update for the year ended 31 March 2007. The Group plans to announce its preliminary results on Thursday 24 May 2007.

1. Licensing Progress Update
   
   Strong progress was achieved during the second half on new licensing activities despite tighter semiconductor market conditions, particularly in the last quarter of the financial year. The growing licensing revenue is a clear sign of our technology’s market relevance and partners’ interest. We have now seen growth in this component of our business over the last three consecutive half years with the FY 06/07 full-year licensing revenue showing growth of over 40% on the previous year.
   
   During the second half, we concluded a number of new licensing and support agreements worth over $15m. Whilst a proportion of this business has been recognized as revenue in the financial year to 31 March 2007, a significant part has contributed to a healthy order backlog carried forward to the current financial year. Among these were a number of significant agreements including Intel with two agreements in H2, Sharp and a new partner, Future Waves. These agreements, combined with deals concluded during the first half with Texas Instruments, Intel, Renesas, Freescale, Centrality, Frontier Silicon and Mavrix, have resulted in the strong progress in licensing activity for the full year. These agreements were across all our key areas of technology including graphics, video, mobile TV and digital radio/audio.



2. Volume Shipment, Royalty & Partner SoC Progress Update
   
   Year-on-year we have seen continued progress in unit shipment volume as more products are launched using our technologies. We do not yet have final confirmed royalty reports from our partners for our last quarter; however we now estimate that the total unit volume for last financial year will be over double that of the previous year. Whilst the annual growth in volume should continue its rapid growth, the precise ramp-up trend will depend on the timing of OEM product launches of which we have limited visibility.
   
   In the second half, the delay in the introduction of some of the new handset products to western markets has meant that the volume for the second half was lower than expected. However this is seen as a short-term factor given the increasing number of end-user products incorporating our technology, including a number of high profile handsets, that are coming to market and in the pipeline and also considering the expected rapid growth in the emerging markets which our technologies are targeting. We expect strong volume growth for the next few years as our technology deployment continues in various segments.
   
   We started the year with 40 partner committed SoCs with 13 in production or shipping. These have now grown to 50 and 18 respectively across mobile multimedia, digital radio/audio, car navigation, TV, mobile TV and personal computing markets.
   
   The number of announced mobile phone handsets using our PowerVR technology has now risen to over 45, including models from Nokia, Motorola, NEC, Fujitsu, Mitsubishi, Panasonic, Sharp and Sony Ericsson. We continue to have a growing position in the Japanese mobile phone market through our very strong ranging across the latest DoCoMo phones. In addition to Sony Ericsson’s W950/i, M600, and P990 models and Nokia’s N93 and N93i models which are already shipping, we are now seeing, albeit a little later than hoped, a growing number of other high profile phones which are close to shipment in the western markets.
   
   The highly acclaimed Nokia N95 handset has just begun shipping and we expect other high profile leading handsets to begin shipment during FY 07/08 starting from the second quarter of the current financial year. These new phones targeted at western, as well as global markets, should significantly accelerate the volume ramp up for FY 07/08 whilst also demonstrating the real benefit of graphics for both user interface and content.
   
   We have also seen continued progress in our other established markets such as automotive and digital radio/audio where we have market-leading positions and a growing number of design wins. In the DAB digital radio market our digital radio/audio IP platform technology has maintained its position of around 70% market share. This market has so far been mostly UK centric but is now expected to make faster progress elsewhere particularly with the advent of an enhanced DAB standard that is beginning to be adopted in other regions.
   
   In the car navigation market the vast majority of the new 3D-based navigation systems in Japan continue to use partner chips which deploy our PowerVR technology. This year we have secured new semiconductor partners in this segment which are developing products for both traditional in-car navigation system as well as the next generation of personal navigation devices (PNDs) which have become very popular in recent years and can now benefit from advanced graphics and video technology as well as mobile TV.
   
   With our new multi-standard mobile TV technology close to market deployment, we expect to see our technology in mobile TV markets other than T-DMB as these emerge. The mobile TV market progress and our continued commitment to the TV segment should begin to bear fruit and make a bigger contribution to our overall volume and royalty ramp-up during FY 07/08.
   
   Our partnership with Intel in the personal computing/UMPC segment is progressing well, with additional projects committed. We expect this to lead to product shipment towards the latter part of our 07/08 financial year.



3. PURE Digital Update
   
   PURE Digital has had a very strong Christmas period and has extended its leadership in the market. It has continued to bring to market a wide range of technically advanced high quality products and has broadened its range in key categories including lower-cost quality portable radios, clock radios, personal radios, micros and life style products. In many of the key radio categories PURE Digital has now achieved market shares in the range of 20-35%. Importantly it also passed a significant milestone to become the UK’s number 1 overall radio supplier (including analogue radios). Volume growth has been achieved by wide product ranging by all the key retailers who acknowledge and value PURE’s position as the market leader.
   
   For the current financial year, we expect PURE Digital to continue its solid progress and its leadership in the DAB market as this segment continues to grow in the UK. It is also starting to progress in the rest of Europe. With regard to the important Christmas period, we are already at an advanced stage in securing strong product ranging among the key retailers and are well poised for this key selling period.



4. Financial
   
   While we are still awaiting details of royalty revenues, we estimate that overall FY 06/07 Group revenues will have increased by around 35% compared to the previous year, resulting in a close to break-even position for the second half and a very significantly reduced loss for the full year.
   
   We expect overall technology revenues for the year to be up by over 45% compared to last year with both licensing and royalty revenues growing significantly year-on-year. The pipeline of active licensing prospects for our key technologies is continuing to provide us with strong opportunities going forward and, as mentioned earlier, we expect strong year-on-year royalty growth will continue in FY 07/08.
   
   The full-year revenues for PURE Digital were up over 25% compared to last year with a maintained gross margin %.
   
   Cash resources, which include the proceeds from the previously reported £5.3m Intel investment in October, were around £9.5m as at 31 March 2007; up from £6.4m at 31 March 2006.



5. Change of financial year
   
   Royalties are becoming an increasingly important revenue stream for the business and one that is expected to continue to grow significantly in the future. Royalty revenues are recognised by the Group on the sale by licensees of products containing the Group’s technology. With the vast majority of our licensees reporting royalties on a calendar quarter basis, often several weeks after the quarter end, the current 31 March financial year end for the Group makes it very difficult to accurately state the quarterly royalty revenues at the close of half year and full year periods. As a result the Board has concluded that it will be beneficial to move the financial year end of the Group in future by one month to 30 April.
   
   The current financial year will be extended to 13 months; running from 1 April 2007 to 30 April 2008. Interim results will be announced for the 6 months to 30 September 2007 and full year results for the 13 months to 30 April 2008. Thereafter financial years will run from 1 May to 30 April.