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Imagination Technologies Group plc - Preliminary results for the twelve months to 31 March 2007
Momentum continues with strong revenue growth across the Group
May 24, 2007 -- Imagination Technologies Group plc (LSE: IMG), a leading provider of System-on-Chip (SoC) Intellectual Property (IP), today announces results for the twelve months to 31 March 2007. Business Highlights
Financials Highlights
Geoff Shingles, Chairman, commented: “This year we have maintained the momentum in all key aspects of the business – securing new licensing deals, SoC design wins, chip volume growth, and PURE Digital sales growth – which has led to significant revenue growth for both the Technology business and PURE Digital. “The new extended partnership with TI for OMAP3, the growing co-operation with Intel in mobile computing/UMPC and associated investment by Intel during the year, coupled with growing business with other key current and new partners are striking examples of the value our partners see in our offerings and the relationship. “The Group was close to profitability in the second half of the last financial year. Based on the active pipeline of licensing opportunities, the expected volume ramp-up in partner chip shipments and the strong position of PURE Digital, we are confident that we will see further progress in the current financial year.” Full-year Update - 2006/07 This year has seen a significant increase in Group revenues driven by strong growth in both our technology licensing and PURE Digital businesses. The healthy progress in the licensing business was achieved despite tighter conditions in the semiconductor market during the last quarter of the financial year. Financial Review Group revenues for the year ended 31 March 2007 were £48.1m, a 36% increase on last year (2006: £35.3m). Technology revenues, comprising royalties and licensing, were up 49% on last year at £21.8m (2006: £14.6m) and PURE Digital revenues were up 27% at £26.3m (2006: £20.7m). Technology business revenues are predominantly US dollar based and whilst the sterling revenue growth reported above was 49%, the underlying growth in US dollars was 57%. Within the technology business revenues, there was strong growth in both licensing and royalty revenues. Licensing revenue increased by 44% (51% on a US dollar basis) to £13.0m (2006: £9.0m) with a significant proportion of this being repeat business as existing partners broaden their use of Imagination’s IP. In addition to the increased licensing revenue achieved during the year, an improved order book of £7.4m (2006: £6.0m) of licensing and support revenue has been carried forward at the end of the year, the majority of which is expected to be recognised in the current financial year. Royalty revenue increased 57% (67% on a US dollar basis) to £8.8m (2006: £5.6m), based on the shipment of 25.7m chips (2006: 11.9m) incorporating our technology. After adjusting the first half royalty shipment volume to take into account corrected royalty reports, chip volume has been approximately equal in the first and second half of this financial year due to the timing of partner chip volume ramp-up and OEM product launches. Through its broadening product range, PURE Digital has again had a strong year. The Christmas period is important for this business and as expected second half revenues were 48% ahead of the first half. Gross profit for the year was £27.1m, a 43% increase on last year (2006: £19.0m). The gross margin has improved to 56% (2006: 54%) mainly due to a change in the revenue mix in favour of the higher margin technology business. Despite strong growth in the PURE Digital business, gross margins have been maintained. Research and development expenses increased by 13% to £23.4m (2006: £20.7m). The focus of this spend during the year has centred on the development of our core IP as well as ensuring effective technical support for our growing partner base. The R&D activities have included development of a wider range of cores based on our PowerVR graphics technology to address a broader range of market opportunities, development of our multi-standard video cores, TV technologies and platforms for mobile TV and radio/audio, and development of funded SoCs for our partners. Additionally, it is critical that our engineering resources are able to fully support our partners in deploying the technologies licensed into their growing list of internal SoCs developments, as well as in adopting additional technologies from Imagination. As we reported previously, in January we also opened a new design centre in India to both tap into the global talent pool and also benefit from its lower cost base. Sales and administrative costs were £6.2m (2006: £5.5m). The loss before tax for the year of £2.3m shows a 66% reduction on last year (2006: loss £6.9m) as the margin from the revenue growth has filtered through to the bottom line. In the second half the business was close to break-even. The Group has significantly reduced the operating cash outflow to £2.0m, which compares to £10.1m for 2005/06. This is after allowing for an increase of £1.6m in working capital, which resulted mainly from the increased debtors associated with the 36% revenue growth. Capital spend in the year was £1.9m (2006: £1.5m). With the inclusion of the £5.3m proceeds from the share placement to Intel in October, net cash resources increased to £9.6m at March 2007 compared to £6.4m at March 2006. As previously stated, the Group has moved the end of the financial year to 30 April. Royalties are becoming an increasingly important revenue stream for the business and, taking into account the timing of royalty reporting by our partners, this will enable the business to be able to provide a more accurate assessment of its royalty revenues at the close of financial periods. 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. Business Review Technology Business Update During the year, the active pipeline of opportunities has led to the closure of both strategically important and financially significant licensing agreements. We concluded over ten new licensing agreements compared to nine last year. In addition to broadening our partner base and the range of markets that our IP is now addressing, our licensing activities are continuing to broaden across our range of technologies with the proportion of business from our META and Ensigma technologies continuing to grow. The agreements concluded this year were across graphics, video, mobile TV and audio technologies. This demonstrates both the competitive advantages of our technologies and their relevance for market opportunities. Our new licensing agreement with Texas Instruments (TI), the industry leader in wireless semiconductor devices, for the deployment of our next generation PowerVR SGX graphics in TI’s OMAP3 family of products was a significant milestone. Similarly the extended partnership with Intel, which involved additional licensing of PowerVR SGX as well as video and display technologies for mobile computing/UMPC markets, combined with its investment in Imagination during the year, is another clear example of the strength and value that our partners see in both our product offerings and the relationship with Imagination. Other important agreements during the year included those with Renesas, Sharp, Freescale, Centrality, Frontier Silicon, Mavrix and Future Waves. Partner chip unit shipments more than doubled to 25.7m units (2006: 11.9m). The volume growth has been primarily driven by the production ramp-up across the mobile segment, the DAB market and 3D-based car navigation systems with some early contributions from the mobile TV and TV segments. Whilst this growth was significant, and we saw good growth in the Japanese market, it was lower than we had anticipated due to some delays in the introduction of a number of higher end handsets into western markets. 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 now coming to market or are in the pipeline. This progress will, in due course, be supplemented by the expected deployment of our technology and volume growth in the other emerging markets such as mobile TV, Internet Protocol Television (IPTV) and personal navigation systems which our technologies are successfully targeting. The momentum behind new partner SoC design wins has continued with the cumulative number of committed partner SoCs increasing to 50 at March 2007, compared with 40 a year ago, with 18 now in production (2006: 14). These design wins are the drivers for future partner SoC shipments and therefore further royalty growth. These committed devices are spread both across our partners and our key market segments: 21 for mobile phone; three in digital radio/audio; eight for car & personal navigation; seven in mobile TV; five for digital TV; three in mobile computing/UMPC; and three in amusement. Market Segment Progress In the mobile phone market segment there are over 45 handsets that are based on our technologies. These include handsets from Nokia, Sony Ericsson, Motorola, NEC, Fujitsu, Mitsubishi, Panasonic, Sharp and Motorola. 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 W850i, M600i, and P990i models and Nokia’s N93 and N93i models which are already shipping, we are now seeing, albeit a little later than forecast, a growing number of other high profile phones which are now shipping, or about to ship, in western markets. Amongst these are the acclaimed Nokia N95, Nokia E90, the Motorola MotoRIZR Z8 and MotoQ q9 and Sony Ericsson P1i. We also expect other high profile handsets to begin shipment 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 the user interface and application content. We have also seen continued progress in our other established markets such as digital radio/audio and automotive, 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 and has been deployed in over 150 end-user products. 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, known as DAB+, 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. Our partners in this segment now include Renesas, NEC, Freescale and Centrality. With our technology already shipping in Far Eastern markets which have adopted the T-DMB standard, the shipment of devices featuring our new multi-standard mobile TV technology in the near future should see our technology deployed in a widening range of geographic markets. The progress of the mobile TV market and our continued commitment to the TV segment should begin to bear fruit and make a growing contribution to our overall volume and royalty ramp-up during FY 07/08. With respect to the TV segment we expect IPTV products that deploy our technology to begin shipment in the near future. Our partnership with Intel in the personal computing/UMPC segment is progressing well, with significant additional projects committed during the year. We expect this to lead to product shipments towards the latter part of our 07/08 financial year. Pure Digital Update PURE Digital had a very strong Christmas period and has extended its leadership in the DAB market. It has continued to bring to market technically advanced, high quality products across a broadening range of key market segments including lower-cost quality portable radios, clock radios, personal radios, micros and life-style products. In many key radio categories, PURE Digital has now achieved a market share in the range of 20-35%. Importantly it has also become the UK’s number one overall radio supplier (including analogue radios). This has been achieved through wide product ranging by all the key retailers, who acknowledge and value PURE’s quality, broad product range, strong brand and position as the DAB market leader. PURE Digital continues to maintain its leadership of the DAB market and has grown its market share through a multi-faceted strategy. It has continued to deliver products which provide advanced and novel features, taking full advantage of the opportunities that the digital nature of DAB and the growth of digital audio offer. As a result PURE now has growing range of products with advanced features such as pause/rewind/record, digital storage (SD Card), MP3 integration, USB upgradeability, EPG (Electronic Programme Guide) and teletext-style capabilities (IntellitextTM). This technology drive has won PURE Digital many awards including those for its leading-edge product EVOKE-3 which included What Hi-Fi? Sound & Vision Radio Product of the Year; the CNET Awards’ Best Digital Radio; and Boys Toys’ DAB Radio of 2006. PURE has diversified its product range beyond portable/kitchen radios targeting other traditional consumer audio segments with DAB by increasing usability and adding advanced features. For example, PURE’s new Move radio brings portability to a new level in a stylish and practical design, and the DMX and Legato micro system range integrate many advanced features in addition to CD, MP3 and digital storage making them industry-leading products in this segment. Another segment in which PURE secured the top position during the year has been the clock/radio segment where PURE’s Chronos and Chronos CD have achieved market leading positions. Additionally PURE has continued to deliver quality low-cost products for mainstream markets in order to secure maximum shelf space for the PURE brand, reach the majority of consumers and drive the DAB market forward. Two examples of this drive are the PURE ONE, at £49, an outstanding success attracting very strong demand, and the newly launched DMX-25 micro. The above approaches combine with leading edge product innovation, designed to drive and enable new markets, will continue to be the fundamental elements in PURE Digital continued progress. Outlook and the Future We have now seen licensing revenue growth over the last three consecutive half years, which is a clear sign of our technology’s market relevance and competitive advantage. The on-going requirements of our existing partners, combined with the growing interest from new customers, give us confidence that our technologies will continue to be adopted in the future. The healthy order backlog carried forward to the current financial year is also providing us with a good starting base for the year. Whilst the timing and level of revenues may be difficult to forecast accurately, we expect to see another active year for licensing opportunities and further progress. We expect strong volume growth for the next few years as our technology deployment continues across our key market segments, given the increasing number of end-user products, especially high profile handsets, that are coming to market incorporating our technology and the expected rapid growth in the emerging markets which our technologies are targeting. With digital radio technology becoming a ubiquitous feature in most home audio and music systems in the UK, and in due course in other geographic markets, we are confident that PURE Digital will be able to maintain its strong progress through innovative and leading products. For the current financial year, the product and retailer ranging plans are firmly in place for another strong year from PURE Digital. We also expect PURE to launch new innovative and market-changing products during this year which will further drive its growth plans as well as deployment of our key technologies. Last year saw strong growth in both our Technology and PURE Digital businesses with the second half performance getting close to break-even. Overall we are confident that these trends will continue and that we will see further progress in the current financial year. Click here to read financial tables
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