Imagination Technologies Group Regulatory News (IMG)

30 June 2015

Imagination Technologies Group plc

Robust licensing and solid progress across all three IP families

Significant high volume license agreements for both PowerVR graphics and MIPS processors

Imagination Technologies Group plc (LSE: IMG, "Imagination", "the Group"), a leading multimedia, processor and communications technology company, today announces results for the year ended 30 April 2015.

Overview

· Robust year of licensing activity across all IP families and diverse markets with significant growth in engagements for solution-centric IP platforms

· New strategically important multi-year licensing deals with high volume/tier-one mobile players for both PowerVR graphics and MIPS processors

· Encouraging year-on-year growth in MIPS processor unit shipments

· Operating costs tightly managed resulting in lower rate of cost growth than previously guided

· Business well positioned for future growth

Financial highlights

· Group revenues of £177.0m (2014: £170.8m)

· Technology revenues increased 7% to £158.6m (2014: £147.6m)

- Licensing revenues up 2% to £39.0m (2014: £38.3m)

- Royalty revenues up 9% to £118.9m (2014: £109.0m)

· Adjusted operating profit* of £21.1m (2014: £24.0m); Reported operating loss of £8.5m (2014: £0.1m)

· Adjusted earnings per share* 6.3p (2014: 8.1p); Reported loss per share 4.9p (2014: earnings 0.3p)

Business highlights

· Strong licensing across all IP families, delivering highest ever licensing revenue and record backlog

- 121 licenses signed (2014: 115) with over 40 existing and new partners

- Agreements signed with partners including Ali, Atomos, Avago, Broadcom, Celeno, Elvees, Fujitsu, HiSilicon, Ineda, InfoTM, Intel, JCI, Lantiq, Loongson, MediaTek, Pioneer, Renesas, Sigma, Spreadtrum, Texas Instruments, Toshiba, Toumaz and Yokogawa

· Significant increase in new committed SoCs with over 60 additional SoC design-wins which will contribute to future royalties

· MIPS unit shipments increased 9% year on year to record level of 797m (2014: 729m); non-MIPS shipments stable at 530m (2014: 530m)

· Pure loss reduced following the actions taken last year

Outlook

· Based on the increased backlog and the active pipeline of prospects, target of 10% growth in licensing revenue in FY16

· Expect growth in unit shipments and royalty revenue

· Underlying operating cost growth expected to be 5% - 10%

· Expansion of operating margins in medium-term with longer-term target of 30% - 40%, with a rise in profitability in FY16

Hossein Yassaie, Chief Executive, commented:

"We have seen robust licensing and royalty revenues across all three IP families whilst continuing to tightly control our costs.

"Significantly we have secured major design wins for our graphics and processor IP with new high volume mobile players - these multi-year agreements will further drive unit shipments in the medium term. Our connectivity IP continues to gain momentum.

"The established strengths and comprehensive nature of our three key IP families have enabled our unique platform capability which has significantly contributed to licensing revenues this year.

"As our revenues grow, the natural operational gearing of the business means that the financial performance is expected to significantly benefit from a slower growth in operating costs. We therefore expect to see significant expansion in operating margins in the medium-term."

* Adjusted profit is used by management to measure the performance of the business year on year by excluding non-recurring items (items which typically do not occur every year), 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.

About Imagination Technologies

Imagination is a global technology leader whose products touch the lives of billions of people across the globe. The company's broad range of silicon IP (intellectual property) includes the key processing blocks needed to create the SoCs (Systems on Chips) that power all mobile, consumer and embedded electronics. Its unique software IP, infrastructure technologies and system solutions enable its customers to get to market quickly with complete and highly differentiated SoC platforms. Imagination's licensees include many of the world's leading semiconductor manufacturers, network operators and OEMs / ODMs who are creating some of the world's most iconic products. See: www.imgtec.com.

Overview

Imagination has continued to exploit and innovate in its three fundamental silicon IP families, PowerVR multimedia, MIPS processors, and Ensigma communications. The three IP families are central to the Group's overall strategy and they:

· offer a strong and comprehensive range of IP-level products that address each key and specific area very well and

· enable solution-centric IP platforms that can efficiently address all key existing and new markets.

FY15 saw a year of robust licensing activity across all three IP families, in diverse markets from Internet of Things (IoT) and wearables, through mobile, Digital TV, and automotive to networking and enterprise segments, with 121 licenses signed in the year (2014: 115).

Significantly, for both PowerVR and MIPS technologies, new and strategic multi-year deals with high volume / tier-one mobile players were concluded. These new agreements reiterate the continued strength of PowerVR graphics and demonstrate the accelerating design-win traction for MIPS in this high volume market. These design-wins will further drive the unit shipment growth of these IP families in the medium term as the relevant partners complete their SoC designs and begin shipment. The momentum of Ensigma communications adoption continued during the year driven by demand to integrate such functions in SoCs.

Another key trend during the year was the substantial growth, compared to the previous year, of multi-IP and IP platform engagements with partners. The emerging demand for a solution-centric IP model is a clear industry trend, which is driven by the overall supply-chain evolution. Our strategy to both take advantage of the unique strength and leadership of each of our technologies and also address the overall changing needs of the market towards solution-centric offerings is both effective and relevant.

During the year we launched PowerVR Series7 which has seen strong licensing. For the first time we launched cores across the full performance range from the outset and we have seen significant licensing of both the high performance XT and the area and power optimised XE cores. Together these products cover all markets from entry level smartphone through performance mobile, HD and UHD TVs and STBs to very high-end solutions requiring in excess of 1TeraFlop (TFLOP) processing capabilities.

The progress with MIPS continues with strong licensing as well as a record year of unit shipments. The positive customer response to the MIPS offering is evidenced by more than 100 licenses being signed since the acquisition. This recognizes both the need for choice of processor IP in the market, but also the unique features provided by the MIPS product range. Further licensing of the Warrior family of products together with the first customers now shipping products based on the Warrior family illustrate the progress made in the last two years. The record shipments show the confidence of the customer base and the growth potential in the markets that MIPS targets.

The customer base for the Ensigma communications technology continues to develop steadily with many more customers evaluating this disruptive technology. New customers have started shipping products using Ensigma IP with more to follow.

Following the refocus of the Pure business towards the end of FY14 which included narrowing both product lines and geographical presence, we have started to see improvements in the underlying performance of the business in its key markets. Additional action has been taken to further refine this focus, in particular the way in which the music service is delivered, and this will drive further improvement in the profitability of this division.

The rate of investment in group-wide R&D has been reduced as the important scaling activities have now been completed. We continue to invest in R&D to drive the future growth of the business, but this investment is growing at a lower rate than experienced over the last few years, as we look to drive expansion of the operating margin. The Group's capital investment programme continued with the final phase of the three-phase Kings Langley redevelopment now in progress and due for completion during FY16. The value of assets created by this programme over the last four years is now in excess of £60m.

Financial Review

Revenue

Group revenue for the period ending 30 April 2015 increased by 4% to £177.0m (2014: £170.8m).

Licensing revenue increased 2% to £39.0m (2014: £38.3m). The high levels of licensing activity also helped to increase the licensing backlog during the year.

Royalty revenue increased by 9% to £118.9m (2014: £109.0m). Partners' chip shipments (excluding MIPS) were stable at 530m (2014: 530m) units. MIPS' partner shipments increased by 9% to 797m units (2014: 729m).The average royalty rate, excluding MIPS, increased due to a better mix.

Following the refocus of the Pure division last year, it has been trading in a reduced number of territories and across a tighter product set. As a result revenue was down on previous years at £18.4m (2014: £23.2m).

While there were significant movements in the sterling / dollar rate during the year, overall the average dollar rate was not materially different in FY15 compared with FY14.

Profit and operating expenses

Group gross profit was up 6% to £159.3m (2014: £150.4m) with overall gross margin increasing to 90% (2014: 88%).

Underlying Group operating expenses were tightly controlled growing at a lower rate than previous years and were £138.2m (2014: £126.4m).

Underlying expenses are those expenses incurred before calculating adjusted operating profit* and exclude:

· non-cash share-based incentives charge of £12.0m (2014: £13.2m);

· amortization of intangibles from acquisitions of £9.1m (2014: £8.6m);

· impairment of investments of £5.1m (2014: £2.6m);

· gain on investments of £nil (2014: £0.3m);

· acquisition related costs of £1.4m (2014: £1.3m);

· onerous supplier contract provision of £2.5m (2014: £nil);

· Group restructuring costs of £0.7m (2014: £0.4m);

· a credit relating to the release of a customer contract obligation of £0.8m (2014: £nil); and

· a credit relating to releases of contingent acquisition consideration of £0.4m (2014: £1.6m)

Details of how the adjusting operating items listed above are apportioned between Research and Development expenses (£18.1m; 2014 £18.5m) and Sales and Administrative expenses (£11.5m; 2014 £5.6m) are contained in note 2.

Adjusted operating profit* for the Technology business was £27.1m (2014: £31.4m). The adjusted net operating margin for the technology business was 17% (2014: 21%).

For Pure the revised focus resulted in a lower adjusted operating loss of £6.0m (2014: loss £7.4m). This reflects the benefit from the cost reduction activities undertaken in FY14 offsetting the reduction in gross margin resulting from the lower revenue.

Earnings and taxation

The Group's adjusted operating profit* was £21.1m (2014: £24.0m). The reported operating loss was £8.5m (2014: £0.1m).

Net tax was a charge of £1.1m (2014: credit £1.1m). The deferred tax asset on the Group balance sheet to be utilized against future UK profits is £4.9m (2014: £4.9m).

The Group's adjusted earnings per share was 6.3p (2014: 8.1p). The Group's reported loss per share is 4.9p (2014: earnings of 0.3p).

Balance sheet

Goodwill at 30 April 2015 was £59.8m (2014: £59.8m).

The investment balance reduced to £19.9m (2014: £21.1m), reflecting the movement in share prices of the publicly traded investments and a provision against the carrying value of Orca, offsetting the new investment in Atomos.

Property, plant and equipment was £69.0m (2014: £63.6m) reflecting the capital expenditure of £12.2m (2014: £22.3m) less depreciation of £6.7m (2014: £4.4m). The primary element of the capital expenditure is the redevelopment of the Group's property facilities in Kings Langley.

Trade and other receivables were £81.8m (2014: £53.9m). The majority of the increase is due to the timing of royalty receipts from customers.

Trade and other payables were £40.6m (2014: £37.5m).

Corporation tax payable was £0.5m (2014: £0.2m).

Interest bearing loans and borrowings were £29.9m (2014: £24.3m). The increase relates to the short term utilisation of the Revolving Credit Facility at the end of the year.

The deferred tax liability was £15.0m (2014: £17.1m).

Cash generated from operations before movements in working capital was £24.7m (2014: £27.9m).

The cash balance decreased to £2.7m during the year (2014: £19.2m) primarily due to royalty receipts for the March 2015 quarter being received just after 30 April, whereas in 2014 there were significant amounts received just before 30 April. At the year end Group net debt was £27.2m (2014: £5.0m).

* Adjusted profit is used by management to measure the performance of the business year on year by excluding non-recurring items (items which typically do not occur every year), 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.

Technology Business

Licensing

· Acceleration of licensing in the second half of the year resulting in record licensing revenues

· 121 licenses including 52 for PowerVR multimedia, 47 for MIPS CPU, 15 for Ensigma comms and 7 System-level / support IP (including FlowCloud, VoIP, and Caskeid)

· Significant agreements with over 40 partners during the year including Ali, Atomos, Avago, Broadcom, Celeno, Elvees, Fujitsu, HiSilicon, Ineda, InfoTM, Intel, JCI, Lantiq, Loongson, MediaTek, Pioneer, Renesas, Sigma, Spreadtrum, Texas Instruments, Toshiba, Toumaz and Yokogawa

· Licenses signed for new IP across all key IP families (including Series7 GPU, Warrior MIPS cores and Ensigma RPU / NPU)

· New, significant and strategically important licensing deals with high volume / tier-one mobile players for both PowerVR graphics and MIPS processors

· Increasing number of licenses signed involving IP from multiple families. There is a growing and general trend towards demand for IP sub-systems or solutions combining multiple IP cores, an aspect that our strategy is designed to fully support

Partner chip shipments and SoC design-wins

· Partner chip unit shipments grew to 1,327m units (2014: 1,259m)

· Non-MIPS shipments were stable at 530m (2014: 530m). We have seen an increasing proportion of shipments using Series6 graphics technology and given the design wins achieved during the year we expect this to continue to grow

· MIPS shipments increased strongly to their highest annual level of 797m units (2014: 729m)

· The licensing activity in the year has resulted in a significant increase in new committed SoCs with over 60 new SoC design-wins added which will contribute to future royalties

Technology products update

PowerVR Multimedia

The key technologies under this category are graphics, ray tracing, video and vision:-

Graphics - The PowerVR graphics processor (GPU) family continues to lead the market in technological capability, roadmap strength and ecosystem and remains by far the most adopted and shipped technology of its kind. During the year there were 27 PowerVR GPU licenses across all markets and segments. These included a number of licenses to customers using PowerVR graphics in high volume markets, with one licensing PowerVR graphics for the first time.

Following its launch in November 2014, PowerVR Series7 has seen strong licensing activity with multiple tier-one customers licensing this class-leading technology. With PowerVR Series7, for the first time we launched cores across the full performance range from the outset and we have seen significant licensing of both the high performance XT and the area and power optimised XE cores. Together these products cover all markets from entry level smartphone through performance mobile, HD and UHD TVs and STBs to very high-end solutions requiring in excess of 1TeraFlop (TFLOP) processing capabilities.

At this year's Mobile World Congress (MWC) Imagination unveiled the PowerVR Series6 G6020 GPU that has been specially designed for graphics efficiency in ultra-compact silicon area and lowest power consumption, whilst delivering optimal device performance and full compatibility with the latest APIs. With the PowerVR GX5300 and G6020 GPUs, Imagination now covers graphics and UIs from entry-level smartwatches to high-end wearables.

At the other end of the performance range the PowerVR Series7 GT7900 continues to lead the market, with 512 ALU cores, and is a super GPU for high-end graphics and compute delivering over 1.5 Teraflops. The PowerVR Series7 launched during the period includes many advanced features and significantly fully supports Imagination's recently announced security technology, OmniShield, through built-in virtualisation. This approach delivers ultimate multi-zone security, an area of growing market demand given the importance of data security and the programmability of modern GPUs.

Ray tracing - In support of the PowerVR Wizard family of ray tracing IP cores, we have very recently taped out a ray tracing reference chip to enable our partners to fully explore and evaluate the benefits that this disruptive technology can bring. The reference system will also be used to support and further develop the important and growing ecosystem.

Video - Our PowerVR video decode and encode processor families, which support the latest and emerging formats, continue to see strong volume growth, reaching their highest level of shipments during the year. During the year there were 22 video core licenses.

Camera Vision Processing - Vision processing is needed to get the best image from a camera sensor and is a key growth area with smart cameras being increasingly used in areas such as automotive, retail, security and traffic management. We secured three licenses for this emerging technology during the year.

MIPS Processors

MIPS continues to perform ahead of our expectations, with the highest ever annual volume shipments during the year. Strong shipments have been recorded across our broad customer base and reflect the confidence that our customers now have in the MIPS product range.

Interest in and licensing of the Warrior range of cores, which have been developed since the acquisition, as well as the previous generation Aptiv range, continues to be strong. Partners have been attracted by the inherent efficiency and performance benefits of the cores, together with the additional features of multi-threading and next generation security capabilities. As a result customers' engagements and licensing activities have been strong and encouraging with 47 licenses concluded globally for MIPS cores across existing and new customers during the year. Among these there were a number of strategically important agreements including a key license with a tier-one mobile player for a significant embedded subsystem in mainstream mobile application processors.

The Warrior family of MIPS cores continues to expand and is attracting considerable interest and licensing. We have also recently seen the first Warrior based chips entering production with more due to start shipping soon.

The use of hardware virtualisation across the Warrior core range, from microcontroller to high-end, to enable the newly announced Omnishield multi-zone security capability, provides partners with a very strong solution to the increasingly demanding challenges of next generation SoC security. Our unique strategy in delivering CPU and GPU cores supporting OmniShield is attracting industry attention and is the foundation for total SoC security. The fact that the prpl Foundation has formed an Open Security working group with members from industry leading companies reinforces the importance of our approach. The prpl Foundation has also been further strengthened with new board members recently appointed from leading semiconductor players.

The strong MIPS roadmap executed so far and being driven going forward, the investment in internal and third party supporting tools, and the growing momentum in the ecosystem through initiatives such as the prpl Foundation and the Creator family of boards, are recognised and supported by many in the industry.

Overall we believe we are now at a stage that new and existing tier-one partners are also beginning to consider MIPS offerings as both technically strong and strategically important to their plans.

Ensigma Communications

Imagination's Ensigma radio connectivity processors (RPUs) and network processors (NPUs) are vital to servicing the growing demand for communications (connectivity and broadcast) IP cores in key markets including IoT, wearable, mobile, wireless and digital home, automotive and enterprise solutions. Our focus has been and continues to be offering an end-to-end solution for this market as more and more partners encounter the need for integration of these functionalities.

At MWC, Imagination demonstrated a new HDMI streaming device, which is now shipping from a major brand in Asia, from one of its partners using Ensigma high-performance Explorer 802.11 2x2 ac connectivity, and also highlighted its Ensigma low-power Whisper IP that is designed to drive the next generation of wearables, the emerging IoT and other connected devices where ultra-low energy consumption and low-cost design points are essential. Whisper RPUs, like their Ensigma Explorer counterparts, are aimed at providing multi-standard support in a single architecture, designed to enable customers to bring Wi-Fi, Bluetooth and in the future NFC, GNSS and other low-power connectivity technologies onto their SoCs.

We secured 15 further licenses for Ensigma technology during the year, which is another significant increase over the previous year. New customers have also recently entered production which will drive further volume growth.

Complementary supportive technologies

FlowCloud technologies - As part of our market engagement and enablement of the emerging IoT opportunities we have developed the FlowCloud software technologies which can help to enable and accelerate easy and quick deployment of our processor and communications IP in these markets. FlowCloud in conjunction with the Creator family of microcomputer and development systems, as well as third party boards and modules is enabling a diverse range of applications in the IoT space. Early projects in the areas of agriculture, health and energy are underway with partners. We are also working on industry initiatives on the key areas of security and interoperability that are gaining traction. 

VoIP - our family of video and voice over IP (VoIP) products, including platform agnostic SDKs, constitute an important element in our IP offering with relevance to both general internet-based communication including some of the key emerging IoT devices needing voice communication and the arrival of 4G / Long Term Evolution (LTE) networks which require VoIP over LTE (VoLTE). We are seeing serious and significant opportunities with Mobile Virtual Network Operators (MVNO's) who wish to use Voice over IP. An example of a partner who has licensed our technology to enable further innovation is Japan Communication Inc (JCI). The rising importance and relevance of voice in connected IoT devices is creating new opportunities for this technology in conjunction with our processor and connectivity platforms.

Caskeid - With the growth of smartphones and tablets and the migration to streaming content, the demand for wireless streaming of audio is set to grow. Caskeid is Imagination's targeted solution combining our patented low delay and low latency audio distribution technology with our processor and connectivity IP cores. The Caskeid audio platform is designed to address the growing demand for wireless audio including home music distribution as well as multi-channel applications such as home cinema. Through the effort initiated by Pure we are engaged with licensing partners including significant players and expect to see strong deployment of this technology over the next 12 months.

Pure business

Pure's activities have continued to be strongly focused on core areas that are of direct strategic significance or financial relevance for the Group. These include key markets or ecosystems that are highly relevant to one or more of our three fundamental IP areas. The current focus areas are:-

· The DAB product line-up where Pure is a market leader and supporting / driving the adoption of digital radio internationally and in automotive

· Strategic engagement in support of key players interested in our wireless and multi-room speaker technologies. These systems use much of Imagination's underlying IP including MIPS processors, Ensigma communications processors and FlowCloud technology and are paving the way for the connected home revolution. This is an on-going activity with significant potential for the Group

· Helping to build development boards and systems in support of our IP offerings and Platform solutions. The launch of the well-received Creator Ci20 development system earlier in the year and our ongoing work in developing the IoT ecosystem are examples of where we see a growing contribution from Pure

Several key products were launched in line with the Group's strategic objectives. The Pure business continues to develop its range of wireless speakers with the launch of the new Jongo X Series, based on our Caskeid multi-room technology, and the Voca rechargeable Bluetooth speaker. Pure was the first digital radio manufacturer to receive the digital radio tick mark for its complete current range of radios including new launches such as the Evoke D2 and D4 Mio, stereo Evoke D6, and the new Pop family, which recently won the prestigious Red Dot design award. A designer variant of this range has also just been announced, Pop by Mini Moderns.

As part of Pure's tighter focus, and to further improve financial performance whilst maximising reach, we are exploring opportunities with a number of third parties to use a licensing model for the Pure brand, as well as products in certain categories. We have successfully trialed such an approach in two limited scenarios and believe the approach merits further follow-up.

Current trading and outlook

We expect to see growth in licensing revenue in FY16 consistent with the 10% long term growth rate. This will be driven by the increase in the backlog at the close of FY15 together with the strength of the sales pipeline. The pipeline strength is in part driven by the introduction of new products such as Series7 graphics and 64-bit processor cores complemented by our new security offering Omnishield.

Royalty unit shipments are expected to increase with growth in both MIPS and non-MIPS categories.

The momentum we have seen in the core markets for the refocused Pure business will drive an increase in revenue for Pure in FY16. This is expected to result in a further reduction in the operating loss for the Pure division.

We continue to tightly manage the investment across the Group and as a result we expect the increase in adjusted operating costs to be lower than previous years and between 5% - 10%.

Fundamentally our multimedia (graphics and video) business is very strong with ray tracing and camera vision elements offering new and significant opportunities for the future. MIPS is meeting our expectations with next generation technology well-underway with growing customer endorsement and commitment. Our Ensigma connectivity activities are now moving from investment to mass market exploitation.

The Group's ability to provide the comprehensive and complementary range of IP cores across these key areas is increasingly enabling us to offer solution-centric IP platforms in support of the new industry trends and requirements. The market opportunities that are addressable by our comprehensive IP, both individually and in combination, have huge potential.

The progress made to date in the product lines and their exploitation combined with the effective operating cost management gives us confidence that the Group will be able to also make significant financial progress over the next few years with an expected rise in profitability in FY16. We continue to believe a 30% - 40% operating margin range is a realistic target for the longer-term.

As a result the Board remains confident that the Group is on track to deliver continued progress.

Sir Hossein Yassaie

Chief Executive

30 June 2015

Consolidated income statement

During this year and the previous period all results arise from continuing operations.

The notes to the accounts form an integral part of these financial statements.

Consolidated statement of comprehensive income

Consolidated statement of financial position

These financial statements were approved by the Board of Directors on 29 June 2015 and were signed on its behalf by:

Bert NordbergDirector

Registered Number 2920061

Consolidated statement of changes in equity

Consolidated statement of cash flows

Notes to the condensed consolidated financial statements

1. The financial information set out above does not constitute the company's statutory accounts for the years ended 30 April 2015 or 2014 but is derived from those accounts. Statutory accounts for 2014 have been delivered to the registrar of companies, and those for 2015 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

2. Segment Reporting 

The Group determines and presents operating segments based on the information that is provided internally to the Board of Directors, which is the Group's chief operating decision maker. The Group is organized into two operating divisions which offer different services to different industries and are managed separately: the Technology business and the Pure business. The costs of the corporate head office and other costs which are not controlled by the operating divisions are allocated to these divisions. These divisions are the operating segments that are reported to the chief operating decision maker and are the Group's reportable segments. There is no inter-segment trading and no significant seasonality in the Group's operations although there is an increase in trading in the period leading up to Christmas.

Principal activities are as follows:

Technology business - the development of graphics, video, vision, processor, communications and connectivity technologies for licensing to semiconductor companies for incorporation into silicon devices.

Pure business - the development and marketing of consumer products to showcase the technologies of the Technology business and to develop new and emerging markets for such technologies.

Information regarding the operations of each reportable segment is included below. Performance is measured based on adjusted operating profit as shown in the table at the end of this note. Operating costs within the Technology business are not attributable to specific income streams and have not been allocated to specific income streams.

Revenue is reported by geographical area of sales as follows:

The basis for attributing external customers to individual countries is the customer's country of domicile.

Revenue from individual customers that represent more than 10% of the Group's total revenue for the period have values of approximately £59,690,000 and £21,419,000. Both customers' country of domicile is USA, and these revenues are included in the Technology division.

All revenue originated materially from the United Kingdom.

The operating profit, net assets and capital expenditure of the Group materially relate to the United Kingdom.

Adjusted profit

Adjusted profit is used by management to measure the performance of the business year on year by excluding non-recurring items (items which typically do not occur every year), items relating to acquisitions and investments, non-cash based share incentive charges, and amortization of intangible assets acquired from acquisitions.

* Share based incentive costs have been apportioned £8,972,000 (2014: £9,884,000) to Research and Development expenses and £2,991,000 (2014: £3,295,000) to Sales and Administrative expenses on the face of the consolidated income statement. All of the amortization of intangibles from acquisitions cost is included in Research and Development expenses on the face of the consolidated income statement.

** These adjusting items totalling £8,539,000 (2014: £2,261,000) are included in Sales and Administrative expenses on the face of the consolidated income statement

Acquisition related costs relate largely to the historic acquisitions of Posedge and Kisel and include elements of deferred acquisition consideration which are required to be accounted for as compensation.

Release of contract obligations relates to a development agreement with GreenPlug Inc. The development fees were paid to Imagination Technologies Ltd in advance. Imagination Technologies Ltd has now been released from all obligations under this agreement and therefore the deferred revenue has been recognized as a credit to the income statement.

The contingent acquisition consideration release relates to contingent consideration that has not crystallized relating to the acquisitions of Kisel Microelectronics AB (£272,000) and Nethra Imaging Inc (£89,000).

Group restructuring costs relate to one-off restructuring across the Group.

Onerous contracts relate to various commercial and property related contracts. An onerous contract is one where the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

∆ In 2014, an £85,000 credit to the income statement has been reclassified to net financing expense from operating expenses. As a result, the prior year comparatives have been amended from a £21,000 reported operating profit to a £64,000 operating loss, and from a £335,000 net financing expense to a £250,000 net financing expense.

3. Taxation

There was a net tax charge in the period of £1,070,000 (2014: net tax credit £1,089,000).

The tax charge comprises:

· UK corporation tax charge of £142,000 (2014: £81,000) on profits for the period.

· a current tax charge on overseas revenues not recoverable in the year of £2,456,000 (2014: £2,531,000).

· a current tax charge on overseas profits of £194,000 (2014: £2,020,000 credit due to previous over provision relating to MIPS)

· a deferred tax charge of £1,020,000 primarily the result of utilising accelerated capital allowances, offset by the effect of changes in tax rates on deferred tax assets (2014: £2,005,000)

· a deferred tax credit of £2,742,000 relating to the release of the deferred tax liability created on acquisitions of subsidiaries offset by the effect of changes in tax rates on these liabilities (2014: £3,686,000)

4. Earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potentially dilutive ordinary shares. Details of the schemes considered in arriving at the potentially dilutive ordinary shares are set out in note 21. It should be noted that potentially dilutive shares are not considered when a basic loss per share has been calculated. A loss can not be diluted.

Adjusted earnings per share

Adjusted earnings per share is calculated using adjusted profit attributable to equity holders of the parent which is derived from the adjusted profit before tax described in note 2.

5. Financial Instruments

Overview

The Group has exposure to the following risks from its use of financial instruments:

• Market risk

• Credit risk

• Liquidity risk

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk.

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework.

Categories of financial instruments

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognized in respect of each class of financial assets, financial liability and equity instrument are disclosed in note 1 to the financial statements.

Market risk

Market risk is the risk that changes in the market prices, such as foreign currency exchange rates and interest rates, will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, whilst optimizing the return on risk.

a) Foreign currency risk

The Group transacts licence and development agreements with customers and purchases of products for Pure primarily in US Dollars and, therefore, the Group's earnings are exposed to fluctuations in foreign exchange rates. The Group reviews its foreign exchange exposure on a regular basis and, if there is a material exposure to exchange rate fluctuations and the Board considers it appropriate, the Group will reduce the risk by currency hedging on net receivable/payable balances. Forward exchange contracts are entered into with the objective of matching their maturity with currency receipt. During the period the total value of currency contracts entered into amounted to $59,500,000 or £36,702,000 (2014: £51,011,000). As at 30 April 2015 the outstanding currency contracts amounted to £21,508,000 (2014: £9,952,000). The fair value of these outstanding currency contracts was £182,000 loss (2014: £1,034,000 gain). The movement in fair value of £1,216,000 has been recognized within finance income in the period.

The analysis of financial assets and liabilities by foreign currency is as follows irrespective of the functional currency of the transacting entity:

The significant foreign exchange risks for the Group are USD receivables of £16,776,000 held by Imagination Technologies Limited and Imagination Technologies AB and the USD loan of £24,901,000 held by Imagination Technologies plc. The majority of the other assets and liabilities are held within foreign subsidiaries in the respective local currencies.

The Group has a number of overseas business operations and operates in a number of foreign currencies which give rise to transactional and translational foreign exchange risk. The most important foreign currency to the Group is the US Dollar.

Foreign currency sensitivity analysis

The Group transacts a large proportion of its revenues and costs in US Dollars. Taking all income and expenditure in US Dollars into account, management have appraised that for the financial year to 30 April 2015, each additional one cent increase or decrease in the US Dollar exchange rate against Sterling would have decreased or increased revenues by circa £1,002,000 (2014: £929,000) and profit by circa £524,000 (2014: £527,000).

b) Interest rate risk

The Group's earnings may be affected by changes in interest rates available on bank deposits. The Group aims to maximize returns from funds held on deposit and uses market deposits with major clearing banks accordingly. With the current level of bank deposits, the impact of a change in interest rates is not considered material.

In respect of income-earning financial assets and interest bearing financial liabilities, the following table indicates their average effective interest rate at the reporting date and the periods in which they mature or, if earlier, reprice.

* At floating rate. See note 14 for details.

Floating rate cash earns interest based on LIBID equivalents.

Short term receivables and payables are not interest bearing with the exception of the short term element of the long term loan.

The loan floats at 1.3% above quarterly LIBOR and the unexpired term is 3 years and 2 months.

Interest rate sensitivity analysis

In the financial year to 30 April 2015, if interest rates had been 100 basis points higher and all other variables were held constant, the Group's profit would have been decreased by circa £10,000 (2014: decreased by circa £145,000). Similarly, if interest rates had been 100 basis points lower and all other variables were held constant, the Group's profit would have been increased by circa £70,000 (2014: increased by circa £36,000).

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers and investment of liquid funds.

The Group limits its exposure to credit risk by only investing in liquid securities and only with counter parties that have a high credit rating.

Capital risk

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximizing the return to stakeholders as well as sustaining the future development of the business. In order to maintain or adjust the capital structure, the Group may consider the total amount of dividends paid to shareholders, return capital to shareholders, issued new shares or sell assets to reduce debt. The Group's overall strategy remains unchanged from the previous financial year.

The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 14, cash and cash equivalents and equity attributable to the parent. The latter comprises share capital, reserves and retained earnings as disclosed in note 16 and the consolidated statement of changes in equity. The CFO regularly monitors the capital risk on behalf of the Board.

Trade receivables

The exposure to credit risk is mitigated by selling to a diverse range of customers. The Group has implemented policies that require appropriate credit checks on potential customers prior to sales taking place. At the balance sheet date there were no significant concentrations of credit risk either by customer or by geography. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.

Trade receivables that are less than three months overdue are generally not considered impaired. Receivables more than three months overdue are considered on a line by line basis and a provision is made where recovery is considered doubtful.

No other financial assets are past due.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. To minimize this risk the Group only invests funds in liquid securities. As a contingency, the Group maintains a £3 million overdraft and £20 million revolving credit facility.

The following table is drawn up based on undiscounted contractual maturities including both interest and principal cashflows.

Fair values of financial instruments

Fair value is defined as the amount at which a financial instrument could be exchanged in an arm's length transaction between two informed and willing parties and is calculated by reference to market rates discounted to current value.

Assumptions used in estimating the fair values of financial instruments reflected in the table above:

Cash and cash equivalents

The fair value approximates to book value due to the short term maturity of these instruments.

Available for sale investments

Fair value hierarchy

The Group measures the fair value of available for sale investments using the following hierarchy that reflects the significance of the inputs used in making the measurement:

Level 1: Quoted market price (unadjusted) in an active market for an identical financial instrument.

Level 2: Valuation techniques based on observable inputs, such as market prices for similar financial instruments.

Level 3: Valuation techniques using unobservable inputs which can have a significant effect on the instrument's valuation.

The Group has applied the above hierarchy to its investments as follows:

Toumaz - the valuation is based on the quoted share price for Toumaz Holdings on AIM. This investment is categorized as Level 1.

Orca - the valuation is based on the purchase price of the investment. This investment is categorized as Level 3.

7digital - the valuation is based on the quoted share price for 7digital Group plc on AIM. This investment is categorized as Level 1.

Ineda - the valuation is based on the latest purchase price per funding round. This investment is categorized as Level 3.

Blu-Wireless - the valuation is based on the purchase price of the investment. This investment is categorized as Level 3.

Onkyo - the valuation is based on the quoted share price for Onkyo Corporation on Tokyo stock exchange. This investment is categorized as Level 1.

NetSpeed - the valuation is based on the purchase price of the investment which was acquired during the year. This investment is categorized as Level 3.

Atomos - the valuation is based on the purchase price of the investment. This investment is categorized as Level 3.

The following table analyses investments, measured at fair value at the reporting date, by the level in the fair value hierarchy into which the fair value measurement is categorized:

The following table shows a reconciliation from opening balances to the closing balances for fair value measurements in Level 3 of the fair value hierarchy:

Although the Group believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value.

The valuation of Blu Wireless, Orca, NetSpeed, Ineda and Atomos and Ineda is based on the purchase price of the investment at the most recent funding rounds and any changes in the intervening period to 30 April 2015 are not materially different to these valuations.

Long term borrowings

The fair value approximates to book value as this instrument is at a variable interest rate.

6. Related parties

Identity of related parties

Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.

Transactions with key management personnel

Key management personnel comprise the directors. In addition to their salaries, the Group also provides non-cash benefits to directors and contributes to post-employment benefit schemes on their behalf. Directors also participate in the Group's share incentive programmes. The share based payments are valued at their fair value at the date of grant. Full details of directors' compensation, including post-employment benefits is given in the Directors' remuneration report.

The key management personnel compensations are as follows:

Details of key management's interests in the Company's shares and share options are set out in the Directors' remuneration report.

During 2015 and 2014, no member of the Board of Directors had a personal interest in any business transactions of the Group.

7. Accounting Policies

The following additional accounting standards, amendments, and interpretations have been adopted in the period. The impact of adopting these policies has been immaterial:

· IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities

· Investment Entities - Amendments to IFRS 10, IFRS 12 and IAS 27

· Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32

· Recoverable amount disclosures for non-financial assets - Amendments to IAS 36

· Continuing hedge accounting after derivative novations - Amendments to IAS 39

8. Contingent liabilities

An Internal Revenue Service ('IRS') audit of the MIPS Technologies Inc (now Imagination Technologies LLC) tax returns for the tax periods ending 30 June 2012, 30 June 2013 and 31 December 2013 commenced in February 2015. The audit is focusing on the 30 June 2013 tax period which included a one off capital gain of $350 million, generated in February 2013, when MIPS completed a sale of its patents immediately prior to the acquisition of MIPS by Imagination.

Imagination Technologies LLC has provided all information requested to date by the IRS. The audit is still in its early stages, and the IRS has not issued a formal Notice of Proposed Adjustments. This being the case, Imagination Technologies LLC has not made any adjustment to its tax provision as at 30 April 2015, as a result of the audit taking place.

The Group had no contingent liabilities at 30 April 2014.

9. The Group's full Report & Financial Statements will be made available to shareholders by 21 August 2015. Additional copies will be available from the Company's registered office, Imagination House, Home Park Estate, Kings Langley, Hertfordshire WD4 8LZ.

10. The Annual General Meeting of Imagination Technologies Group plc will be held at Imagination House, Home Park Estate, Kings Langley, Hertfordshire WD4 8LZ at 11.00am on 18 September 2015.