Imagination Technologies Group Regulatory News (IMG)

16 December 2014

Imagination Technologies Group plc

Strong demand for our IP and increasing SoC design-win momentum

Imagination Technologies Group plc (LSE: IMG, "Imagination", "the Group"), a leading multimedia, processor and communications technology company, today announces results for the six months to 31 October 2014.

Overview

· Financial performance for H1 in line with expectations, with strong progress in licensing and design-wins

· Current financial year represents a transitional year from heavy investment in strategic product lines to a position where the core products are all either generating or moving towards generating revenues

· Complete product line now enables increased leverage of full capabilities in many existing or developing and emerging markets

· Group anticipates a much stronger H2 financial performance

Financial highlights

· Technology revenues increased 3% to £72.8m (2013: £70.8m)

- Licensing revenues up 11% to £16.0m (2013: £14.4m)

- Royalty revenues robust at £56.3m (2013: £56.2m)

· Group half-year revenues of £82.2m (2013: £85.2m)

· Adjusted operating profit* of £5.0m (2013: £12.4m); Reported operating loss of £9.0m (2013: profit £1.4m)

· Adjusted earnings per share* 1.3p (2013: 3.8p); Reported loss per share 3.9p (2013: loss 0.4p)

Business highlights

· Growing customer engagement with significant agreements signed with over 20 partners during the period

- Strong licensing progress - 49 licenses signed (2013: 43)

- Agreements signed with partners including Ali, Avago, Broadcom, Celeno, Fujitsu, Intel, Lantiq, Loongson, MediaTek, Siklu, Texas Instruments, Toshiba and Toumaz

· Significant increase in new committed SoCs with over 35 SoC design-wins added which will contribute to future royalties

· Royalty revenues on track, with both MIPS shipments and average royalty rate above expectations

· Operating costs continue to be tightly managed now that the heavy investment is over and actions taken have led to refocus of Pure business. Rate of operating cost growth reduced dramatically from previous years

Outlook

· Based on active pipeline of prospects, continue to target 10% growth in licensing revenue in FY2015

· On track to meet market expectations for royalty revenue, with strong performance in average royalty rate and MIPS volumes offsetting flat non-MIPS royalty units

· In line with previous guidance, FY2015 underlying operating costs around 10% higher than FY2014

· Expansion of operating margins in medium-term with longer-term target of 30%-40%

Hossein Yassaie, Chief Executive, commented:

"I am pleased with our progress in the first half. During this transitional year for the Group we have seen continued progress in licensing, robust royalty revenues and disciplined cost control. As a result we remain confident of achieving our targets for the year.

"Now that our product lines are complete and the heavy investment phase is over, we expect to see lower rates of operating cost growth going forward and increased focus on financial returns. Our market relevant and complementary technologies combined with our increased scale enable us to take advantage of the natural leverage to improve the financial performance of our business. As a result we now expect to see significant expansion in operating margins in the medium-term."

* Adjusted results exclude non-recurring items, non-cash based share incentive charges and amortisation of intangible assets from acquisitions. The reconciliation from reported results to adjusted results is set out in the notes.

About Imagination Technologies

Imagination Technologies - a global leader in multimedia, processor, communication and cloud technologies - creates and licenses market-leading processor solutions including graphics, video, vision, CPU and embedded processing, multi-standard communications, cross-platform V.VoIP and VoLTE, and cloud connectivity. These silicon and software intellectual property (IP) solutions for systems-on-chip (SoC) are complemented by an extensive portfolio of software, tools and ecosystems. Target markets include mobile phone, connected home consumer, mobile and tablet computing, in-car electronics, networking, telecoms, health, smart energy and connected sensors. Imagination's licensees include many of the world's leading semiconductor manufacturers, network operators and OEM/ODMs. Corporate headquarters are located in the United Kingdom, with sales and R&D offices worldwide. See: www.imgtec.com.

Overview

In the first half of the year Imagination has made good progress in its strategic developments to build real scale across our three fundamental silicon IP families, PowerVR multimedia, MIPS processors, and Ensigma communications.

Our long-term strategy to develop and exploit three main areas of IP - multimedia, processors and communications and the platforms they enable - has continued to make good progress.

These three carefully developed 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 specific area very well and

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

Overall licensing is at a healthy and growing level with deal closure and pipeline activity increased across all IP families. 49 licences were signed in the period compared to 43 for the same period last year.

We have built on the success of PowerVR Series6 with the recent launch of Series7 GPU XT and XE families. The Series7 cores have already been licensed by several partners including multiple tier one players.

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.

Development of the MIPS processor family continues, ahead of our initial expectations, with the launch of 64-bit members of the Warrior family and the addition of several new partners in the period.

Building on the significant licensing activity seen for our Ensigma communications IP during the last financial year, we have seen further licensing of this enabling technology as well as supporting a number of our partners as they bring products featuring this technology to market.

Following the actions taken to refocus the Pure business at the end of the last financial year, Pure has launched a fresh range of new DAB products as well as continued the important development in the wireless speaker product range.

The Group's operating cost base continues to be tightly managed, while targeted investment is made in areas that will drive significant future growth.

The Group's capital investment programme is now in its final phase with the third of the Kings Langley buildings now under construction.

Overall, although the first half of the year's financial performance was expected, the Group anticipates a much stronger H2 with the full year financial performance in line with the Board's expectations.

Financial Review

Revenue

Group revenues for the six months to 31 October 2014 were £82.2m (2013: £85.2m).

The robust royalty revenue and the improving licensing performance increased Technology revenues by 3% to £72.8m (2013: £70.8m).

Strong demand for our technologies resulted in an 11% increase in licensing revenue to £16.0m (2013: £14.4m).

Royalty revenues were robust, despite the expected transitional year, at £56.3m (2013: £56.2m) with a total unit shipment of 648m (2013: 640m). Non-MIPS partners' chip shipments were 248 units (2013: 280m).

The average royalty rate in both the non-MIPS and MIPS categories increased due to a change in the mix.

Pure revenue was £9.4m (2013: £14.4m) as a result of tough trading conditions in the DAB market and as a result of actions taken to refocus and rationalise the business.

Profit and operating expenses

Driven by the strong progress in the high margin Technology business, Group gross profit was £73.9m (2013: £74.2m), with overall gross margin increasing to 90% (2013: 87%).

Underlying Group operating expenses increased to £68.9m (2013: £61.8m). This is in line with expectations and is consistent with the 10% increase expected for the full year. The headcount at 31 October 2014 was 1,729 (31 Oct 2013: 1,571).

Underlying operating expenses excluded the following non-cash items:

· Share-based incentives charge of £6.3m (2013: £6.1m)

· Amortisation of intangibles £4.6m (2013: £4.1m)

· Costs relating to acquisitions of £0.7m (2013: £0.6m)

· Loss on investments of £3.3m (2013: £0.7m)

Earnings and taxation

Adjusted operating profit* for the Technology business was £7.8m (2013: £15.5m).

The ongoing refocussing, the difficult trading conditions coupled with certain strategic investments in the new range of products resulted in Pure recording an adjusted operating loss* of £2.8m (2013: loss £3.1m).

The Group's adjusted pre-tax profit* was £3.3m (2013: £13.2m). The reported pre-tax loss was £10.7m (2013: profit £2.2m).

The net tax credit was £0.4m (2013: charge £3.4m). The tax credit comprised of an overseas withholding tax charge of £1.0m (2013: charge £1.7m) and a net deferred tax credit of £1.4m (2013: net charge of £1.7m). The deferred tax asset on the Group balance sheet, which is largely available to be utilised against future profits, has increased to £5.4m (30 April 2014: £4.9m).

The Group's adjusted earnings per share* was 1.3p (2013: 3.8p). The Group's reported loss per share was 3.9p (2013: loss 0.4p).

Balance sheet

Goodwill at 31 October 2014 was £59.8m (30 April 2014: £59.8m).

Other intangible assets were £53.9m (30 April 2014: £58.6m), the movement is largely due to amortisation of £5.3m.

The investment balance was £23.2m (30 April 2014: £21.1m).

Trade and other receivables increased to £67.9m (30 April 2014: £51.0m). The increase is due to the timing of royalty receipts and higher accrued royalty revenue in relation to the normal seasonal patterns.

Property, plant and equipment assets were £64.6m (30 April 2014: £63.6m) reflecting capital expenditure of £4.3m (H1 2013: £9.2m). The primary element of this is the re-development of the Group's property facilities in Kings Langley. The second phase of the Kings Langley redevelopment was completed during the period. This is the final year of the four year re-development plan.

Interest bearing loans and borrowings were £32.0m (30 April 2014: £24.3m). The increase was due to short-term utilisation of £6.5m of the Revolving Credit Facility (RCF) to cover the timing of royalty receipts. Quarterly royalty receipts typically straddle the end of the period and this quarter a higher proportion fell after the end of the period. The RCF was repaid shortly after the period end. The improved financial performance expected in the remainder of the year is expected to generate strong cash flow in the second half.

There was a net cash outflow of £15.2m (2013: outflow £64.3m including MIPS tax payment) as a result of three main factors; £8.2m relating to capital expenditure and in particular the Group's property facilities in Kings Langley, £10.7m relating to working capital movements due to the timing of royalty receipts, partially offset by the inflow of £6.5m from draw down of the RCF. Cash resources as at 31 October 2014 were £5.2m (30 April 2014: £19.2m).

* Adjusted results exclude non-recurring items, non-cash based share incentive charges and amortisation of intangible assets from acquisitions. The reconciliation from reported results to adjusted results is set out in the notes.

Technology business

Licensing

· Deal closure and licensing pipeline activity levels increased across all IP families

o 49 licenses including 22 for PowerVR Multimedia, 21 for MIPS CPU, 5 for Ensigma RPU and 1 for FlowCloud

· Growing customer engagement with significant agreements with over 20 partners during the period

o Agreements signed with partners including Ali, Avago, Broadcom, Celeno, Fujitsu, Intel, Lantiq, Loongson, MediaTek, Siklu, Texas Instruments, Toshiba and Toumaz

o A number of on-going long-term subscription licenses with certain key partners

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

· Platform IP capability gaining traction and helping to fuel the momentum

Partner chip shipments & design-wins

· Total partner chips shipped of 648m (2013: 640m). Non-MIPS shipments of 248m units (2013: 280m)

· Significant volume shipments in mobile (all segments: performance, mainstream and entry smartphones), tablet/personal computing, networking & enterprise, TV/STB and growing volume in automotive, wearables and emerging IoT segments

o Average royalty rates increased in both MIPS and non-MIPS shipments

· 6 partners now shipping chips containing Series6/6XT graphics with many others in the pipeline

· Record quarterly shipments of MIPS processor cores in quarter ending September 2014

· Half-year licensing activity has resulted in a significant increase in new committed SoCs with over 35 SoC design-wins added which will contribute to future royalties

Technology products update

PowerVR Multimedia IP family - 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 the most adopted and shipped licensable technology of its kind. The addition and launch of the new entry to mid-range focussed XE family to Series6 at the beginning of 2014 and simultaneous launch of lower-end XE with XT families as part of the recent Series7 launch, is designed to enable us to better compete in entry to mid-range segments.

We expect this on-going strategy to help our market share in the entry and lower-end segments over the next 6 to 18 months and beyond. We also introduced the smallest OpenGL™ ES 2.0 core, the PowerVR GX5300, during the first half to target the emerging wearable and ultra-low-end segments. During the first half there were 12 PowerVR GPU licenses across all markets and segments including many low-end use cases.

The PowerVR Series6 technology has seen further deployment in the market and is now shipping from many partners in mobile devices, DTV (digital TV) and automotive, delivering the latest features (e.g. OpenGL ES 3.0) and demonstrating the performance and power consumption advantages of this class-leading technology. Specifically PowerVR is now the number one architecture in the automotive market and is benefiting from a rapid growth with our partners (including Renesas and TI) addressing all segments. We see continued interest in and licensing of the existing Series6XE/6XT cores, and initial licensing of the new PowerVR Series7XE/7XT technology.

PowerVR Series7 GPUs, launched in Nov 2014, are highly scalable targeting applications from wearables to servers. The highly efficient Series7 architecture scales from 20+ GFLOPS to near 1.5 TFLOPS with Series7XT GPUs offering up to 512 cores addressing mid to high-end markets including next-generation servers and 3D gaming consoles and Series7XE GPUs range from 16 to 32 cores with a high degree of configurability targeting entry and low-end segments.

This new technology also brings about many revolutionary and disruptive capabilities which include support for hardware virtualization and multi-domain security across the line-up, full Android Extension Pack (AEP) features including hardware tessellation for maximum performance under Android 5.0 'Lollipop'; plus DirectX 11 and OpenCL FP64 feature packs.

The PowerVR Series7 leverages years of knowledge and is based on the Rogue architecture and provides a further significant step up in performance with underlying efficiency gains of between 40% and 60%.

· The level of interest in our ray tracing IP is significant with a number of major partners evaluating this ground breaking and disruptive technology.

· Video - Our PowerVR video decode and encode processor (VPU) families, which support the latest and emerging formats, continue to see strong volume growth. During the first half there were nine video core licences. The 4K and image quality requirements including 10-bit capability are among the new drivers.

· 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 set to become increasingly prevalent in the years ahead. We secured a further important license for this emerging technology during the period.

MIPS Processor cores

MIPS continues to perform ahead of our expectations, in particular with the highest ever quarterly volume shipments in the September quarter.

In the first half 21 licenses were signed bringing the total since the acquisition in February 2013 to over 70 licenses. Significantly these licenses represent over 50 new SoCs which will contribute to volume in the years to come.

Development of the next generation MIPS Warrior family of processor cores and the drive to strengthen and build on the MIPS ecosystem continue as planned. The recent launch of our Creator CI20 microcomputer board will provide low cost development systems for use by the open source community, enthusiast, hobbyist, cross platform developers and partners looking to create production applications using our IP technologies. Creator CI20 includes our MIPS and PowerVR IP processors and connects to our FlowCloud platform. 

The latest member of the Warrior I-class family, the 64-bit I6400 was announced in September 2014, which for the first time in the industry combines a 64-bit architecture and hardware virtualization with scalable performance through multi-threading, multi-core and multi-cluster coherent processing. Its unique feature set and performance/power/area leadership place the I6400 ahead of the competition, enabling customers to implement a smaller core at the same performance, or a faster core in the same area.

MIPS Warrior I-class processor cores set a new standard for mainstream 64-bit processing in applications including embedded, mobile, digital consumer, advanced communications, networking and storage - the broadest set of applications ever addressed by a single MIPS core family. Significantly it features advanced multi-context security essential for the growing needs of multi-zone privacy and data security.

The MIPS family of processors combined with our Ensigma communications technology offer a highly efficient 'connected processor' which we believe is uniquely well positioned for many connected devices and the emerging IoT and Machine-to-Machine (M2M) applications. The M-class and I-class address these markets well and are securing significant design-wins.

Ensigma Communications

The Ensigma communications technology is an important and growing part of our business. The technology has already been adopted by around 10 partners.

Our Ensigma programmable radio processing unit (RPU) family supporting both multi-standard broadcast receivers and Wi-Fi/Bluetooth connectivity is becoming increasingly relevant to mainstream markets and has been designed into a growing number of chips and products. We secured five further licenses for Ensigma technology during the first half.

In July 2014 we announced the latest member of the Ensigma family, the Whisper core. The Whisper product is targeted at very low power communications standards particularly targeting the significant end markets of IoT and wearables.

FlowCloud technologies

To complement our silicon IP offerings in the key areas of processing and connectivity, we have developed the FlowCloud software technologies which can help to enable easy and quick deployment of our processor and connectivity IPs in the emerging IoT markets. FlowCloud is an application independent software platform that ensures all essential baseline services such as authentication, security, update/maintenance are available to the developers, alongside APIs for functions such as control, streaming, and payment services.

The FlowCloud Platform technology can speed up the deployment of cloud-managed connected devices in diverse markets including home automation, healthcare, energy management, security and monitoring, connected/intelligent toys, industrial and agricultural monitoring/control and many more.

Complementary supportive technologies

· 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. 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. Caskeid 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 wide deployment of this technology over the next 12 to 18 months.

Pure business

As previously stated, Pure's activities are being more strongly focussed 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:-

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

· Strategic engagement in support of key players interested in our wireless and multi-room speaker technologies. These systems use many 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 ongoing activity with significant potential for the Group which will be more visible in 2015

· Helping to build development boards and systems in support of our IP offerings and Platform solutions. The recent launch of the well-received Creator CI20 development system was a first example where we expect to 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. New radio launches include the Evoke D2 and D4 Mio and the new Pop family. 

Pure's products have been well received in this half, securing annual awards from Hi-Fi Choice, Auto Express, and What Hi-Fi. 

Current trading and outlook

The continued momentum in licensing, SoC design-wins and the build-up of the licensing pipeline across all our IP families, demonstrates market alignment of our offering and the soundness of our overall strategy. Following the encouraging start to the year, we continue to aim for our licensing revenue to grow by around 10% this year.

This year is a transitional one for non-MIPS volume as the Group's lower-end smartphone market share is under pressure until the new design-wins reach production and contribute to volume.

The Group expects full year volumes for non-MIPS to be similar to last year's level but with the average royalty per unit remaining strong resulting in royalty revenue to be on track for the full year. The stronger rate has been driven by our market share in mid and higher-end products. While the new lower-end PowerVR XE range has secured design-wins in a number of partners, the exact timing of volume ramp up is driven by partner product development plans.

MIPS unit volumes have been stronger in H1 than we anticipated and we now expect the full year to be marginally ahead of last year. This trend is welcome as we had cautiously assumed a reduction of MIPS volume in the initial years before the full positive impact of the Group's acquisition of MIPS and the growing design-wins have worked through the product cycles.

We expect the refocused Pure business to begin to grow revenue in H2 and reduce the losses from last year.

We expect Group underlying operating costs for the full year to increase by around 10%, which is consistent with our previous guidance, and reflects a significantly lower growth rate compared with previous years.

The current trading range for the US dollar has helped to offset the adverse movement in the first quarter.

We expected the revenue and profit in this financial year to be weighted to H2. H1 performance was marginally ahead of our expectations, and when combined with our visibility of licensing and royalty revenues for H2 our expectations for full year financial performance remain on track.

As the Group moves out of the heavy investment phase of the last few years, we are now in a position to leverage the investments that we have made. A key focus for the Board is driving expansion in the operating margins of the business. The progress made to date gives us confidence that the Group will be able to make significant progress over the next few years. We now believe a 30%-40% operating margin range is a realistic target for the longer-term.

The market opportunities that are addressable by our comprehensive IP, both individually and in combination, have huge potential. The Board remains confident that the Group is on track to deliver continued progress during the current financial year and beyond as well as being well placed to capitalise on these opportunities.

Sir Hossein Yassaie

Chief Executive

16 December 2014

Condensed Consolidated Income Statement

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Financial Position

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Statement of Cash Flows

Notes to the Condensed Consolidated Half Year Financial Report

1. Reporting entity

Imagination Technologies Group plc (the 'Company') is a company incorporated and domiciled in the United Kingdom. The Condensed Consolidated Half Year Financial Report of the Company as at and for the six months ended 31 October 2014 comprise the Company and its subsidiaries (together referred to as the 'Group').

The Consolidated Financial Statements of the Group as at and for the year ended 30 April 2014, are available upon request from the Company's registered office at Imagination House, Home Park Estate, Kings Langley, Hertfordshire WD4 8LZ. An electronic version is available from the Investors section of the Group website at www.imgtec.com.

2. Statement of compliance

This Condensed Consolidated Half Year Financial Report has been prepared in accordance with IAS 34: Interim Financial Reporting as endorsed and adopted for use in the European Union and the Disclosure and Transparency Rules (DTR). Selected explanatory notes are included to explain events and transactions that are material to an understanding of the changes in financial position and performance of the Group since the last annual Consolidated Financial Statements as at and for the year ended 30 April 2014.

This Condensed Consolidated Half Year Financial Report does not include all of the information required for full annual Financial Statements prepared in accordance with International Financial Reporting Standards.

3. Significant accounting policies

This Condensed Consolidated Half Year Financial Report has been prepared on the basis of accounting policies and presentation consistent with those applied in the Consolidated Financial Statements for the year ended 30 April 2014, except as noted below, and has been reviewed in accordance with 'International Standard on Review Engagements (UK and Ireland) 2410: Review of Interim Financial Information Performed by the Independent Auditor of the Entity', issued by the Auditing Practices Board for use in the UK.

The following additional accounting standards, amendments, and interpretations have been adopted in the period:

· 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

Adopted IFRS not yet applied

The following accounting standards, amendments and interpretations had been issued but they are not yet effective for the Group and have not been early adopted. Their adoption is not expected to have a material effect on the financial statements unless otherwise indicated:

· Annual Improvements to IFRSs - 2010-2012 Cycle (IASB effective date 1 July 2014)

· Annual Improvements to IFRSs - 2011-2013 Cycle ( IASB effective date 1 July 2014)

· IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018)

· Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 (effective for annual periods beginning on or after 1 January 2016)

· Equity Method in Separate Financial Statements - Amendments to IAS 27 (effective for annual periods beginning on or after 1 January 2016)

· Annual Improvements to IFRSs - 2012-2014 Cycle (effective for annual periods beginning on or after 1 January 2016)

· IFRS 15 Revenue from Contracts with Customers(effective for annual periods beginning on or after 1 January 2017)

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU.

4. Risks and uncertainties

The Board continuously assesses and monitors the key risks of the business. Despite the current uncertainty in the global economy, the key risks that could affect the Group's medium term performance, and the factors which mitigate these risks, have not significantly changed from those set out in the Group's Annual Report for 2014, a copy of which is available from our website www.imgtec.com. The Financial and Business Review includes consideration of uncertainties affecting the Group in the remaining six months of the year. The Board has reviewed forecasts, including forecasts adjusted for significantly worse economic conditions, and remains satisfied with the Group's funding and liquidity position. On the basis of its forecasts, both base case and stressed, and available facilities, the Board has concluded that the going concern basis of preparation continues to be appropriate.

5. Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing this Condensed Consolidated Half Year Financial Report, the nature of the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation were the same as those that were applied to the Consolidated Financial Statements as at and for the year ended 30 April 2014.

6. Operating segments

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 embedded graphics, video, display and multi-threaded processor and multi-standard broadcast receiver 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 on the facing page. Performance is measured based on operating profit and adjusted operating profit.

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 £24,408,000 and £12,972,000. Both customers' country of domicile is USA, and these revenues are included in the Technology division.

Adjusted profit

Adjusted profit is used by management to measure the performance of the business year on year by excluding non-recurring items, non-cash based share incentive charges and amortisation of intangible assets acquired from acquisitions.

7. Taxation

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year applied to the pre-tax income of the interim period.

There was a net tax credit in the period of £397,000 (2013: £3,379,000 charge).

The tax credit for the interim period includes a current tax charge of £955,000 (2013: £1,685,000 charge) which largely relates to foreign withholding tax suffered; and a deferred tax credit of £1,352,000 (2013: £1,694,000 charge) relating to the release of the deferred tax liability created when acquiring the intangible assets of MIPS Technologies Inc in 2013.

As in the prior year, a blended rate has been used to estimate the expected reversal of deferred tax balances. The blended rate has been used due to the phasing in of the 10% patent box rate over the next 4 years.

8. Earnings per share

Adjusted earnings per share

9. Financial Instruments

Offsetting

As at 31 October 2014 the outstanding currency contracts amounted to £12,634,000 (2013: £33,798,000). The fair value of these outstanding currency contracts was a £494,000 net liability (2013: £2,023,000 net asset). The movement in fair value since 30 April 2014 of £1,528,000 has been recognized within finance expense in the period.

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.

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 categorised as Level 1.

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

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

Ineda - the valuation is based on the purchase price of the investment. This investment is categorised as Level 3.

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

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

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

Tetsuwan Pty - the valuation is based on the purchase price of the investment which was acquired during the period. This investment is categorised as Level 3.

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:

During the period the Group exercised a right to receive a trade receivable balance from Atomos Global Pty. Ltd ('Atomos') in shares in their parent company Tetsuwan Pty. Ltd ('Tetsuwan') rather than in cash. The Group's holding in Tetsuwan was valued at £3,005,000. At the balance sheet date a £121,000 increase in the value of the investment due to foreign exchange movements resulted in a carrying value of £3,126,000. The £121,000 increase has been recognized as a change in fair value of available for sale investments in the statement of comprehensive income.

During the period the group made further cash investments of £530,000 in UBC and £1,000,000 in 7digital. These investments were by way of loans to these two companies. Subsequent to these investments UBC and 7 digital merged, with the combined new company being listed on AIM and being called '7digital Group plc'.

Imagination's existing shareholdings in UBC and 7 digital converted into shares in 7digital group plc at a rate which ensured its percentage holding in the new entity matched its existing holdings in the two merged companies. The £1,530,000 loans provided during the period, and a loan of £100,000 made to UBC in the last financial year, were converted into shares in the new company at a rate of 27 pence per share. This share price was lower than the share price on the first day of trading on AIM. This created an immediate gain of £392,000, which has been recognised in the consolidated income statement. At the balance sheet date due to a fall in 7digital group's quoted share price, the group's investment had fallen to £4,251,000. This diminution in value was deemed to be an impairment in the investment and a loss on investment of £3,674,000 has been recognised in the consolidated income statement.

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 Toumaz and Onkyo is based on the quoted market prices and the movement is recognised in the consolidated statement of comprehensive income.

The valuation of Orca, Blu Wireless Technology, Netspeed 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 31 October 2014 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.

10. Related Parties

The nature of related parties as disclosed in the Consolidated Financial Statements for the Group as at and for the year ended 30 April 2014 has not changed. Further there have been no significant related party transactions in the six month period ended 31 October 2014.

11. Approval

The Condensed Consolidated Half Year Financial Report was approved by the Board on 12 December 2014.

Responsibility statement of the directors in respect of the half-yearlyfinancial report

This Half Year Management report is the responsibility of, and has been approved by the directors of Imagination Technologies Group plc. Accordingly, the directors confirm that to the best of their knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34: Interim Financial Reporting as adopted by the EU;

· the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

Geoff Shingles

Chairman

16 December 2014

Independent Review Report to Imagination Technologies Group plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2014 which comprises condensed consolidated income statement, condensed consolidated balance sheet, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this 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 for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 3, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. 

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2014 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Tudor Aw

Senior Statutory Auditor

for and on behalf of KPMG LLP

Statutory Auditor

Chartered Accountants

15 Canada Square

London

E14 5GL

16 December 2014