Imagination Technologies Group Regulatory News (IMG)

6 March 2014

Imagination Technologies Group plc

Interim Management Statement

Imagination Technologies Group plc ('Imagination', LSE: IMG), a leading multimedia, processor and communications technology company, is today issuing its Interim Management Statement for the period from 1 November 2013 to 5 March 2014.

Trading update

The Group has continued to develop and make good progress in its strategy of providing the key processor IP cores needed for the broadest range of System-on-Chips (SoC) and the markets they target.

Unit shipments have been behind expectations due to a slower rate of smartphone market growth and lower market share in the entry level segment of that market. However, based on recent design wins and partner product launches, we expect this share to recover in the latter part of FY15. The revenue impact of share loss in the entry level segment has been lessened due to the lower royalties on these units. Indeed the average royalty rate achieved is ahead of our expectations.

Licensing activity remains high with a large number of opportunities being progressed across all of the IP product groups. Progress so far in H2 has been encouraging including development and extensions of some strategic and long-term relationships. One of the characteristics of the sales pipeline this year compared with previous years is the number and breadth of opportunities. They cover a far wider range of customers and a broader mix across all of our IP products. While this helps to reduce the dependency on specific customers / products, there is still the usual uncertainty in precise timing of deal closure.

The Pure business performance has been steady with revenues from the Jongo range of wireless speakers offsetting weaker performance in the DAB market.

We have continued to manage the operating cost base with increased rigour. In particular, synergies from acquisitions and across our geographical resources have been greater than previously expected and this has resulted in significant additional efficiencies and cost savings against our plan.

Technology

Multimedia

Our PowerVR Series6 technology has seen significant further deployment in the market with multiple partners now shipping devices using this technology in all key segments. This was increasingly visible at the recent major industry event, Mobile World Congress (MWC) 2014. Recent benchmarks measuring performance, power and area show significant benefits, delivered by this market leading technology, compared with all competition.

We recently announced further GPU cores based on the Series6 technology for both Series6XT and also Series6XE. These cores bring the benefits of Series6 to a broader range of customer requirements from entry level to market leading high-end. Series6XE in particular delivers strong performance per square millimetre and feature set, providing exceptional products targeting the entry level smartphone / tablet and wearables markets. Series6XT is demonstrably leading the market in mainstream and high-end segments. We have seen and continue to see strong interest in and licensing of this technology.

We have recently launched our first IP core, PowerVR V2500, in the Raptor imaging processor family which works closely with our PowerVR video and graphics cores to provide enhanced camera functionality and tighter integration. The vision capability is increasingly becoming a very important aspect of many categories of devices in many market segments from smartphones to the Internet of Things (IoT).

We will make further product announcements involving our ray tracing technology later this month.

CPU and processor cores

Progress with development of the Warrior range of cores, which was initiated following the MIPS acquisition, has been strong with the launch, in February 2014, of the new MIPS Warrior M-class cores. These are the world's first MCU-class CPU IP cores with hardware virtualization and next generation security capabilities. We have now launched two performance/feature categories, P-class and M-class cores, from the new MIPS Warrior family. Significantly we have already secured licenses for these new cores. Development of further cores, including 64-bit processors, within the Warrior family is progressing rapidly.

Customer engagements regarding MIPS processors continue very positively, with a number of new agreements signed including with a Tier 1 customer using latest generation MIPS for the first time.

The emerging market segment of wearable devices is set to be a very active one for MIPS with several partners already engaged and others in the pipeline. We are also seeing genuine interest and early traction for the MIPS Warrior family for the mobile market.

The progress on MIPS is very encouraging and has made a positive contribution to the business. We re-iterate that this is a long-term strategy to offer real choice in the CPU and processor IP market.

Communications

The relevance and interest of our communications IP has increased further, with a significant number of licensing opportunities in the sales pipeline. Of particular note is the number of customers interested in combining this with our other technologies, such as MIPS processors, or our PowerVR graphics and video solutions, as evidenced by the recent product announcement from Toshiba.

We have signed licenses with a number of partners for our Caskeid multi-room wireless audio technology, which also powers Pure Jongo wireless speakers, and have a number of further prospects in progress. This offering combines our Ensigma connectivity, MIPS processors and our market leading wireless synchronisation technology.

Cloud technologies

FlowCloud is a key software technology for enabling IoT opportunities. Its availability to our customers can enable faster time to volume product shipments. There is growing customer recognition of the market opportunity and relevance of this technology to many key established and emerging markets including audio and video content delivery, home automation, healthcare, security and the many other IoT opportunities seen widely at the recent CES and MWC international trade shows.

Pure

We have continued the development and launch of a number of strategic products and technologies that showcase the technology and capabilities of the Group and help to secure new business opportunities. There are a number of ongoing discussions with partners looking to utilise these technologies as demonstrated by the recent announcement with Onkyo.

Outlook

With the encouraging high level of licensing opportunities in the pipeline and deals closed so far we expect licensing revenue for the current year to be significantly stronger than last year and gaining momentum. When we consider the timing of deal closure in this final quarter however, we expect licensing revenue to be in the range of £35m - £40m.

Based on our view of existing partner shipments and new products which are starting to ship, we expect total unit shipments to be in excess of 1.2bn units in the financial year to 30 April 2014. Excluding MIPS, we now expect 520m - 550m units. There are a number of new partners that have just started or will start shipment over the coming months and new design wins with existing partners which will contribute to unit volume growth in FY15.

We expect to see a financial improvement in the Pure division over the medium term, driven by the new Jongo product range.

Based on the higher levels of synergies and rigorous cost management, we now expect the underlying operating costs for FY14 to be significantly lower than previous guidance (£135m - £137m) and within the range £127m - £131m. The investments we have made in the operating cost base over the last few years have strengthened the R&D capabilities significantly and have equipped us to deliver to our plans. As a result, our expectations for underlying operating costs for FY15 are for a much lower rate of growth.

The financial position of Imagination remains robust and the Board is confident that the Group's progress will continue.

Hossein Yassaie, Imagination's Chief Executive said:

"We continue to focus on building sustainable and long-term value in our business, despite the transient events that are inevitable in the dynamic markets in which we operate.

"Our strategy to develop and exploit disruptive technologies in our three main areas of IP - multimedia, processors and communications - has made good progress. Significantly this strategy has now reached a stage that it is enabling us to start offering our customers solution-centric platforms that they value.

"Our strong technology base and the platforms they are enabling, the expanding partner engagements and the growing design wins across a broader range of markets give us confidence that we have significant opportunities and growth potential ahead."

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