24th Jun 2014 13:44
LONDON (Alliance News) - Imagination Technologies PLC Tuesday expressed confidence that it is on track to deliver progress, even after it swung to a pretax loss for the year to end-April due to higher costs following its acquisition of MIPS Technology Inc in February 2013.
The company swung to a pretax loss of GBP314,000, from a pretax profit of GBP12.2 million a year earlier, even though revenue rose to GBP170.8 million, from GBP151.5 million. Research and development costs and sales and administrative expenses both rose following the company's acquisition of MIPS.
Imagination Technologies said that its integration of MIPS had progressed well, and it had made a positive financial contribution to the group.
Licensing revenues rose to GBP38.3 million from GBP29.1 million, boosted by the MIPS acquisition and growth in Imagination Technologies' Enigma communications intellectual property. The company signed licensing agreements and deal extensions with over 50 customers during the year.
Royalty revenues rose to GBP109.0 million, from GBP95.1 million, although they were damped by the strengthening of sterling.
Imagination Technologies said that due to the slump in the high-end smart-phone market, and competition in lower-end mobile products, its chip shipments with partners decreased 1% to 530 million, from 535 million. Partner shipments including MIPS were 729 million units during the year.
The average royalty rate per chip, excluding MIPS, was maintained at levels in line with the previous year.
The company's Pure audio business continued to be hampered by a difficult trading environment in the UK, Imagination said, leading to a drop in revenue to GBP23.2 million, from GBP25.8 million. Imagination Technologies restructured the business during the year to reduce its costs and increase its focus on critical projects.
Gross margin improved to 88% from 86%, benefiting from growth in the company's higher margin technology business.
Jefferies analyst Lee Simpson said the company was heading in the right direction again after struggling in the previous year when it was hit by both weak licensing revenue and dropping royalty rates. Last year's full-year licensing revenue of GBP38.3 million was at the upper end of the guidance range of GBP35 to GBP40 million, he said, and the company's adjusted operating profit also beat expectations.
Shares in Imagination Technologies were trading up 7.5% at 251.10 pence Tuesday afternoon, the biggest gain on the FTSE 250.
The shares trade at a price-to-earnings ratio of 20 times forecast 2016 earnings, which Jefferies says "misrepresents the strength of the underlying fundamentals." The bank thinks the stock should be trading on a multiple of 25 to 30 times earnings and therefore is reiterating a Buy rating on the stock and a price target of 300 pence.
Imagination Technologies said it expects another good performance from its licensing division in 2014, as demand for its video and graphics technologies is set to remain strong. It expects to see shipment volumes increase during fiscal 2015, with growth predominantly in the second half of the year. Excluding MIPS, the company expects shipment volumes to reach one billion within three years.
The company noted that MIPS volume could be subject to fluctuations, and expects shipments of MIPS to be broadly flat in fiscal 2015.
"Because we acquired this company only 18 months ago, and some of its products were towards the end of their life time, there's transition. Volume we expect to be steady for a while and over time begin to grow," Chief Executive Hossein Yassaie told Alliance News.
Non-MIPS shipment volumes will be driven by continued growth of existing customers' designs, Imagination Technologies said, and new design wins in the lower-end smartphone markets.
Growing trends in home connectivity and the "internet-of-things" will provide opportunities for the company's MIPS and Ensigma products, and it expects newer technologies to make growing contributions in fiscal 2015.
"We'll begin to see the volume ramp up. I think it will be slowly developed, but surely, and it will accelerate maybe next year and the year beyond. So over the next three years we expect these markets, especially wearables, to pick up. The internet-of-things may take a couple of years to become substantial but its a very, very important market," Yassaie said.
A concern for companies like Imagination Technologies, whose products are widely used in smartphones, is the ongoing slump in growth in the high-end smartphone market. However, new emerging markets like wearable technology and the internet-of-things could offset this decline.
"The mobile market is still growing, the problem is people were used to 40% growth, but its more like 15 to 20% growth," Yassaie explained. "Its a big market and it's growing. The wearable is a completely new market, we're talking about a small number of millions this year. I think next year I'd expect to see that market become tens of millions. Ultimately it would be hundreds of millions, and it would be as significant as the mobile market."
Imagination Technologies said that it expects growth in underlying operating expenses to be significantly lower than previous years in fiscal 2015, at around 10%.
The technology company does not pay a dividend.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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