Half Yearly Report

12 December 2012

Imagination Technologies Group plc

Partners' chip volume ahead of target - up 90% to 237m, and design wins building up in all regions

Imagination Technologies Group plc (LSE: IMG, "Imagination", "the Group"), a leading multimedia, communications and embedded processor technology company, today announces results for the six months to 31 October 2012.

Financial highlights

·; Group half-year revenue up 27% to £71.4m (2011: £56.3m)

o Strong Technology performance maintained with revenues increased 34% to £57.3m (2011: £42.6m)

- Royalty revenue jumps 66% to £39.1m (2011: £23.6m)

- Another strong level of 1H licensing revenues of £17.8m (2011: £19.0m, 2010: £11.6m)

o Pure revenue improved to £14.1m (2011: £13.7m)

- Slightly improved UK retail but mixed international markets

·; Adjusted pre-tax profit* up 10% to £16.8m (2011: £15.3m)

·; Reported pre-tax profit of £10.5m (2011: £10.4m)

·; Adjusted earnings per share* 5.4p (2011: 4.9p)

·; Reported earnings per share 3.0p (2011: 3.0p)

·; Cash balance of £54.5m (30 April 2012: £66.3m)

o £12m investment in new building and £5m of strategic investments

* Adjusted results exclude non-recurring items, non-cash based share incentive charges and amortisation of intangible assets acquired from acquisitions. The reconciliation from reported results to adjusted results is set out in note 6.

Business highlights

Technology business

Royalties and chip/end-product design wins

·; Partner chips shipped up more than 90% to 237m units (2011: 123m)

·; Significant volume shipments and momentum in all mobile segments, tablet/personal computing, gaming, TV/STB & automotive

o Including very strong share in lower-end handset and emerging markets growth

o Average royalty rate reduced as expected with overall revenue effect very positive

·; Strong growth in chip design wins with 146 active partner chips (2011: 125); 69 in production (2011: 54)

·; Growing number of end-products across key OEMs in all regions including China

·; Other high profile products from several key OEMs in the pipeline with a number close to launch

·; First ray tracing solution targeting professional market launched and receiving very positive feedback from developers

 Licensing

·; Maintained good licensing activities across all of our IP including

o Many new and extended agreements with existing partners including Allwinner, Greenplug, MediaTek, Realtek, Renesas, TI, Toumaz

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

o Several new partners added including Entropic, Ineda and Socle

·; 12 important agreements involving around 20 silicon IP core licenses

o Addressing all our markets - mobile phone and tablets/mobile computing with both segments across high, mid and low-end categories, TV/STB, PMP/Camera, in-car navigation/dashboard, home connectivity and automation, digital radio and industrial/enterprise equipment

o Including graphics, video, broadcast/connectivity and processor silicon IP cores, as well as V.VoIP technologies

·; Continued active pipeline of prospects across all IP families

Pure business

·; UK revenues marginally up and international revenues variable reflecting local markets

o On-going DAB adoption worldwide and growing demand for connected audio

·; Continued strategic development and pathfinding role

o Focus on development of technologies for digital broadcast, connected devices and home cloud solutions

·; Key recent new products launched to drive and complement Imagination key IP

Hossein Yassaie, Chief Executive, commented:

"An increasingly diverse range of product shipments, across our many partners and in all regions, have resulted in more than 90% growth in unit shipments to 237m for the first half - ahead of our target. On average around 1.5 million devices are now being shipped with our IP daily, despite the global economic environment.

"The Group is continuing to build on this momentum and with further significant chip and end-product level design wins anticipated we now expect the full year unit shipments to be close to the 500m unit mark.

"Our 'smart' technologies continue to be adopted across new and existing partners, creating a solid base for continued momentum in future volume growth making our stated goal of around 1bn annual unit shipment by 2016 a realistic objective.

"Despite depressed consumer spending, Pure continues to showcase effectively and help to drive strategic connectivity technologies as part of our overall plans. Whilst the tight economic environment is as expected impacting Pure's performance in the short-term, we anticipate seeing a financial improvement in this division over the medium term, driven by new product opportunities and international markets."We remain confident of our continued good progress given the growing demand across our IP families, the growth in design wins across a widening range of end user markets and the momentum in our partners' chip volume."

About Imagination Technologies

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

Financial and Business Review

The half-year saw excellent progress for the Technology business, with an active period of licensing and notably strong royalty revenue growth. The Group successfully closed a number of important licensing deals with existing and new customers.

The unit volume shipment was very strong in the period driven by continuing momentum from a number of our customers. The half-year also saw excellent penetration of our technology in the emerging markets as lower-end handset volumes gained momentum.

These resulted in a significant jump in operating profit for the Technology business despite increased investment in both R&D and customer support within this division. Our technologies continue to be in demand with an active pipeline of prospects.

The Pure business continued to be held back by the general economic pressure on consumer spending. While the UK market showed some stabilisation, overseas markets were mixed with strong performance in Switzerland and more muted performance in Australia and Germany.

Financial Review

Group revenues for the six months to 31 October 2012 increased by 27% to £71.4m (2011: £56.3m).

The strong growth from royalties and strong licensing performance increased Technology revenues by 34% to £57.3m (2011: £42.6m).

Royalty revenue increased by 66% to £39.1m (2011: £23.6m). Partners' chip shipments increased by 93% to 237m units with very strong growth in lower-end handset shipments (2011: 123m), complementing our continuing strong growth in the mid and high-end smartphone segments.

The average royalty rate expectedly reduced in the period due to a change in the mix with very strong growth in lower-end handset shipments using our more mature technologies.

Continuing demand for our technologies resulted in licensing revenue of £17.8m (2011: £19.0m). This was a strong run-rate performance given that 2011 half-year licensing revenue was unusually strong with a 65% growth over the £11.5m for same period in 2010.

Pure saw a modest rise in revenue to £14.1m (2011: £13.7m), despite the tough economic environment in both the UK and international markets. 32% of Pure's revenue came from international markets.

Driven by the strong progress in the very high margin Technology business, Group gross profit was up 30% to £60.6m (2011: £46.6m), with overall gross margin up to 85% (2011: 83%).

Underlying Group operating expenses increased to £43.8m (2011: £31.4m). This rate of increase should be seen as a short term feature and a proactive step to strengthen certain key parts of the business in response to our fast growing customer base and technology deployment as well as accelerating certain strategic R&D programmes in response to customer and market opportunities. Specifically the short-term growth was primarily driven by the successful recruitment of staff (accelerated through the opportunity to hire a number of complete teams) ahead of original plan as part of our strategic steps to further build up additional graphics design teams, emulation equipment for very high complexity graphics cores and additional customer support capabilities including in various overseas locations in line with growing business opportunities. This investment is reflected in the increased total headcount at 31 October 2012 of 1,275 (31 Oct 2011: 978).

Scaling the organisation is vital for the continued success and growth of the business; however having achieved recruitment targets more rapidly than planned we expect the rate of operating expense growth to slow significantly in the second half of the year and during 2013/14.

Underlying expenses excluded non-cash share-based incentives charge of £6.0m (2011: £5.4m), amortisation of intangibles £1.3m (2011: £1.3m), costs relating to acquisitions of £0.8m (2011: £nil), a gain on investments of £1.7m (2011: £nil), a credit on the revaluation of deferred consideration of £nil (2011: £1.8m) and a gain on foreign exchange of £nil (2011: Gain of £0.7m). See note 6 for full details.

At the end of June 2012 the Group acquired the IP, assets and employees of Nethra Imaging Inc. which further enhances our capability in the area of camera vision processing/video IP. In the period Nethra reported revenue of £0.3m and operating expenses of £1.3m.

Adjusted operating profit* for the Technology business increased 18% to £19.6m (2011: £16.6m) driven by the very strong increase in royalty revenues. The adjusted net operating margin for the Technology business was 34.2% (2011: 38.9%).

The difficult trading conditions coupled with significant strategic investment in a new range of products resulted in Pure recording an adjusted operating loss* of £2.9m (2011: loss £1.3m).

The Group's adjusted pre-tax profit* increased by 10% to £16.8m (2011: £15.3m). The reported pre-tax profit was £10.5m (2011: £10.4m).

The net tax charge was £2.4m (2011: £2.7m). The tax charge comprised of a deferred tax charge of £2.5m (2011: £2.7m), overseas withholding tax charge of £0.4m (2011: £0.4m) and a deferred tax credit of £0.5m (2011: £0.4m). Due to the profits made in the year, the deferred tax asset on the Group balance sheet to be utilised against future UK profits has reduced to £12.6m (2011: £18.3m). The Group expects the effective rate of corporate tax to reduce from FY14 partly due to the introduction of the new Patent Box scheme in April 2013.

The Group's adjusted earnings per share* was 5.4p (2011: 4.9p). The Group's reported earnings per share was 3.0p (2011: 3.0p).

Capital expenditure increased as expected to £14.2m (2011: £2.8m) with the primary element being the re-development of the Group's property facilities in Kings Langley. The first phase of this was completed during the period.

There was a net cash outflow for the period of £11.7m (2011: Inflow £6.7m) as a result of three main factors; £12.3m relating to capital expenditure and in particular the re-development of the Group's property facilities in Kings Langley, £5.0m relating to strategic investments in the period, £11.1m relating to working capital movements in the period. The net working capital outflow was primarily due to the timing of the license agreements which happened towards the end of the period. These factors led to cash resources decreasing to £54.5m (30 April 2011: £66.3m).

* Adjusted results exclude non-recurring items, non-cash based share incentive charges and amortisation of intangible assets acquired from acquisitions. The reconciliation from reported results to adjusted results is set out in note 6.

Technology Business

During the first half of the current financial year the Technology business continued to make significant progress in its three key metrics:-

·; New licensing deals, which generate short-term revenue and represent an important measure for general technology adoption

·; Partner chip volume ramp-up, which drives royalty revenues

·; Growth of SoC design wins, which are indicative of technology deployment and the underlying drivers behind future royalty generation

Licensing

The active pipeline of opportunities led to a number of important licensing agreements or deal extensions involving around 12 customers and around 20 major IP licenses as well as a number of smaller deals and upgrades.

Among the key agreements, there were significant new licenses or extensions with existing partners, including Allwinner, Greenplug, MediaTek, Realtek, Renesas, TI, Toumaz and continuation of a number of long-term subscription license arrangements with certain key partners as well as new partner license deals with Entropic, Ineda and Socle.

It is appropriate to clarify two areas of partnerships. Firstly we continue to have a strong and on-going partnership with Intel Corp, who are also a significant shareholder. As is normal we cannot provide specific details on various projects but we can confirm that we have many existing and future projects on-going with Intel and expect this partnership to result in growing and significant volume shipment across many markets now and in the future. Secondly it was announced by TI that they intend to focus their OMAP business on industrial, automotive and consumer segments and away from the mobile sector. We expect this transition to both take some time and for the partnership to strongly continue in the new areas of focus for TI which we believe will be of significant value to Imagination. Additionally our other many partners active in the mobile segment will no doubt extend their business to support the opportunities TI leaves open as it transitions its business.

The target markets for the deals closed during the first half across our partners include mobile phone and tablets/mobile computing with both segments across high, mid and low-end categories, TV/STB, PMP/Camera, in-car navigation/dashboard, home connectivity and automation, digital radio and industrial/enterprise equipment.

·; 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. There have been many significant product announcements in mobile phone and tablet segments during the period and we are aware of several other important products from key OEMs that we expect to be launched in the very near future in these and other segments. The Group has continued to see momentum in design-wins for its PowerVR graphics technology, which has so far achieved over 130 licenses. Well over 100 devices, in development or in production, use PowerVR Series5 and Series5XT. The Group's new generation technology, codenamed 'Rogue', has been acknowledged by many key partners as the market leader and has already secured around 20 committed SoCs. Several of our partners and our own prototype chips are now in silicon and are performing very well. We expect to see end-user products using this technology to begin shipping from next year.

PowerVR graphics technology now has a very strong and/or growing footprint across both iOS and Android. Semiconductor partners using PowerVR graphics for the Android platform now exceed 15 with eight top tier companies. This is ensuring strong market share in this platform particularly as new partners launch their products.

With respect to the new Windows 8 platforms, our partnership with Intel has recently led to many design wins incorporating our technologies with a growing volume of shipments.In TV and STB market areas we are now seeing accelerated progress. Specifically as a result of our many successful licensing and design-in activities over the last two years in these segments, we expect to see several smart-TV launches from key OEMs and ramp-up of new products in early 2013.PowerVR graphics technology has a very strong and comprehensive roadmap to ensure its market-leading position. The current Series 5XT technology continues to win new designs and has demonstrated its competitive strengths even against next generation offerings from competitors. Series 6 technology has very significant advantages over our competitors' offerings which will become apparent as products begin to ship.

Our complementary ray tracing technology, obtained through the Caustic acquisition, has made good progress. The first stage of deployment and development of the ecosystem was unveiled as we announced Caustic Professional R2100 and R2500 OpenRL acceleration boards, plus Visualizer plugin software using OpenRL for Autodesk® 3ds Max® and Maya® at a recent major event with promotion support from AMD, HP and Boxx. The feedback from this event has been extremely positive.

·; Video - Our PowerVR video decode and encode processor (VPU) families, which support the latest and emerging formats, continue to see strong volume growth. We are seeing a growing industry trend in favour of licensing rather than internal development, particularly as the next generation of advanced video standards are coming to market. In keeping with our strategy of providing leading-edge and market-driving technologies to our customers we recently launched the new PowerVR Series4 video processors offering increased performance and precision as well as supporting the emerging ultra HD resolution displays of 4Kx2K pixels. These technologies are seen as essential for future generations of smart TV products which require very high quality and/or the capability to display full HD at the same time as related information such as social network interactive pages.

·; Camera Vision Processing - Vision processing is needed to get the best image from a camera sensor. This is an area that is important both for market opportunity and technology synergy reasons. Specifically it is clear that the deployment of camera functionality is relevant to many product categories and market segments. Furthermore careful and tight integration of camera vision processing, video encode and GPU cores can be used to achieve very important optimisations. We have been carrying out research and development in this area for some time. We also acquired a small company, Nethra, to complement and accelerate our work whilst also strengthening our patent portfolio in this area. We expect first IP product delivery in this area in early 2014.

·; Connectivity/broadcast - Our Ensigma programmable radio processing unit (RPU) family supporting both multi-standard broadcast receivers and Wi-Fi/BT connectivity is becoming increasingly relevant to mainstream markets and has been designed into a growing number of chips and products. Ensigma RPUs support worldwide TV and radio reception as well as important connectivity standards such as Wi-Fi, all running on the same silicon engine in software. This technology is increasingly essential for delivery of Cloud and broadcast content to home and also within the enterprise. Already we have partner devices in volume shipment using this technology for digital radio and Wi-Fi connectivity and we expect several new partner devices targeting multi-standard/global TV markets to begin shipment during 2013.

·; Embedded processor cores - the Meta family of embedded processors offers state-of-the-art general-processing combined with multi-threading, demanding real-time and signal-processing capabilities. These capabilities are ideal for highly integrated, feature-rich and cost effective systems. Many of our IP cores integrate Meta processing cores already. Over 50% of the total annual volumes of our IP shipments deploy Meta technology and we expect this trend to continue upwards. The growth of open source operating systems such as Android and other Linux implementations, the trend towards heterogeneous systems/standards, and the inevitable growth of internet connectivity across the majority of devices, will further drive deployment of Meta processors in applications in embedded systems and processors in a variety of markets.

These features combined with our Ensigma technology offer a highly efficient 'connected processor' which we believe is well positioned for many connected devices and the emerging Machine-to-Machine (M2M) applications. We have introduced the new MetaFlow family to address these market segments and are supporting this offering with new and innovative Cloud-connected client and portal technologies marketed under Flow Technology.

·; V.VoIP - our HelloSoft family of video and voice over IP (V.VoIP) products, including platform agnostic SDKs, continues to get stronger and more comprehensive, resulting in a number of important engagements for these technologies with both operators and mobile phone OEMs. This is in part driven by the arrival of 4G/Long Term Evolution (LTE) networks which require VoIP over LTE (VoLTE) an area where HelloSoft products are uniquely strong. HelloSoft V.VoIP technology has now been adopted by a number of key network operators for both enterprise and consumer segments with a number of handset design-wins also secured.

Partner chip shipments and royalties

Partner chip unit shipments grew strongly to 237m units (2011: 123m units). The strong shipment in the period was driven by continuing momentum from a number of our customers across several market segments. Specifically the half-year saw excellent penetration of our technology in the emerging markets as lower-end handset volumes gained momentum. The volume growth has been across the expected key segments, including: mobile phone, computing/tablets, mobile multimedia/gaming and home consumer. The royalty revenue growth has continued to be strong and as expected, the strong unit volume growth has steadily extended to the lower-end of the smart phone market resulting in a small downward movement in the average royalty rate.

For the full year we expect the average royalty rate to be broadly consistent with the first half, as volumes of mid / high-end chips counterbalance the growth in lower-end volume.

SoC and end-product design wins and pipeline

SoC design wins are the driver for future partner chip shipments and royalty revenue growth. Strong continuing momentum saw new partner SoC design wins increase to 146 (net of obsolescence) (2011: 125). Of these, 69 are shipping or beginning to ship, with the balance still in design. The latter will be the driver for significant further royalty revenue growth.

These committed devices are continuing to diversify across Imagination's partners and key market segments:

·; 45 for mobile phone application processors

·; 9 for handheld multimedia (PMPs, hand-held gaming/entertainment, camera, mobile TV)

·; 34 for Home Consumer Entertainment (TVs, STBs, DVDs, digital radio and audio, connected audio, and home entertainment devices)

·; 24 in mobile computing (tablet/mobile computing)

·; 18 for In-car (navigation, dashboard, personal navigation devices)

·; 16 for other markets covering green energy, networking, healthcare, enterprise, industrial, amusement and toys

With respect to end-user products there have been important launches from several key players in the last few months, particularly in phone and tablet segments. We expect to see further major product launches from other key OEMs, including high profile devices from leading OEMs. These we expect to span across mobile, tablet and TV/STB segments. Furthermore we expect our strong penetration in low-end handset and emerging markets to continue. There are other notable design wins in China that will further drive our strong position in the tablet market overall.

Pure business

The Pure business continued to be held back by the general economic pressure on consumer spending. While the UK market showed some marginal progress, international markets were mixed with strong performance in Switzerland and more muted performance in Australia and Germany. We do expect to see significant financial improvement in this business in the medium term driven by new innovative and market driving products and the general economic improvements.

Pure's focus has been and continues to be proactively helping to drive certain important developing and emerging markets that are strategic to our business:

i- Digital radio:- Pure's product line drove the market from the early days and set the much needed agenda to help develop this new market. This continues today in the form of supporting and driving the adoption of digital radio internationally. These include key markets such as Germany, Australia and Switzerland where Pure's activities have been instrumental in the progress made. We now expect some of these markets, including UK, to begin migration towards a switch-over plan whilst others such as Germany to further develop in digital radio penetration. As a result we expect the global markets for digital radio to substantially grow over the next few years with our technology playing a key part and securing a major share.

ii- Wireless home/in-car audio:- As a first step in helping to drive home connectivity and automation, Pure has been focussed on wireless audio streaming across three key application areas; hybrid internet and broadcast radio enabling access to global radio stations and audio content; advanced interactive internet connected services, especially Cloud music delivery, which deploys Imagination's Cloud enabling technologies; and audio streaming of content from popular mobile devices to home audio systems and speakers including multi-room capabilities.

iii- Home automation:- A key goal is to ultimately contribute to the emergence and development of the home automation opportunities through the use of Imagination's processing, connectivity and Cloud technologies. This is the latest area of strategic focus for Pure with technologies and products yet to be announced.

Several key products were launched during the last financial year in line with the above strategic objectives. The most recent products include the Jongo S340B wireless speaker, Avalon 300R Connect Freeview+ HD Digital TV recorder, 2nd generation Pure Connect iPad app and Pure Connect website (formerly The Lounge) and the Move 400D portable digital radio. In addition a number of strategic initiatives are well underway and these include Pure's direct to consumer initiative with Universal Music Group, after market digital radio adapter supply to the VW group and ongoing engagements supporting the Flow cloud connectivity programme including advanced engagement with Onkyo Corporation.

The Group's investment in developing the Flow connectivity and associated Cloud client and portal technologies, which form the basis of the Pure Connect portal and, in collaboration with ecosystem partners, enable services such as Pure Music, a key and strategic activity that Pure is helping to drive. This platform will be part of Imagination's licensable technologies and will help to enable the next generation of Cloud-based products and services across home automation, assisted-living/healthcare, security and other emerging internet-connected devices. Over time we will be offering our Cloud enabling technology, Flow, in its own right, bringing our portal technology, connectivity and processor IPs together to address the many emerging connected applications.

Proposed acquisition of MIPS Technologies, Inc

On 6 November 2012 the Group announced that it had signed an agreement to acquire the operating business and certain patent properties, as well as license rights to all of the remaining patent properties, of MIPS Technologies, Inc. ("MIPS"), a leading provider of CPU (central processing unit) processor architectures and cores.

Following higher offers from CEVA, Inc. and subsequently Imagination, yesterday the Group announced that it is monitoring the situation and will provide a further update, following another announcement by CEVA that it has submitted a further higher proposal to MIPS.

Outlook

The first-half saw strong volume ramp-up ahead of our expectations. We expect to see continued strong unit shipments, with an upwardly revised shipment target of around 500m, for the current financial year. This will constitute a half-way milestone to our target of 1bn annual unit shipments by 2016, which we continue to see as a realistic objective.

We have already had significant product launches from several OEM partners but expect to see other major wins in the near future across mobile and consumer segments to be announced by other top OEMs. These successes plus a general growth in our customer base will continue to drive our business.

The continuing macro-economic volatility creates caution among our customers. Despite this the licensing pipeline remains robust, although there is the usual uncertainty over the timing of deal closures.

The smart phone market alone is forecast by industry analysts to grow to an annual volume of around 1.5bn units by 2015. Given our strong existing and growing partnerships across both of the important established platforms, iOS and Android, where we have strong presence, and also opportunities in the emerging Windows Phone 8 platform, we believe a market share goal of over half of the total smart phone market by 2015 and beyond, is a reasonable and realistic goal.

Additionally our strong presence in the fast-growing tablet market, where many of the leading platforms are using devices with our technology, with industry analysts suggesting this market will reach over 300m units by 2015, means this segment will make a notable contribution to the Group's progress. Additionally we have secured important design wins among key Chinese semiconductor partners which will see a growing and strong play for our technologies in the emerging lower-end Chinese tablet market.

The favourable transitions in TV/STB markets towards 'smart' functionality where we have many active partners and have seen significant design-win growth over the last two years is set to increasingly contribute to important end-user product launches from key OEMs and our volume ramp-up.

We believe that these facts, as well as our growing partnerships with respect to our other key complementary technologies including PowerVR video, Ensigma connectivity, Meta/MetaFlow connected processor and HelloSoft V.VoiP across several diverse markets, will create the demand for the Group to achieve its objective.

Despite the current economic environment, Pure continues to showcase effectively and drive some of our key technologies. Pure is an integral part of the Group's strategy and focuses on targeting emerging consumer markets that can benefit from a driver and pathfinder approach. This has been successfully executed in digital radio in the UK with the focus now moving to international development. Our strategy will ultimately also lead to complementary areas involving home connectivity, automation and the provision of useful remote cloud services.

As a result the Board remains confident that the Group is on track for continued good progress.

Hossein Yassaie, Chief Executive

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 interim financial statements

1. Reporting entity

Imagination Technologies Group plc (the 'Company') is a company incorporated and domiciled in the United Kingdom. The Condensed Consolidated Interim Financial Statements of the Company as at and for the six months ended 31 October 2012 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 2012, 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

These Condensed Consolidated Interim Financial Statements are 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) of the Financial Services Authority. 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 2012.

These Condensed Consolidated Interim Financial Statements do not include all of the information required for full annual Financial Statements prepared in accordance with International Financial Reporting Standards.

3. Significant accounting policies

These Condensed Consolidated Interim Financial Statements have 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 2012, and have 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 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 2012, 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 these Condensed Consolidated Interim Financial Statements, 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 2012.

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 organised 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 below. Performance is measured based on operating profit, and adjusted operating profit.

Revenue is reported by geographical area of sales as follows:

All revenue originated materially from The United Kingdom and Europe.

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

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.

The net gain on investments of £1,745,000 (2011: £nil) largely arose when Toumaz Limited acquired the entire issued share capital of Frontier Silicon (Holdings) Limited ('Frontier') in July 2012. At the time of the acquisition Imagination Technologies Limited ('Company') owned shares in Frontier which were held at £nil on the Company's balance sheet. In exchange for its Frontier shares, the Company received Toumaz Limted shares, the fair value of which generated a gain on investment in the consolidated income statement.

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 charge in the period of £2,438,000 (2011: tax charge £2,691,000).

The tax charge comprises:

·; tax deducted at source on overseas earnings recoverable in the period of £406,000 (2011: tax deducted at source on overseas earnings not recoverable in the period of £412,000);

·; Tax suffered on overseas earnings of £13,000 (2011: £nil);

·; a deferred tax charge of £2,486,000 relating to the utilisation of a deferred tax asset previously recognised in respect of historical tax losses and share incentives (2011: £2,742,000);

·; a deferred tax credit of £467,000 relating to the release of the deferred tax liability created when acquiring HelloSoft Inc and Caustic Graphics Inc in 2010 (2011: £463,000);

8. Earnings per share

Adjusted earnings per share

9. 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 2012 has not changed. Further there have been no significant related party transactions in the six month period ended 31 October 2012.

10. Approval

The condensed Consolidated Interim Financial Statements were approved by the Board on 11 December 2012.

Responsibility statement of the directors in respect of the half-yearly financial report

This Interim 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

11 December 2012

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 2012 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, and the Condensed Consolidated Statement of Cash Flows 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 Services Authority ("the UK FSA"). 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 FSA.

As disclosed in notes 2 and 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.

Whilst the company has previously produced a half-yearly report containing a condensed set of financial statements, those financial statements have not previously been subject to a review by an independent auditor. As a consequence, the review procedures set out above have not been performed in respect of the comparative period for the six months ended 31 October 2011.

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 2012 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

Tudor Aw

for and on behalf of KPMG Audit Plc

Chartered Accountants

15 Canada SquareLondonE14 5GL

11 December 2012