Imagination Technologies Group plc (LSE: IMG, “Imagination”, “the Group”), a leading multimedia, processor and communications technology company, publishes a trading update for the year to 30 April 2016 and an update on its restructuring initiatives.
The Group’s underlying performance, before one-off items, has continued to be broadly in line with expectations, as stated in the announcement published on 17 March 2016. Royalty revenue was slightly ahead with licensing revenue behind.
The Group now expects revenues and adjusted loss before interest and tax from continuing operations to be materially below market expectations, as a result of one-off System-on-Chip (SoC) design services revenue contract adjustments and bad debt write-offs on two specific customers, neither of which can be treated as exceptional items. The one-off contract adjustments and bad debts have no negative impact on FY17 and the contract re-negotiations are expected to be incremental to FY17 revenues and profits.
We have been very focussed on cash and are pleased to report that year-end net debt was £33.0m (2015: £27.3m), better than expectations.
The restructuring initiatives announced in February and March, which include the sale of Pure and other non-core cash consuming activities, are on course, with Pure attracting considerable interest from potential buyers. The benefits of £27.5m will be delivered in full in the 2017 financial year.
The restructuring currently being undertaken is also likely to result in an exceptional charge in excess of £50.0m, to be expensed in full in FY16, which is in addition to the one-off items above. The cash cost of the restructuring will be less than £7.0m, around a quarter of the savings made. Further details are below.
The operational review, initiated on 8 February 2016, is progressing well. It will identify where Imagination needs to focus its resources in order to exploit its leading positions and ensure attractive returns. The Group expects to announce the initial results of this review along with its year end results on 5 July 2016.
The Group continues to see strong demand for licences for its core technologies and expects revenues to improve in FY17. Some of this improvement is already contracted through re-negotiated licensing and services contracts, which are part of the Group’s SoC design services activities.
Andrew Heath, who took over as Interim Chief Executive on 8 February 2016, has been appointed as permanent Chief Executive with immediate effect – see separate announcement.
Andrew Heath, Chief Executive, said:
“I am delighted to have been asked to lead Imagination on a permanent basis – the business has great technology, a very capable team around the world and strong prospects.
“Last year was notably difficult for the business. The restructuring initiated in February is progressing to plan. We will see the benefits from it in FY17. Our expectations for the new financial year remain unchanged.
“The operational review is also advancing well. I am increasingly confident that by re-focusing on our core IP licensing activities with disciplined capital allocation, we will deliver profitable growth and shareholder value.”
Financial impact of restructuring programme
As previously announced, the Group has refocused and rescaled its SoC design service activities. As part of this work, the Group has re-negotiated certain loss-making agreements in order for those contracts to trade profitably going forward. This resulted in a significant revenue adjustment in FY16, part of which had previously been recognised in FY15.
The Group has also classified a further £2.2m of revenues as discontinued operations as part of its ongoing programme to sell or close certain activities.
The strengthening US dollar in FY16 has resulted in currency gains in revenue of around 6%.
Operating costs are in line with expectations except for provisions for long standing debts with two specific customers. The operating cost reductions announced on 17 March 2016 are proceeding as planned and a full year saving of £27.5 million will be achieved in FY17, by divesting or shutting non-core and/or cash consuming units as well as reducing overheads.
As part of the restructuring currently being undertaken, the Group has made asset write-downs, incurred redundancy and onerous lease costs as well as recording a number of contract and tax provisions. In total, this is likely to result in an exceptional charge in excess of £50.0m.
The cash cost from the restructuring will be less than £7.0 million. It is restricted to redundancy payments and future property lease payments, where new tenants have not yet been found, and will be funded from existing resources.
Pure and other discontinued activities
The sale of Pure is progressing according to plan with the Group seeing considerable interest. Imagination is aiming to sell the business by the end of 2016. Pure has continued to trade in line with expectations during the sale process.
The Group also plans, as previously announced, to sell or close down other non-core, cash consuming businesses.
|Imagination Technologies Group plc||Tel: 01923 260 511|
|Andrew Heath, Chief Executive Officer|
|Guy Millward, Chief Financial Officer|
|Instinctif Partners||Tel: 020 7457 2020|
|Adrian Duffield/Kay Larsen/Chantal Woolcock|