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Wolfson Microelectro (WLF)

  Print      Mail a friend       Annual reports

Tuesday 07 February, 2012

Wolfson Microelectro

Fourth Quarter and Full Year Results

RNS Number : 9084W
Wolfson Microelectronics PLC
07 February 2012
 



7 February 2012

 

Wolfson Microelectronics plc

 

Fourth Quarter and Full Year Results to 1 January 2012

 

Sales flat as strong product adoption offset by weaker consumer demand

 

Wolfson Microelectronics plc ("Wolfson" or "the Company"), a leading supplier of mixed-signal semiconductors for consumer electronic products, announces fourth quarter and audited full year results for 2011.

 

Full year financial summary:

 

·    Revenue of $156.9m (2010: $157.3m)

·    Gross margin of 48.5% before exceptional charges (2010: 49.5%)

·    Underlying* operating loss of $7.5m (2010: $1.5m loss)

·    Net exceptional charges of $7.6m (2010: nil)

·    Operating loss of $24.2m after exceptional charges (2010: $11.3m loss)

·    Underlying* diluted loss per share of 4.9 cents (2010: 0.4 cents earnings)

·    Diluted loss per share of 15.4 cents (2010: 5.7 cents loss)

·    Cash and short-term deposits at 1 Jan 2012 of $53.4m (2 Jan 2011: $97.1m) and no debt

 

Fourth quarter summary:

 

·    Revenue of $36.9m (Q4 2010: $45.8m)

·    Gross margin of 49.9% (Q4 2010: 47.0%)

·    Underlying* operating loss of $2.9m (Q4 2010: $1.3m profit)

·    Exceptional charge of $2.4m on inventory write-off following supply chain realignment

·    Operating loss of $7.2m (Q4 2010: $1.0m loss)

·    Net cash inflow from operating activities of $7.7m (Q4 2010: $11.7m inflow)

·    Strong design-in performance with 110 new design-ins

 

Full year operational summary:

 

·    Strong revenue growth in mobile phones, PC/tablet computers and gaming, which increased by 33%, approximately 90% and 25% respectively

·    Mobile Audio Hubs grew by over 60% and Audio Hubs in total grew 19%

·    Micro-Electro-Mechanical Systems (MEMS) microphones are now shipping in volume and the first integrated microphone (complete microphone on a single piece of silicon) sampled

·    Launched 24 new products, including the world's first HD Audio System-on-Chip (SoC)

·    Record design-in performance with 382 new design-ins:

The majority are expected to contribute to revenue during 2012

The average value per design-in, based on the estimated two year revenue, has increased significantly

Wolfson's Audio Hub architecture is gaining wide acceptance in mobile multimedia products, especially in smartphones and tablet computers

The majority of design-ins are for Audio Hubs and for leading brand products

 

·    Cost-reduction and business improvement programme completed:

Annual cost-savings of $6.0m with full benefit expected from Q2 2012 onwards

Investment in R&D focused to exploit high-growth Audio Hub and MEMS microphone markets with category leading products

Innovative changes have delivered a competitive and scalable supply chain to meet fast volume ramp plans

 

Progress with existing customers in Q4 and FY 2011:

 

·    Penetration with existing customers has continued to increase

·    Wolfson audio solutions being further adopted by Samsung, LG, Sony, Amazon Lab 126 and RIM for a range of consumer electronics products which are expected to add incremental revenue in 2012

 

Progress with new customers/applications in Q4 and FY 2011:

 

·    Market penetration further increased with many adoptions of Wolfson audio solutions by new customers including  ZTE, ASUSTeK Computer Inc, Toshiba, Fujitsu, Acer, Lenovo and Best Buy, all of which started to contribute to revenue in 2011

·    Customer base further increased with design-ins into products of three incremental top tier mobile phone manufacturers, which are expected to contribute to revenue in 2012

 

Outlook:

 

·    Looking to the full year, the Company is comfortable with current market consensus

 

Near Term

 

·    In Q1 2012, given normal seasonality and prior to the positive impact of customer new product introductions in early 2012, the Company anticipates:

 

Revenues to be in the range of $26m to $32m dependent on new product ramps

Gross margin to be around 49% to 50%, dependent on product mix

 

Looking further ahead

 

·    Wolfson is increasingly benefitting from an accelerating technology transition in consumer electronics devices to "off-board" audio from central processor units to standalone audio devices where the Company's Audio Hub products have established a leadership position, especially in the fast growing smartphone and tablet applications

·    A further technology transition from Electret Condensing Microphones (ECM) to MEMS microphones is accelerating and creating a growing opportunity. Wolfson's MEMS microphones are extremely competitive and ideal for multi-microphone applications such as noise cancellation and advanced sound processing. Two major mobile phone design-ins were secured during 2011 and are expected to contribute incremental revenue in 2012

·    Mobile Audio Hubs sales grew strongly in 2011 and are expected to become an increasing proportion of Wolfson's business during 2012. The Company expects these application markets to continue to grow strongly in 2012

·    Favourable technology trends coupled with the right products, customers and markets are improving the fundamentals of the business. These factors, plus record design-ins with leading consumer electronics brands, position the Company well to achieve a step-up in revenues as 2012 progresses and a return to sustainable growth and underlying profitability

 

 

Commenting on the results, Mike Hickey, CEO of Wolfson Microelectronics, said:

 

"Last year was characterised by strong first half growth, followed by a weak second half, resulting in flat year-on-year revenues for 2011. We delivered a record year for design-ins driven in part by establishing technology leadership over our competitors in the fast growing smartphone and tablet markets.

 

"Looking ahead, favourable technology trends coupled with the right products, customers and markets are improving the fundamentals of the business. These factors, plus record design-ins with leading brands, position the Company well to achieve a step-up in revenues as 2012 progresses, along with a return to both top line growth and underlying profitability."

 

 

Enquiries:

 

Wolfson Microelectronics


Mike Hickey, CEO

Mark Cubitt, CFO

020 7618 9100 On the day

0131 272 7000  Thereafter



Luther Pendragon


Harry Chathli, Claire Norbury, Neil Thapar

020 7618 9100

 

Mike Hickey, CEO, and Mark Cubitt, CFO, will be hosting a presentation to investors and analysts at 09.30 GMT at JP Morgan, 20 Moorgate, London, EC2R 6DA.  An audio webcast of the Wolfson Microelectronics plc Full Year Results presentation can be heard LIVE from 09.30 GMT via http://www.wolfsonmicro.com/investor 

 

Additionally, there is a dial in facility: UK Dial-in +44 (0) 208 817 9301; US Dial-in 1 866 629 2704. A replay of the conference call is available from 10.30 GMT on: +44 (0) 207 769 6425 or 00 353 1436 4267, Access Pin 6457 468#

 

*Underlying full year results exclude: charges for the amortisation of acquired intangible assets (2011: $5.5m; 2010: $5.3m) and share-based compensation charges, including associated payroll taxes (2011: $3.6m; 2010: $4.5m). Also, in 2011, net exceptional charges of $7.6m (2010: $nil) are excluded. The term "underlying" is not defined in IFRS and therefore may not be comparable with similarly titled measures reported by other companies. Underlying measures are not intended as a substitute for, or a superior measure to, IFRS measures.

 



Operational review

 

2011 was a challenging year for Wolfson, with revenue at $156.9m for the full year (2010: $157.3m) and $36.9m in the fourth quarter (Q4 2010: $45.8m). Revenue grew across key application markets on a full year basis, with strong growth in mobile phones, gaming and PC/tablet computers, which increased by 33%, 25% and approximately 90% respectively (and tablet computers alone grew by over 350%). These successes were offset by weaker markets in home audio, digital still cameras and portable navigation devices, which were down 58%, 39% and 73% respectively.

 

Gross margin for the full year, before exceptional charges, was 48.5% (2010: 49.5 %) and 49.9% for the fourth quarter of 2011 (Q4 2010: 47.0%).

 

During the year, the Company revised its supply chain strategy. The new strategy will provide Wolfson with a competitive supply chain that is scalable and capable of meeting Wolfson's fast volume growth plans and the increasing and demanding cost, quality and delivery requirements of customers. All suppliers will be leading Tier 1 suppliers and concentrated geographically to improve cycle time, quality, yield and cost.

 

Wolfson further enhanced its product portfolio with the launch of 24 new products in 2011. These devices, together with the 64 new products launched in 2009 and 2010, have significantly strengthened and refreshed the Company's product portfolio. This portfolio has generated 382 design-ins in 2011 and, notably, the average value of each design-in, based on the estimated two year revenue, has increased significantly year-on-year.

 

The vast majority of the design-ins are in the fastest growing consumer electronic product categories such as mobile phones, smartphones, tablet computers and gaming products; and Wolfson is building strong growth momentum in these categories from both a revenue and a design-in perspective. Encouragingly, Wolfson is also winning design-ins in its traditional markets, such as home audio and portable multimedia players.

 

Most of the 2011 design-ins are with leading brand global consumer electronics manufacturers and the majority are expected to start to ramp to volume production and revenue during 2012, with the precise timing dependent on end customer product launch dates.

 

Execution of Strategy

 

A few years ago Wolfson embarked on a strategy to become the category leader for HD Audio solutions in consumer electronics devices by leading in Audio Hubs, noise cancelling, sound processing and integrated MEMS microphones. This strategy was based on exploiting three major technology transitions happening in consumer electronics products:

 

·    The dis-integration of the audio function from central processors in consumer electronics products to standalone devices like Wolfson's Audio Hubs

·    The emergence of noise cancelling and sound processing as key features in smart mobile devices

·    The replacement in consumer electronic devices of traditional ECM by MEMS technology microphones, and the emergence of multi-microphone applications to support complex sound processing and noise cancelling features

These technology transitions have become increasingly widespread in 2011, and Wolfson is well placed to benefit:

 

·    Wolfson now leads in Audio Hubs, some of which are becoming HD Audio SoCs with on board advanced noise cancelling and sound processing

·    Wolfson's MEMS microphone technology has ramped to high volume production, and the first fully-integrated MEMS microphone has been designed, fabricated and is now being tested

Focussing on Operational Execution

 

These advances have involved considerable change: new intellectual property; new semiconductor process nodes (smaller geometries); new development tools; new systems; new software and software tools; new suppliers and improvements in the Company's supply chain; new customer engagements; and new support requirements. 2011 was a watershed year for the Company in terms of this transformation, with all of these foundations put in place and with many innovations in products, supply chain, software, customer support and sales.

 

Wolfson Dynamic Hearing

 

During the year, Wolfson acquired Dynamic Hearing PTY Ltd ("Dynamic Hearing"). Dynamic Hearing is a leading provider of high quality audio processing software for personal communication devices such as smartphones, Bluetooth headsets and hearing aids. The 22 Dynamic Hearing employees are now part of the Wolfson team. They will continue to serve Dynamic Hearing's existing customers as well as providing vital sound processing software, especially the transmit noise cancelling software to complement Wolfson's own receive noise cancelling solution. This enables Wolfson to provide complete HD Audio solutions for mobile applications. Dynamic Hearing's revenue contribution in Q4 2011 was $0.7m, of which $0.1m was to Wolfson. Costs were $0.7m, resulting in a breakeven result in Q4 2011.

 

Product Development

 

During the second half of 2011, a full review of the business was carried out. The outcome was an overhead cost reduction programme and a realignment of the investment in research and development (R&D). A review of the Company's product portfolio resulted in an increased investment in the growing Audio Hubs and MEMS product lines, and a reduction in investment in slower growing and less profitable Discrete and Power products. These product lines have all been significantly refreshed over the last few years and are already very competitive in their individual product categories.

 

These actions will cut annual overhead costs by $6.0m, the full benefit being expected from the second quarter 2012 onwards, and have left Wolfson positioned appropriately for the current difficult business environment whilst still able to invest in high growth areas.

 

Over the last year, Wolfson has launched 24 new products. The highlights of the Company's product development progress in 2011 are outlined below.

 

Audio Hubs

 

A new industry-leading product, the WM5100, is the world's first integrated HD Audio SoC. It combines in a single device an Audio Hub, transmit path noise reduction, receive path noise reduction with adaptive Ambient Noise Cancellation (ANC), Acoustic Echo Cancellation (AEC) and an audio DSP for sound enhancement.

 

The Company also launched the WM1811 Audio Hub with world leading analogue IP to provide next generation audio solutions across the mobile phone tiers, particularly ideal for feature phones and smartphones. 

 

The Wolfson WM8996 Audio Hub was introduced, which is aimed at the smartphone and tablet computer market, which requires high quality voice calls and extended music playback. This device incorporates the digital mixing required to route the various audio signals and provides a digital audio interface to digital microphones, such as Wolfson'sWM7210 / WM7220, and digital input speaker amplifiers, such as Wolfson's WM9082. The digital audio interface between the WM8996 and the WM9082 Class D speaker driver provides excellent noise immunity, eliminates traditional input filtering components and improves audio quality.

 

Two HD Audio Hub products, Wolfson's WM8861 and WM8862, were launched, and are aimed at improving the audio performance of Intel-based PCs, notebooks, laptops and tablet computer systems. They provide a complete audio subsystem with ultra-low power consumption and include high output power integrated speaker amplifiers.

 

Sound Processing

 

Over the last two years, Wolfson has built an engineering team to develop the software algorithms required to provide noise cancellation, noise reduction and sound enhancement products that run on its new family of HD Audio SoCs. 

 

The software and hardware development teams work in tandem to ensure the device and software algorithms are compatible and available concurrently to allow customers to evaluate the complete audio solution.

 

Working closely with the Wolfson software team during the past 18 months, Dynamic Hearing has developed and supplied a suite of audio enhancing transmit noise reduction and AEC algorithms to run on Wolfson's Audio Hub products. Wolfson's WM2200 device, launched in Q4 2010, was the first product combining Dynamic Hearing's multi-microphone transmit path /voice capture noise reduction and AEC technologies with Wolfson's unique receive ANC technology. This combination of audio processing technologies provides a complete platform-agnostic turnkey transmit and receive noise reduction solution. This solution will be further deployed across Wolfson's Audio Hub products for mobile phones and tablet computers.

 

Discrete & Power Products

 

Wolfson added to its family of MEMS microphones with the WM7130E bottom port analogue microphone for multi-microphone applications, such as noise cancellation headsets, conference phones and noise reduction solutions in mobile multimedia products. The Company also designed, built and sampled the world's first high performance, fully integrated (complete microphone on a single piece of silicon) MEMS microphone.

 

The imaging family of products has been refreshed with four new products. This new range of analogue front-end (AFE) digitiser integrated circuits can be easily integrated into the latest generation of imaging equipment in the home or office such as digital copiers, scanners (including portable bar code scanners) and multi-function printers (MFPs).

 

Other Products

 

During the year, Wolfson launched the WM229 ANC stereo headset reference design. This complements the WM182 reference design announced in 2010. Using these reference designs, Wolfson introduced the Digital Silence brand to market these headsets to the consumer. The Digital Silence portfolio of headsets is available from leading high street and online retailers.   Using the WM182 reference design, Wolfson launched the DS-321D, a state-of-the-art, in-ear, digital active ANC stereo headset with voice microphone.  Similarly, from the WM229 reference design, the DS-421D, will be available in March 2012. This latest product is a premium digital ANC headset with three user-selectable ANC modes specifically optimised for the user's environment, namely general, aeroplane and office. These two Digital Silence headsets complement the DS-101A headset, also launched in 2011.

 

 



Financial Review

 

The financial results of the Group for the 52 week period ended 1 January 2012 are summarised in the table below. 

 




52 week period ended 1 January 2012

52 week period ended 2 January 2011




            $m

% revs

            $m

% revs








Revenue


156.9


157.3









Gross profit (IFRS)


70.2

44.7%

77.9

49.5%

Exceptional charge


5.9

3.8%

-

-

Gross profit (Underlying)


76.1

48.5%

77.9

49.5%







Overheads







Research & Development

(47.3)

30%

(42.8)

27%


Distribution & Selling

(23.4)

15%

(24.6)

16%


Administration


(12.9)

8%

(12.0)

8%








Underlying* operating loss

(7.5)

-5%

(1.5)

-1%









Share-based compensation

(3.6)

2%

(4.5)

3%


Amortisation charges

(5.5)

4%

(5.3)

3%


Exceptional items:






- recognised in cost of sales

(5.9)

4%

-

-


- recognised in overheads

(3.5)

2%

-

-


- pension curtailment gain

1.8

-1%

-

-








Operating loss


(24.2)

-15%

(11.3)

-7%








Net Financing Income/(Expense)


0.1


0.1









Loss before tax


(24.1)

-15%

(11.2)

-7%








Income tax credit


6.2


4.6









Loss after tax


(17.9)

-11%

(6.6)

-4%








Diluted loss per share (cents)


(15.4)


(5.7)








Underlying diluted (loss) / earnings  per share (cents)


(4.9)


0.4


Average £/$ exchange rate


             1.60


                         1.55 









 

 

*Underlying results exclude: charges for the amortisation of acquired intangible assets (2011: $5.5m; 2010: $5.3m) and share-based compensation charges, including associated payroll taxes, (2011: $3.6m; 2010: $4.5m).  Also, in 2011 exceptional charges totalling $7.6m (2010: $nil) are excluded (further details on the exceptional items are provided in Note 4 to the financial information). The term "underlying" is not defined in IFRS and therefore may not be comparable with similarly titled measures reported by other companies.  Underlying measures are not intended as a substitute for, or a superior measure to, IFRS measures.  Reconciliations of underlying measures to IFRS measures for operating expenses and operating loss in respect of each period are provided in the tables in notes 5 and 6 to the financial information.

 

 

Operating expenses: reconciliation from Underlying to IFRS

 


Underlying

Share-based compensation

(including associated payroll taxes)

Amortisation  of acquired intangible assets

 Exceptional items

IFRS

           

$m

$m

$m

$m

$m

52 weeks ended 1 January 2012






Distribution and selling costs

(23.4)

(1.0)

-

(1.9)

(26.3)

Research & development expenses

Administrative expenses

(47.3)

(12.9)

(2.0)

(0.6)

(5.5)

-

(1.5)

(0.1)

(56.3)

(13.6)

Curtailment gain on defined benefit plan

-

-

-

1.8

1.8


_______

_______

_______

_______

_______


(83.6)

(3.6)

(5.5)

(1.7)

(94.4)


             

             

             

             

             







52 weeks ended 2 January 2011






Distribution and selling costs

(24.6)

(1.7)

-

-

(26.3)

Research & development expenses

Administrative expenses

(42.8)

(12.0)

(2.0)

(0.8)

(5.3)

-

-

-

(50.1)

(12.8)


_______

_______

_______

_______

_______


(79.4)

(4.5)

(5.3)

-

(89.2)


             

             

             

             

             







 

Operating loss: reconciliation from Underlying to IFRS 

 



52 weeks ended

52 weeks ended



1 January 2012

2 January 2011

           


$m

$m





Underlying operating loss 


(7.5)

(1.5)

Share-based compensation and related payroll taxes

Amortisation of acquired intangible assets


(3.6)

(5.5)

(4.5)

(5.3)

Exceptional items


(7.6)

-



_______

_______

Operating loss (IFRS)


(24.2)

(11.3)



_______

_______





 



Segmental Performance

 

Audio Hubs Products

The Company focuses on high performance Audio Hubs, including High Definition (HD) Audio System-on-Chip (SoC), noise reduction and sound enhancement software. Revenues at $105.4m in 2011 accounted for 67% of Group revenue (2010: 56%) and increased by 19% in the year from $88.6m in 2010.  Within this segment, Audio Hubs sold into mobile applications increased by 60% whilst Audio Hubs in non-mobile applications fell by 6%, reflecting the strong growth in smartphones and tablet computers, but weaker demand in most other application markets.

 

Gross margin for this reportable segment improved to 49.8% in 2011 from 49.0% in 2010, reflecting the higher proportion of newer products with more differentiated features in 2011 revenues.

 

Discrete and Power Products

This segment comprises simpler audio products (ADCs, DACs), power management integrated circuits, imaging parts and MEMS microphones. Revenues at $50.9m in 2011 accounted for 32% of Group revenue (2010: 44%) and declined by 26% in the year from $68.7m in 2011. Within this segment, MEMS microphones grew by 67%, albeit from a very small base, to revenue of $0.5m. The other components of this segment suffered from the weakness in the general consumer electronics market, particularly in the second half of 2011.  As part of the refocusing announced in July 2011, resources were reallocated from this segment, MEMS excluded, to Audio Hubs where there are greater growth opportunities.

 

Gross margin for this reportable segment fell to 45.6% in 2011 from 50.1% in 2010, reflecting the tough market environment for these less feature rich products.

 

Other Products

Other comprises the sale of complete headset products and royalties thereon.  This segment is fundamentally different from the other segments as it relates to sales of finished consumer products rather than the sale of integrated circuit components. Revenues in 2011 represented less than 1% of Group revenues, but grew from $0.1m in 2010 to $0.7m in 2011. Gross margin in 2011 was 72% against 100% in 2010 as the latter represented purely royalties.

 

Revenue

 

Group revenue was marginally down to $156.9m (2010: $157.3m), with the growth of 24% in the first half being reversed by weak consumer demand in the second half of the year. As explained in the Segmental Performance section, this is the net result of strong growth in Audio Hubs, up 19%, offset by weakness in Discrete and Power products. The largest customer represented 16% of revenue (2010: 20%).

 

Gross Profit

 

Group gross profit in 2011, before exceptional charges, was $76.1m, down 2% from the previous year (2010: $77.9m). Gross margin, before exceptional charges, fell to 48.5% from 49.5% in 2010, primarily impacted by weakness in Power and Discrete products and subcontractor yield issues early in 2011. 

 

Operating Expenses

 

Total underlying overheads, excluding amortisation of acquired intangibles, share-based compensation charges (and associated payroll taxes) and exceptional items amounted to $83.6m, compared to $79.4m in 2010, an increase of $4.2m. Of this increase, $1.5m relates to the adverse movement in the average £/$ exchange rate from $1.55/£1 to $1.60/£1, whilst a further $0.7m relates to the three month costs of Dynamic Hearing which was acquired on 30 September 2011. After stripping these increases out, the like for like increase is $2.0m, or 2.4%.  The projected underlying overheads in 2012 are expected to be between $81m and $85m, which include a full year of costs from the Dynamic Hearing acquisition. These will be slightly front end loaded with significant tape-out costs in the first quarter of 2012. The individual overhead categories are explained further in the following paragraphs.

 

Our continuous investment in research and development and best-in-class engineering tools is imperative to our growth strategy and our long term competitiveness. Expenditure on research and development, excluding charges such as amortisation and share-based compensation charges, increased by 11% to $47.3m or 30% of revenue (2010: $42.8m or 27% of revenue).  The increase primarily reflects the increased complexity of the products now being developed, through higher mask costs on lower technology node tape-outs, software and subcontract DSP costs on these newer products and with the addition of development costs incurred by Dynamic Hearing in the period since its acquisition. For 2012, research and development costs are expected to be between $45m and $49m, again front-end loaded on significant tape-out costs in the first quarter.

 

Distribution and selling expenses, excluding share-based compensation charges and exceptional charges, decreased by 5% to $23.4m or 15% of revenue (2010: $24.6m or 16% of revenue). The decrease reflects more efficient distribution, freight and packaging arrangements. For 2012, the expected cost is around $24m, with a slight weighting to the second half of the year on freight and packaging costs associated with increased forecast volume.

 

Administrative expenses, excluding share-based compensation charges and exceptional charges, increased by 7% to $12.9m or 8% of revenues (2010: $12.0m or 8% of revenue), reflecting the underlying £/$ exchange rate impact and the professional fees associated with the acquisition of Dynamic Hearing.  For 2012, the expected administrative expenses are around $12m, spread evenly through the year.

 

Exceptional Charges

 

At the interim results on 25 July 2011, the Company announced a cost reduction and refocusing programme to be actioned in the second half of 2011 at an exceptional cash cost of $3.5m, with annual savings of $6.0m.  The impact of the restructuring in 2011 was to reduce underlying operating expenses by $1.7m. The full savings of $1.5m per quarter are expected from Q2 2012 onwards.

 

A review of inventory, as part of  the restructuring and refocusing programme, itself prompted both by weak end user demand and customers deciding to make some products end-of-life much sooner than originally intimated to the Company highlighted $3.5m of older parts associated with Discrete and Power Products which were in excess of anticipated demand. The Company therefore decided to take an exceptional write down on these parts in Q3 2011.

 

In the course of the process to realign the Company's supply chain to better meet the Company's future product and anticipated demand requirements, involving the relocation of certain production support functions to the Far East and a streamlining of the subcontract manufacturing supply base, an inventory loss of $2.4m was identified.  This arose as a result of unacceptably low yields at a subcontractor from production of a high volume part; the extent of inventory scrapped by the subcontractor during the year had not been properly reported at the time.  Although reparation is being sought from the subcontractor concerned nothing has been anticipated for accounting purposes in the Company's 2011 financial statements.

 

The remaining exceptional item represents a $1.8m non-cash curtailment gain arising on closing the defined benefit pension scheme to future accrual in 2011.

 

Operating Loss

 

Underlying operating loss in 2011 was $7.5m, compared to a loss of $1.5m in 2010.

 

Share-based compensation charges, calculated in accordance with IFRS 2, and associated payroll taxes amounted to $3.6m in 2011, compared to $4.5m in 2010.  The decrease reflects new share-based awards in 2011 being offset by the lower share price and a credit of $0.7m recognised in respect of the lapsing of 2009 executive long-term incentive plan awards due to the non-market performance conditions not being met.  Based on the share price as at 30 December 2011 and planned share-based awards for 2012, the share-based compensation charge in 2012, including the associated payroll taxes, is estimated to be approximately $5m.

 

Total intangible asset amortisation charges recognised in 2011 on the 2007 acquisitions, and on the Dynamic Hearing acquisition, from 30 September 2011, amounted to $5.5m (2010: $5.3m). The charge for 2012 is expected to be $2.0m, weighted to the first half of the year.

 

The IFRS operating loss was $24.2m in 2011 (2010: $11.3m loss).

 

Financial income amounted to $1.6m, with finance expenses of $1.5m, resulting in net finance income in 2011 of $0.1m (2010: $0.1m). These sums include non-cash income and expenses associated with the defined benefit pension scheme and notional interest on the acquisition deferred consideration. The net interest income, in cash terms, was $0.2m (2010:$0.5m).

 

Taxation

 

The total effective tax rate was 25.6% (a credit) (2010: 41% credit) reflecting primarily the benefit from additional allowances on research and development expenditure offset by the partial non-deductibility of share-based compensation charges on awards above the share price as at 30 December 2011. The effective tax rate in 2012 is expected to be around 26%.

 

 

 



Cash Flow & Balance Sheet

Summarised Consolidated Cash Flow



52 weeks ended 1 January 2012

2011

2010


$m

$m

Loss before tax

(24.1)

(11.2)

Depreciation & amortisation

13.7

14.1

Net finance income

(0.1)

(0.1)

(Loss) / earnings before interest, tax, depreciation and amortisation

(10.5)

2.8

Share-based compensation charge

4.1

3.1

Change in working capital:



-     decrease /(increase) in inventories/receivables

4.2

(28.1)

-     (decrease) /increase in payables/provisions

(18.9)

26.3

Pension curtailment gain

(1.8)

-

Payments to Defined Benefit Pension scheme

(4.5)

-

Foreign exchange

0.2

(0.3)

Income taxes (paid) / received

(0.3)

3.1

Net cash flow from operating activities

(27.5)

6.9

Capital expenditure

(6.5)

(6.4)

Free cash flow

(34.0)

0.5

Purchase of shares by employee share trust

(5.4)

(1.7)

Proceeds of new issue shares

0.7

1.2

Acquisition of subsidiary / deferred consideration

(5.1)

(1.0)

Interest received

0.2

0.5

Foreign exchange (losses) / gains

(0.1)

(0.2)

Net cash outflow

(43.7)

(0.7)

Opening cash balances*

97.1

97.8

Closing cash balances*

53.4

97.1

 

*includes cash and cash equivalents and short-term deposit balances

 

Cash and short-term deposits amounted to $53.4m at 1 January 2012 (2 January 2011: $97.1m).

 

Net cash outflow from operating activities was $27.5m (2010: $6.9m inflow), driven by the underlying operating loss, $4.5m of payments on closure of the defined benefit pension scheme to future accrual and, most significantly, by the $18.9m impact of the reversal of the unusually large  trade payables position at the end of 2010.

 

On 30 September 2011, the Company acquired Dynamic Hearing for $4.3m. (Note 10 to the financial information provides full details of the acquisition.) The Company also paid $0.8m (2010: $1.0m) for deferred consideration as milestones were achieved on the 2007 acquisition of Sonaptic (ANC).

 

Cash outflow on capital expenditure amounted to $6.5m (2010: $6.4m) and relates primarily to software licenses and IT equipment.

 

The value of inventory held at 1 January 2012 was $22.9m or 103 days inventory (2 January 2011: $29.1m or 105 days inventory). It is anticipated that inventory levels will average around 70 - 100 days in 2012 to meet fluctuations in demand. Trade receivables amounted to $25.9m or 51days sales outstanding at 1 January 2012 (2 January 2011: $23.6m or 44 days sales outstanding). It is expected that the number of days sales outstanding will average around 45 in 2012. Trade payables at 1 January 2012 amounted to $16.5m or 53 days purchases (2 January 2011: $33.4m or 99 days purchases). It is anticipated that the number of days purchases will average around 50 in 2012.

 

Treasury and Foreign Exchange

 

Nearly all revenue and cost of goods sold are denominated in US dollars, so there is a natural and effective hedge down to the gross margin level. However, approximately two-thirds of operating costs are denominated in sterling, and this represents a structural currency exposure derived from the UK base of the Company. During 2011, there was currency hedging in place throughout the year, ranging from three to six months forward in time, with an average rate over the year of $1.60 to £1 (2010: $1.55 to £1). It is estimated that during 2011 and going into 2012, every one cent decrease in the US dollar/sterling exchange rate (i.e. weakening of Sterling) has the effect of decreasing the Company's overheads and increasing operating profit by $300,000 on an annualised basis. To give some short-term certainty, the majority of the Sterling dominated overheads for all of 2012 have been hedged at an average rate of $1.55 to £1.

 

Share repurchases

 

In 2011 one of the employee share trusts purchased 1,422,545 (2010: 585,663) ordinary shares in the Company for a total consideration of $5.4m (2010: $1.7m) to cover employee share-based awards. This employee share trust is likely to make further purchases of shares in the Company going forward to satisfy employee share-based awards and in order to minimise the dilution impact of those share-based awards.

 

Defined Benefit Pension Scheme

 

On the 30 April 2011 the Company closed the defined benefit pension scheme to future accrual and transferred the 28 active members into the Company defined contribution scheme. On breaking the link to final salary a $1.8m non-cash curtailment gain was recognised as an exceptional item. During the year the Company paid in $1.3m under the regular schedule of contributions and a further $3.2m as part of the agreement reached with the trustees to close the scheme to future accrual.

 

 



Q4 2011

 

The Company's financial performance for Q4 2011 is summarised below.

 




Q4 2011

Q3 2011

Q4 2010




$m

% revs

$m

% revs

$m

% revs

Revenue


36.9


40.4


45.8











Gross profit (IFRS)


16.0

43.4%

16.6

41.1%

21.5

47.0%

Exceptional charge


2.4

6.5%

3.5

8.6%

-

-

Gross profit (Underlying)


18.4

49.9%

20.1

49.7%

21.5

47.0%

Overheads









Research & development

(12.8)

35%

(12.2)

30%

(10.4)

22%


Distribution & Selling

(5.3)

14%

(5.5)

14%

(6.8)

15%


Administration


(3.2)

9%

(3.1)

8%

(3.0)

7%










Underlying* operating  (loss) / profit

(2.9)

-8%

(0.7)

-2%

1.3

3%











Share based compensation

(0.4)

1%

(1.0)

2%

(1.0)

2%


Amortisation charges

(1.5)

4%

(1.3)

3%

(1.3)

3%


Exceptional items :








- recognised in cost of sales

(2.4)

6%

(3.5)

9%

-

-


- recognised in overheads

-

-

(3.5)

9%

-

-










Operating loss


(7.2)

-19%

(10.0)

-25%

(1.0)

-2%










Net Financing Income/(Expense)


0.3


(0.1)


-











Loss before tax


(6.9)

-19%

(10.1)

-25%

(1.0)

-3%










Income tax credit


1.6


2.7


1.6











(Loss) / profit after tax


(5.3)

-14%

(7.4)

-18%

0.6

1%










Average £/$ exchange rate


 1.60  


 1.62 


    1.51











 

*Underlying Q4 results exclude: charges for the amortisation of acquired intangible assets (Q4 2011: $1.5m; Q4 2010: $1.3m) and share-based compensation charges, including associated payroll taxes (Q4 2011: $0.4m; Q4 2010: $1.0m). Also, in Q4 2011 an exceptional charge of $2.4m (Q4 2010: $nil) is excluded. Underlying results are reconciled to the results reported in accordance with IFRS in notes 5 and 6 to the financial information.

 

Revenue for Q4 2011 amounted to $36.9m, a fall of 19% from Q4 2010 revenue of $45.8m (Q3 2011: $40.4m).  This includes $0.6m revenues from the Dynamic Hearing acquisition on 30 September 2011. The revenue decline reflects the weak consumer demand in the second half of the year.

 

Gross profit was $18.4m, before an exceptional charge for an inventory write down of $2.4 million, compared with $21.5m in Q4 2010 (Q3 2011: $20.1m). Gross margin improved to 49.9%, before the exceptional charge, from 47.0% in Q4 2010 (Q3 2011: 49.7%) as a result of a change in product mix and lower manufacturing costs.

 

Total underlying operating expenses were $21.3m in Q4 2011, including $0.6m for the first time from the Dynamic Hearing acquisition, along with $0.6m subcontract costs on DSP design on the latest low geometry Audio Hub product. This compares to $20.8m in Q3 2011 (Q4 2010: $20.2m). Excluded from underlying expenses are: i) Share-based compensation calculated in accordance with IFRS 2 and associated payroll taxes, which amounted to $0.4m, down from $1.0m in Q3 2011 (Q4 2010: $1.0m) with the reduction relating to a credit from the lapsing of executive share awards where the performance conditions were not met, and: ii) Amortisation charges relating to the intangible assets arising from acquisitions, which amounted to $1.5m, up from $1.3m in both Q3 2011 and Q4 2010, the $0.2m increase relating to the Dynamic Hearing acquisition.

 

Underlying operating loss in Q4 2011, before exceptional charges of $2.4m, was $2.9m, compared with a $0.7m loss in Q3 2011 (Q4 2010: $1.3m profit), the decline primarily being the result of the fall in revenues.


 

Condensed consolidated income statement

Year 2011


Year 2010

For the period ended 1 January 2012


52-week period from

3 January 2011 to 1 January 2012


52-week period from 4 January 2010 to 2 January 2011



Before exceptional

items

Exceptional items

 (Note 4)

Total




Notes

$'000

$'000

    $'000


$'000

Revenue

3

156,912

-

156,912


157,334

Cost of sales


(80,804)

(5,900)

(86,704)


(79,403)



_______

_______

_______


_______

Gross profit

3

76,108

(5,900)

70,208


77,931

Distribution and selling costs

5

(24,379)

(1,933)

(26,312)


(26,334)

Research and development expenses

5

(54,829)

(1,473)

(56,302)


(50,145)

Administrative expenses

5

(13,510)

(72)

(13,582)


(12,754)

Curtailment gain on defined benefit plan

4

-

1,829

1,829


-



_______

_______

_______


_______

Operating loss

6

(16,610)

(7,549)

(24,159)


(11,302)








Financial income


1,576

-

1,576


1,783

Financial expenses


(1,470)

-

(1,470)


(1,647)



_______

_______

_______


_______

Net financing income


106

-

106


136



_______

_______

_______


_______

Loss before tax


(16,504)

(7,549)

(24,053)


(11,166)

Income tax credit

7

4,167

2,000

6,167


4,574



_______

_______

_______


_______

Loss for the period attributable to the Owners of the Company


(12,337)

(5,549)

(17,886)


(6,592)



              

               

              


               








Basic loss per share (cents)

8



(15.39)


(5.71)





              


               

Diluted loss per share (cents)

8



(15.39)


(5.71)





              


                








  

The results for the 52 week period ended 1 January 2012 and for the 52 week period ended 2 January 2011 have been extracted from the financial statements for those periods. These financial statements have been reported on by the Company's auditors.

Condensed consolidated income statement

Q4 2011


Q4 2010


Q3 2011

For the period ended 1 January 2012

(continued)


13-week period from 3 October 2011 to 1 January 2012


13-week period from 4 October  2010 to 2 January 2011


13-week period from 4 July 2011 to 2 October 2011



Before exceptional charge

Exceptional charge

 (Note 4)

Total



Before exceptional charges

Exceptional charges

 (Note 4)

Total



(Unaudited)

(Unaudited)

(Unaudited)


(Unaudited)


(Unaudited)

(Unaudited)

(Unaudited)


Notes

$'000

$'000

$'000


$'000


$'000

$'000

$'000

Revenue

3

36,876

-

36,876


45,792


40,365

-

40,365

Cost of sales


(18,481)

(2,400)

(20,881)


(24,305)


(20,303)

(3,500)

(23,803)



_______

_______

_______


_______


_______

_______

_______

Gross profit

3

18,395

(2,400)

15,995


21,487


20,062

(3,500)

16,562

Distribution and selling costs

5

(5,177)

-

(5,177)


(7,160)


(5,835)

(1,933)

(7,768)

Research and development expenses

5

(14,783)

-

(14,783)


(12,177)


(13,941)

(1,473)

(15,414)

Administrative expenses

5

(3,224)

-

(3,224)


(3,140)


(3,324)

(72)

(3,396)

Curtailment gain on defined benefit plan

4

-

-

-


-


-

-

-



_______

_______

_______


_______


_______

_______

_______

Operating loss

6

(4,789)

(2,400)

(7,189)


(990)


(3,038)

(6,978)

(10,016)












Financial income


739

-

739


14


37

-

37

Financial expenses


(464)

-

(464)


(6)


(104)

-

(104)



_______

_______

_______


_______


_______

_______

_______

Net financing  income / (expense)


275

-

275


8


(67)

-

(67)



_______

_______

_______


_______


_______

_______

_______

Loss before tax


(4,514)

(2,400)

(6,914)


(982)


(3,105)

(6,978)

(10,083)

Income tax credit

7

990

635

1,625


1,602


822

1,849

2,671



_______

_______

_______


_______


_______

_______

_______

(Loss) / profit for the period attributable to the Owners of the Company


 

(3,524)

 

(1,765)

 

(5,289)


 

620


 

(2,283)

 

(5,129)

 

(7,412)



              

              

              


               


              

               

              












Basic (loss) / earnings per share (cents)

8



(4.55)


0.54




(6.38)





               


               




              

Diluted (loss) / earnings per share (cents)

8



(4.55)


0.53




(6.38)





               


               




              












The results for the 52 week period ended 1 January 2012 and for the 52 week period ended 2 January 2011 have been extracted from the financial statements for those periods. These financial statements have been reported on by the Company's auditors. The quarterly information is not audited.

 

 

 

Condensed consolidated statement of comprehensive income



 

For the period ended 1 January 2012









Q4 2011

Q4 2010

Q3 2011

2011

2010



13-week period from 3 October 2011 to 1 January 2012

13-week period from 4

 October 2010 to 2 January 2011

13-week period from 4 July 2011 to 2 October 2011

52-week period from 3 January 2011 to 1 January 2012

52-week period from 4 January 2010 to 2 January 2011



(Unaudited)

(Unaudited)

(Unaudited)





$'000

$'000

$'000

$'000

$'000








(Loss) / profit for the period


(5,289)

620

(7,412)

(17,886)

(6,592)



_______

_______

_______

_______

_______

Other comprehensive income:







Actuarial (loss) / gain on net defined benefit obligations


(3,707)

1,409

-

(3,477)

(155)

Increase in defined benefit liabilities recognised in accordance with IFRIC 14 (note 9)


 

(1,500)

 

-

 

-

 

(1,500)

 

-

Movement in unrecognised surplus on defined benefit plan


3,783

-

-

(301)

-

Deferred tax on net defined benefit items recognised in equity


309

(397)

-

1,320

41

Foreign exchange translation differences on foreign operations


1

(4)

2

3

(14)

Effective portion of changes in fair value of cash flow hedges


74

(499)

(226)

(180)

36



_______

_______

_______

_______

_______

Other comprehensive income for the period


(1,040)

509

(224)

(4,135)

(92)



______

______

______

______

_______

Total comprehensive income for the period attributable

 to Owners of the Company


 

(6,329)

 

1,129

 

(7,636)

 

(22,021)

 

(6,684)



              

              

              

              

              

 

The results for the 52 week period ended 1 January 2012 and for the 52 week period ended 2 January 2011 have been extracted from the financial statements for those periods.  These financial statements have been reported on by the Company's auditors. The quarterly information is not audited.

 


 

Condensed consolidated balance sheet





As at 1 January 2012

 

 

Notes

As at 1 January 2012

As at 2 October 2011

As at 2

January 2011




(Unaudited)


Assets


$'000

$'000

$'000

Property, plant and equipment


25,907

26,223

28,642

Intangible assets


32,793

32,195

31,596

Deferred tax assets


9,640

8,690

5,396



________

________

________

Total non-current assets


68,340

67,108

65,634



________

________

________

Inventories


22,901

29,406

29,117

Current tax assets


67

-

-

Trade and other receivables


29,667

34,962

27,056

Other investments, including derivatives


-

-

28

Short-term deposits


33,000

33,000

76,000

Cash and cash equivalents


20,409

15,179

21,083



________

________

________

Total current assets


106,044

112,547

153,284



________

________

________

Total assets

3

174,384

179,655

218,918



              

              

               

Equity





Issued capital


193

193

193

Share premium account


60,699

60,699

60,047

Capital redemption reserve


503

503

503

Hedging reserve


(152)

(226)

28

Retained earnings


80,541

86,232

105,817



________

________

________

Total equity attributable to equity holders of the parent


 

141,784

 

147,401

 

166,588



________

________

________

Liabilities





Employee benefits

9

1,500

-

2,401

Other payables


3,851

2,252

5,461



________

________

________

Total non-current liabilities


5,351

2,252

7,862



________

________

________

Income tax payable


116

33

160

Trade and other payables, including derivatives


25,979

28,569

44,298

Provisions


1,154

1,400

10



________

________

________

Total current liabilities


27,249

30,002

44,468



________

________

________

Total liabilities


32,600

32,254

52,330



________

________

________

Total equity and liabilities


174,384

179,655

218,918



              

              

               



 

 


The financial position as at 1 January 2012 and as at 2 January 2011 have been extracted from the financial statements for those periods.  These financial statements have been reported on by the Company's auditors. The quarterly information at 2 October 2011 is not audited.

 

 

 

 

 

 


Condensed consolidated statement of changes in equity



Attributable to owners of the Company



Share capital

 

Share premium

 

Capital redemption reserve

Hedging reserve

 

Retained earnings

Total equity


$000

$000

$000

$000

$000

$000

Balance at 4 January 2010

192

58,873

503

(8)

108,455

168,015


________

________

________

________

________

________

Loss for the period

-

-

-

-

(6,592)

(6,592)

Other comprehensive income:







Actuarial loss on net defined benefit obligations

-

-

-

-

(155)

(155)

Deferred tax on net defined benefit obligations recognised in equity

 

-

 

-

 

-

 

-

 

41

 

41

Foreign exchange translation differences on foreign operations

 

-

 

-

 

-

 

-

 

 (14)

 

 (14)

Effective portion of changes in fair value of cash flow hedges

 

-

 

-

 

-

 

36

 

-

 

36


________

________

________

________

________

________

Total comprehensive income for the period ended 2 January 2011

 

-

 

-

 

-

 

36

 

(6,720)

 

(6,684)


________

________

________

________

________

________

Equity settled share-based payment transactions

-

-

-

-

2,914

2,914

Deferred tax on equity settled share-based payment transactions recognised in equity

 

-

 

-

 

-

 

-

 

2,898

 

2,898

Share options exercised by employees

1

1,174

-

-

-

1,175

Company shares acquired by employee trust

-

-

-

-

(1,730)

(1,730)


________

________

________

________

________

________

Total contributions by and distributions to owners of the Company

 

1

 

1,174

 

-

 

-

 

4,082

 

5,257


________

________

________

________

________

________


________

________

________

________

________

________

Balance at 2 January 2011

193

60,047

503

28

105,817

166,588


                

                

                

                

                

                


$000

$000

$000

$000

$000

$000

Balance at 3 January 2011

193

60,047

503

28

105,817

166,588


________

________

________

________

________

________

Loss for the period

-

-

-

-

(17,886)

(17,886)

Other comprehensive income:







Actuarial loss on net defined benefit items

-

-

-

-

(3,477)

(3,477)

Increase in defined benefit liabilities recognised in accordance with IFRIC 14

 

-

 

-

 

-

 

-

 

(1,500)

 

(1,500)

Unrecognised surplus on defined benefit plan

-

-

-

-

(301)

(301)

Deferred tax on net defined benefit items recognised in equity

 

-

 

-

 

-

 

-

1,320

1,320

Foreign exchange translation differences on foreign operations

 

-

 

-

 

-

 

-

 

3

 

3

Effective portion of changes in fair value of cash flow hedges

 

-

 

-

 

-

 

(180)

 

-

 

(180)


________

________

________

________

________

________

Total comprehensive income for the period ended 1 January 2012

 

-

 

-

 

-

 

(180)

 

(21,841)

 

(22,021)


________

________

________

________

________

________

Equity settled share-based payment transactions

-

-

-

-

4,119

4,119

Deferred tax on equity settled share-based payment transactions recognised in equity

 

-

-

 

-

 

-

(2,164)

(2,164)

Share options exercised by employees

-

652

-

-

-

652

Company shares acquired by employee trust

-

-

-

-

(5,390)

(5,390)


________

________

________

________

________

________

Total contributions by and distributions to owners of the Company

 

-

 

652

 

-

 

-

 

(3,435)

 

(2,783)


________

________

________

________

________

________


________

________

________

________

________

________

Balance at 1 January 2012

193

60,699

503

(152)

80,541

141,784


                

                

                

                

                

                

 

Condensed consolidated statement of cash flows

For the period ended 1 January 2012

Q4 2011

Q4 2010

Q3 2011

2011

2010


13-week period from 3 October 2011 to 1 January 2012

13-week period from 4 October 2010 to 2 January 2011

13-week period from 4 July 2011 to 2 October 2011

52-week period from 3 January 2011 to 1 January 2012

52-week period from 4 January 2010 to 2 January 2011


$'000

$'000

$'000

$'000

$'000


(Unaudited)

(Unaudited)

(Unaudited)



Cash flows from operating activities






(Loss) / profit for the period

(5,289)

620

(7,412)

(17,886)

(6,592)

Adjustments for:






Depreciation and amortisation

3,653

3,106

3,441

13,654

14,069

Foreign exchange   losses / (gains)

335

(308)

(27)

219

(305)

Net financing (income) / expense

(275)

(8)

67

(106)

(136)

Equity-settled share-based payment expenses

428

547

1,171

4,100

3,112

Curtailment gain on defined benefit plan

-

-

-

(1,829)

-

Income tax (credit)

(1,625)

(1,602)

(2,671)

(6,167)

(4,574)


_______

_______

_______

_______

______


(2,773)

2,355

(5,431)

(8,015)

5,574

Decrease / (increase)  in inventories

6,516

(10,049)

5,945

6,227

(17,828)

Decrease / (increase) in trade and other receivables

5,976

4,153

(3,361)

(2,025)

(10,255)

(Decrease) / increase in trade and other payables

(1,745)

12,171

49

(19,999)

26,476

(Decrease) / increase in provisions and employee benefits

(246)

(22)

1,400

(3,388)

(151)


_______

_______

_______

_______

______

Cash generated from / (absorbed by) the operations

7,728

8,608

(1,398)

(27,200)

3,816

Income taxes (paid) / received

(11)

3,087

(126)

(317)

3,112


_______

_______

_______

_______

_______

Net cash inflow / (outflow) from operating activities

7,717

11,695

(1,524)

(27,517)

6,928


_______

_______

_______

_______

_______

Interest received

50

190

58

337

587

Acquisition of property, plant and equipment

(621)

(505)

(44)

(2,357)

(3,073)

Acquisition of intangible assets

(627)

(913)

     (2,116)

(4,178)

(3,326)

Acquisition of subsidiary, net of cash acquired

(548)

-

(3,757)

(4,305)

-

Deferred consideration on acquisitions in prior period

(800)

-

-

(800)

(1,000)

Amounts (placed on) /withdrawn from short-term deposits

-

(3,000)

1,000

43,000

7,251


_______

_______

_______

_______

_______

Net cash (outflow) / inflow from investing activities

(2,546)

(4,228)

(4,859)

31,697

439


_______

_______

_______

_______

_______

Cash flows from financing activities






Proceeds from the issue of share capital

-

598

17

652

1,175

Company shares acquired by employee trust

(17)

(905)

(634)

(5,390)

(1,730)

Interest paid

(11)

(20)

(15)

(95)

(86)


_______

_______

_______

_______

_______

Net cash outflow from financing activities

(28)

(327)

(632)

(4,833)

(641)


_______

_______

_______

_______

Net  increase / (decrease) in cash and cash equivalents

5,143

7,140

(7,015)

(653)

6,726

Cash and cash equivalents at start of period

15,179

13,887

22,333

21,083

14,519

Effect of exchange rate fluctuations on cash held

87

56

(139)

(21)

(162)


_______

_______

_______

_______

______

Cash and cash equivalents at end of period

20,409

21,083

15,179

20,409

21,083


              

              

              

              

              

Cash and cash equivalents at end of period

20,409

21,083

15,179

20,409

21,083

Short-term deposits at end of period

33,000

76,000

33,000

33,000

76,000


_______

_______

_______

_______

______

Total cash and short-term deposits at end of period

53,409

97,083

48,179

53,409

97,083


              

              

              

              

              







The results for the 52 week period ended 1 January 2012 and for the 52 week period ended 2 January 2011 have been extracted from the financial statements for those periods.  These financial statements have been reported on by the Company's auditors. The quarterly information is not audited.

 



Notes to the Preliminary Announcement

 

1.      Basis of preparation

 

The condensed consolidated financial information set out above contains the financial information of Wolfson Microelectronics plc (the "Company") and its subsidiaries (together referred to as the "Group") for the thirteen and fifty-two week periods ended 1 January 2012. The comparative periods are the thirteen and fifty-two week periods ended 2 January 2011.

 

This preliminary announcement was authorised for issue by the Board of Directors on 6 February 2012.  

 

A copy of this preliminary announcement is available on the Company's website at www.wolfsonmicro.com .

 

The financial information set out in this announcement for the fifty-two week period ended 1 January 2012 and the fifty-two week period ended 2 January 2011 does not constitute the Company's statutory accounts for those periods within the meaning of Section 434 of the Companies Act 2006.  Statutory accounts for the fifty-two week period ended 2 January 2011 are available on the Company's website at www.wolfsonmicro.com and have been delivered to the Registrar of Companies, and those for the fifty-two week period ended 1 January 2012 will be delivered in due course. Both sets of accounts have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The auditors have reported on those financial statements; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under section 498 (2) or (3) of the Companies Act 2006. 

The financial information set out in this announcement has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("adopted IFRS").  The financial information is presented in US dollars rounded to the nearest thousand.

 

The condensed set of financial information has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the fifty-two week period ended 2 January 2011, except for the following changes as described below.

 

As permitted by IAS 1 : Presentation of Financial Statements, the Group has disclosed additional information in respect of exceptional items on the face of the income statement, for the fifty-two week period ended 1 January 2012, in order to aid understanding of the Group's financial performance.  An item is treated as exceptional if it is considered that by virtue of its nature, scale or incidence and being of such significance that separate disclosure is required for the financial statements to be properly understood.

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is the Chief Executive Officer of the Company.  With effect from 3 January 2011, the Group changed the structure of its internal organisation in a manner that caused the composition of its operating and reportable segments to change.  The previous operating segments of 'Pure Sound', 'Smart Power', 'True Mics' and 'Enhanced Soundware' are no longer used for internal reporting purposes.  This change was explained further in the notes to the condensed half yearly financial statements which were published on 25 July 2011.  In accordance with IFRS 8 'Operating segments', the corresponding items of segment information disclosed for earlier periods have been re-presented and are included in note 3 to this financial information.  

               

There has been no impact on the measurement of the Group's assets and liabilities as a result of this change in operating and reportable segments.  Since this change in operating segments only impacts presentation and disclosure aspects for the Group, there is no impact on earnings / (loss) per share.

 



 

1. Basis of preparation (continued)

 

The following new standards, amendments to standards and interpretations are mandatory for the first time for financial periods commencing on 1 January 2011.

·    Revised IAS 24 'Related party disclosures', issued in November 2009 supersedes IAS 24, 'Related party disclosures' issued in 2003.  The revised IAS 24 was required to be applied from 1 January 2011 and it did not have a significant impact on the related party disclosures for the Group or the Company in the current financial period.

·    'Prepayments of a minimum funding requirement' (Amendments to IFRIC 14), issued in November 2009.  The amendments correct an unintended consequence of IFRIC 14 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction'.  Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions.  This was not intended when IFRIC 14 was issued, and the amendments correct the problem.  The amendments are effective for annual periods beginning 1 January 2011.  Earlier application is permitted.  The amendments should be applied retrospectively to the earliest comparative period presented.

· Improvements to International Financial Reporting Standards 2010 were issued in May 2010.  The dates vary standard by standard but most were effective from 1 January 2011. None of these have had a significant impact on the reported results or financial position of the Group or the Company for the current financial period.

 

In the process of applying the Group's accounting policies, management necessarily makes judgements and estimates that have a significant effect on the amounts recognised in the condensed financial statements.  Changes in the assumptions underlying the estimates could result in a significant impact to the financial information.  The most critical of these accounting judgement and estimation areas are included in the Group's 2011 consolidated financial statements and the main areas of judgement and estimation are similar to those disclosed in the financial statements for the fifty-two week period ended 2 January 2011.

 

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the fifty-two week period ended 1 January 2012 (which began on 3 January 2011) and have not been early adopted by the Group:

·      IFRS 9 'Financial instruments' issued in December 2009.  This addresses the classification and measurement of financial assets.  The standard is not applicable until 1 January 2015 but is available for early adoption.

·      Amendments to IAS 1 'Financial Statement Presentation' issued in June 2011. These amendments improve how components of other comprehensive income are presented. The new requirements are effective for annual periods beginning on or after 1 July 2012.

·      Amendment to 'IAS 19 'Employee Benefits' issued in June 2011. The amendments will improve the recognition and disclosure requirements for defined benefit plans. The new requirements are effective for annual periods beginning on or after 1 January 2013, with earlier application permitted.

·      IFRS 13 Fair Value Measurement. IFRS 13 defines fair value, sets out in a single IFRS a framework for measuring fair value and requires disclosures about fair value measurements. The new requirements are effective for annual periods beginning on or after 1 January 2013, with earlier application permitted.

·      IFRS 10 'Consolidated Financial Statements', IFRS 11 'Joint Arrangements' and IFRS 12 'Disclosure of Interests in Other Entities', issued in May 2011. IFRS 10 provides a single consolidation model that identifies control as the basis for consolidation for all types of entities. IFRS 10 replaces IAS 27 Consolidated and Separate Financial Statements. IFRS 11 Joint Arrangements establishes principles for the financial reporting by parties to a joint arrangement. IFRS 11 supersedes IAS 31 Interests in Joint Ventures and SIC-13-Jointly Controlled Entities-Non-monetary Contributions by Venturers. IFRS 12 combines, enhances and replaces the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. As a consequence of these new IFRSs, the IASB also issued amended and retitled IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures. The new requirements are effective for annual periods beginning on or after 1 January 2013, with earlier application permitted.

 

2.      Basis of consolidation of the Group

 

The financial information consolidates the results of and net assets of Wolfson Microelectronics plc and its subsidiaries. Subsidiaries are included in the consolidated financial statements from the date on which control commences to the date that control ceases.  The results of subsidiaries acquired during the 52 week period ended 1 January 2012 are included in the consolidated statement of comprehensive income from the effective date of acquisition.

 

 

 

 



 

2.      Basis of consolidation of the Group (continued)

 

Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.  In assessing control, the Group takes into consideration potential voting rights that currently are exercisable.

 

The Group measures goodwill at the acquisition date as:

·       the fair value of the consideration transferred; plus

·       the recognised amount of any non-controlling interest in the acquiree; plus

·       if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less

·       the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

 

Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination, are expensed as incurred.

 

Any contingent consideration payable is measured at fair value at the acquisition date. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity.  Otherwise, for any business combinations which occur on or after 1 July 2009, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.  For any business combinations which had an acquisition date prior to 1 July 2009, subsequent adjustments in the fair value of the contingent consideration are made against goodwill, except in the case of equity instruments, in which case the adjustment is made in equity.

 

The measurement period is the period from the date of acquisition to the date the Group receives complete information about facts and circumstances that existed as of the acquisition date - and is subject to a maximum of one year.

 

3.      Segment information

 

The chief operating decision-maker is the Chief Executive Officer ('CEO') of the Company.  The CEO  reviews the Group's internal reporting in order to assess performance and allocate resources.  Management has determined the operating segments based on these reports.

 

With effect from 3 January 2011, the Group is now organised on the basis of product groups along with several central functions which are shared by all of the product groups. As a result of this change in internal organisational structure, which is also reflected in the internal reporting as used by the CEO in order to assess performance and allocate resources, the Group now has two reportable segments.  These two reportable segments are the Group's Audio Hubs and Discrete and Power Products segments which are reported separately to the chief operating decision-maker to allow greater management focus on the Audio Hubs strategy.  The following summary describes the operations in the Group's reportable segments:

 

Audio Hubs - this segment includes the supply and sale of Wolfson's Audio Hubs high performance audio integrated circuit solutions.  Audio Hubs are feature-rich devices which contain many of Wolfson's audio technologies combined into a single Hub device.

 

Discrete and Power Products - this segment includes the supply and sale of integrated circuits which are discrete components, such as : Analogue-to-Digital Converters; Digital-to-Analogue Converters; and this segment also includes those components which are power management integrated circuits and the silicon microphone devices based on Micro-Electro-Mechanical Systems ('MEMS') technology.

 

The other operating segment does not meet any of the quantitative thresholds for determining a reportable segment in the fifty two week period ended 1 January 2012 or in the fifty two week period ended 2 January 2011 and, accordingly, the relevant revenue and segment gross profits are shown as 'other operating segment'.

 

In accordance with IFRS 8 'Operating segments', the corresponding items of segment information disclosed for earlier periods have been re-presented and are included in tables below.  

 



 

3.      Segment information (continued)

 

The CEO assesses the performance of the operating segments based on revenue and a measure of gross profit.  The gross profit measurement basis excludes the effects of non-recurring expenditure from operating segments, such as restructuring costs and exceptional inventory write downs.  Interest income and expenditure are not included in the result for each operating segment that is reviewed by the CEO.  Other information provided to the CEO is measured in a manner consistent with that in the financial statements. The segment information is prepared using accounting policies consistent with those of the Group as a whole.  There were no inter-segment transactions in the periods presented.

 

The assets and liabilities of the Group are not reviewed by the chief operating decision-maker on a segment basis.  Therefore none of the Group's assets and liabilities are segmental assets and segmental liabilities respectively and all are unallocated for segmental disclosure purposes.

 


Q4 2011

Q4 2010

Q3 2011

2011

2010


13-week period from 3 October 2011 to 1 January 2012

13-week period from 4 October 2010 to 2 January 2011

13-week period from 4 July 2011 to 2 October 2011

52-week period from 3 January 2011 to 1 January 2012

52-week period from 4 January 2010 to 2 January 2011

               

$000

$000

$000

$000

$000



(Re-presented)



(Re-presented)

Segment revenue:






Audio Hubs

26,398

26,138

27,541

105,367

88,592

Discrete and Power Products

10,387

19,607

12,557

50,851

68,673

Other operating segment

91

47

267

694

69


_______

_______

_______

_______

_______







Total revenue for the period

36,876

45,792

40,365

156,912

157,334


_______

_______

_______

_______

_______

Segment gross profit






Audio Hubs

13,204

11,736

13,663

52,432

43,437

Discrete and Power Products

5,147

9,704

6,163

23,174

34,425

Other operating segment

44

47

236

502

69


_______

_______

_______

_______

_______

Total gross profit for segments in  the period

18,395

21,487

20,062

76,108

77,931


_______

_______

_______

_______

_______







 

A reconciliation of gross profit to total (loss) / profit before income tax is provided as follows:

 


Q4 2011

Q4 2010

Q3 2011

2011

2010


13-week period from 3 October 2011 to 1 January 2012

13-week period from 4 October 2010 to 2 January 2011

13-week period from 4 July 2011 to 2 October 2011

52-week period from 3 January 2011 to 1 January 2012

52-week period from 4 January 2010 to 2 January 2011

  

$000

$000

$000

$000

$000







Gross profit for segments

18,395

21,487

20,062

76,108

77,931

Exceptional charge - Cost of sales

(2,400)

-

(3,500)

(5,900)

-


______

______

______

______

______

Gross profit for the period

15,995

21,487

16,562

70,208

77,931

Corporate overheads

(23,184)

(22,477)

(23,100)

(92,718)

(89,233)

Other exceptional items

-

-

(3,478)

(1,649)

-


______

______

______

______

______







Operating loss for the period

(7,189)

(990)

(10,016)

(24,159)

(11,302)

Financial income

739

14

37

1,576

1,783

Financial expense

(464)

(6)

(104)

(1,470)

(1,647)


______

______

______

______

______

Loss before tax

(6,914)

(982)

(10,083)

(24,053)

(11,166)


______

______

______

______

______








3.    Segment information (continued)

 

Reportable segments' assets are reconciled to total assets as follows:



As at 1 January 2012

As at 2 October 2011

As at 2 January 2011



$'000

$'000

$'000

Total assets for reportable segments


-

-

-

Assets for other operating segments


-

-

-

Goodwill and acquired intangible assets: from acquisition of Sonaptic Limited


19,189

20,481

24,173

Goodwill and acquired intangible assets:  from acquisition of Oligon Limited


4,704

4,829

5,204

Goodwill and acquired intangible assets:  from acquisition of Dynamic Hearing Pty Limited


6,764

6,948

-

Other unallocated assets


143,727

147,397

189,541



_______

_______

_______

Consolidated total assets


174,384

179,655

218,918



             

              

              

 

  

 

4.      Exceptional items

 

Restructuring costs

At the interim results on 25 July 2011, the Company announced a cost reduction and refocusing programme to be actioned in the second half of 2011 at an exceptional cash cost of $3.478 million, with annual savings of $6.0 million.    This programme increased the focus and investment in the Company's Audio Hub product development activities whilst reducing overall costs, including measures targeting the non-R&D cost base. The total exceptional restructuring cost comprised:

(i)   operating expense of $3.478 million, which was mainly employee termination costs; and

(ii) an inventory write down of $3.5 million. A review of inventory, as part of  the restructuring and refocusing programme, itself prompted both by weak end user demand and customers deciding to make some products end-of-life much sooner than originally intimated to the Company highlighted $3.5million of older parts associated with Discrete and Power Products which were in excess of anticipated demand. The Company therefore decided to take an exceptional write down on these parts in quarter three of 2011.

 

Exceptional inventory write down

In the course of the process to realign the Company's supply chain to better meet the Company's future product and anticipated demand requirements, involving the relocation of certain production support functions to the Far East and a streamlining of the subcontract manufacturing supply base, an inventory loss of $2.4 million was identified.  This arose as a result of unacceptably low yields at a subcontractor from production of a high volume part; the extent of inventory scrapped by the subcontractor during the year had not been properly reported at the time.  Although reparation is being sought from the subcontractor concerned, nothing has been anticipated for accounting purposes in the Company's 2011 financial statements.

 

Curtailment gain on defined benefit plan

In quarter two of 2011, a $1.8 million curtailment gain arose on the closure of the defined benefit pension plan to future accrual. The plan closed to future accrual with effect from 30 April 2011 and therefore the Company is no longer required to pay contributions in respect of future accrual. Due to its size and non-recurring nature, the curtailment gain is reported separately as an exceptional item within the condensed consolidated income statement.

 



 

 

4.      Exceptional items (continued)

 

The exceptional items were recognised in the captions in the condensed consolidated income statement as shown in the table below.  There were no exceptional items recognised in quarter four 2010, nor in the fifty-two week period ended 2 January 2011.

 


Q4 2011

Q4 2010

Q3 2011

2011

2010


13-week period from 3 October 2011 to 1 January 2012

13-week period from 4 October 2010 to 2 January 2011

13-week period from 4 July 2011 to 2 October 2011

52-week period from 3 January 2011 to 1 January 2012

52-week period from 4 January 2010 to 2 January 2011


$000

$000

$000

$000

$000







Costs of sales - inventory write down

-

-

(3,500)

(3,500)

-

Distribution and selling costs

-

-

(1,933)

(1,933)

-

Research and development expenses

-

-

(1,473)

(1,473)

-

Administrative expenses

-

-

(72)

(72)

-


______

______

______

______

______

Total restructuring costs

-

-

(6,978)

(6,978)

-


______

______

______

______

______

Costs of sales - inventory write down

(2,400)

-

-

(2,400)

-


______

______

______

______

______

Curtailment gain on defined benefit plan

-

-

-

1,829

-


______

______

______

______

______

Total exceptional items recognised in the period (before tax)

 

(2,400)

-

 

(6,978)  

 

  (7,549)  

-


             

             

             

             

             

 

 

 

5.    Operating expenses: reconciliation from Underlying to IFRS

 


Underlying

Share-based compensation (including related payroll taxes)

Amortisation  of acquired intangible assets

Exceptional items

IFRS

               

$000

$000

$000

$000

$000

Year 2011

52-week period from 3 January 2011 to 1 January 2012






Distribution and selling costs

(23,427)

(952)

-

(1,933)

(26,312)

Research and development expenses

(47,346)

(1,999)

(5,484)

(1,473)

(56,302)

Administrative expenses

(12,874)

(636)

-

(72)

(13,582)

Curtailment gain on defined benefit plan

-

-

-

1,829

1,829


_______

_______

_______

_______

_______


(83,647)

(3,587)

(5,484)

(1,649)

(94,367)


             

             

             

             

             







Year 2010

52-week period from 4 January 2010 to 2 January 2011






Distribution and selling costs

(24,635)

(1,699)

-

-

(26,334)

Research and development expenses

(42,844)

(2,001)

(5,300)

-

(50,145)

Administrative expenses

(11,991)

(763)

-

-

(12,754)


_______

_______

_______

_______

_______


(79,470)

(4,463)

(5,300)

-

(89,233)


             

             

             

             

             













 

 

 

 

5.  Operating expenses: reconciliation from Underlying to IFRS (continued)

 


Underlying

Share-based compensation (including related payroll taxes)

Amortisation  of acquired intangible assets

Exceptional items

IFRS

               

$000

$000

$000

$000

$000

Q4 2011

13-week period from 3 October 2011 to 1 January 2012






Distribution and selling costs

(5,269)

92

-

-

(5,177)

Research and development expenses

(12,801)

(473)

(1,509)

-

(14,783)

Administrative expenses

(3,248)

24

-

-

(3,224)


_______

_______

_______

_______

_______


(21,318)

(357)

(1,509)

-

(23,184)


             

             

             

             

             







Q4 2010

13-week period from 4 October 2010 to 2 January 2011






Distribution and selling costs

(6,833)

(327)

-

-

(7,160)

Research and development expenses

(10,382)

(470)

(1,325)

-

(12,177)

Administrative expenses

(2,992)

(148)

-

-

(3,140)


_______

_______

_______

_______

_______


(20,207)

(945)

(1,325)

-

(22,477)


             

             

             

             

             







Q3 2011

13-week period from 4 July to 2 October 2011






Distribution and selling costs

(5,501)

(334)

-

(1,933)

(7,768)

Research and development expenses

(12,129)

(487)

(1,325)

(1,473)

(15,414)

Administrative expenses

(3,139)

(185)

-

(72)

(3,396)


_______

_______

_______

_______

_______


(20,769)

(1,006)

(1,325)

(3,478)

(26,578)


             

             

             

             

             







 

 

6.      Operating (loss) / profit: reconciliation from Underlying to IFRS 

 


Q4 2011

Q4 2010

Q3 2011

2011

2010


13-week period from 3 October 2011 to 1 January 2012

13-week period from 4 July 2011 to 2 October 2011

52-week period from 3 January 2011 to 1 January 2012

52-week period from 4 January 2010 to 2 January 2011

               

$000

$000

$000

$000






Underlying operating (loss) / profit

(2,923)

(707)

(7,539)

(1,539)

Share-based compensation

(357)

(1,006)

(3,587)

(4,463)

Amortisation of acquired intangible assets

(1,509)

(1,325)

(5,484)

(5,300)

Exceptional items - operating expenses

-

(3,478)

(1,649)

-

Exceptional charges - cost of sales

(2,400)

(3,500)

(5,900)

-


______

______

______

______

Operating loss (IFRS)

(7,189)

(10,016)

(24,159)

(11,302)


______

______

______

______










 


 

7.    Income tax credit

 

The income tax credit for the fifty-two week period ended 1 January 2012 is a total effective tax rate of 25.6% (a credit) (2010: credit of 41%). This reflects the UK corporation tax rate applicable for that 52-week period of 26.5% as reduced by tax allowances on research and development expenditure and increased by share-based payment charges and other disallowable expenses.The effective tax rate in 2012 is expected to be around 26%.

 

 

 

8.    Earnings per share

 


Q4 2011

Q4 2010

Q3 2011

2011

2010


13-week period from 3 October 2011 to 1 January 2012

13-week period from 4 October 2010 to 2 January 2011

13-week period from 4 July 2011 to 2 October

2011

52-week period from 3 January 2011 to 1 January 2012

52-week period from 4 January 2010 to 2 January 2011


$000

$000

$000

$000

$000

(Loss) / profit for the period attributable to equity shareholders (basic and diluted)

 

(5,289)

 

620

 

(7,412)

 

(17,886)

 

(6,592)







Exceptional items after tax*

1,765

-

5,129

5,549

-







Amortisation of acquired intangible assets*

1,109

954

974

4,031

3,816







Share-based payment expenses and related payroll taxes*

262

680

739

2,636

3,213


_______

_______

_______

_______

_______

Underlying (loss) / profit for the period attributable to equity shareholders (basic and diluted)

 

(2,153)

 

2,254

 

(570)

 

(5,670)

 

437


              

              

              

              

              








cents

cents

cents

cents

cents







Basic (loss) / earnings per share

(4.55)

0.54

(6.38)

(15.39)

(5.71)


              

              

              

              

              

Diluted (loss) / earnings per share

(4.55)

0.53

(6.38)

(15.39)

(5.71)


              

              

              

              

              

Underlying basic (loss) / earnings per share

(1.85)

1.95

(0.49)

(4.88)

0.38


              

              

              

              

              

Underlying diluted (loss) / earnings per share

(1.85)

1.92

(0.49)

(4.88)

0.38


              

              

              

              

              

* After the estimated tax impact of this item






 



 

 

8.    Earnings per share (continued)

 

The weighted average number of ordinary shares used in the calculation of basic and diluted (loss) / earnings per share for each period were calculated as follows:

 


Q4 2011

Q4 2010

Q3 2011

2011

2010


13-week period from 3 October 2011 to 1 January 2012

13-week period from 4 October 2010 to 2 January 2011

13-week period from 4 July 2011 to 2 October

2011

52-week period from 3 January 2011 to 1 January 2012

52-week period from 4 January 2010 to 2 January 2011


No. of shares

No. of shares

No. of shares

No. of shares

No. of shares







Issued ordinary shares at start of period

116,308,102

115,759,099

116,253,912

115,929,217

115,238,980







Effect of shares issued during the period from exercise of employee share options

164

35,236

10,946

269,158

232,666


_______

_______

_______

_______

_______

Weighted average number of ordinary shares at end of period - for basic (loss) / earnings per share and for diluted loss per share

116,308,266

115,794,335

116,264,858

116,198,375

115,471,646







Effect of dilutive share options in issue

300,537

1,579,158

562,348

950,498

997,276


_______

_______

_______

_______

_______

Weighted average number of ordinary shares at end of period - for diluted earnings per share

116,608,803

117,373,493

116,827,206

117,148,873

116,468,922


              

              

              

              

              

 

During the fifty-two week period ended 1 January 2012, the Company issued 379,210 ordinary 0.1 pence shares (fifty-two week period ended 2 January 2011: 690,237 ordinary shares) under employee share schemes for a consideration received of $652,000 (fifty-two week period ended 2 January 2011:$1,175,000).

 

 

9.    Employee benefits

 

Defined benefit obligations

The defined benefit pension obligation is calculated using an actuarial update as at 1 January 2012. The Company makes contributions to a UK-based defined benefit plan that provides pension benefits for UK employees upon retirement. The defined benefit plan and actuarial assumptions are based on sterling denominated assets and liabilities.  The plan was closed to new entrants with effect from 2 July 2002.  The plan closed to future accrual with effect from 30 April 2011 and therefore the Company is no longer required to pay contributions in respect of future accrual.  The current schedule of contributions, dated 25 March 2010, sets out the contribution rates due in respect of deficit contributions.  During the fifty-two week period ended 1 January 2012, the Company paid deficit contributions totalling $4.5 million into the plan.

 

In the fifty-two week period ended 1 January 2012, the Company has recognised, in the income statement as an exceptional item, the curtailment gain of $1.829 million which arose on the closure of the plan to future accrual (see note 4).  Since the plan is now closed to future accrual and since there will no longer be regular contributions into the plan there is uncertainty regarding the recoverability of the net asset, being the IAS 19 net surplus on the plan as at 1 January 2012.  Accordingly the surplus of $0.3 million on the defined benefit pension plan as at 1 January 2012, calculated in accordance with IAS 19, has not been recognised. The Company is targeting to completely close the scheme over the next ten years through a combination of liability reduction exercises, such as buy ins, buy outs and enhanced transfer values, all of which will likely cost more than the IAS 19 funded obligations assume. 

 

The deficit contributions, due under the schedule of contributions dated 25 March 2010, were five annual instalments, of $1.3 million each, of which the Company paid one of these instalments.  The $3.2 million other payment to the plan by the Company in 2011 was effectively a prepayment against the Company's commitment under the agreed schedule of contributions.  This leaves a remaining amount of $2.0 million due under the schedule of contributions.  In accordance with IFRIC 14, the present value of this remaining commitment (being $1.5 million) has been recognised as a liability as at 1 January 2012. 



 

9.   Employee benefits (continued)

 

The main reason for the increase in the fair value of plan assets, compared to the position as at 2 January 2011, was the deficit contributions paid by the Company into the plan in the period.   The main reasons for the increase in the present value of funded obligations as at 1 January 2012, compared to the position as at 2 January 2011, was the decrease in the discount rate assumption from 5.40% to 4.70%, partly offset by the curtailment gain. It is the accounting policy of the Company and the Group to recognise all actuarial gains and losses in the period in which they occur directly in other comprehensive income. 

 

 


At 1 January 2012

At 2 January 2011


$000

$000




Present value of funded obligations

(26,413)

(24,244)

Fair value of plan assets

26,714

21,843


________

________

Net surplus / (liability) for defined benefit obligations

301

(2,401)

Unrecognised surplus

(301)

-

Increase in liabilities recognised in accordance with IFRIC 14

(1,500)

-


________

________

Recognised liability for defined benefit obligations

(1,500)

(2,401)


                

                

 

The expense is recognised in the following line items in the income statement:

 


52 weeks ended

1 January 2012

52 weeks ended

2 January 2011

               

$000

$000




Distribution and selling costs

26

67

Research and development expenses

71

188

Administrative expenses

29

76


_______

_______

Total current service costs

126

331


               

               




Curtailment gain: exceptional item (note 4)

(1,829)

-


               

               




Exchange differences:



Distribution and selling costs

58

(16)

Research and development expenses

164

(44)

Administrative expenses

66

(18)


_______

_______


288

(78)


               

               




Financial income

(1,335)

(1,017)

Financial expense

1,271

1,209


               

               

 

The Company also has a Group Personal Pension Plan which is a defined contribution pension scheme.

 

Share-based payments

 

The share-based payment expense recognised for each period, in accordance with IFRS 2 Share-based Payment, was:

 


52 weeks ended

1 January

2012

52 weeks ended

2 January

2011

               

$000

$000

Total expense recognised in personnel expenses during the period

 

4,100

 

3,112


               

               




 



 

10.  Acquisition of a subsidiary

 

On 30 September 2011, the Group acquired the entire issued share capital of Dynamic Hearing Pty Ltd for a consideration of up to approximately $4.5 million payable in cash of which $4.4 million was paid in the period ended 1 January 2012. Dynamic Hearing is a provider of high quality audio processing software for personal communication devices such as mobile phones, Bluetooth headsets and hearing aids, and it has developed and supplied a suite of audio enhancing transmit noise reduction and Acoustic Echo Cancellation (AEC) algorithms to run on Wolfson's Audio Hub products.

 

In the period from 30 September 2011 to 1 January 2012, the acquired business contributed $0.6 million of revenue and $0.6 million of costs to the Group's consolidated loss before taxation. Except for these revenues and costs which impacted the Group's net operating cash flows, the acquired business did not make a material contribution to the Group's post acquisition net operating cash flows, tax paid or capital expenditure.

 

In accordance with the revised IFRS 3 "Business Combinations", $0.2 million of acquisition-related costs have been recognised directly in the consolidated income statement in the 52 week period ended 1 January 2012.

 

The acquisition had the following effect on the Group's assets and liabilities on the acquisition date:

 



Pre-acquisition carrying amounts

Fair value adjustments

Recognised value on acquisition



$000

$000

$000

Property, plant and equipment


288

-

288

Intangible assets - acquired


-

5,046

5,046

Inventories


11

-

11

Trade and other receivables


683

-

683

Cash and cash equivalents


66

-

66

Deferred tax liabilities


-

(1,262)

(1,262)

Trade and other payables


(1,675)

-

(1,675)



_______

_______

_______

Net identifiable assets and liabilities


(627)

3,784

3,157



               

               


Goodwill on acquisition




1,902





_______

Consideration




5,059





               

 

Consideration comprises:





$000

Cash consideration paid


4,371

Contingent cash consideration


131



_______

Total cash consideration


4,502

Settlement of pre-existing relationship   


557



_______

Total consideration


5,059



               

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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