Information  X 
Enter a valid email address

Imagination Tech.PLC (IMG)

  Print      Mail a friend

Tuesday 04 July, 2017

Imagination Tech.PLC

Final Results

RNS Number : 0301K
Imagination Technologies Group PLC
04 July 2017
 

4 July 2017

 

Imagination Technologies Group plc

 

Strong set of results following successful restructuring - formal sale process continues

 

Imagination Technologies Group plc (LSE: IMG, "Imagination", "the Group"), a leading multimedia, processor and communications technology company, today announces results for the year ended 30 April 2017.

 

FY17 financial performance

·      Group revenue from continuing operations up 19% to £145.2m (2016: £121.6m)

§ Licensing revenue up by 82% to £33.9m (2016: £18.6m)

§ Royalty revenue up 8% to £111.1m (2016: £102.7m)

·      Adjusted operating profit* for continuing operations up by approximately three times to £29.2m (2016: £10.5m)

·      Reported operating profit from continuing operations £7.8m (2016: loss £26.8m)

·      Adjusted loss per share 0.9p (2016: loss 9.2p); reported loss per share was 10.1p (2016: loss 29.8p)

·      Cash generated by operations was £11.0m - despite £13.7m outflow from loss making discontinued businesses

·      Net debt at year-end was £28.4m (30 April 2016: £33.0m and 31 October 2016: £40.8m)

 

Operational highlights

·      Restructuring completed as planned

·      Refreshed strategy - focus on IP solutions with potential for real scale - being successfully implemented

·      Continue to see good demand for licenses in all three businesses - PowerVR, MIPS and Ensigma

·      Substantial improvement in trading performance in all three units  

·      Compelling products in FY18 roadmap - bodes well for competitiveness for each business unit

·      Number of successful launches by PowerVR

 

Apple and current situation

·      Apple Inc.'s ("Apple") unsubstantiated assertions that it had designed Imagination out and that royalties would cease in 2018 or early 2019, announced by the Group on 3 April 2017

·      Dispute with Apple continues - no progress made. Options being reviewed

·      MIPS and Ensigma marketed for sale (4 May 2017) to concentrate resources on PowerVR and strengthen the balance sheet; the sale process is progressing well

 

Formal Sale Process

·      Following interest in the entire Group, decided to initiate a formal sale process on 22 June 2017

·      Preliminary discussions continue with potential bidders

 

 

Peter Hill, Chairman, commented:

 

"The management team have done a tremendous job over the last year, turning the business around, returning it to profitability and with a clear strategy for growth.  It is therefore highly regrettable that this progress has been so severely impacted by the stance taken by Apple."

 

Andrew Heath, Chief Executive, said:

 

"Last year was exceptionally challenging but operationally we delivered a strong set of results.  Our restructuring programme was implemented as planned and our focus on our core IP businesses resulted in notable progress across all three of our businesses.

 

"We improved our financial performance across the business. We returned the business to profitability and saw good cash generation despite the outflow from the now discontinued businesses.

 

"However, Apple's unsubstantiated assertions and the resultant dispute have forced us to change our course, despite the clear progress we have been making.

 

"Initially we elected to sell the now much stronger MIPS and Ensigma businesses in order to strengthen our balance sheet and concentrate our resources on PowerVR. Additionally, we have received interest from a number of parties for the whole Group - reflecting the real quality and strategic value of our businesses and the associated IP. We therefore initiated a Formal Sale Process, which is on-going."

 

 

Enquiries

 

 

 

Imagination Technologies Group plc

Tel: 01923 260 511

Andrew Heath, Chief Executive Officer

 

Guy Millward, Chief Financial Officer

 

 

 

Instinctif Partners

Tel: 020 7457 2020

Adrian Duffield/Kay Larsen/Chantal Woolcock

 

 

* Adjusted profit is used by management to measure the performance of the business year on year by excluding non-recurring items (items which typically do not occur every year), items relating to acquisitions and investments, non-cash based share incentive charges, and amortization of intangible assets acquired from acquisitions. The reconciliation from reported results to adjusted results is set out in note 2.

 

 

Chief Executive's Review

Introduction

 

FY17 has been another notably challenging year for the business, characterised by significant restructuring, the implementation of a refreshed strategy and a dispute with our largest customer, Apple.

 

We executed the restructuring programme that was announced early in 2016, to plan and returned the business to profitability and positive cashflow. The £27.5m of cost savings, identified in 2016, was delivered in full, with non-core activities either sold or discontinued.

 

We also announced and started the implementation of our revised strategy to build IP solutions of real scale with customers, across a wide range of markets, where we can provide leading, differentiated offerings and build defendable positions; delivering long-term value to shareholders in the process. Over the past year we have focused investment in our core IP businesses: PowerVR, MIPS and Ensigma.

 

This strategy has resonated well with customers. Investment has been increased in PowerVR with the addition of around 50 more engineers to address market opportunities. The launch of the mid-range PowerVR Series XE GPU has been the most successful launch to date in terms of the number of new design wins with multiple customers. The launch of the new Furian GPU architecture and the high-end Series 8XT cores also cements PowerVR's technology leadership.

 

Both MIPS and Ensigma made good progress towards profitability, with MIPS now almost breakeven. Ensigma produced a strong performance in license sales and MIPS continued to increase its presence in the automotive market, with a number of deals, as well as continued design wins in LTE modems.

 

This good work has been overtaken by events following Apple informing us that they expected that the chips in their products launched at some point in 2018 or early 2019 would not require them to pay Imagination royalties. So far Apple has not shared any information to enable us to verify their statement. Imagination has invoked a contractual dispute resolution procedure under the license agreement. Imagination does not accept Apple's position and reserves all of its rights.

 

The potential impact on revenues if Apple does not pay us royalties on its new products has led the board to consider sale options. In May 2017 we announced that we were looking to sell both our MIPS and Ensigma businesses, to strengthen our balance sheet and concentrate our resources on PowerVR.

 

Following interest received in both MIPS and Ensigma, and subsequently the whole Group, the Board announced in June the initiation of a formal sale process for the Group and that the company was engaged in preliminary discussions with potential bidders.

 

Imagination has made excellent progress in executing the restructuring programme and refreshed strategy; returning the business to profitability in the process over the past fourteen months. It is regrettable that, after much hard work and on the verge of realising our strategy for the business, that we are now in a position where we have initiated a sale of the Group. We believe that in the face of the dispute with Apple, this is the best way to deliver value to our shareholders and ensure Imagination can to continue to grow and succeed in the future.

 

Performance in FY17

 

We successfully executed the restructuring programme that was announced early last year, on-time and in line with our expectations. The main areas impacted were non-core activities and central overheads including marketing and property. The core IP engineering activities have been protected.

 

To enable the required level of investment in our core businesses, we divested or closed non-core, cash-consuming business lines. The Pure radio business, as well as Hellosoft, was sold in 2016. IMGWorks, the SoC design business, was sold in May 2017, with the FlowRadio transaction completing in June this calendar year. The remaining elements of IMGSystems were discontinued. In total over 500 employees (almost a third of the total) have left the Group since the restructuring was announced. The majority of these people continue in their roles under new ownership at Pure International, Meeami Technologies, 7digital and Sondrel. 

 

Following the detailed operating review in the first half of 2016, the Group continued to reinforce and invest in its three core businesses; graphics and multimedia (PowerVR), general purpose processing (MIPS) and connectivity (Ensigma). This strategy has resonated well with customers and investors alike.

 

PowerVR

 

PowerVR has focused on consolidating its market position and retaining technology leadership.  In 2017 we launched new offerings in the mid-range XE family and in the high-end with the debut of our new Furian architecture and Series 8XT GPU cores, which represents a significant advance in the PowerVR architecture. We expect these technologies to further enable mass market untethered AR/VR devices and new classes of mobile devices such as convertibles, creating future growth opportunity for PowerVR.

 

The Group's Series 8XE has been a notably successful product launch, both with existing and new PowerVR customers. Its competitiveness in the mobile segment was proven with a multi-year subscription deal for series 8XE with Spreadtrum, a major Chinese fabless semi. Consequently, we are very confident in gaining significant share in the mid-tier mobile market through this and the successful design wins already achieved with MediaTek.

 

We have also seen strong traction for 8XE in the DTV/STB market with design wins at strategically important customers including Realtek, Marvell, Mstar, and Sigma. Further automotive business was secured with long-term customers Renesas and TI. 

 

With the launch of the new high-end Furian architecture and a refreshed Series 8XT offering, we fully expect to retain our technology leadership in low power, high performance graphics. The market leader continues to use PowerVR GPU technology in their latest products and we have a good pipeline of opportunities which, if successfully closed, will help close the shortfall in royalties that might be created by the loss in Apple revenues.. A new device has begun shipping from MediaTek in 2017, the Helio X30, using a Series 7XT core, which is being used in a range of devices from phones to Chromebooks.

 

PowerVR continues to retain a large share of the automotive infotainment market and this position is pulling PowerVR into ADAS applications. Denso of Japan is a recent licensee for 8XT. Opportunities also exist to grow our position in the emerging AR/VR market; as well as exploiting investments made in vision products. We have a roadmap in smart vision and expect these new offerings will further drive the PowerVR licensing pipeline. In particular we are seeing significant interest in our latest vision hardware accelerated (VHA) offering.

 

Our ray tracing technology is of interest in the gaming market and PowerVR is continuing to develop its ecosystem with notable games publishers and middleware/engine providers

 

MIPS

 

The MIPS business has been focused on the embedded processor market, in particular those market segments where we have strong positions today and where we can exploit our differentiation capabilities to build long-term, defendable positions into the future. We continue to enjoy design wins in our traditional markets such as networking, routers and DTV/STB.  MIPS has seen continued support from long term customers at Qualcomm, Broadcom and Cavium.

 

Beyond this good progress is also being made in new markets, as the Group targets its differentiated technology, particularly multi-threading and hardware virtualization, in meeting customers' needs.

 

The strength of MIPS's differentiated technology has been demonstrated through a number of important design wins over the past year. In the autonomous systems market, Mobileye selected the MIPS I6500 for its latest EyeQ5 product and Denso also became a licensee for next-generation, in-vehicle electronic systems. We are building on our success in automotive with the launch of a new MIPS core, I6500-F, which includes support for FuSa (Functional Safety) features, which is in high demand in this and broader AI segments.

 

MIPS also saw strong performance in Asia, with design wins with both current and new customers in China including Beken, Synochip, Loongson, and Actions and continued support from key customers such as ALi, Novatek and MediaTek in Taiwan. MediaTek is a key customer for MIPS I-class in the LTE modern segment and expects to begin mass production of devices with MIPS based modems during this summer. We have also seen strong licensing in Russia with a new deal with MRI. The success of our I-class cores proves our case that MIPS' fundamental differentiations, such as multi-threading and virtualization, are in demand in several markets.

 

Security is becoming an ever-increasing priority for customers. Our recent partnership with Barco Silex on Trusted Element technology and our security offering for Root of Trust systems and Omnishield gives us a very competitive security solution.

 

MIPS has an exciting refreshed product line and roadmap, which will allow it to better differentiate its offering in the market as well as prove competitive to customers.

 

Ensigma

 

Ensigma is now focused on IP licensing for connectivity, offering a broader range of complete end-to-end solutions for customers, which differentiates it in the market. The growth of IoT applications drove strong licensing growth in 2017, which enabled Ensigma to more than double revenue over the previous year. Significant license deals included a large American multinational semiconductor company and we also saw strong growth in the Wi-Fi market in China with a number of important design wins.

 

The Ensigma product roadmap is particularly focused on high performance, low power applications that are well matched to the requirements of large numbers of connected devices. Our superiority in low power wireless has been confirmed with tests on customer silicon showing that we are 2x better in power efficiency than competitors.

 

Apple Dispute

 

Apple informed us at the end of March that it will no longer use the Group's intellectual property in its new products in 15 months to two years' time, and as such Imagination will not be eligible for royalty payments under the current license and royalty agreement.

 

Apple has used Imagination's technology and intellectual property for many years.  It has formed the basis of Graphics Processor Units ("GPUs") in Apple's phones, tablets, iPods, TVs and watches. Apple has asserted that it has been working on a separate, independent graphics design in order to control its products and will be reducing its future reliance on Imagination's technology. Apple has not presented any evidence to substantiate its assertion that it will no longer require our technology, without violating our patents, intellectual property and confidential information. This evidence has been requested of Apple, but they have declined to provide it.

 

We believe that it would be extremely challenging to design a brand new GPU architecture from basics without infringing our intellectual property rights, accordingly we have not accepted Apple's assertions. We initiated the dispute resolution procedure under the license agreement with a view to reaching an agreement through a more structured process.

 

To be clear Apple made an unsubstantiated claim, which obliged us to inform the markets, leading to a significant decrease in our share price.  The claim has led us to invoke a contractual dispute resolution procedure and has created significant uncertainty with respect to our business, including our employees. We do not believe this to be acceptable business practice nor in line with Apple's own ethics statements regarding suppliers. 

 

At the time of writing this report, we remain in dispute. Imagination has reserved all its rights in respect of Apple's unauthorised use of Imagination's confidential information and Imagination's intellectual property rights.

 

Customers and colleagues

 

Imagination has great technology that is very meaningful and relevant to many customers. We are grateful to them for their support through the changes we are going through. We are also fortunate to have very capable people across our engineering and business staff. The company has them to thank for the continued development and delivery of our strategy and roadmap during what have been very disruptive conditions.

 

In a complex, geographically diverse and fast moving business it is critical that we retain and attract the skills and capabilities needed in sufficient numbers to deliver our objectives and maintain an entrepreneurial and dynamic culture. We have done this by continuing to provide an exciting place to work, investing in leading and disruptive technology, supported by a revised, competitive compensation and benefits strategy. A new internal communications programme has also increased the frequency and quality of communications with our staff and further improved engagement.

 

I want to publically thank colleagues for the support they have shown to the business and given to me personally over the past year. The swift return to profitability in the business has been helped by the engagement and support we enjoy with our people, and which they carry forward in their interactions with our customers every day.

 

Outlook

 

Imagination continues to see good demand for licenses in all three of our core businesses. There are exciting developments and compelling products in our FY18 roadmaps which bodes well for the competitiveness of each of the business units going forward. 

 

The Group continues to see good demand for licensing for its IP and expects to see further progress in license revenue in FY18, subject to uncertainty caused by the initiation of the formal sale process. Royalty unit shipments are expected to benefit from recent design wins. We fully expect to receive royalties from our largest customer over the next year.

 

I am confident that with the right investment our businesses and people will continue to flourish.

 

Andrew Heath

Chief Executive

 

 

Financial Review

 

2016/17 has seen considerable improvement in Imagination's continuing operations' results.  Revenues and adjusted operating profit and profit before tax are up substantially and the Group's net debt has reduced despite large cash costs to sell and close discontinuing operations. 

 

The decision to sell IMGWorks has resulted in this part of the Group being classified as discontinued operations for the 2016/17 financial year - it was sold on 31 May 2017.  We announced our intention to sell the MIPS and Ensigma businesses on 3rd May 2017 and these businesses will be classified as discontinued for the 2017/18 financial year but not for the 2016/17 financial year as the intention was not announced until after the end of the 2016/17 financial year.

 

Revenue

Group revenue from continuing operations for the period ending 30 April 2017 increased by 19% to £145.2m (2016: £121.6m).

 

Within this, licensing revenue increased 82% to £33.9m (2016: £18.6m).  All three business units showed good growth on 2015/16 with Ensigma performing particularly strongly with £6.0m of license revenue (2016: £2.0m).  PowerVR increased license revenue by 43% to £14.5m (2016: £10.2m), MIPS increased by 12% to £7.2m (2016: £6.4m). 

 

All businesses signed up new customers as well as getting repeat business from existing customers and ended the year with a good backlog from these orders which will be recognized over the next two years. 

 

Five contracts from the now sold IMGworks business remain with the Group and the figures for those contracts are included in continuing operations in the corporate segment.  These contracts contributed revenues of £6.1m in 2016/17 and contributed £2.1m to adjusted operating profit.  Four of the five contracts are likely to finish in 2017/18 and one in 2018/19.  No further contracts of this nature will be entered into by the Group.

 

Royalty revenue from continuing operations increased by 8% to £111.1m (2016: £102.7m), helped by the strength of the dollar against sterling. Partners' chip shipments in PowerVR were down at 422m (2016: 456m) units, primarily because of a drop in the largest customer's volumes in the year. MIPS' partner shipments increased by 7% to 816m units (2016: 764m). Royalty revenues in Ensigma were up 9% year-on-year because of increasing digital radio sales - the majority of Ensigma royalties come from RPU sales to chip providers for digital radios. The average royalty rate, excluding MIPS, was in line with the prior year.

 

Total Partner chip unit shipments rose 2% to 1,246m units (2016: 1,227m).

 

Revenue from discontinued operations decreased by 66% during the year primarily due to the sale of Pure in September 2016.

 

The average sterling / dollar rate during the year improved by 14%, resulting in a similar gain in revenue. Total revenues were up 7% to £151.9m (2016: £141.4m).

 

Operating expenses

 

Group operating expenses included in the adjusted operating profit, associated with continuing operations, increased to £116.1m (2016: £111.0m) because of exchange losses on US dollar denominated costs. We have taken action to reduce overall costs (continuing and discontinued operations) and £27.5m were taken out of the cost base for FY17.

 

The cost savings are made up of a combination of headcount reductions, as well as savings in overheads including marketing, property, third party software and hardware rental, travel and contractors. As flagged at the 2016 results announcement, besides the cost savings, we added R&D headcount in PowerVR and introduced group bonus schemes which increased the cost base.

 

We have allocated all overheads to business units for the first time this year to show the standalone profitability of each of them.  PowerVR has a 40% operating margin, making £37.8m adjusted operating profit (2016: £31.0m) on revenues of £94.8m.  MIPS lost £1.2m (2016: loss £5.0m) and Ensigma £6.5m (2016: loss £11.7m).  Remaining unallocated overheads relate to the cost of the board and advisors required as a listed company, there is also a £1.4m exchange loss accounted for centrally.

 

Adjusted operating profit

 

Consistent with prior periods, adjusted profit is used by the business to measure its performance year on year by excluding non- recurring items (items which typically do not occur every year), items relating to acquisitions, disposals and investments, non-cash based share incentive charges and amortisation of intangible assets acquired from acquisitions. The board adjusts for these items because it considers that doing so provides a clearer view of the operating performance of the business. This year, adjusted operating profit* for continuing operations was £29.2m (2016: £10.5m). A reconciliation of this to the statutory operating loss is given in note 2.

 

The key adjustments made to operating losses from both continuing and discontinued operations were to add back:

 

·        non-cash share-based incentives charge of £12.7m (2016: £7.8m) which has risen significantly due to large share option grants in 2016/17 as retention measures;

 

·        amortisation of intangibles from acquisitions of £6.0m (2016: £8.7m);

 

·        acquisition related costs of £0.6m (2016: £1.1m) relating to the Posedge and Kisel acquisitions, these have ended in FY17;

 

·        Contingent acquisition consideration release of £1.3m (2016:£1.7m) relating to the Posedge acquisition;

 

·        onerous contract provision of £2.1m (2016: £6.7m) - this reflects the losses that will be made on various SoC design contracts (which are part of the contracts retained from the sale of IMGworks);

 

·        Group restructuring costs of £1.0m (2016: £6.6m) - reflecting remaining costs to effect the cost savings made in FY17;

 

·        Losses on sale of businesses and a building of £3.4m (2016: nil).

 

Adjusted operating loss* for discontinued operations was £8.9m (2016: £35.0m), most of which related to IMGworks which was sold after the year end, although the related customer contracts have not yet left the Group.

 

On a statutory basis, the Group made an overall operating profit before tax of £2.4m (2016: loss of £29.4m).

 

The Group's adjusted loss per share was 0.9p (2016: loss of 9.2p). The Group's reported loss per share is 10.1p (2016: loss of 29.8p).

 

Taxation

 

Net tax was a charge of £18.5m (2016: credit £3.3m) reflecting the write-off of deferred tax assets which can no longer be recognised due to the uncertainty of timing of future profits. The charge includes overseas withholding tax the Group is required to pay on customer remittances from various jurisdictions and taxes payable in various jurisdictions outside the UK and US where Imagination's offices provide R&D, customer support and sales and marketing services for the Group.

 

There are significant losses available in both the UK and the US to offset future year's taxable income. The IRS audit in the US continues, and focuses on the tax position related to the group's acquisition of MIPS in 2013. A determination has been raised by the authorities that the group is appealing and the group has recognised a provision for the anticipated settlement. 

 

 

Balance sheet and cash flow

 

The balance sheet at 30 April 2017 shows a more stable year in FY17 following the impact of poor trading in FY16 and of the actions taken to improve the position going forward.

 

Intangible asset movement reflects amortization and the capitalization of patent acquisition costs.  Property, plant and equipment was £64.0m (2016: £69.8m) reflecting capital expenditure during the year of £2.0m (2016: £20.0m) less depreciation. The primary element of the FY16 capital expenditure was the redevelopment of the Group's property facilities in Kings Langley which has now concluded.  FY17 capital expenditure is primarily spending on computer hardware required for the Group's operations.

 

Assets and liabilities held for resale at 30 April 2016 have now been sold and the bank facility has been reclassified between current and long-term liabilities at 30 April 2017 because the covenant breach at 30 April 2016 has been resolved.

 

Cash generated by operations was £11.0m (2016: £15.9m) despite large outflows for loss-making discontinued operations and restructuring costs because of tight management of all receipts and payments.  Cash generated by continuing operations was £24.7m with an outflow of £13.7m from discontinued operations.

 

Net debt at the year-end was £28.4m (2016: £33.0m) and reflects close attention paid to conserving cash despite the losses made in the year and the restructuring costs accrued in FY16 that were paid for in FY17.  Net debt at the half-year (31 October 2016) was £40.8m, higher than the year end position reflecting stronger cash flows from royalties in the second half of the year and less losses and costs of discontinued operations than the first half.  The Group's banking facility expires in June 2018 and future cash flows and going concern considerations are discussed further in the Directors Report and note 1 to the accounts.

 

* Adjusted profit / (loss) is used by management to measure the performance of the business year on year by excluding non-recurring items (items which typically do not occur every year), items relating to acquisitions and investments, non-cash based share incentive charges, and amortization of intangible assets acquired from acquisitions. The reconciliation from reported results to adjusted results is set out in note 2.

 

Consolidated income statement

 

 

Year to 30 April 2017

 

 

Total Continuing
£'000

Year to 30 April 2016

 

 

Total Continuing
£'000

Revenue

 

145,213

121,553

Operating expenses

 

(137,417)

(148,320)

Operating profit / (loss) from continuing operations

 

Financial income
Financial expenses

 

7,796

 

65
(5,491)

(26,767)

 

37
(2,667)

Net financing expense

 

Profit / (loss) before tax

 

Taxation (charge) / credit

 

(5,426)

 

2,370

 

(18,450)

(2,630)

 

(29,397)

 

3,294

Loss from continuing operations

 

(16,080)

(26,103)

Loss from discontinued operations (net of tax)

 

(11,828)

(54,756)

Loss for the financial year attributable to equity holders of the parent

 

(27,908)

 

(80,859)

 

Loss per share

 

Loss per share (continuing activities only)

Basic

Diluted

Basic

Diluted

 

(10.1)p
(10.1)p

(5.8)p

(5.8)p

(29.8)p
(29.8)p

(9.6)p

(9.6)p

         


 

 

Consolidated statement of comprehensive income

 

 

Year to
30 April 2017
£'000

 

Year to
30 April 2016
£'000

Loss for the financial year attributable to equity holders of the parent

 

(27,908)

 

 

(80,859)

 

Other comprehensive income:

 

Items that are or maybe reclassified subsequently to profit or loss:
Exchange differences on translation of the balance sheets of foreign operations
Exchange differences on translation of part of the net investment in foreign operations
Change in fair value of assets classified as available for sale

Tax on items that are or may be reclassified subsequently to profit or loss

 


 

 

 


(4,898)

4,392
580

 

-


 

 

 


 

(1,630)

1,711
(499)

 

-

Total other comprehensive income / (expense) for the financial year, net of income tax

 


74


 

(418)

Total comprehensive expense for the financial year attributable to equity holders of the parent

 


(27,834)


 

(81,277)

 

Consolidated statement of financial position

 

 

At 30 April
2017
£'000

 

At 30 April
2016
£'000

Non-current assets
Other intangible assets
Goodwill
Property, plant and equipment
Investment property
Investments
Deferred tax
Corporation tax

Other debtors

 


38,411
48,716
63,982

-
5,097
98
1,280

199


 

42,679
48,773
69,752
5,475
4,626
12,923
889

3,238


Current assets
Inventories
Trade and other receivables
Accrued Income
Corporation tax
Assets held for resale
Cash and cash equivalents

 

157,783

76
31,471
28,423
1,014
-
17,171

 

188,355

220
24,421
29,695
952
5,255
5,820

 

 

78,155

 

66,363

Total assets

 

235,938

 

254,718

Current liabilities
Trade and other payables

Provisions
Liabilities held for resale
Interest bearing loans and borrowings
Corporation tax payable

 


(39,175)

(7,118)
(244)
(3,861)
(6,058)


 

(39,814)

(8,936)
(6,312)
(38,789)
(1,480)


Non-current liabilities
Other payables

Provisions
Interest bearing loans and borrowings
Deferred tax liability
Corporation tax

 

(56,456)

(5,572)
(400)

(41,742)
(10,840)
(1,547)

 

(95,331)

(7,158)
(1,893)

-
(12,912)
(4,583)

 

 

Total liabilities

 

(60,101)


(116,557)

 

(26,546)


(121,877)

Net assets

 

119,381

 

132,841

Equity
Called up share capital
Share premium account
Other capital reserve
Merger reserve
Revaluation reserve
Translation reserve
Retained earnings

 


28,394
105,027
1,423
2,402
1,088
570
(19,523)


 

27,663
103,277
1,423
2,402
508
1,076
(3,508)

Total equity attributable to equity holders of the parent

 

119,381

 

132,841

 

Consolidated statement of changes in equity

 

Share
capital
£'000

Share
premium
£'000

Other capital
reserve
£'000

Merger
reserve
£'000

Revaluation
reserve
£'000

Translation
reserve
£'000

Retained
earnings
£'000


Total
£'000

At 1 May 2015

Loss for the year

Other comprehensive income for the year:

Exchange differences on translation of the balance sheets of foreign operations
Exchange differences on translation of part of the net investment in foreign operations

Change in fair value of assets
classified as available for sale

27,162

-




-

-

 

-

101,976

-




-

-

 

-

1,423

-




-

-

 

-

2,402

-




-

-

 

-

1,007

-




-

-

 

(499)

995

-




(1,630)

1,711

 

-

70,509

(80,859)




-

-

 

-

205,474

(80,859)

 



(1,630)
 

1,711

 

(499)

Total other comprehensive income
for the year


Transactions with owners:

Share based remuneration
Tax charge in respect of share-based incentives

 

Issue of shares for SIP

Issue of shares at nil cost

Issue of new shares

-




-


-
 

101

320

80

-




-


-
 

-

-

1,301

-




-


-


-

-

-

-




-


-


-

-

-

(499)




-


-


-

-

-

81





-


-


-

-

-

-
 

 



7,750


(487)

 

(101)

(320)

-

(418)
 

 



7,750


(487)

 

-

-

1,381

At 30 April 2016

27,663

103,277

1,423

2,402

508

1,076

(3,508)

132,841

 

 

 

 

 

 

 

 

 

At 1 May 2016

Loss for the year

Other comprehensive income for the year:

Exchange differences on translation of the balance sheets of foreign operations
Exchange differences on translation of part of the net investment in foreign operations

Change in fair value of assets
classified as available for sale

27,663

-




-

-

 

-

103,277

-




-

-

 

-

1,423

-




-

-

 

-

2,402

-




-

-

 

-

508

-




-

-

 

580

1,076

-




(4,898)

4,392

 

-

(3,508)

(27,908)




-

-

 

-

132,841

(27,908)



 

(4,898)
 

4,392

 

580

Total other comprehensive income
for the year


Transactions with owners:

Share based remuneration
Tax charge in respect of share-based incentives

 

Issue of shares for SIP

Issue of shares at nil cost

Issue of new shares

-




-


-
 

79

560

92

-




-


-
 

-

-

1,750

-




-


-


-

-

-

-




-


-


-

-

-

580




-


-


-

-

-

(506)





-


-


-

-

-

-
 

 



12,682


(150)

 

(79)

(560)

-

74
 

 



12,682


(150)

 

-

-

1,842

At 30 April 2017

28,394

105,027

1,423

2,402

1,088

570

(19,523)

119,381

 

Consolidated statement of cash flows

 

 

Year to
30 April 2017
£'000

Year to
30 April 2016

Restated
£'000

Cash flows from operating activities
Loss after tax
Tax charge / (credit)

 


(27,908)
18,450


 

(80,859)
(6,641)

Loss before tax

Adjustments for:
Depreciation and amortization and impairment
Loss on disposal of fixed assets
Net financing charge
Share-based remuneration
Release from contract obligation
Impairment of investments
(Gain) / loss on disposal of business units
Contingent acquisition consideration release

Acquisition costs
Exchange difference

 

(9,458)


15,703
29
5,239
12,682
-
2
(424)
(1,280)
590

56

 

(87,500)


34,603
293
1,717
7,750
-
11,387
-
(1,726)
1,125

1,225

Operating cash flows before movements in working capital

Change in working capital:
(Increase) / decrease in inventories
(Increase) / decrease in receivables
(Decrease) / increase in payables

 

23,139


(812)
(7,209)
(4,161)

 

(31,126)


5,148
23,706
18,172

Cash generated / (utilised) by operations

Interest paid

Taxes paid

 

10,957

(1,751)

(2,405)

 

15,900

(835

(3,025)

Net cash flows from operating activities

Cash flows from investing activities
Investments made in the year
Disposal of investments in the year

Disposal of business units
Disposal of Investment properties
Acquisition of intangible assets
Acquisition of property, plant and equipment
Interest received

Payment of deferred acquisition consideration

 

6,801


-
108
2,550
4,500
(2,864)
(1,949)
65

(763)

 

12,040


(523)
4,410
-
-
(3,727)
(16,571)
37

-

Net cash from / (used in) investing activities

Cash flows from financing activities
Proceeds from the issue of share capital
Draw down of facilities
Repayment of borrowings

Finance lease payments

 

1,647


426
23,750
(19,715)

(1,862)

 

(16,374)


184
30,000
(22,298)

(699)

Net cash from financing activities

Net increase in cash and cash equivalents
Effect of exchange rate fluctuation

Cash and cash equivalents at the start of the period

 

2,599

11,047
304

5,820

 

7,187

2,853
316

2,651

Cash and cash equivalents at the end of the period

 

17,171

 

5,820


During the year, discontinued operations absorbed £13.7m of the group's net operating cash flows, paid £0.0m in respect of investing activities and paid £0.0m in respect of financing activities. The disposal of Pure generated a £2.6m cash receipt.

The comparative cash flow has been restated to amend the classification of finance lease payments.


Notes to the consolidated financial statements

 

1 Basis of preparation

 

The preliminary results announcement for the year ended 30th April 2017 has been prepared by the directors based upon the results and position which are reflected in the statutory accounts. The statutory accounts are prepared in accordance with International Financial Reporting Standards as adopted by the European Union (Adopted IFRS).

 

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 April 2017 and 30 April 2016 but is derived from those accounts. Statutory accounts for 2016 have been delivered to the registrar of companies, and those for 2017 will be delivered in due course. The auditor has reported on those accounts; their report on the accounts for 2017 was (i) unqualified and (ii) drew attention by way of emphasis without qualifying their report to a material uncertainty in respect of going concern and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. Their report for the accounts for 2016 was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.

 

At the date of this report, the group has drawn down bank facilities of £45.6m which are scheduled to expire during June 2018. 

 

On 3 April 2017, the Group announced that Apple Inc. ("Apple") has asserted that it will no longer use the Group's intellectual property in its new products in 15 months to 2 years' time.  Apple revenues constitute 45.2% of the group's revenue from continuing activities for the year ended 30 April 2017.  The group is in dispute with Apple and has reserved its rights.  While the Directors' have no reason to believe that Apple will withhold or delay payments during this process, should this occur, the group would likely need to seek additional funding beyond the facilities that are currently available to it.

 

As announced on 4 May 2017, the Directors are undertaking a review of the group's operations.  This includes, but is not limited to, a sale of its MIPS and Ensigma businesses.  On 22 June 2017, the group announced it had received interest from a number of parties for a potential acquisition of the whole Group. The Board therefore decided to initiate a formal sale process for the Group and is engaged in preliminary discussions with potential bidders.  The Directors have determined that, should the sales process not be concluded as planned, the Group will need to take decisive measures to improve profitability and cash generation.

 

The Directors have reviewed the Group's business and capital structure and developed the Business Plan ("the Plan") in order to consider the measures that would need to be undertaken. In the absence of significant proceeds being generated by the planned disposal of its MIPS and Ensigma businesses, the Plan assumes a significant reduction of fixed cost expenses while preserving the ability of the business to continue to deliver on existing customer contracts and continue targeted development of its core intellectual property. The plan sees debt paid down in full before the end of FY18. There is further opportunity to sell certain property assets to accelerate cash generation and/or mitigate risk.

 

The Directors have prepared cash flow forecasts for a period in excess of 12 months. Various scenarios have been considered to test the Group's resilience against operational risks including:

 

Adverse movements in US Dollar exchange rate;

Delays in executing the reduction in costs should the disposals not proceed as planned; and

Delays in cash receipts from significant customers

 

The potential impact of changes in assumptions arising from matters outside the Group's control, or the unlikely event of a culmination of events, may result in the group requiring additional working capital beyond the group's existing facilities.  This represents a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern such that the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

 

Nevertheless, based on the Group's assessment of the Plan, the Directors' believe that the Group will continue to have acceptable financial resources to meet obligations as they fall due and comply with its financial covenants and accordingly have formed a judgement that is appropriate to prepare the financial statements on a going concern basis. Therefore, these financial statements do not include any adjustments that would result if the going concern basis of preparation is inappropriate.

 

 

2 Segment reporting and separately disclosable items

 

The Group determines and presents operating segments based on the way that financial information is presented to the Board of Directors, which is the Group's chief operating decision maker. The Group sub divides the Technology segment into five smaller segments or business units ('BU's) - PowerVR, MIPS, Ensgima, IMG Works and IMG Systems. Whilst these BU's are similar in that they all develop technologies for licensing to semi-conductor companies for incorporation into silicon devices, they offer different technologies and, in the case of IMG Works, a design service and are managed separately. The Pure business unit remains a separate business unit, the same as it was in previous years. Included within the Corporate segment are costs associated with maintaining the Group's head office function. In addition, this segment includes revenue and costs associated with certain contracts relating to IMG Works which currently remain with the Group, even though the IMG Works business was sold after the year end. There is no inter-segment trading and no significant seasonality in the Group's operations.

 

Information regarding the operations of each reportable segment is included below. Note that during the year management reassessed the method by which certain overhead costs were allocated across the BU's. The April 2016 comparatives have been restated to reflect this change in methodology.

 

Performance is measured based on adjusted operating profit as shown in the table at the end of this note.


 

 Year ended 30 April 2017

 

TOTAL

CONTINUING

DISCONTINUED

 

 

 

PVR

MIPS

ENS

CORP

TOTAL CONT

PURE

IMGWKS

IMGSYST

TOTAL DISC

 

 

2017

2017

2017

2017

2017

2017

2017

2017

2017

2017

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

Pure

 

6,059

 

 

 

 

0

6,059

 

 

6,059

Licensing

 

34,134

14,540

7,210

6,020

6,079

33,849

 

 

285

285

Royalties

 

111,316

80,256

28,147

1,632

1,068

111,103

 

 

213

213

Other

 

395

 

111

 

150

261

 

 

134

134

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenue

151,904

94,796

35,468

7,652

7,297

145,213

6,059

(0)

632

6,691

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

Cost of sales

(8,760)

(493)

(717)

(883)

(2,157)

(4,250)

(4,406)

(1)

(103)

(4,510)

R&D

 

(77,215)

(34,486)

(25,164)

(9,085)

(1,845)

(70,580)

(1,743)

(3,931)

(961)

(6,635)

SG&A incl in adj operating profit

 

(45,656)

(21,986)

(10,785)

(4,215)

(4,241)

(41,227)

(435)

(2,958)

(1,036)

(4,429)

SG&A excl in adj operating profit - below

 

(24,305)

(5,371)

(6,847)

(2,573)

(6,569)

(21,360)

(821)

(1,318)

(806)

(2,945)

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

(155,936)

(62,336)

(43,513)

(16,756)

(14,812)

(137,417)

(7,405)

(8,208)

(2,906)

(18,519)

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit / (loss)

(4,032)

32,460

(8,045)

(9,104)

(7,515)

7,796

(1,346)

(8,208)

(2,274)

(11,828)

 

 

 

 

 

 

 

 

 

 

 

 

Net financing expense

(5,426)

 

 

 

(5,426)

(5,426)

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

Profit / (loss) before tax

(9,458)

32,460

(8,045)

(9,104)

(12,941)

2,370

(1,346)

(8,208)

(2,274)

(11,828)

 

 

 

 

 

 

 

 

 

 

 

 

Taxation (charge) / credit

(18,450)

 

 

 

(18,450)

(18,450)

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

Profit / (loss) for the year

(27,908)

32,460

(8,045)

(9,104)

(31,391)

(16,080)

(1,346)

(8,208)

(2,274)

(11,828)

 

Adjusted profit is used by management to measure the performance of the business by excluding non-recurring items (items which typically do not occur every year), items relating to acquisitions, disposals and investments, non-cash based share incentive charges, and amortization of intangible assets acquired from acquisitions. Management believes that adjusted profit provides the clearest measure of the performance of the continuing business and the most meaningful comparison of performance year on year.

Adjusted operating profit

 

 

TOTAL

CONTINUING

DISCONTINUED

 

 

 

 

PVR

MIPS

ENS

CORP

TOTAL CONT

PURE

IMGWKS

IMGSYST

TOTAL DISC

 

 

 

2017

2017

2017

2017

2017

2017

2017

2017

2017

2017

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported operating profit / (loss) - (from above)

(4,032)

32,460

(8,045)

(9,104)

(7,515)

7,796

(1,346)

(8,208)

(2,274)

(11,828)

 

 

 

 

 

 

 

 

 

 

 

 

 

Share based payments

 

 

12,682

5,218

2,104

1,372

2,286

10,980

216

1,116

370

1,702

Amortisation of intangibles from acquisitions

6,037

 

4,863

1,174

0

6,037

 

 

 

0

Acquisition related costs

 

 

590

 

 

 

590

590

 

 

 

0

Release of deferred & contingent consideration

 

 

(1,280)

 

 

 

(1,280)

(1,280)

 

 

 

0

Gain on investments

 

 

(24)

 

 

 

(24)

(24)

 

 

 

0

 

1,369

 

 

 

56

56

770

232

311

1,313

Loss on disposal of Investment Property

2,027

 

 

 

2,027

2,027

 

 

 

0

Corporate restructuring costs

 

 

1,001

154

(120)

27

885

946

(147)

(30)

232

55

Provision for onerous contracts

 

2,069

 

 

 

2,069

2,069

 

 

 

0

Provision for onerous leases

 

 

(145)

 

 

 

(20)

(20)

(17)

0

(108)

(125)

Dilapidations

 

 

(22)

 

 

 

(22)

(22)

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit / (loss)

 

20,272

37,832

(1,198)

(6,531)

(948)

29,155

(524)

(6,890)

(1,469)

(8,883)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net financing expense

 

 

(5,426)

 

 

 

(5,426)

(5,426)

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted profit before tax

 

 

14,846

37,832

(1,198)

(6,531)

(6,374)

23,729

(524)

(6,890)

(1,469)

(8,883)

                               

 

The credit for acquisition related costs in 2017 resulted from the release of an accrual for contingent acquisition consideration. Acquisition related costs in 2016 relate largely to the historic acquisitions of Posedge and Kisel and include elements of deferred acquisition consideration which are required to be accounted for as compensation.

The loss on disposal of business in 2017 relates mostly to the sale of Pure during the year.

The loss on disposal of Concept House in 2017 relates to the sale of one of the Group's Kings Langley properties (classified as an investment property), and certain tangible fixed assets that were included in the sale.

Within the provision for onerous contracts charge to the income statement is £2,007,000 (2016: £6,182,000) relating to four IMG Works revenue contracts.

The impairment of goodwill in 2016 relates to the acquisition of Hellosoft Inc. in December 2010, much of whose IP is utilised in the discontinued IMG Systems BU.

The impairment of tangible fixed assets in 2016 largely relates to the £6,458,000 impairment of Concept House.

The contingent acquisition consideration release in both 2016 and 2017 relates to contingent consideration that has not crystallised relating to the acquisition of Posedge Inc.

 

Year ended 30 April 2016 (restated)

 

 

TOTAL

CONTINUING

DISCONTINUED

 

 

 

 

PVR

MIPS

ENS

CORP

TOTAL CONT

PURE

IMGWKS

IMGSYST

TOTAL DISC

 

 

 

2016

2016

2016

2016

2016

2016

2016

2016

2016

2016

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Pure

 

 

18,819

 

 

 

 

 

18,819

 

 

18,819

Licensing

 

 

18,573

10,156

6,439

2,025

 

18,620

 

(1,549)

1,502

(47)

Royalties

 

 

103,626

77,708

23,473

1,499

 

102,680

 

 

946

946

Other

 

 

356

 

213

 

40

253

 

 

103

103

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenue

 

141,374

87,864

30,125

3,524

40

121,553

18,819

(1,549)

2,551

19,821

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

(18,935)

30

(742)

42

 

(670)

(17,967)

(109)

(189)

(18,265)

R&D

 

 

(89,802)

(30,979)

(22,126)

(9,306)

 

(62,411)

(6,843)

(16,239)

(4,309)

(27,391)

SG&A incl in adj operating profit

 

 

(57,117)

(25,955)

(12,253)

(5,955)

(3,790)

(47,953)

(1,756)

(4,732)

(2,676)

(9,164)

SG&A excl in adj operating profit - below

(60,389)

(3,429)

(6,693)

(2,297)

(24,867)

(37,286)

(1,113)

(7,679)

(14,311)

(23,103)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

(226,243)

(60,333)

(41,814)

(17,516)

(28,657)

(148,320)

(27,679)

(28,759)

(21,485)

(77,923)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit / (loss)

 

(84,869)

27,531

(11,689)

(13,992)

(28,617)

(26,767)

(8,860)

(30,308)

(18,934)

(58,102)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net financing expense

 

(2,630)

 

 

 

(2,630)

(2,630)

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit / (loss) before tax

 

(87,499)

27,531

(11,689)

(13,992)

(31,247)

(29,397)

(8,860)

(30,308)

(18,934)

(58,102)

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxation (charge) / credit

 

6,641

 

 

 

3,294

3,294

1,772

 

1,574

3,346

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit / (loss) for the year

 

(80,859)

27,531

(11,689)

(13,992)

(27,953)

(26,103)

(7,088)

(30,308)

(17,360)

(54,756)

 

Adjusted operating profit

 

TOTAL

CONTINUING

DISCONTINUED

 

 

 

 

PVR

MIPS

ENS

CORP

TOTAL CONT

PURE

IMGWKS

IMGSYST

TOTAL DISC

 

 

 

2016

2016

2016

2016

2016

2016

2016

2016

2016

2016

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported operating profit / (loss) - (from above)

(84,869)

27,531

(11,689)

(13,992)

(28,617)

(26,767)

(8,860)

(30,308)

(18,934)

(58,102)

 

 

 

 

 

 

 

 

 

 

 

 

 

Share based payments

 

7,750

2,667

980

802

1,312

5,761

370

975

644

1,989

Amortisation of intangibles from acquisitions

8,712

622

4,863

1,420

 

6,905

 

 

1,807

1,807

Acquisition related costs

 

1,125

 

 

 

1,125

1,125

 

 

 

0

Loss / (gain) on investments

 

11,387

 

 

 

11,387

11,387

 

 

 

0

Corporate restructuring costs

 

6,591

140

595

75

3,716

4,526

743

522

800

2,065

Provision for onerous contracts

 

6,735

 

256

 

297

553

 

6,182

 

6,182

Provision for onerous leases

 

1,907

 

 

 

1,907

1,907

 

 

 

0

Impairment of goodwill

 

11,061

 

 

 

 

0

 

 

11,061

11,061

Impairment of tangible fixed assets

 

6,851

 

 

 

6,851

6,851

 

 

 

0

Contingent acquisition consideration release

(1,726)

 

 

 

(1,726)

(1,726)

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit

 

(24,476)

30,960

(4,995)

(11,695)

(3,748)

10,522

(7,747)

(22,629)

(4,622)

(34,998)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net financing expense

 

(2,630)

 

 

 

(2,630)

(2,630)

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted profit before tax

 

(27,106)

30,960

(4,995)

(11,695)

(6,378)

7,892

(7,747)

(22,629)

(4,622)

(34,998)

 

Revenue is reported by geographical area of sales as follows:

 

2017
£'000

 

2016
£'000

USA
Asia
United Kingdom
Rest of Europe
Rest of North America

Rest of the world

99,405
27,778
2,759
11,694
1,160 2,417

 

92,177
30,006
1,096
(2,625)
2,164

(1,265)

 

 

145,213

 

121,553

Discontinuing                                                                                                                                          6,691                                    19,821

 

151,904

 

141,374


The basis for attributing external customers to individual countries is the customer's country of domicile.

Revenue from individual customers that represent more than 10% of the Group's total revenue for the period have values of approximately £65,350,000. The customer's country of domicile is USA, and these revenues are included in the PowerVR division business unit.

All revenue is from external customers, and originates materially from the United Kingdom.

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

 

3 Taxation

 

2017
£'000

 

2016
£'000

Analysis of tax charge in the year
Current tax charge

UK corporation tax
Foreign tax



-
3,296



 

202
3,979

Total current tax charge

Deferred tax
Origination and reversal of temporary differences
Effect of changes in tax rates on deferred tax balances
Adjustments in respect of prior periods

Reversal of deferred tax asset

3,296


(609)
576
(119)

15,306

 

4,181


(12,180)
1,200
158

-

Total deferred tax charge / (credit)

15,154

 

(10,822)

Total income tax charge / (credit)

18,450

 

(6,641)

 

The total tax charge for the year of £18,450,000 (2016: £6,641,000 tax credit) is higher (2016: higher) than the standard rate of corporation tax in the UK of 19.92% (2016: 20.00%). The difference is explained below:

 

2017
£'000

 

2016
£'000

Loss before taxation

(9,458)

 

(87,500)

Notional tax (credit) at UK standard rate of 19.92% (2016: 20.00%)

Tax effect of non-deductible impairment of goodwill

Tax effect of expenses that are not deductible for tax purposes (primarily impairment of investment property and loss on investments)
Utilization of previously unrecognised tax assets
Tax assets not recognised (primarily relates to US tax losses)

Reversal of deferred and corporate tax assets
Effect of tax rate change
Adjustments in respect of prior periods
Withholding tax

Increase in uncertain tax positions

Different tax rates on overseas earnings

Effect of R&D tax relief

(1,884)

-

 

1,902

14

-

16,955

-

(448)

2,337

468

(662)

(232)

 

(17,500)

2,212

 

2,763
239
3,655

-

(489)
(1,852)
901
3,430

-

-

Total income tax charge / (credit)

18,450

 

(6,641)


Tax on items charged / (credited) to equity:

Deferred tax
Current tax




150
-




 

687
(202)

 

Current tax

The group receives significant government tax incentives including, in the UK, Research and Development Expenditure credits ("RDEC") which is shown as an 'above the line' relief.  This has the impact of a 'credit' being recorded in operating expenditure of £7,397,000 - of which £1,164,000 reflected a true up of the 2016 P&L charge once the final RDEC claim for 2016 had been submitted during the year (2016: £4,751,000) - which is then taxed at the prevailing UK corporation tax rate.  If the UK group makes a taxable loss for the year, losses generated by the RDEC claim can be reclaimed in cash from HMRC.

 

The principal element of the deferred tax charge recorded against equity relates to the reversal of previously recognised deferred tax assets which were credited to equity. The reversal of the asset occurs predominantly as a result of the fall in potential future tax deductions due to the reduction in the Company's share price during the year.

 

Current tax assets

At 30 April 2016, there are current tax assets receivable in more than one year of £1,280,000 (2016: £889,000) and receivable in less than one year of £1,014,000 (2016: £952,000). The assets relate to prepayments of tax by overseas subsidiaries.

 

Current tax liabilities

At 30 April 2017, there is a current tax liability due in less than one year of £6,058,000 relating to the Group's overseas subsidiaries (2016: £1,480,000). The IRS audit in the US continues and focuses on the tax position related to the Group's acquisition of MIPS in 2013. A determination has been raised by the authorities that the Group is appealing. It is expected that the audit will conclude within the next financial year, and the provision made in respect of the audit has been reclassified from a tax liability due in more than one year, to be included within the current tax liability noted above.

 

At 30 April 2017 there is a current tax liability due in more than one year of £1,547,000 (2016: £4,583,000). The balance in both years largely relates to a provision in the US.

 

Deferred tax                                               

The movement on the deferred tax account is as follows:

 

As at
30 April 2016
£'000

Recognised in
income statement
 £'000

Recognised
in equity & reserves
£'000

As at
30 April 2017
£'000

Tax losses
Share based payments (note 24)
Other timing differences
Capital allowances
Gain on foreign exchange contract
Acquisition of intangible assets

14,586
2,206
284
(6,683)
47
(10,429)

(10,624)
(799)
(205)
1,464
(47)
(411)

-
(150)
19
-
-
-

3,962
1,257
98
(5,219)
-
(10,840)

 

11

(10,622)

(131)

(10,742)

 

 

2016
£'000

2017
£'000

Deferred taxation has been presented on the balance sheet as follows:
Deferred tax asset
Deferred tax liability


12,923
(12,912)


98
(10,840)

At end of the period

11

(10,742)

 

Given the uncertainty of future profit generation, and taking into account the factors discussed in note 1, management have decided to reverse the UK deferred tax assets at 30 April 2017. The remaining £98,000 asset relates to overseas territories where profits are certain due to transfer pricing arrangements that are in place (2016: £12,923,000).

The deferred tax liability reduced during the year to £10,840,000 (2016: £12,912,000). This movement was a result of the amortization of intangible assets relating to previous acquisitions.

None of the recognised tax assets or liabilities expire.

Deferred tax assets and liabilities are only offset where they relate to income taxes levied by the same taxation authority and there is a legally enforceable right to offset.

 

Unrecognised deferred tax assets

The group has Federal US tax losses of $60,082,000 (2016: $53,482,000), tax credits of $12,560,000 (2016: $10,211,000) and other temporary differences of $24,889,000 (2016: $28,651,000). The Federal tax losses and tax credits expire progressively from 2020.

In addition the group has State US tax losses of $59,938,000 (2016: $44,199,000), tax credits of $9,351,000 (2016: $8,819,000) and other temporary differences of $50,990,000 (2016: $59,915,000). The State tax losses expire progressively from 2017.

State research tax credits do not expire.

Deferred tax assets have not been recognised due to the uncertainty of the availability of the above tax losses to be utilised against future taxable profits arising in the US.

If the Group were able to recognise all unrecognised deferred tax assets, an asset of £40,506,000 ($52,455,000) (2016: of £32,734,000 ($47,831,000)) reported at the applicable tax rates, would be recognised.

At 30 April 2017, there was no recognised deferred tax liability (2016: $nil) for taxes that would be payable on the unremitted earnings of certain of the Group's subsidiaries. The Group has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeable future.

 

Factors affecting future tax charge

The Finance Act 2016 reduced the rate of Corporation Tax from 1 April 2017 to 19% and by a further 2% to 17% from 1 April 2020.  In addition, the Finance Act 2012 introduced the UK patent box regime which provides for an effective tax rate of 10% on certain UK profits from 1 April 2013 (phased in over 5 years). These changes have been substantively enacted at the balance sheet date and consequently are reflected in these financial statements. The Group has not made an election in to the UK Patent Box regime as at 30 April 2017, nor do the Directors consider it will be beneficial to do so in the short term.

No UK centric deferred tax assets or liabilities are recognised, however if they were they would be recognised at the main rate of UK Corporation Tax of 17% with the exception of the deferred tax on share options, which would be expected to largely reverse before 1 April 2020 and would therefore be provided at 19%.

 

4 Earnings per share

From continuing and discontinuing operations

2017
£'000

 

2016
£'000

Loss attributable to equity holders of the parent

(27,908)

 

(80,859)

 

 

2017
Shares
'000

2016
Shares
'000

Weighted average number of shares in issue
Less: Weighted average number of shares held by Employee Benefit Trust / company registrars
Effect of dilutive shares: Employee incentive schemes

280,582
(3,560)

16,159

273,562
(1,868)

15,279

Weighted average number of shares potentially in issue

293,181

286,973

 

2017

2016

Loss per share
 

Basic
Diluted

(10.1)p
(10.1)p

(29.8)p
(29.8)p

       

 

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potentially dilutive ordinary shares. Details of the schemes considered in arriving at the potentially dilutive ordinary shares are set out in note 24. It should be noted that potentially dilutive shares are not considered when a basic loss per share has been calculated. A loss cannot be diluted.

Adjusted earnings per share

 

2017
£'000

2016
£'000

Adjusted profit / (loss) before tax - (see note 2)
Adjusted taxation (charge) / credit

14,846
(17,240)

(27,106)
1,987

Adjusted loss attributable to equity holders of the parent

(2,394)

(25,119)

 


 

2017
Shares
'000

2016
Shares
'000

Weighted average number of shares in issue
Less: Weighted average number of shares held by Employee Benefit Trust / company registrars
Effect of dilutive shares: Employee incentive schemes

280,582
(3,560)

16,159

273,562
(1,868)

15,279

Weighted average number of shares potentially in issue

293,181

286,973

 

2017

2016

Adjusted loss per share
 

Basic
Diluted

(0.9)p
(0.9)p

(9.2)p
(9.2)p

       

 

Adjusted earnings per share is calculated using adjusted profit attributable to equity holders of the parent which is derived from the adjusted profit before tax described in note 2.

 

From continuing operations

 

 

2017
£'000

2016
£'000

Loss attributable to equity holders of the parent

(16,080)

(26,103)

 

 

2017
Shares
'000

2016
Shares
'000

Weighted average number of shares in issue
Less: Weighted average number of shares held by Employee Benefit Trust / company registrars
Effect of dilutive shares: Employee incentive schemes

280,582
(3,560)

16,159

273,562
(1,868)

15,279

Weighted average number of shares potentially in issue

293,181

286,973

 

2017

2016

Loss per share
 

Basic
Diluted

(5.8)p
(5.8)p

(9.6)p
(9.6)p

       

 

The denominators used are the same as those detailed above for both basic and diluted earnings per share from continuing and discontinued operations.

From discontinued operations

 

 

2017
 

2016
 

Loss per share
 

Basic
Diluted

(4.3)p
(4.3)p

(20.2)p

(20.2)p

           

 

 


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

a d v e r t i s e m e n t