Imagination Technologies promotes Heath to CEO as restructuring bites

Imagination Technologies warned revenues and adjusted losses would be "materially" below market expectations, though underlying trading remained in line and restructuring activities were on course to deliver healthy savings next year.

While underlying trading, before including one-off items, has continued to be broadly in line with expectations since the profit warning and an acceleration in restructuring in March, with royalty revenue "slightly ahead" and licensing revenue "behind", certain one-off events have hurt results.

These were from adjustments to a system-on-chip (SoC) design services revenue contract and bad debt write-offs on two specific customers, which ImgTech said could not be treated as exceptional, though at least £50m of charges from the restructuring will be classed as exceptional.

The restructuring charge of at least £50.0m will be expensed in full in the just-completed year's figures, including a cash cost of less than £7m.

ImgTech, which held talks with Apple in March and recently attracted a new shareholder in China's state-backed conglomerate Tsinghua, has re-negotiated certain loss-making agreements in order for those contracts to trade profitably going forward, with revenue recognised in 2015 to be adjusted downwards in 2016's results.

On the upside, interim chief executive Andrew Heath, who was on Thursday confirmed as having been promoted to a permanent role, has focused on cash and ensured year-end net debt only rose to £33.0m from £27.3m a year ago, better than expectations.

His proposed restructuring measures from February, including selling the Pure consumer electronics brand and divesting or shutting down non-core and/or cash consuming units, alongside other cost-cutting measures were said to be "on course".

Pure has attracted "considerable interest" from potential buyers, while £27.5m benefits of the restructuring will be delivered in full in the 2017 financial year.

Also, the group has continued to see strong demand for licences for its core technologies and expects revenues to improve in the new financial year.

"Last year was notably difficult for the business," said Heath, adding that expectations for the new financial year remained unchanged.

"The operational review is also advancing well. I am increasingly confident that by re-focusing on our core IP licensing activities with disciplined capital allocation, we will deliver profitable growth and shareholder value."

Shares in IMG, which were trading above 200p before December's interim results but halved by mid January, continued their recovery with a rise of 1.3% to 173.25p by early aftenoon on Thursday.