Emergency surgery on Imagination Technologies Group PLC (LON:IMG) has been successful, with the graphics chip designer returning to profitability.
The company, under new leadership since long-time chief executive Hossain Yassaei fell on his sword in February after a profit warning, said adjusted earnings before interest and tax (EBIT) turned positive at £7.8mln in the six months to the end of October, even with the inclusion of discontinued operations. In the same period of last year, EBIT was negative at £7.2mln.
Excluding those chunks of the business that have been jettisoned, adjusted EBIT rose to £12.2mln from £7.4mln the year before on the back of revenues that rose to £64.4mln from £60.8mln, helped by the strength of the US dollar.
The group’s digital audio broadcasting division Pure, which probably should have been quietly discontinued as soon as internet radio and streaming services became popular, was finally sold in September while the majority of IMGsystems has either been sold or closed down. IMGworks and the remaining part of IMGsystems are in the process of being sold, the company reminded investors.
In all, the drastic restructuring is expected to deliver £27.5mln in annual cost savings, though one-off payments related to redundancies and the like meant that net debt rose to £40.8mln from £33mln at the beginning of the reporting period.
As for the continuing operations, royalty revenue rose 6% to £52.5mln from £49.6mln the year before, with total partner shipments steady at 585mln units.
Licensing revenue rose 7% to £11.8mln from £11.0mln, despite licensing of its PowerVR technology being “slow”, with a lot of deals being pushed to the second half of the year.
“Our Ensigma unit achieved strong licence sales as we have made good progress in agreeing deals with a number of major customers. The underlying trading performance of the group for H1 is in line with our expectations and we additionally benefited from the strong dollar,” said Andrew Heath, Imagination’s chief executive officer.
"We are now in a much better position to exploit our leading technologies, across a range of increasing opportunities and execute our refreshed strategy,” he added.
Broker Liberum said the results were ahead of its forecasts, aided by currency moves and a 260% year-on-year jump in Ensigma licensing revenue.
It is tipping a stronger second half, based on its projections of royalties from Apple, healthy licensing revenues and further currency benefits.
“We believe all three of Imagination's businesses are well positioned to see growing licensing and royalty revenue due to the increasing importance of graphics processing, VR, AR, automated driving and IoT [Internet of Things],” the broker said, as it raised its earnings estimates and reiterated its ‘buy’ recommendation.
The shares shot up 14.2% to 251.25p in the first 15 minutes of trading but ebbed to 242p in the lunchtime session, up 10% on the day.