There is a new business model in Britain. It is called licensing technology and its success is demonstrated by the likes of ARM(LSE: ARM) and Psion(LSE: PON). Now the next company to adopt this model has just demonstrated its virtues. This morning Imagination Technologies Group(LSE: IMG), the company formerly known as Videologic, reported interim results 90% better at the gross profit level on revenue 79% higher. The numbers look good because they come off a low base so in absolute terms revenue of £7.5m and pretax profit of £1.6m doesn't sound much; neither does earning per share of 1p.
I have to declare my hand here and tell you that I am a shareholder so if the tone of this report is too exuberant then you know why. There is a great deal in the statement but probably the most significant is this. "The revenue growth was predictable due to the completion last year of our programme to introduce the new business model in which our revenues are based upon high gross margin royalty, licence fee and development income streams."
In other words, like the other hi-tech companies mentioned earlier, IMG does not actually make things, but designs them and then licenses that design to others. The design that is the cause of the profits growth reported today is the PowerVR chip made by NEC and used by Sega in its new Dreamcast games machine. Sales of this product have equaled expectations with a million sold so far in the US and Europe since its launch in October. The machine is versatile and Sega have formed strategic partnerships with AT&T, BT(LSE: BT.A), Nomura and BSkyB(LSE: BSY) to provide on-line gaming, email, shopping and share dealing over the Internet.
For some people this will provide a subtler, even insidious, introduction to the Internet. IMG is also in partnership with STMicroelectronics to develop a family of PowerVR PC chips and a set-top box. These products are intended to keep the company at the forefront of the digital multimedia and Internet environment.
Enough of the technobabble, lets have a quick look at the financials. The company is generating cash at a healthy rate and has a cash position of £8.6m. Shareholders' funds are still modest at £13.8m, so on conventional valuation measures the current £302m market cap of the company looks demanding. Doubtless the IMG message board will be humming today, why not pop over and take a look. With the shares down 3.5p to 194.5p there will be plenty of comment.
Other Breaking News
FirstGroup(LSE: FGP) released interim results this morning. The operator of one of the trains involved in the Ladbroke Grove train cash reported a 10% rise in sales and adjusted earning per share up 24% to 11.2p.
PIC International(LSE: PII) gained 13.2% to 38.5p in early trade on bid speculation.
Also active this morning were the drug companies. Moves in the US suggest that the final selection of dancing partners is now underway. Glaxo(LSE: GLXO) added 32p to 1917p and SmithKline(LSE: SB.) rose 15.5p to 884p.
QXL(LSE: QXL), Europe's largest online auction company, reported an increased loss in the first half but the shares rose 17.5p to 303.5p. There will be more news on this story in the Lunchbox today.
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