TIDMARM
RNS Number : 5840O
ARM Holdings PLC
10 February 2016
ARM HOLDINGS PLC REPORTS RESULTS FOR THE FOURTH QUARTER AND FULL
YEAR 2015
A presentation of the results will be webcast today at 09.30 GMT
at www.arm.com/ir
CAMBRIDGE, UK, 10 FEBRUARY 2015 - ARM Holdings plc announces its
unaudited financial results for the fourth quarter and full year
ended 31 December 2015.
Q4 2015 - Normalised* IFRS
Financial
Summary
----------------- -------------------------------------------------- -------------------------------------
Q4 2015 Q4 2014 % Change Q4 2015 Q4 2014 % Change
---------------- --------------- ---------------- --------------- -------- ---------------- ---------
Revenue ($m) 407.9 357.6 14% 407.9 357.6 14%
Revenue (GBPm) 269.1 225.9 19% 269.1 225.9 19%
Operating
expenses (GBPm) 123.9 100.4 23% 148.9 126.3 18%
Operating margin 50.5% 51.4% 40.9% 39.7%
Profit before
tax (GBPm) 138.7 118.9 17% 113.7 91.4 24%
Earnings per
share (pence) 8.2 7.2 14% 6.5 5.1 26%
Net cash
generation
(GBPm) ** 112.2 122.0
----------------- --------------- ---------------- --------------- -------- ---------------- ---------
Effective
revenue fx rate
($/GBP) 1.52 1.58
FY 2015 - Normalised* IFRS
Financial
Summary
----------------- -------------------------------------------------- -------------------------------------
FY 2015 FY 2014 % Change FY 2015 FY 2014 % Change
---------------- --------------- ---------------- --------------- -------- ---------------- ---------
Revenue ($m) 1,488.6 1,292.6 15% 1,488.6 1,292.6 15%
Revenue (GBPm) 968.3 795.2 22% 968.3 795.2 22%
Operating
expenses (GBPm) 431.6 359.3 20% 522.9 448.4 17%
Operating margin 51.6% 50.3% 41.9% 38.9%
Profit before
tax (GBPm) 511.5 411.3 24% 414.8 316.5 31%
Earnings per
share (pence) 30.2 24.1 25% 23.9 18.0 33%
Net cash
generation
(GBPm) ** 360.7 339.9
----------------- --------------- ---------------- --------------- -------- ---------------- ---------
Effective
revenue fx rate
($/GBP) 1.54 1.63
* Normalised figures are based on IFRS, adjusted for acquisition-related
charges, share-based
payment costs, restructuring charges, Linaro-related charges, share of
results of joint ventures,
intangible amortisation and impairment of investments net of profit on
disposal. For reconciliation
of IFRS measures to normalised non-IFRS measures detailed in this document -
see notes 12.8
to 12.11.
** Net cash generation is defined as movement on cash, cash equivalents,
short-term and long-term
deposits and similar instruments less interest accrued, adding back dividend
payments and
share buy-backs, investment and acquisition consideration, other
acquisition-related payments,
restructuring payments, share-based payroll taxes, investment in joint
ventures, payments
to Linaro, and deducting inflows from share option exercises and proceeds on
disposal of investments
- see notes 12.3 to 12.7.
Q4 2015 Financial Summary
-- Group revenues in US$ up 14% year-on-year (GBP revenues up 19% year-on-year)
-- Processor royalty revenues(1) in US$ up 24% year-on-year
(relevant industry revenues down 3% year-on-year(2) )
-- Order backlog up around 10% sequentially
-- Normalised PBT and EPS up 17% and 14% year-on-year respectively
-- Directors recommend final dividend increase of 25% to 5.63p
Progress on key growth drivers in Q4 2015
-- Growth in adoption of ARM(R) processor technology
o 51 processor licences signed by a broad range of companies,
including six market-leading semiconductor vendors and four
OEMs
o Target applications included mobile computing, automotive,
security systems and the Internet of Things
-- Strong demand for advanced ARM technology
o Eleven licences signed for our next-generation
high-performance and high-efficiency application processors
o One architecture licence for the recently announced ARMv8-M,
which brings advanced security features to
low-cost chips
o Eight Mali(TM) multimedia processor licences signed, including
licences for advanced display and video processors
o First physical IP licence signed for 7nm technology
-- Growth in shipments of chips based on ARM processor technology
o 4.0 billion ARM-based chips shipped, up 16% year-on-year
o Strong growth in shipments of microcontrollers and chips for
mobile devices
Outlook
ARM enters 2016 with a robust opportunity pipeline for licensing
helped by the introduction of new ARM technologies and our
expanding market opportunities. Chips based on ARMv8-A technology
are expected to continue to gain share in mobile and enterprise
markets, and the higher royalty rate earned on these products helps
to underpin growth in royalty revenues.
Increased economic uncertainty may influence consumer and
enterprise spending, potentially impacting semiconductor revenues
and industry confidence. Based on current conditions in the
semiconductor market, we expect Group dollar revenues for the full
year to be broadly in line with market expectations.
Simon Segars, Chief Executive Officer, said:
"2015 was a strong year for the shipment of chips containing
advanced ARM technology, and momentum continued through the fourth
quarter. During the year ARMv8-A surpassed 50% share of smartphone
shipments, Mali became the industry's highest-shipping GPU
architecture, and our Partners increased their shipments into
enterprise infrastructure and embedded markets.
Demand for our technology is increasing, and during the quarter
we signed multiple licences for the next generation of
high-performance and secure ARM processors. Our increased
investments in both 2015 and 2016 will help us meet demand by
extending the capabilities of our technology and the ecosystem, and
will support long-term growth and returns for shareholders."
Q4 2015 - Revenue Analysis Revenue ($m)*** Revenue (GBPm)
----------------------------- -----------------------------
Q4 2015 Q4 2014 % Change Q4 2015 Q4 2014 % Change
---------------------------- -------- -------- ---------
Technology Licensing
Processors 139.5 139.5 0% 91.9 88.0 4%
Physical IP 19.0 22.8 -17% 12.4 14.4 -14%
Total Technology Licensing 158.5 162.3 -2% 104.3 102.4 2%
Technology Royalty
Processors 196.6 150.7 30% 130.1 95.7 36%
Physical IP 20.1 14.8 35% 13.2 9.3 41%
Total Technology Royalty 216.7 165.5 31% 143.3 105.0 36%
Software and Tools 17.3 14.6 19% 11.5 9.1 26%
Services 15.4 15.2 1% 10.0 9.4 7%
---------------------------- -------- -------- --------- -------- -------- ---------
Total Revenue 407.9 357.6 14% 269.1 225.9 19%
---------------------------- -------- -------- --------- -------- -------- ---------
FY 2015 - Revenue Analysis Revenue ($m)*** Revenue (GBPm)
----------------------------- -----------------------------
FY 2015 FY 2014 % Change FY 2015 FY 2014 % Change
---------------------------- -------- -------- ---------
Technology Licensing
Processors 504.2 496.9 1% 326.6 309.1 6%
Physical IP 83.7 83.9 0% 54.0 52.1 4%
Total Technology Licensing 587.9 580.8 1% 380.6 361.2 5%
Technology Royalty
Processors 708.6 535.5 32% 463.1 326.0 42%
Physical IP 71.6 60.2 19% 46.9 36.5 29%
Total Technology Royalty 780.2 595.7 31% 510.0 362.5 41%
Software and Tools 57.2 57.3 0% 37.3 35.0 7%
Services 63.3 58.8 8% 40.4 36.5 11%
---------------------------- -------- -------- --------- -------- -------- ---------
Total Revenue 1,488.6 1,292.6 15% 968.3 795.2 22%
---------------------------- -------- -------- --------- -------- -------- ---------
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*** Dollar revenues are based on the Group's actual dollar invoicing, where applicable, and using
the rate of exchange applicable on the date of the transaction for invoicing in currencies
other than dollars. Over 95% of invoicing is in dollars.
Includes a catch-up payment of $9 million, recognised in Q4 2015, for prior years' royalties
under-reported to ARM by a customer
Includes a catch-up payment of $9 million, recognised in Q4 2015, for prior years' royalties
under-reported to ARM by a customer, and a deduction of $5 million, recognised in Q1 2014,
for prior years' royalties over-reported to ARM by a customer
Contacts:
Sarah West/Ben Fry Ian Thornton/Phil Sparks
Brunswick +44 (0)207 404 5959 ARM Holdings plc +44 (0)1628
427800
Financial review
(IFRS unless otherwise stated)
Total revenues
Total dollar revenues in Q4 2015 were $407.9 million, up 14%
versus Q4 2014. Q4 sterling revenues of GBP269.1 million were up
19% year-on-year.
Full year 2015 dollar revenues amounted to $1,488.6 million, up
15% on full year 2014.
Licence revenues
Total dollar licence revenues in Q4 2015 were down 2% on Q4 2014
at $158.5 million, representing 39% of Group revenues. Licence
revenues comprised $139.5 million from processor licences and $19.0
million from physical IP licences. Processor licence revenues were
flat on Q4 2014, which was a particularly strong quarter.
Group order backlog at the end of Q4 2015 was up around 10%
sequentially. This was driven by eleven licences being signed by
Partners for some of ARM's most advanced processors that are still
in development.
Royalty revenues
Total dollar royalty revenues in Q4 2015 were up 31% on Q4 2014
at $216.7 million, representing 53% of Group revenues. Royalty
revenues comprised $196.6 million from processors and $20.1 million
from physical IP.
Processor royalty revenues included a catch-up payment of $9
million where one of our customers had identified that they had
under-reported chips shipped in prior years. Relevant industry
revenues were down 3% over the corresponding shipment period (i.e.
calendar Q3 2015 compared to calendar Q3 2014). Underlying
processor royalty revenue grew 24% year-on-year, reflecting
continuing market share gains, and the increasing proportion of
ARMv8-A processor-based chips in mobile devices.
Physical IP royalty revenue grew 35% year-on-year due to the
increase in shipments of wafers using ARM's physical IP at advanced
nodes.
Other revenues
Sales of software and tools in Q4 2015 were $17.3 million, an
increase of 19% year-on-year. Service revenues were $15.4 million
in Q4 2015, up 1% year-on-year. Together revenues from software and
tools and services represented 8% of Group revenues.
Gross margins
Normalised gross margins in Q4 2015 were 96.5% compared to 96.2%
in Q3 2015 and 95.9% in Q4 2014.
Operating expenses and operating margin
Normalised income statements for Q4 2015 and FY 2015 and Q4 2014
and FY 2014 are included in notes 12.8 to 12.11 below which
reconcile IFRS to the normalised non-GAAP measures referred to in
this earnings release. Non-GAAP measures have been presented as we
believe that they allow a clearer comparison of operating
results.
Normalised operating expenses were GBP123.9 million in Q4 2015
compared to GBP108.4 million in Q3 2015 and GBP100.4 million in Q4
2014. The sequential increase in normalised operating expenses was
primarily due to ongoing investments in R&D, higher bonus
provisions following the strong finish to the year, and the impact
of the stronger dollar on the translation into sterling of Q4 costs
incurred in dollars. In addition Q4 included a charge of
approximately GBP1 million relating to the revaluation of monetary
items due to changes in foreign exchange rates and the impact of a
stronger dollar on the accounting for derivative instruments.
Normalised operating expenses in Q1 2016 (assuming effective
exchange rates similar to current levels) are expected to be in the
range of GBP127-129 million as we continue to invest in our
research and development teams and in our business infrastructure.
Normalised operating margin was 50.5% in Q4 2015, compared to 51.7%
in Q3 2015 and 51.4% in Q4 2014.
Normalised research and development expenses were GBP60.7
million in Q4 2015, representing 23% of revenues, compared to
GBP55.3 million in Q3 2015 and GBP44.4 million in Q4 2014.
Normalised sales and marketing expenses were GBP26.8 million in Q4
2015, being 10% of revenues, compared to GBP23.6 million in Q3 2015
and GBP23.6 million in Q4 2014. Normalised general and
administrative expenses were GBP36.4 million in Q4 2015,
representing 13% of revenues, compared to GBP29.5 million in Q3
2015 and GBP32.4 million in Q4 2014.
Total IFRS operating expenses in Q4 2015 were GBP148.9 million
(Q4 2014: GBP126.3 million) including share-based payment costs and
related payroll taxes of GBP20.5 million (Q4 2014: GBP23.0
million), amortisation of intangible assets, other
acquisition-related charges, and profit on disposal of investments,
net of impairment charge of GBP4.5 million (Q4 2014: GBP2.9
million).
Total share-based payment costs and related payroll tax charges
of GBP21.1 million in Q4 2015 were included within cost of revenues
(GBP0.6 million), research and development (GBP13.7 million), sales
and marketing (GBP3.5 million) and general and administrative
(GBP3.3 million).
Earnings and taxation
Normalised profit before tax in Q4 2015 was GBP138.7 million
compared to GBP118.9 million in Q4 2014. IFRS profit before tax was
GBP113.7 million in Q4 2015 compared to GBP91.4 million in Q4 2014
after including acquisition-related and share-based payment costs,
intangible amortisation, share of results of joint ventures, and
profit on disposal of investments, net of impairment charge.
The Group's effective normalised tax rate was 16.2% in Q4 2015
(IFRS: 19.3%), giving a full-year 2015 effective normalised tax
rate of 16.2% (IFRS: 18.1%). As a result of the continued phasing
in of the UK's patent box tax regime, which seeks to tax all
profits attributable to patented technology at a reduced rate of
10%, ARM's full-year normalised effective tax rate in 2016 is
expected to be about 15%.
In Q4 2015, normalised fully diluted earnings per share were 8.2
pence (36.5 cents per ADS(3) ) compared to 7.2 pence (33.8 cents
per ADS) in Q4 2014. IFRS fully diluted earnings per share in Q4
2015 were 6.5 pence (28.8 cents per ADS) compared to 5.1 pence
(24.0 cents per ADS) in Q4 2014.
Balance sheet
Intangible assets at 31 December 2015 were GBP742.7 million,
comprising goodwill of GBP650.7 million and other intangible assets
of GBP92.0 million, compared to GBP567.0 million and GBP77.2
million respectively at 31 December 2014. The increase in
intangible assets is primarily due to acquisitions made during the
year, see note 10 for more information.
Total accounts receivable were GBP183.7 million at 31 December
2015, compared to GBP138.6 million at 31 December 2014, see note 7
for more information.
Cash flow and dividend
Normalised cash generation in Q4 2015 was GBP112.2 million. Net
cash at 31 December 2015 was GBP950.9 million, compared to GBP861.7
million at 31 December 2014.
The directors recommend payment of a final dividend in respect
of 2015 of 5.63p pence per share, up 25%. Taken together with the
interim dividend of 3.15 pence per share paid in October 2015, this
gives a total dividend in respect of 2015 of 8.78 pence per share,
an increase of 25% on the total dividend of 7.02 pence per share in
2014. Subject to shareholder approval, the final dividend will be
paid on 13 May 2016 to shareholders on the register on 22 April
2016.
As well as growing the dividend, the Board intends to continue
to undertake a limited share buyback programme to maintain a flat
share count over the medium term. In 2015, 9.0 million shares were
bought back at a total cost of GBP92.2 million.
Capital structure and capital returns
ARM continues to generate cash which we use to support our
long-term investment in growth. Consistent with our current
approach, the Board keeps the level of net cash under continuous
review, reflecting the organic and inorganic investment
requirements of the business, balanced by the discipline to ensure
that the investment will generate an appropriate return for
shareholders.
As set out in the recent Capital Markets Day in September, we
are increasing our investment in R&D in 2016 to accelerate our
opportunity to gain share in target growth markets in 2020, with a
resulting step up in our operating expenditure. We are also
investing inorganically to extend growth.
ARM is committed to maintaining a net cash balance in the medium
term. This reflects the continued commitment to invest in R&D
that is vital to the product development pipeline for ARM and its
Partners. Regardless of the external environment, ARM can maintain
this R&D commitment to deliver the next generation of ARM
technology. This also ensures ARM retains the flexibility to move
quickly and decisively in a fast moving industry when there are
opportunities to extend growth.
The Board also remains committed to continue growing the
dividend in line with the growth of the business and maintains its
intention to increase the ordinary dividend over time, extending a
run of 11 consecutive years of dividend increases. In 2015 ARM
returned GBP108 million by way of ordinary dividends. In addition,
ARM will continue to repurchase shares over time to offset the
dilution from share-based compensation.
Based on the increased investment in R&D in 2016 and the
current pipeline of acquisition opportunities, the Board is
comfortable with the levels of net cash expected in the coming
year, and will review again at the start of 2017.
Technology Licensing
Processor licensing
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51 processor licences were signed in Q4 2015, taking the total
signed in the year to 173, reflecting the ongoing demand for ARM's
latest technology.
Eleven of the licences signed were for ARM's Cortex-A series
processors, mainly for use in smartphones, computer vision and
automotive applications. Eight of the licences were for processors
based on the ARMv8-A architecture, including six for future
generations of advanced processors still in development.
During the quarter, ARM introduced a new type of licence for
lead partners called the "Built on ARM Cortex Technology" licence.
This new licence involves a deep technical collaboration between
ARM and the silicon partner, resulting in ARM delivering a
customised design built on an ARM Cortex processor that has been
adapted to the partner's unique requirements. This further
increases the ability of partners to optimise their chip design,
whilst remaining fully software compatible with the ARM software
ecosystem. Qualcomm is the first "Built on ARM Cortex Technology"
licensee, with their agreement covering multiple ARM
processors.
Twenty-five of the licences signed in Q4 were for Cortex-M class
processors for use in the key components of smart connected
devices: microcontrollers, industrial controllers, medical
equipment, smart sensors and low-power wireless communication
chips. Two of these licences were for next-generation processors,
codenamed Teal and Grebe, that are designed for energy-efficient
and secure embedded applications from smart automotive to wearable
technology. ARM also signed an ARMv8-M architecture licence in the
quarter, with a Partner targeting secure devices.
ARM signed eight licences for its Mali multimedia processors
which are used in devices with graphics displays, such as
smartphones, mobile computing devices, digital TV and automotive
applications. Included within these eight licences were three
future processors still in development. Two of the licences signed
in Q4 were for our Mali display technology IP, and one for our Mali
video processor.
Q4 2015 and Cumulative Processor Licensing Analysis
Existing New Licensees Quarter Cumulative
Licensees Total Total
----------- -------------- -------- -----------
Classic
ARM* 1 1 2 515
Cortex-A 9 2 11 242
Cortex-R 3 1 4 65
Cortex-M 19 6 25 360
Mali*** 8 8 132
Architecture 1 1 19
Subscription** 15
---------------- ----------- -------------- -------- -----------
Total 41 10 51 1,348
---------------- ----------- -------------- -------- -----------
* Includes ARM7, ARM9, ARM10 and ARM11
** Includes CPU and Mali subscription licences
*** Includes one company taking their first Mali graphics licence
Includes all extant licences that are expected to generate
royalties
Physical IP licensing
ARM's physical IP is used by fabless semiconductor companies to
implement their chip designs. Platform licences are royalty bearing
licences that enable foundries to manufacture chips using ARM's
physical IP. Each foundry requires a platform licence for each
process node. ARM has signed more than one hundred platform
licences with leading foundries, from 250nm to 7nm. During the
quarter, ARM signed physical IP platform licences for the next
generation of manufacturing technology, at 10nm and 7nm. In
addition, ARM signed a physical IP platform licence for high-volume
manufacturing of lower cost chips, such as microcontrollers, at
130nm.
During the quarter ARM saw strong demand for physical IP
optimised for use with processors (POP IP). POP IP enables a
licensee to more readily achieve high-performance, low-power
processor implementations through specially optimised physical IP
technology. For every chip implemented using POP IP, ARM receives a
royalty both for the processor in the chip and for the physical IP.
This quarter ARM signed five further POP licences, including two
licences for POP IP optimised for a future ARM processor optimised
at 28nm and 16nm.
Technology Design Wins and Ecosystem Development
Many leading technology companies have announced details of
their ARM processor-based product developments in recent months.
These included:
-- Automotive applications that are increasingly requiring more
connectivity and computing capability and several ARM Partners
including NVIDIA, Qualcomm and Renesas announced new ARM-based
super-computers for advanced driver assistance systems
-- Several companies announcing ARMv8-A-based networking chips, including the Annapurna Alpine Platform-on-Chip (Home Network and Storage), the Broadcom BCM4908 (Router) and the Marvell Armada 3700 (retail networking)
-- Multiple ARM Partners announced new ARM-based chips for
servers and super computers including AMD, NVIDIA and Qualcomm, and
several OEMs announced new equipment for servers utilising
ARM-based server chips including E4 Computer Engineering, Gigabyte,
Inventec, Penguin Computing and Wistron
-- University of Michigan announcing the world's smallest
computer with an ARM Cortex-M0 based chip measuring just 0.4mm vs
0.8mm
-- Enlighten, ARM's global illumination technology, was chosen
for more leading console games including the likes of Square Enix's
Final Fantasy VII Remake as well as upcoming mobile titles from
Exient, Perfect World and all developers using Unity 5 game
engine
-- At the Consumer Electronics Show in Las Vegas multiple OEMs,
including LG, Philips, Sony, TCL, and Vizio, announced digital TV's
using ARM-based chips, supporting high dynamic range technology
such as Dolby Vision.
More partner announcements can be found on the ARM website at
www.arm.com/news.
Technology Royalties
Processor royalties
Q4 royalty revenue was generated from the shipment of 4.0
billion ARM processor-based chips, up 16% year-on-year (not
including any of the chips related to the catch-up payment
recognised in Q4).
Growth in the number of ARM-based chips shipped into embedded
applications continued, with particularly strong growth in
ARM-based microcontrollers and smartcards, up 25% year-on-year. In
addition, ARM's Partners reported a 20% increase in ARM-based chips
being deployed into networking infrastructure equipment.
Q4 2015 Processor Unit Shipment Analysis
Processor Unit Shipments Market Unit Shipments
Series
----------- --------------- ------------------------ ---------------
Classic* 32% Mobile and connectivity 45%
----------- --------------- ------------------------ ---------------
Cortex-A 18% Home 5%
----------- --------------- ------------------------ ---------------
Cortex-R 6% Enterprise 13%
----------- --------------- ------------------------ ---------------
Cortex-M 44% Embedded 37%
----------- --------------- ------------------------ ---------------
* Includes ARM7, ARM9, ARM10 and ARM11
Increasing the royalty revenue opportunity per chip
During the quarter, 16 companies reported that they had shipped
a total of 240 million ARMv8-A based chips. Of these about 75
million chips contained a high number of cores, enabled by ARM
big.LITTLE technology. These are being deployed in smartphones,
tablets, other consumer electronic devices, enterprise networking
and servers.
For the full year 2015, shipments of chips containing an ARM
Mali graphics processor were 750 million, a 36% increase on 2014.
Most Mali graphics processors are found in chips containing an ARM
Cortex-A class processor, further increasing the royalty percentage
per chip.
ARM's physical IP dollar royalty revenue in Q4 2015 was up 36%
year-on-year, with around 40% of royalty revenues generated from
wafers manufactured at advanced nodes from 28nm to 14/16nm.
People
At 31 December 2015, ARM had 3,975 full-time employees, a net
increase of 681 during the year, being mainly engineers joining
ARM's processor R&D teams. At the end of Q4 the Group had 1,577
employees based in the UK, 905 in the US, 628 in Continental
Europe, 541 in India and 324 in the Asia Pacific region.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Group in 2015
are included within the "Risks and risk management" section of the
2014 Annual Report and Accounts filed with Companies House in the
UK. Details of other risks and uncertainties faced by the Group are
noted within the Annual Report on Form 20-F for the year ended 31
December 2014 which is on file with the Securities and Exchange
Commission (the "SEC") and is available on the SEC's website at
www.sec.gov. There have been no changes to these risks that are
expected to materially impact the Group. These risks include but
are not limited to: ARM's quarterly results may fluctuate
significantly and be unpredictable which could adversely affect the
market price of ARM ordinary shares; general economic conditions
may reduce ARM's revenues and harm its business; we depend largely
on a small number of customers and products; failure by ARM to
achieve the performance under a licence or failure of a customer to
make an obligated milestone payment could materially impact our
revenues; we operate in an intensely competitive industry and our
customers may choose to use their own or competing technology; ARM
has grown its operations significantly over recent years and ARM's
business could be adversely impacted if these changes are not
managed successfully; ARM's technology is used in a wide range of
electronic products, any bug or fault in our
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technology could lead to significant damage to our brand and
reputation; ARM may have to protect its intellectual property or
defend the technology against claims that we have infringed others'
proprietary rights; and an infringement claim against ARM's
technology may result in a significant damages award which would
adversely impact ARM's operating results.
ARM Holdings plc
Consolidated balance sheet - IFRS
31 December 31 December
2015 2014
Unaudited Audited
------------ ------------
GBPm GBPm
Assets
Current assets:
Cash and cash equivalents 40.5 54.1
Short-term deposits and similar
instruments 617.8 620.8
Embedded derivatives 6.9 2.6
Accounts receivable (see note
7) 183.7 138.6
Available-for-sale financial 23.1 -
assets (see note 3.2)
Prepaid expenses and other
assets 51.6 43.2
Current tax assets 22.9 8.9
Inventories: finished goods 1.8 2.7
Total current assets 948.3 870.9
------------ ------------
Non-current assets:
Long-term deposits and similar
instruments 298.0 191.4
Loans and receivables 6.0 3.0
Available-for-sale financial
assets (see note 3.2) 11.6 23.7
Investment in joint ventures
(see note 8) 2.6 3.0
Prepaid expenses and other
assets 1.4 1.7
Property, plant and equipment 61.6 43.4
Goodwill 650.7 567.0
Other intangible assets 92.0 77.2
Deferred tax assets 48.0 55.9
------------ ------------
Total non-current assets 1,171.9 966.3
------------ ------------
Total assets 2,120.2 1,837.2
------------ ------------
Liabilities
Current liabilities:
Accounts payable 12.7 11.7
Fair value of currency exchange
contracts 3.2 4.8
Accrued and other liabilities
(see note 7) 105.2 80.6
Finance lease liabilities 5.2 3.9
Current tax liabilities 30.6 31.9
Deferred revenue 110.1 127.4
Total current liabilities 267.0 260.3
------------ ------------
Non-current liabilities:
Accrued and other liabilities 1.8 -
Finance lease liabilities 6.1 2.6
Deferred tax liabilities 3.2 0.4
Deferred revenue 44.5 45.6
------------ ------------
Total non-current liabilities 55.6 48.6
Total liabilities 322.6 308.9
------------ ------------
Net assets 1,797.6 1,528.3
------------ ------------
Capital and reserves attributable
to the owners of the Company
Share capital 0.7 0.7
Share premium account 27.2 24.9
Capital reserve 354.3 354.3
Share option reserve 61.4 61.4
Retained earnings 1,213.3 991.8
Revaluation reserve 17.7 4.3
Cumulative translation
adjustment 123.0 90.9
------------ ------------
Total equity 1,797.6 1,528.3
------------ ------------
ARM Holdings plc
Consolidated income statement - IFRS
Quarter Quarter
ended ended Year Year
ended ended
31 December 31 December 31 December 31 December
2015 2014 2015 2014
Unaudited Unaudited Unaudited Audited
------------ ------------ ------------ ------------
GBPm GBPm GBPm GBPm
Revenues 269.1 225.9 968.3 795.2
Cost of revenues (10.0) (10.0) (39.3) (37.8)
Gross profit 259.1 215.9 929.0 757.4
------------ ------------ ------------ ------------
Research and development (78.5) (62.1) (278.0) (224.2)
Sales and marketing (30.4) (27.6) (106.1) (93.2)
General and administrative (40.0) (36.6) (138.8) (131.0)
Total operating expenses (148.9) (126.3) (522.9) (448.4)
------------ ------------ ------------ ------------
Profit from operations 110.2 89.6 406.1 309.0
Investment income, net 2.9 2.7 11.8 11.0
Share of results of joint
ventures 0.6 (0.9) (3.1) (3.5)
Profit before tax 113.7 91.4 414.8 316.5
Tax (22.0) (18.6) (75.1) (61.1)
Profit for the period 91.7 72.8 339.7 255.4
------------ ------------ ------------ ------------
Earnings per share
Basic and diluted earnings 91.7 72.8 339.7 255.4
Number of shares (millions)
Basic weighted average
number of shares 1,404.7 1,404.6 1,407.4 1,406.2
Effect of dilutive securities:
Share options and awards 11.7 12.9 12.9 14.9
------------ ------------ ------------ ------------
Diluted weighted average
number of shares 1,416.4 1,417.5 1,420.3 1,421.1
------------ ------------ ------------ ------------
Basic EPS (pence) 6.5 5.2 24.1 18.2
Diluted EPS (pence) 6.5 5.1 23.9 18.0
Diluted earnings per ADS
(cents) 28.8 24.0 106.4 84.1
All activities relate to continuing operations.
All of the profit for the period is attributable to the owners
of the Company.
ARM Holdings plc
Consolidated statement of comprehensive income - IFRS
Quarter Quarter
ended ended Year ended Year
ended
31 December 31 December 31 December 31 December
2015 2014 2015 2014
Unaudited Unaudited Unaudited Audited
------------ ------------ ------------- ------------
GBPm GBPm GBPm GBPm
Profit for the period 91.7 72.8 339.7 255.4
----------------------------------- ------------ ------------ ------------- ------------
Other comprehensive income:
Unrealised holding gain
on available-for-sale
financial assets (net
of tax of GBP4.4 million
(2014:
GBP1.1 million))* 17.7 4.3 17.7 4.3
Unrealised holding gain
on available-for-sale
financial assets reclassified - - (4.3) -
to income statement
(net of tax of GBP1.1
million)
Currency translation
adjustment* 14.5 23.6 32.1 34.6
----------------------------------- ------------ ------------ ------------- ------------
Other comprehensive income
for the period 32.2 27.9 45.5 38.9
Total comprehensive income
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for the period 123.9 100.7 385.2 294.3
----------------------------------- ------------ ------------ ------------- ------------
*These items may be reclassified to income statement if certain
conditions are met.
ARM Holdings plc
Consolidated cash flow statement - IFRS
Year ended Year ended
31 December 31 December
2015 2014
Unaudited Audited
------------ ------------
GBPm GBPm
Operating activities
Profit before tax 414.8 316.5
Investment income (net of interest
payable and similar charges) (11.8) (11.0)
Share of results of joint ventures 3.1 3.5
------------ ------------
Profit from operations 406.1 309.0
Depreciation and amortisation
of property, plant, and equipment,
and intangible assets 42.0 35.6
Compensation charge in respect
of share-based payments 70.5 68.5
Provision for impairment of
available-for-sale financial
assets 0.3 1.0
Profit on disposal of available-for-sale
financial assets (5.6) (0.3)
Loss on disposal of property,
plant and equipment 0.2 0.1
Provision for doubtful debts (0.1) 0.3
Non-cash foreign currency gains
and losses 2.9 3.4
Movement in fair value of currency
exchange contracts (1.6) 9.9
Movement in fair value of embedded
derivatives (4.3) (9.6)
Changes in working capital:
Accounts receivable (37.2) (4.0)
Inventories 0.9 0.3
Prepaid expenses and other
assets (17.4) (9.9)
Accounts payable 0.4 4.5
Deferred revenue (26.2) (24.8)
Accrued and other liabilities 22.5 (11.6)
Cash generated by operations
before tax 453.4 372.4
Income taxes paid (73.9) (30.8)
Net cash from operating activities 379.5 341.6
------------ ------------
Investing activities
Interest received (net of interest
paid of GBP0.3m (2014: GBP0.3m)) 11.1 13.3
Purchases of property, plant
and equipment (30.5) (20.4)
Purchases of other intangible
assets (10.5) (10.0)
Purchases of available-for-sale
financial assets (3.8) (5.0)
Proceeds on disposal of available-for-sale
financial assets 6.4 2.2
Purchase of short- and long-term
deposits and similar
instruments, net (102.8) (145.1)
Purchases of subsidiaries,
net of cash and borrowings
acquired (62.3) (12.8)
Investment in joint ventures (2.7) -
Provision of loan to joint (2.9) -
venture
Net cash used in investing
activities (198.0) (177.8)
------------ ------------
Financing activities
Proceeds received on issuance
of shares 2.3 6.8
Proceeds received on issuance 7.1 -
of shares from treasury
Purchase of own shares (92.2) (66.9)
Dividends paid to shareholders (107.8) (86.1)
Repayment of borrowings - (1.2)
Repayment of finance lease
liabilities (5.1) (6.4)
Net cash used in financing
activities (195.7) (153.8)
------------ ------------
Net increase/(decrease) in
cash and cash equivalents (14.2) 10.0
Cash and cash equivalents at
beginning of period 54.1 43.8
Effect of foreign exchange
rate changes 0.6 0.3
------------ ------------
Cash and cash equivalents at
end of period 40.5 54.1
------------ ------------
ARM Holdings plc
Consolidated statement of changes in shareholders' equity -
IFRS
Share Share Cumulative
Share premium Capital option Retained Revaluation translation
capital account reserve reserve** earnings reserve*** adjustment Total
*
-------- -------- -------- ---------- --------- ------------ ------------ --------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2014
(audited) 0.7 18.1 354.3 61.4 820.6 - 56.3 1,311.4
--------------------------- -------- -------- -------- ---------- --------- ------------ ------------ --------
Profit for the year - - - - 255.4 - - 255.4
Other comprehensive
income:
Unrealised holding gain
on
available-for-sale
financial
assets
(net of tax of GBP1.1
million) - - - - - 4.3 - 4.3
Currency translation
adjustment - - - - - - 34.6 34.6
--------------------------- -------- -------- -------- ---------- --------- ------------ ------------ --------
Total comprehensive income
for the year - - - - 255.4 4.3 34.6 294.3
--------------------------- -------- -------- -------- ---------- --------- ------------ ------------ --------
Shares issued on exercise
of
share options and awards - 6.8 - - - - - 6.8
Dividends (see note 6) - - - - (86.1) - - (86.1)
Purchase of own shares - - - - (66.9) - - (66.9)
Credit in respect of
employee
share schemes - - - - 68.5 - - 68.5
Movement on tax arising on
share options and awards - - - - 0.3 - - 0.3
- 6.8 - - (84.2) - - (77.4)
At 31 December 2014
(audited) 0.7 24.9 354.3 61.4 991.8 4.3 90.9 1,528.3
--------------------------- -------- -------- -------- ---------- --------- ------------ ------------ --------
Profit for the year - - - - 339.7 - - 339.7
Other comprehensive
income:
Unrealised holding gain
on
available-for-sale
financial
assets
(net of tax of GBP4.4
million) - - - - - 17.7 - 17.7
Unrealised holding gain
on
available-for-sale
financial
assets
reclassified to income
statement
(net of tax of GBP1.1
million) - - - - - (4.3) - (4.3)
Currency translation
adjustment - - - - - - 32.1 32.1
--------------------------- -------- -------- -------- ---------- --------- ------------ ------------ --------
Total comprehensive income
for the year - - - - 339.7 13.4 32.1 385.2
--------------------------- -------- -------- -------- ---------- --------- ------------ ------------ --------
Shares issued on exercise
of
share options and awards - 2.3 - - - - - 2.3
Dividends (see note 6) - - - - (107.8) - - (107.8)
Purchase of own shares - - - - (92.2) - - (92.2)
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Proceeds from sale of own
shares - - - - 7.1 - - 7.1
Credit in respect of
employee
share schemes - - - - 70.5 - - 70.5
Movement on tax arising on
share options and awards - - - - 4.2 - - 4.2
- 2.3 - - (118.2) - - (115.9)
At 31 December 2015
(unaudited) 0.7 27.2 354.3 61.4 1,213.3 17.7 123.0 1,797.6
--------------------------- -------- -------- -------- ---------- --------- ------------ ------------ --------
* Capital reserve. In 2004, the premium on the shares issued in
part consideration for the acquisition of Artisan Components Inc.
was credited to reserves on consolidation in accordance with
Section 131 of the Companies Act 1985. The reserve has been
classified as a capital reserve to reflect the nature of the
original credit to equity arising on acquisition. This capital
reserve is clearly distinguished from the share premium arising on
share issues.
** Share option reserve. The share option reserve represents the
fair value of options granted on the acquisition of Artisan
Components Inc. in 2004.
*** Revaluation reserve. The Group includes on its balance sheet
equity investments, which are classified as available-for-sale
financial assets. These are carried at fair value. Unrealised
holding gains or losses on such investments are included, net of
related taxes, within the revaluation reserve (except where there
is evidence of permanent impairment, in which case losses would be
recognised within the income statement).
Notes to the Financial Information
(1) Basis of preparation and accounting policies
The financial information prepared in accordance with the
Group's IFRS accounting policies (consistent with those stated in
the financial statements for the year ended 31 December 2014)
comprises the consolidated balance sheets as at 31 December 2015
and 2014, consolidated income statements and consolidated
statements of comprehensive income for the three months and years
ended 31 December 2015 and 2014, and consolidated cash flow
statements and consolidated statements of changes in shareholders'
equity for the years ended 31 December 2015 and 2014, together with
related notes. This condensed set of consolidated financial
information for the year ended 31 December 2015 has been prepared
in accordance with the Disclosure and Transparency Rules of the
Financial Conduct Authority. This financial information should be
read in conjunction with the annual financial statements for the
year ended 31 December 2014, which have been prepared in accordance
with IFRSs as adopted by the European Union.
New standards, amendments and interpretations
There are no new or amended interpretations or standards
effective for the financial year commencing 1 January 2015, that
have had a material impact on the Group.
Critical accounting estimates and judgements
The preparation of financial statements requires management to
make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets and liabilities, income and expense. Actual results may
differ from these estimates.
In preparing this financial information, the critical accounting
estimates and judgements are the same as those applied to the
amounts reported in the Group's financial statements and
accompanying notes for the year ended 31 December 2014, with the
exception of provisions for income taxes, provision for impairment
of trade receivables, and participation in trust to acquire patent
rights, which have been removed since they are no longer considered
to be critical judgements.
(2) Going concern
After dividend payments of GBP107.8 million and share buybacks
of GBP92.2 million in 2015, the highly cash generative nature of
the business enabled the Group to increase its cash, cash
equivalents and deposits to GBP950.9 million (net of accrued
interest of GBP5.4 million) at the end of 2015. This was an
increase from GBP861.7 million (net of accrued interest of GBP4.6
million) at the start of the year.
After reviewing the 2016 budget and longer term plans and
considering any reasonably likely scenarios that may occur, the
directors are satisfied that, at the time of releasing these
condensed financial statements, it is appropriate to adopt the
going concern basis in preparing the financial statements of the
Group.
(3) Financial risk management
(3.1) Financial risk factors
The Group's operations expose it to a variety of financial risks
that include currency risk, interest rate risk, securities price
risk, credit risk and liquidity risk. This condensed set of
consolidated interim financial information does not include all
financial risk management information and should be read in
conjunction with the Group's annual financial statements for the
year ended 31 December 2014.
There have been no changes to the risk management policy since
the year ended 31 December 2014.
(3.2) Valuation hierarchy
The Group classifies its financial instruments as follows: level
1 instruments are those valued using unadjusted quoted prices in
active markets for identical instruments; level 2 instruments are
those valued using techniques based significantly on observable
market data; and level 3 instruments are those valued using
information other than observable market data.
The Group has a team that performs the valuations of financial
assets required for financial reporting purposes, including level 3
fair values. This team reports to the Chief Financial Officer and
to the Audit Committee.
(3.2) Valuation hierarchy (continued)
The fair value of accounts and other receivables, other current
financial assets, cash and cash equivalents, short- and long-term
deposits and similar instruments, and accounts and other payables
approximate to their carrying amount.
As at 31 December 2015, the Group's financial instrument assets
consisted of embedded derivatives (level 2) of GBP6.9 million
(2014: GBP2.6 million), available-for-sale financial assets (level
1) of GBP23.1 million (current) (2014: GBPnil (current)) and
available-for-sale financial asset (level 3) of GBP11.6 million
(non-current) (2014: GBP23.7 million (non-current)).
As at 31 December 2015, the Group's financial instrument
liabilities consisted of currency exchange contracts at fair value
through the income statement (level 2) of GBP3.2 million (2014:
GBP4.8 million). The Group had no level 1 financial instrument
liabilities as at 31 December 2015 (2014: GBPnil).
During 2015 there has been a transfer out of level 3 and into
level 1 financial instrument assets. This is a result of a
previously unlisted available-for-sale financial asset listing on a
globally recognised stock exchange. This financial asset is
considered to be a current level 1 asset since it has an active
market. There were no other transfers between levels for the
period. The Group's policy is to recognise transfers into and out
of fair value hierarchy levels as of the date of the event or
change in circumstances that caused the transfer.
Level 1 available-for-sale financial assets consist of a listed
equity investment. The fair value is determined with reference to
prices quoted on the relevant exchange at the balance sheet
date.
Level 2 currency exchange contracts comprise forward exchange
contracts and foreign currency options. The fair value of the
forward exchange contracts is determined using forward exchange
rates as quoted in an active market. The fair value of foreign
currency options is based upon valuations performed by management
and the respective banks holding the currency instruments.
Level 2 embedded derivatives are fair valued using forward
exchange rates that are quoted in an active market.
Level 3 available-for-sale financial assets consist of unlisted
equity investments and other current investments. The estimated
fair value of the unlisted equity investments approximates to cost
less any permanent diminution in value (based on management's
estimate of forecast profitability and achievement of set
objectives by the relevant entity), except where independent
valuation information is obtained, e.g. through the occurrence of
funding or other transactions in the relevant entity's equity
instruments. Whilst it is conceivable that a key assumption in the
level 3 calculation could change, the directors believe that no
reasonably foreseeable changes to key assumptions would result in a
significant change in fair value.
There have been no changes in valuation techniques during the
year ended 31 December 2015.
Year ended Year ended
Available-for-sale financial assets 31 December 31 December
(non-current) 2015 2014
------------- -------------
GBPm GBPm
At 1 January 23.7 13.9
Additions 3.8 5.0
Disposals (15.0) -
Transfer to current (3.8) -
Foreign exchange translation 0.4 0.4
Revaluation recognised through other
comprehensive income 2.8 5.4
Impairment recognised through income
statement within general and administrative
expenses (0.3) (1.0)
At 31 December 11.6 23.7
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------------- -------------
(3.2) Valuation hierarchy (continued)
Year ended Year ended
Available-for-sale financial assets 31 December 31 December
(current) 2015 2014
-------------- -------------
GBPm GBPm
At 1 January - 1.2
Transfer from non-current 3.8 -
Revaluation recognised through other 19.3 -
comprehensive income
Disposals - (1.2)
At 31 December 23.1 -
-------------- -------------
(4) Share-based payment costs
Included within the consolidated income statement for the
quarter ended 31 December 2015 are share-based payment costs
(including related payroll taxes) of GBP21.1 million (Q4 2014:
GBP23.7 million), allocated GBP0.6 million (Q4 2014: GBP0.7
million) in cost of revenues, GBP13.7 million (Q4 2014: GBP15.5
million) in research and development expenses, GBP3.5 million (Q4
2014: GBP4.0 million) in sales and marketing expenses and GBP3.3
million (Q4 2014: GBP3.5 million) in general and administrative
expenses.
Included within the consolidated income statement for the year
ended 31 December 2015 are share-based payment costs (including
related payroll taxes but excluding restructuring charges for 2014
as per note 5 below) of GBP77.6 million (2014: GBP71.6 million),
allocated GBP2.3 million (2014: GBP2.2 million) in cost of
revenues, GBP50.7 million (2014: GBP46.9 million) in research and
development expenses, GBP12.9 million (2014: GBP12.0 million) in
sales and marketing expenses and GBP11.7 million (2014: GBP10.5
million) in general and administrative expenses.
(5) Restructuring costs
Included within the consolidated income statement for the year
ended 31 December 2014 is a restructuring charge of GBP8.6 million,
following a review of the skills and capabilities of groups across
the business during which approximately 130 people left the Group.
The restructuring charge includes total accelerated share-based
payment costs (including related payroll taxes) of GBP3.4 million,
which have been excluded from note 4 above. There were no
restructuring costs in the quarter ended 31 December 2015 or in the
year ended 31 December 2015.
(6) Dividends
Year ended Year ended
31 December 31 December
2015 2014
------------- -------------
GBPm GBPm
Final 2013 paid at 3.60 pence
per share - 50.7
Interim 2014 paid at 2.52 pence
per share - 35.4
Final 2014 paid at 4.50 pence 63.5 -
per share
Interim 2015 paid at 3.15 pence 44.3 -
per share
------------- -------------
107.8 86.1
------------- -------------
In respect of the year to 31 December 2015, the directors are
proposing a final dividend of 5.63 pence per share (an estimated
cost of GBP79 million). Subject to approval at the 2016 AGM, it
will be paid on 13 May 2016 to shareholders who are on the register
of members on 22 April 2016.
(7) Accounts receivable and accrued and other liabilities
Included within accounts receivable at 31 December 2015 are
GBP51.2 million (2014: GBP9.1 million) of amounts recoverable on
contracts (AROC). This movement is a result of the maturity profile
of ARM's products, and invoicing milestones within contracts.
Included within accrued and other liabilities is GBP11.4 million
(2014: GBP12.8 million) relating to the provision for payroll taxes
on share awards, GBP28.2 million (2014: GBP19.3 million) relating
to employee bonus and sales commission provisions, and GBP20.9
million (2014: GBP16.3 million) relating to sabbatical and vacation
accruals.
(8) Related party transactions/Investment in joint ventures
During the year ended 31 December 2015 the Group incurred
subscription costs of GBP7.0 million from Linaro Limited, an
associated company of the Group, representing ARM's committed
aggregate contributions to Linaro for the next two years (2014:
GBPnil). In respect of the subscription fees, the Group was
invoiced GBP3.5 million during the year to 31 December 2015 (2014:
GBP3.5 million). As at 31 December 2015, GBP1.1 million (2014:
GBP1.1 million) was owing to Linaro.
In addition the Group provided consulting and other services to
Linaro amounting to GBP1.3 million (2014: GBP1.1 million). All fees
have been charged in accordance with the terms of the agreement. As
at 31 December 2015, GBP0.4 million (2014: GBP0.3 million) was owed
to the Group.
In 2012 the Group invested GBP7.5 million ($12 million) in a
joint venture, Trustonic Limited, with a further investment during
2013 amounting to GBP3.7 million (EUR4.4 million), maintaining a
40% shareholding. The other two joint venture parties each owned
30% of the joint venture. With the establishment of industry
standards and demand for security enhanced services, the focus of
Trustonic is to accelerate the wide deployment of secure, smart
devices.
The joint venture was reorganised in May 2015 such that the
shareholding of one party has been acquired by the other two joint
venture members. The joint venture is now controlled and owned
equally by ARM and one other party, both with 50%
shareholdings.
Year ended Year ended
Investment in joint venture 31 December 31 December
- Trustonic 2015 2014
GBPm GBPm
At 1 January 3.0 6.5
Additional investment 1.1 -
Share of results for the year (3.1) (3.5)
------------- -------------
At 31 December 1.0 3.0
------------- -------------
In addition, the Group is owed a balance of GBP2.9 million from
Trustonic at 31 December 2015 (2014: GBPnil) in respect of loans
and other amounts receivable.
Investment in joint venture - Accelerator
In December 2015, the Group invested GBP1.6 million (CNY 15.9
million) in a joint venture, ARM Innovation Ecosystem Accelerator
Co. Ltd (AIEA) (a company incorporated in PR China), representing a
49.9% shareholding. The collaboration creates an Internet of Things
(IoT) one-stop shop for start-ups and established OEMs, providing
integrated hardware and software expertise as well as resources
from the ARM ecosystem. This investment has been classified as a
joint venture since the Group and its venture partner have joint
control over the relevant activities of the business, including the
appointment of directors and the determination of the operations of
the company.
No other related party transactions have occurred in the year to
31 December 2015.
(9) Financial contingencies
It is common industry practice for licensors of technology to
offer to indemnify their licensees for loss suffered by the
licensee in the event that the technology licensed is held to
infringe the intellectual property of a third party. Consistent
with such practice, the Group typically provides such
indemnification to its licensees. The obligation for the Group to
indemnify its licensees is subject to certain provisos and is
usually contingent upon a third party bringing an action against
the licensee alleging that the technology licensed by the Group to
the licensee infringes such third party's intellectual property
rights. The indemnification obligations typically survive any
termination of the licence and will continue in perpetuity.
The Group does not provide for any such indemnities unless it
has received notification from the other party that they are likely
to invoke the indemnity. A provision is made if both of the
following conditions are met: (i) information available prior to
the issuance of the financial statements indicates that it is
probable that a liability had been incurred at the date of the
financial statements; and (ii) the amount of the liability can be
reasonably estimated. Any such provision is based upon the
directors' estimate of the fair value of expected costs of any such
claim.
At present, the Group is not a party in any legal proceedings in
which the directors believe that it is probable that the resolution
of such proceedings will result in a material liability for the
Group.
(10) Acquisitions
The Group acquired the entire share capital of three companies
in 2015: Wicentric, Inc., acquired on 5 February 2015, Sunrise
Micro Devices Inc. (SMD), acquired on 15 April 2015 and Discretix
Inc (trading as Sansa Security Inc. (Sansa)), acquired on 30 July
2015. In addition the Group acquired the trade and certain assets
of Carbon Design Systems Limited (Carbon), on 19 October 2015.
Wicentric is a Bluetooth(R) Smart stack and profile provider and
SMD is a provider of sub-one volt radio intellectual property (IP).
The IP of both companies will be integrated to form a portfolio
that will complement ARM's existing processor and physical IP,
targeting end markets requiring low-power wireless communications
such as the IoT.
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The following table summarises the consideration and provisional
fair values of the assets acquired and liabilities assumed at the
date of each acquisition.
Wicentric SMD
GBPm $m GBPm $m
Cash, accounts and other
receivables, and property,
plant and equipment 0.2 0.3 0.9 1.3
Intangible assets 0.4 0.6 4.6 6.7
Accrued and other liabilities (0.1) (0.2) (0.5) (0.7)
Deferred tax liabilities
(net) (0.1) (0.2) (1.6) (2.3)
Net assets acquired 0.4 0.5 3.4 5.0
Goodwill 1.8 2.7 6.5 9.6
------ ------ ------ ------
Consideration 2.2 3.2 9.9 14.6
------ ------ ------ ------
The full consideration was paid in cash for Wicentric. The
majority of the consideration for SMD consisted of convertible loan
notes (and interest accrued) with a fair value of GBP9.2 million
($13.5 million), with the remainder of the consideration settled in
cash. All transaction expenses incurred by the Group have been
charged to the income statement.
From their dates of acquisition to 31 December 2015, Wicentric
and SMD contributed GBP1.0 million in revenue and incurred a
pre-tax loss of GBP3.5 million. If both companies had been
consolidated from 1 January 2015, the consolidated income statement
would have included GBP1.0 million of revenue and GBP5.2 million
pre-tax loss.
Sansa is a provider of hardware security IP and software for
advanced system-on-chip components deployed in IoT and mobile
devices. The company currently enables security in more than 150
million products a year and Sansa technology is deployed across a
range of smart connected devices and enterprise systems. The deal
complements the ARM security portfolio, which includes ARM
TrustZone(R) technology and SecurCore(R) processor IP.
Carbon is a leading supplier of cycle-accurate virtual
prototyping solutions, to deliver design optimization,
time-to-market and cost-efficiency gains for its Partners.
The following table summarises the consideration and provisional
fair values of the assets acquired and liabilities assumed at the
date of each acquisition.
Sansa Carbon
GBPm $m GBPm $m
Cash 1.9 3.0 - -
Accounts and other receivables,
and property, plant and
equipment 2.9 4.4 0.1 0.1
Intangible assets 11.5 17.8 5.9 9.1
Accrued and other liabilities (3.1) (4.8) (1.8) (2.8)
Deferred tax liabilities (3.0) (4.7) - -
Net assets acquired 10.2 15.7 4.2 6.4
Goodwill 35.8 55.6 11.6 18.0
------ ------ ------ ------
Consideration 46.0 71.3 15.8 24.4
------ ------ ------ ------
(10) Acquisitions (continued)
The full consideration was paid in cash for both Sansa and
Carbon. All transaction expenses incurred by the Group have been
charged to the income statement. The rationale for the acquisition
of Sansa is to accelerate the Group's business into the IoT
services market and to enhance future revenue streams rather than
to directly exploit the IP acquired. Consequently the majority of
the value to the Group is as an enabler to the existing business
which has resulted in the high proportion of goodwill as a
percentage of consideration.
For the above reasons, combined with the ability to hire the
workforce of the companies, including the founders and the
management team, the Group paid a premium for all four companies,
giving rise to goodwill. All intangible assets were recognised at
their fair values, with the residual excess over net assets being
recognised as goodwill.
From 30 July 2015 to 31 December 2015, the acquisition of Sansa
contributed GBP4.3 million in revenue and incurred a pre-tax profit
of GBP0.4 million. If Sansa had been consolidated from 1 January
2015, the consolidated income statement would have included GBP10.2
million of revenue and GBP0.5 million pre-tax loss.
From 19 October 2015 to 31 December 2015, the acquisition of
Carbon contributed GBP0.7 million in revenue and incurred a pre-tax
profit of GBP0.1 million. If Carbon had been consolidated from 1
January 2015, the consolidated income statement would have included
GBP4.0 million of revenue and nil pre-tax profit or loss.
Two acquisitions were made in 2014: Duolog Holdings Limited,
acquired on 27 May 2014 for EUR13.9 million (GBP11.4 million), and
Offspark BV, acquired on 14 November 2014 for EUR1.5 million
(GBP1.2 million). The Group acquired the entire share capital of
both entities, which have been accounted for as acquisitions.
The following table summarises the consideration and fair values
of the assets acquired and liabilities assumed at the date of each
acquisition.
Duolog Offspark
GBPm EURm GBPm EURm
Cash, accounts receivable,
other current assets, property,
plant and equipment 1.2 1.6 0.1 0.2
Intangible assets 1.7 2.0 1.0 1.2
Accrued and other liabilities (0.8) (1.0) - -
Loans payable (1.2) (1.5) - -
Deferred tax liabilities (0.2) (0.3) (0.2) (0.3)
Net assets acquired 0.7 0.8 0.9 1.1
Goodwill 10.7 13.1 0.3 0.4
------- ------ -------- -------
Consideration 11.4 13.9 1.2 1.5
------- ------ -------- -------
(11) Segmental reporting
The Group's internal operational structure was re-organised on 1
January 2014, to create an organisation that is more scalable and
more accountable, and that offers a more integrated product
portfolio. As at 31 December 2014 and 31 December 2015, the Group's
internal organisation and management structure reflected this
change and this is the primary way in which the Chief Operating
Decision Maker (CODM) was provided with financial information. The
CODM assesses performance and allocates resources based on
consolidated results of operations. The directors believe that the
CODM is the Chief Executive Officer and the Executive Committee of
the Group. The result of this re-organisation is that the Group has
one reportable segment, namely the IP Group (IPG).
In the year ended 31 December 2015, the Group incurred other
costs of GBP19 million and achieved other revenues of GBP4 million
that were not related to IPG.
(12) Non-GAAP measures
The following non-GAAP measures, including reconciliations to
the IFRS measures, have been used in this earnings release. These
measures have been presented as they allow a clearer comparison of
operating results that exclude intangible amortisation and
acquisition-related charges, share-based payment costs, share of
results of joint ventures, restructuring charges, profit on
disposal of available-for-sale financial assets net of impairment,
and Linaro-related charges. Full reconciliations of Q4 2015, Q4
2014, FY 2015 and FY 2014, are shown in notes 12.8 to 12.11. All
figures in GBPm unless otherwise stated.
Summary normalised figures Q4 2015 Q4 2014 Q3 2015 FY 2015 FY 2014
------------------------------- ------------ -------- ------------ -------- --------
Revenues 269.1 225.9 243.1 968.3 795.2
Revenues ($m) 407.9 357.6 375.5 1,488.6 1,292.6
ARM's effective exchange
rate ($/GBP) 1.52 1.58 1.54 1.54 1.63
Gross margin 96.5% 95.9% 96.2% 96.2% 95.5%
Operating expenses 123.9 100.4 108.4 431.6 359.3
Profit from operations 135.8 116.2 125.6 499.7 400.3
Operating margin 50.5% 51.4% 51.7% 51.6% 50.3%
Profit before tax 138.7 118.9 128.4 511.5 411.3
Earnings per share (diluted) 8.2p 7.2p 7.6p 30.2p 24.1p
Cash 950.9 861.7 898.2 950.9 861.7
Normalised cash generation 112.2 122.0 86.6 360.7 339.9
------------------------------- ------------ -------- ------------ -------- --------
(12.1) (12.2)
31 December 31 December
2015 2014
Cash and cash equivalents 40.5 54.1
Short-term deposits and
similar instruments 617.8 620.8
Long-term deposits and
similar instruments 298.0 191.4
Less: Interest accrued (5.4) (4.6)
Total net cash 950.9 861.7
------------------------------- -------- -------- ------------ ------------------
(12.3) (12.4) (12.5) (12.6) (12.7)
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Q4 2015 Q4 2014 Q3 2015 FY 2015 FY 2014
Cash at end of period (as
above) 950.9 861.7 898.2 950.9 861.7
Less: Cash at beginning
of period (898.2) (797.0) (903.8) (861.7) (706.3)
Add back: Cash outflow
from investments and acquisitions
(net of cash acquired and
advance for loans) 16.6 3.5 44.0 66.2 19.1
Less: cash inflow from
proceeds on sale of investments (1.2) (0.3) - (6.4) (2.2)
Add back: Cash outflow
from investment in and
loans to joint ventures 2.7 - - 5.6 -
Add back: Cash outflow
from acquisition-related
charges 0.6 0.1 1.4 3.5 4.3
Add back: Cash outflow
from restructuring charges - 0.1 - - 5.1
Add back: Cash outflow
from payment of dividends 44.3 35.4 - 107.8 86.1
Add back: Cash outflow
from purchase of own shares - 20.6 47.0 92.2 66.9
Add back: Cash outflow
from share-based payroll
taxes 0.3 0.3 0.7 8.5 8.5
Add back: Cash outflow
from payments related to
Linaro 0.9 0.8 0.8 3.5 3.5
Less: Cash inflow from
exercise of share options (4.7) (3.2) (1.7) (9.4) (6.8)
Normalised net cash generation 112.2 122.0 86.6 360.7 339.9
------------------------------------ -------- -------- -------- -------- --------
(12.8) Normalised income statement for Q4 2015
Intangible Profit
amortisa-tion on
Normalised and disposal Share
Share-based incl acquisition of of
payments share-based related investments, results
Normalised payments charges net of IFRS
of joint
impairment ventures
charge
------------ ------------- ------------- --------------- -------------- ---------- ----------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenues 269.1 - 269.1 - - - 269.1
Cost of revenues (9.4) (0.6) (10.0) - - - (10.0)
Gross profit 259.7 (0.6) 259.1 - - - 259.1
------------ ------------- ------------- --------------- -------------- ---------- ----------
Research and
development (60.7) (13.7) (74.4) (4.1) - - (78.5)
Sales and
marketing (26.8) (3.5) (30.3) (0.1) - - (30.4)
General and
administrative (36.4) (3.3) (39.7) (0.6) 0.3 - (40.0)
Total operating
expenses (123.9) (20.5) (144.4) (4.8) 0.3 - (148.9)
------------ ------------- ------------- --------------- -------------- ---------- ----------
Profit from
operations 135.8 (21.1) 114.7 (4.8) 0.3 - 110.2
Investment
income, net 2.9 - 2.9 - - - 2.9
Share of results
of joint
ventures - - - - - 0.6 0.6
Profit before
tax 138.7 (21.1) 117.6 (4.8) 0.3 0.6 113.7
Tax (22.5) (0.1) (22.6) 0.6 - - (22.0)
Profit/(loss)
for the period 116.2 (21.2) 95.0 (4.2) 0.3 0.6 91.7
----------
Earnings per
share (assuming
dilution)
Shares
outstanding
(millions) 1,416.4 1,416.4 1,416.4
Earnings per
share - pence 8.2 6.7 6.5
ADSs outstanding
(millions) 472.1 472.1 472.1
Earnings per
ADS - cents 36.5 29.9 28.8
(12.9) Normalised income statement for Q4 2014
Intangible Profit
amortisa-tion on
Normalised and disposal Share
Share-based incl acquisition of of
payments share-based related investments, results
Normalised payments charges net of IFRS
of joint
impairment venture
charge
------------ ------------- ------------- --------------- -------------- --------- ----------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenues 225.9 - 225.9 - - - 225.9
Cost of revenues (9.3) (0.7) (10.0) - - - (10.0)
Gross profit 216.6 (0.7) 215.9 - - - 215.9
------------ ------------- ------------- --------------- -------------- --------- ----------
Research and
development (44.4) (15.5) (59.9) (2.2) - - (62.1)
Sales and
marketing (23.6) (4.0) (27.6) - - - (27.6)
General and
administrative (32.4) (3.5) (35.9) - (0.7) - (36.6)
Total operating
expenses (100.4) (23.0) (123.4) (2.2) (0.7) - (126.3)
------------ ------------- ------------- --------------- -------------- --------- ----------
Profit from
operations 116.2 (23.7) 92.5 (2.2) (0.7) - 89.6
Investment
income, net 2.7 - 2.7 - - - 2.7
Share of results
of joint
venture - - - - - (0.9) (0.9)
Profit before
tax 118.9 (23.7) 95.2 (2.2) (0.7) (0.9) 91.4
Tax (16.5) (2.3) (18.8) 0.3 (0.1) - (18.6)
Profit/(loss)
for the period 102.4 (26.0) 76.4 (1.9) (0.8) (0.9) 72.8
----------
Earnings per
share (assuming
dilution)
Shares
outstanding
(millions) 1,417.5 1,417.5 1,417.5
Earnings per
share - pence 7.2 5.4 5.1
ADSs outstanding
(millions) 472.5 472.5 472.5
Earnings per
ADS - cents 33.8 25.2 24.0
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(12.10) Normalised income statement for FY 2015
Linaro-related
Intangible Profit charges
amortisa-tion on and
Normalised and disposal share
Share-based incl acquisition of of
payments share-based related investments, results
Normalised payments charges net of IFRS
of joint
impairment ventures
charge
------------ ------------- ------------- --------------- -------------- ---------------- ----------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenues 968.3 - 968.3 - - - 968.3
Cost of
revenues (37.0) (2.3) (39.3) - - - (39.3)
Gross profit 931.3 (2.3) 929.0 - - - 929.0
------------ ------------- ------------- --------------- -------------- ---------------- ----------
Research and
development (214.8) (50.7) (265.5) (12.5) - - (278.0)
Sales and
marketing (93.1) (12.9) (106.0) (0.1) - - (106.1)
General and
administrative (123.7) (11.7) (135.4) (1.7) 5.3 (7.0) (138.8)
Total operating
expenses (431.6) (75.3) (506.9) (14.3) 5.3 (7.0) (522.9)
------------ ------------- ------------- --------------- -------------- ---------------- ----------
Profit from
operations 499.7 (77.6) 422.1 (14.3) 5.3 (7.0) 406.1
Investment
income, net 11.8 - 11.8 - - - 11.8
Share of
results
of joint
ventures - - - - - (3.1) (3.1)
Profit before
tax 511.5 (77.6) 433.9 (14.3) 5.3 (10.1) 414.8
Tax (82.6) 5.2 (77.4) 2.0 (1.1) 1.4 (75.1)
Profit for
the year 428.9 (72.4) 356.5 (12.3) 4.2 (8.7) 339.7
---------------- ----------
Earnings per
share (assuming
dilution)
Shares
outstanding
(millions) 1,420.3 1,420.3 1,420.3
Earnings per
share - pence 30.2 25.1 23.9
ADSs
outstanding
(millions) 473.4 473.4 473.4
Earnings per
ADS - cents 134.4 111.7 106.4
(12.11) Normalised income statement for FY 2014
Intangible Profit
amortisa-tion on
Normalised and disposal Share
Share-based incl acquisition of Restruc-turing of
payments share-based related investments, charges results
Normalised payments charges net of IFRS
of joint
impairment venture
charge
------------ ------------- ------------- --------------- -------------- ---------------- --------- ----------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenues 795.2 - 795.2 - - - - 795.2
Cost of
revenues (35.6) (2.2) (37.8) - - - - (37.8)
Gross profit 759.6 (2.2) 757.4 - - - - 757.4
------------ ------------- ------------- --------------- -------------- ---------------- --------- ----------
Research and
development (167.8) (46.9) (214.7) (9.5) - - - (224.2)
Sales and
marketing (81.0) (12.0) (93.0) (0.2) - - - (93.2)
General and
administrative (110.5) (10.5) (121.0) (0.7) (0.7) (8.6) - (131.0)
Total operating
expenses (359.3) (69.4) (428.7) (10.4) (0.7) (8.6) - (448.4)
------------ ------------- ------------- --------------- -------------- ---------------- --------- ----------
Profit from
operations 400.3 (71.6) 328.7 (10.4) (0.7) (8.6) - 309.0
Investment
income, net 11.0 - 11.0 - - - - 11.0
Share of
results
of joint
venture - - - - - - (3.5) (3.5)
Profit before
tax 411.3 (71.6) 339.7 (10.4) (0.7) (8.6) (3.5) 316.5
Tax (68.6) 3.0 (65.6) 2.4 (0.1) 2.2 - (61.1)
Profit for
the year 342.7 (68.6) 274.1 (8.0) (0.8) (6.4) (3.5) 255.4
--------- ----------
Earnings per
share (assuming
dilution)
Shares
outstanding
(millions) 1,421.1 1,421.1 1,421.1
Earnings per
share - pence 24.1 19.3 18.0
ADSs
outstanding
(millions) 473.7 473.7 473.7
Earnings per
ADS - cents 112.8 90.2 84.1
Notes
The results shown for Q4 2015, Q3 2015, Q4 2014, and FY 2015,
are unaudited. The results shown for FY 2014 are audited. The
consolidated financial information contained in this announcement
does not constitute statutory accounts within the meaning of
Section 434 of the Companies Act 2006. Statutory accounts of the
Company in respect of the financial year ended 31 December 2014
were approved by the Board of directors on 17 February 2015 and
delivered to the Registrar of Companies. The report of the auditors
on those accounts was unqualified and did not contain an emphasis
of matter paragraph nor any statement under Section 498 of the
Companies Act 2006.
The results for ARM for Q4 2015 and previous quarters as shown
reflect the accounting policies as stated in Note 1 to the
financial statements in the Annual Report and Accounts filed with
Companies House in the UK for the fiscal year ended 31 December
2014 and in the Annual Report on Form 20-F for the fiscal year
ended 31 December 2014.
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