IFRS Revenue in Q4 2014 was 24% above the previous year with strong performance across most business segments: Mobile Systems was up 24%, Power Conversion, up 55% (38% on an Underlying (*) basis) and Connectivity was up 18%. Q4 2014 IFRS gross margin was 410bps above Q4 2013 and 150bps above the previous quarter. This was the result of the following items:
- Higher revenue achieved in the quarter and the subsequent lower allocation per unit of the fixed component of Cost of Goods Sold
- Benefits of manufacturing cost optimisation, yield and test time improvements in high volume products
- Positive product mix contribution from new products in Mobile Systems, Connectivity and Power Conversion.
In Q4 2014 underlying (*) net OPEX as a percentage of revenue was 19.5%, 180bps below Q4 2013. For the full year, underlying OPEX was 25.4% of revenue, 30bps above FY 2013.
Q4 2014 underlying (*) R&D investment stood at 13.4% of revenue, 80bps below Q4 2013 and 520bps below Q3 2014. For the year 2014, underlying (*) R&D was 17.5%, 30 bps above the previous year as a result of the acceleration of our R&D investments in both, existing product initiatives as well as new initiatives that have the potential to support profitable growth and accelerate the diversification of our business.
Underlying (*) SG&A in Q4 2014 stood at 6.2% of revenue, 100bps below Q4 2013 and 210bps below Q3 2014. During 2014 we continued to manage our SG&Acosts effectively and kept underlying (*) SG&A at 8.1% of revenue, in line with the previous year.
In Q4 2014 we achieved IFRS and underlying(*) EBIT of $105.1 million and $117.9 million respectively, 49% and 54% over Q4 2013. Underlying (*) EBIT margin in the quarter was 27.1%. The Q4 2014 underlying(*) EBIT increase of 54% was primarily driven by the solid performance of the Mobile Systems segment and the return to profitability of the Connectivity segment (Q4 2014: $2.9 million; Q42013: loss of $3.7 million). During 2014 underlying (*) EBIT increased by 65%, more than twice the rate of revenue growth in the same period.
In 2014, a net IFRS tax charge of $31.2 million was recorded (2013: US$27.5 million), which includes a one-off non-cash deferred tax credit of US$ 17.8 million. This credit arose during the year resulting from an intra-group reorganisation of certain Intellectual Property, which impacted the recorded value of deferred tax liabilities. This intra-group reorganisation took place in Q1 2014 but the impact of the recorded value of deferred tax liabilities was only identified during the detailed preparation of the year-end financial statements. The one-off non-cash deferred tax credit was therefore recorded in the full year 2014 results, giving an IFRS group effective tax rate for the full year of 18.5% (2013:30.7%).The group effective tax rate excluding this one-off non-cash deferred tax credit was 29.0%.The decrease in our Group effective tax rate, (excluding the one-off non-cash deferred tax credit), is driven by the on-going exercise to align our Intellectual Property ownership with the commercial structure of the group. This has allowed Dialog to utilise and to further partially recognise previously unrecognised UK loss carry forwards and other UK tax attributes and to benefit from the favourable UK Tax regime for technology companies. We believe this gradual decrease is sustainable and will continue to drive further reductions in our effective tax rate in the years to come.
In Q4 2014, underlying (*) net income increased 71% over Q4 2013. Underlying (*) diluted EPS in Q4 2014 was 67% higher than in the same quarter of 2013 resulting in a full year 2014 underlying diluted EPS year-on-year growth of 58%.
At the end of Q4 2014, our total inventory level was $99 million (or ~38 days), a decrease of $49 million over the prior quarter. This represents a 50 day decrease in our days of inventory on the back of a record revenue quarter for Dialog. During Q1 2015 we expect inventory value and inventory days to increase from Q4 2014 to service our current customer backlog.
As of 31 December 2014, we had cash and cash equivalents balance of $324 million which included the last early bank debt repayment of $40 million. In the fourth quarter we generated $119 million of cash from operating activities, an increase of 158% over the same quarter of 2013. The strong cash generation of the business has allowed the company to return to a bank debt free position significantly ahead of schedule and generated $213 million of free cash flow(***) during 2014.
(*) Underlying results (net of tax) in Q4-2014 are based on IFRS,
adjusted to exclude share-based compensation charges and related charges
for National Insurance of US$10.0 million, excluding US$0.2 million of
amortisation of intangibles associated with the acquisition of SiTel
(now Dialog B.V.), excluding US$2.1 million non-cash effective interest
expense in connection with the convertible bond, excluding US$ 0.5
million non-cash effective interest expense related to a licensing
agreement, excluding US$0.9 million acquisition and integration expenses
in connection with the purchase of iWatt, and excluding US$4.9 million
of amortisation and depreciation expenses associated with the
acquisition of iWatt.
