Evolution

S EC U R I T IES www.evosecurities.com 8 December 2004

Imagination Technologies (IMG)
Mkt cap: £126m
120

Sell
Price/Target: 67p/55p

Net cash: £8m

Trading update

IMA GIN A T ION T C HN OLO G E IE S FROM 5/12/03 T O 7/12/04 DA ILY

110

This is news?
Imagination have signed a licence deal with a start up – we need more than this if full year numbers are to be achieved and if the company is to avoid returning to the market in the next 18 months – remains a SELL

100

90

80

70

60

50 DE C J A N FE B M R A APR M Y A J UN J UL A UG S E P OCT NOV DE C

HIGH 11 .00 4

5 3/04 L / OW 5 6. 0 1 / 8 04 L A S T 66.2 5S ourc e: DA T A S T RE A M 0 3 /

Licence deal signed with Chips & Systems

Imagination has announced today that it has signed a PowerVR licence deal with Chips & Systems Inc. This is a big worry. Is this the licence deal that management referred to in their comments at the time of the interim results and how can signing a licence deal with a start up merit a statement to the market? Chips & Systems Inc was only established in June 2004 and a visit to its web site reveals little but it does suggest that they do not have the key engineering talent in place. The track history of small start-ups such as this is not good and whilst Chips & Systems’ founder Gordon Campbell has some notable achievements to his name, success is far from guaranteed.

Where are the UCC and META licence deals?

We are also awaiting news of licences for the META and UCC technologies. If these do not come through soon we will once again have to revise down our forecasts for Imagination Technologies. Furthermore if significant licence revenues are not achieved in the next year, we could well be looking at another fund raising.

Ian Robertson +44 (0)20 7071 4463 ian.robertson@evosecurities.com

Year end 03/04A 03/05E 03/06E

Sales (£m) 31.2 34.5 40.3

EBITDA (£m) -1.2 -0.9 2.0

PTP (£m) -2.9 -2.4 0.6

EPS (p) -1.2 -1.0 0.25

PER (x) 268

Yield (%) -

EV/EBITDA (x) 59

Revised? No No

This document is issued by Evolution Securities Ltd (Evolution Securities) (Incorporated in England No.2316630), which is authorised and regulated in the United Kingdom by the Financial Services Authority for designated investment business and is a member of the London Stock Exchange. This document is for information purposes only and should not be regarded as an offer or solicitation to buy the securities or other instruments mentioned in it. Expressions of opinions are those of the research department of Evolution Securities only and are subject to change without notice. No representation or warranty, either expressed or implied, is made nor responsibility of any kind is accepted by any Evolution Group company, its directors or employees either as to the accuracy or completeness of any information stated in this document. Evolution Securities or persons connected with it may provide or may have provided corporate services to the issuers of securities mentioned in this material and recipients of this document should not therefore rely on this report as being an impartial document. Accordingly, information may be known to Evolution Securities or persons connected with it which is not reflected in this material. Evolution Securities may make a market or deal as principal or agent in the securities mentioned in this document and its employees and directors may from time to time have long or short positions. The stated price of any securities mentioned herein is as of the date indicated and is not a representation that any transaction can be effected at this price. No personal recommendation is being made to you; the securities referred to may not be suitable for you and should not be relied upon in substitution for the exercise of independent judgement. Evolution Securities shall not be liable for any direct or indirect damages, including lost profits arising in any way from the information contained in this material. This material is for the use of intended recipients only and only for distribution to professional and institutional investors, i.e. persons who are authorised persons or exempted persons within the meaning of the Financial Services and Markets Act 2000 of the United Kingdom.

Evolution Securities

100 Wood Street, London, EC2V 7AN

020 7071 4300