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Annual report and accounts | 2013
The power to be...
…personal
…portable
…connected
Section 1 | Overview
01 Who we are
02 Performance highlights
03 Chairman’s statement
Introduction
Section 2 | Strategic report
04 Chief Executive’s review
06
07 The Dialog business model
10 Our marketplace
13 Our people
14 Our strategy
17 Our strategy in action
24 Our performance in 2013
26 Operating review
32 Financial review
40 Corporate responsibility and sustainability
44 Managing risk and uncertainty
Section 3 | Management
48 Leadership – Dialog Board of Directors
50 Leadership – management team
52 Directors’ report
Section 4 | Corporate Governance
55 Corporate Governance statement
65 Directors’ remuneration policy report
75 Annual report on remuneration
82 Statement of Directors’ responsibilities
82 Responsibility statement
Section 5 | Consolidated financial
statement and notes
83
Independent Auditors’ report to the
members of Dialog Semiconductor Plc
Consolidated statement of
financial position
85
86 Consolidated income statement
87
Consolidated statement
of comprehensive income
88 Consolidated statement of cash flows
89
Consolidated statement of changes
in equity
Notes to the consolidated
financial statements
90
Section 6 | Company financial
statement and notes
143 Company statement of
financial position
144 Company statement of changes
in equity
145 Company statement of cash flows
146 Notes to the Company
financial statements
Section 7 | Additional information
147 Glossary of terms
149 Advisers and corporate information
150 Group directory
Who we are
01
Dialog Semiconductor creates and markets highly integrated,
mixed signal integrated circuits (ICs), optimised for personal portable,
low energy short-range wireless, LED solid-state lighting and automotive
applications. The Company provides customers with world-class
innovation combined with flexible and dynamic support, and the
assurance of dealing with an established business partner.
With a focus and expertise in energy-
efficient system power management and
a technology portfolio that also includes
audio, short-range wireless, AC/DC power
conversion and multi-touch, Dialog brings
experience and leadership to the rapid
development of integrated solutions for
personal portable applications, including
smartphones, tablets, Ultrabooks™ and
digital cordless phones.
Dialog’s processor companion chips
increase the performance of portable
devices by extending battery lifetime,
enabling faster charging thus enhancing
consumers’ multimedia experience.
With world-class manufacturing partners,
Dialog operates a fabless business model.
Dialog Semiconductor Plc is headquartered
in London with a global R&D, marketing
and sales organisation. In 2013, we
delivered US$903 million in revenue
and continued to be one of the fastest
growing European public semiconductor
companies. We currently have around
1,100 employees worldwide.
The Company is listed on the
Frankfurt (FWB: DLG) stock exchange
(Regulated Market, Prime Standard,
ISIN GB0059822006) and is a member
of the German TecDax index. It also has
convertible bonds listed on the Euro MTF
Market on the Luxemburg Stock Exchange
(ISIN XS0757015606).
Key products
See our strategy in action:
Feel the pressure…16-17
See our strategy in action:
Intelligent rapid charging…18-19
See our strategy in action:
Wear your life…20-21
See our strategy in action:
Lighting the way to successful
acquisitions…22-23
Dialog Semiconductor Plc | Annual report and accounts 2013Section 1 | Overview 02
Performance highlights
2013 – Delivering on our objectives
During 2013, Dialog brought exciting innovation into the market
and improved the underlying performance of its business.
We laid the foundations for a more diversified business and
made good progress on each of the four key strategic pillars.
Four strategic pillars
Dialog’s objective is to sustain and build on its position as a leading provider of highly integrated innovative power management, audio, AC/DC and
short-range wireless technologies. Our approach to achieve this is based on four key strategic pillars which are set out below. During 2013, Dialog
has made good progress on each of these pillars. Further details are set out under “Our Strategy in action” starting on page 17.
Strategic pillar
Delivery in 2013
Diversify product portfolio
Extend global customer base
Continuous innovation
Acquisition and strategic cooperation
Development of SmartWave™ Multi-Touch Integrated Circuit (MTIC™), the world’s first chip
to enable touch technology from FlatFrog in high volume consumer devices. A number of
ODMs are currently evaluating product designs using this technology.
Increased our focus with Asia-based customers outside of our existing Tier 1 customers. The
acquisition of iWatt Inc. in Q3 2013 brought in new customers such as Nokia, htc, Motorola,
Osram, GE, Philips and IKEA.
Development of SmartBond™ – the world’s lowest power and smallest Bluetooth® smart chip
which more than doubles the battery life of an app-enabled smartphone accessory or
computer peripheral in comparison to competing solutions on the market. It’s designed to
connect keyboards, mice and remote controls wirelessly to tablets, laptops or smart TVs and
enables consumers to use innovative new apps on their smartphones and tablets – connected
with watches, wristbands and smart tags.
Acquisition of iWatt Inc., a leading provider of digital power management integrated circuits
(ICs). The acquisition enhances Dialog’s leadership in power management for tablets and
smartphones and diversifies Dialog’s product portfolio, adding two high-growth product
families: AC/DC charger adaptor ICs and a broad range of LED solid-state lighting ICs.
Key financial metrics
Dialog is a growth business and has a track
record of delivering profitable growth which,
in turn, is the basis of value creation for our
Shareholders. In 2013, Dialog has delivered
against all of the key performance measures
for the business. To provide a more accurate
reflection of business performance in 2013,
measurement is on an underlying basis,
eliminating the impact from accounting
adjustments including those arising from
the acquisition of iWatt in July 2013.
Full reconciliation table is included in the
Financial Review on page 33.
+18%
Revenue growth*
(2012: US$774m)
+30%
EBIT growth*
(2012: US$107.5m)
*Underlying
40.4%
Gross margin*
(2012: 38.0%)
US$1.49
Basic EPS*
(2012: US$1.24)
Our performance against each of these key financial metrics, together with a range of other performance measures,
is set out in greater detail under “Our performance in 2013” on page 24.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 1 | Overview Chairman’s statement
03
The Company’s revenue growth was
exceptional, and underlying profit
improvement was similarly impressive.
Rich Beyer, Chairman
This is my first letter to Shareholders
following my appointment as Chairman in
July 2013. I am pleased to note that 2013
was a year that continued Dialog’s record
of performance significantly ahead of the
performance of our industry. The Company’s
revenue growth was exceptional, and
underlying profit improvement was similarly
impressive. We grew our underlying
revenues by 18% while the semiconductor
industry grew less than 5%.
The Dialog team’s execution on its strategic
initiatives in 2013 again demonstrated the
high degree of talent and commitment of
the management team and the entire body
of Dialog employees. The high level of focus
and the consistent execution are apparent in
the results we achieved in the four pillars of
our strategy:
• Diversification of our product portfolio
• Extension of our global customer base
• Continuous innovation
• Acquisition and strategic cooperation
This year’s annual report has evolved
in line with the changing disclosure
regulations.
These updated requirements involve
ensuring that annual reports provide the
information necessary for Shareholders
to assess the Company’s performance,
business model and strategy. In line with
good corporate governance standards we
have ensured that the annual report is
“fair, balanced and understandable”.
Dialog has consistently strived to ensure
our annual reports communicate our
performance and prospects clearly and
comprehensively to our Shareholders.
To further assist our Shareholders in this
annual report, we have created a slightly
different structure and have provided
additional detail and disclosure.
I would like to record our appreciation
to Greg Reyes who retired as Chairman
during 2013 and who will retire as a Director
at the 2014 AGM. He joined the Board in
2003 and has led the Board as Chairman
of Dialog since 2006. The Company has
delivered exceptional performance and
significant value for Shareholders under
his stewardship.
In conclusion, the Board of Dialog is pleased
with the Company’s performance in 2013
and is excited about its prospects in 2014
and beyond. We thank you for your
continued support.
Rich Beyer
Chairman
Dialog Semiconductor Plc | Annual report and accounts 2013Section 1 | Overview 04
Chief Executive’s review
In 2013, Dialog delivered year-on-year
underlying revenue growth of 18%,
continuing a consecutive seven year
track record of profitable growth.
Jalal Bagherli, CEO
Dear Shareholders
During 2013, we made good progress on
the key pillars of our strategy and laid the
foundations for a more diversified business
which we believe will deliver superior
returns for our shareholders over the
medium term. Customer concentration
is a feature of our business operation and
we recognise that extending our customer
base is an important strategic goal
(see our customers section on page 27
and additional disclosures in note 24).
In 2013, Dialog delivered year-on-year
underlying revenue growth of 18%,
continuing a consecutive seven-year
track record of profitable growth. This
comfortably outpaced the semiconductor
industry, which achieved 4.5% revenue
growth in 2013 according to Gartner.
Over the medium term we believe we
have the opportunity to continue to
exceed the performance of the industry.
The Company has been generating positive
EBIT and net income in each and every
quarter since Q4 2007, an achievement
we are very proud to maintain.
This growth is a result of focused execution
on development and delivery of competitive
and differentiated products and positioning
the Company in the high volume and
high-growth personal mobile and
connected devices markets.
Market trends
A number of trends developed in our
markets in 2013:
• The pace of new product introductions
for mobile and consumer markets
continued to shift towards the second
half of the year, relative to prior years,
resulting in more pronounced second
half weighted revenue. This trend is
only partially moderated by the growing
influence of the Chinese New Year in
the first quarter of the year.
• While the mid to high-end smartphone
market is maturing, particularly in the
western world, the low-end smartphone
continues to be a significant opportunity
for growth, driven mainly out of Asia
and emerging markets. We believe in
the mid term, this market will rapidly
shift towards the mid range as feature
differentiation and rising incomes
continue apace providing expected
market segmentations.
• The tablet market continues to grow
at the expense of the traditional PC
and notebook segment with the
UltrabookTM and “all-in-one” PC
categories being the only sub-segments
of growth. The low- to mid-end of the
tablet market is driven by a highly
fragmented set of low cost android
based providers vying to grow their niche
offerings. Dialog is well positioned for
mid- to high-end markets through custom
solutions and we start to address the
low- to mid-end through standard products
as part of partners’ offerings in Asia.
• The “Internet of my Things” as manifested
in wearable computing products is upon
us. Smartphones have become a ubiquitous
part of our life and we have a huge amount
of processing power in our hands with
low power and easy connectivity to control
and monitor our personal environments.
This is a market in which Dialog can bring
multiple technologies to bear.
Diversification through R&D
innovation, partnerships and
acquisitions
We have actively invested management
time and resources in our diversification
strategies, in our quest to build a balanced
and diverse portfolio of mixed signal
products and technologies that will carry
Dialog’s momentum successfully for the next
five to ten years. During 2013 we sustained
our R&D investment in order to underpin
our future revenue growth. As a result of
these investments, we brought a number
of exciting innovations into the market.
Low Energy Bluetooth (LE BT)
Our short-range connectivity expertise from
the 2011 SiTel BV acquisition yielded the
world’s lowest power and smallest Bluetooth
smart system-on-chip; the cornerstone of
Dialog’s entry into the wearable computing
market. Dialog’s low energy SmartBondTM
delivers the smallest form factor and
doubles the battery life of Bluetooth low
energy smartphone and tablet accessories
and peripherals compared to the nearest
competing solution. Low energy Bluetooth
is the wireless standard of choice to extend
battery life when connecting wearable
peripherals such as watches, wristbands
and smart tags to smartphones, tablets
and other personal internet hubs. The
applications for this technology include
tracking everything from vital signs and
fitness levels to lost keys and more.
High voltage and high current
Power Management sub-PMICs
These products target the specific
requirements of future mobile platforms.
As the integration of multi-core processors,
LTE modems and larger screen sizes become
prevalent in smartphones and tablets, the
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 05
requirements for dealing with peak currents
and higher voltages for multi-cell batteries
create the need for new generations of
sub-PMICs to work alongside the main
system PMIC and enable these functionalities.
in Taiwan specifically opens entry into a
highly fragmented market in mainland China
for our power management products for
tablets. We expect the Chinese market to
be a growth area for Dialog going forward.
accounts and now includes Nokia,
Motorola, Lenovo and htc, opening the
door to promote products from the broader
Dialog portfolio to a wider customer base.
We continued to extend our innovation
through collaborations with partners.
These included:
• Partnership with Intel to provide highly
integrated PMIC solution for Intel’s Bay
Trail processor, targeting Windows 8 and
android UltrabooksTM and tablets.
We have sampled our product DA6021,
to the first customers and anticipate
adoption sometime in 2014.
• Collaboration with FlatFrog, an innovative
start-up in Sweden, that enabled our
entry into multi-touch controllers
for all-in-one PCs and UltrabooksTM
in the future. Dialog’s DA8901 allows
FlatFrog’s Planar Scatter Detection touch
technology to detect and track multiple
touches, gestures and pressures from
gloved hands, stylus and other objects.
It provides a more natural true-touch
user experience at performance levels,
surpassing the latest capacitance-based
solutions at a fraction of the cost.
• Relationship with Arctic Sand, a start-up
in Massachusetts, USA that has specific
technology which we are employing to
achieve industry-leading high conversion
efficiency in power management
products for specific applications such
as multi-cell battery chargers.
Asia has been a geographic focus as we
have engaged a number of existing and
new Tier 1 customers with our product
lines. For example, we announced further
smartphone platform wins with Samsung
through the year with strengthening
business relationship and revenue
contributions expected in 2014.
We also announced the first of the
partnerships we envisage with multiple
semiconductor vendors located in Asia to
benefit from their local strength of market
knowledge. Our collaboration with Richtek
Acquisition of iWatt
After extensive evaluation of available
targets for acquisition, we acquired
California headquartered iWatt in July 2013.
This was a successful start-up company with
many patented technologies in digital power
management and control for the power
conversion market and material revenue
with major customers around the world.
iWatt brings to Dialog two new product lines
based on power conversion technology, both
with very large market TAMs. The first is a
range of AC/DC wall chargers and adapters
that are used for all mobile products such as
smartphones and tablets, as well as home
appliances and industrial and communications
space. The second product line is LED drivers
for solid-state lighting products a high-growth
segment for the semiconductor industry,
fuelled in part by stringent governmental
regulations throughout the world to phase
out incandescent lighting in favour of more
energy-efficient LED lighting alternatives.
We believe with Dialog resources behind
this company (now our Power Conversion
Business Group) we will benefit from many
growth synergies in our products and
customer base. For example in the mobile
market, the capability to own the AC/DC
charger technology as well as the PMIC
inside a phone allows us to create new
end-to-end solutions for fast charging of
smartphones and tablets. These solutions
will bring a tangible consumer benefit and
one that many Tier 1 mobile customers
are working to bring to market. Another
example is the combination of short-range
wireless capability with solid-state lighting,
the ability to control from a smartphone the
operation and dimming of LED lights, again
bringing unique benefits from one company
in this field.
With the acquisition of iWatt our mobile
customer list has been significantly
expanded with both Tier 1 and Tier 2
Around the Company
We have grown the Company to over
1,100 employees to date through our
talent acquisition programmes as well as
185 employees who joined us through the
iWatt acquisition. We expect to continue
to grow our employee numbers during
2014, recruiting globally. During 2013, we
opened two new design centres in Livorno
(northern Italy) and Istanbul to help further
build our technical base for the future.
Dialog as a whole while growing and
retaining a strong European presence, has
now a much broader base in Greater China
(five locations), Hong Kong, Taiwan, Korea
and Japan, as well as North America.
We are truly proud of our achievements
and delivered an exceptional set of financial
results. In addition to the record revenue in
2013, we delivered on our promises of
underlying gross margin improvement
(+2.4 percentage points above 2012) and
underlying operating profit improvement
(+1.5 percentage points above 2012).
The major achievements highlighted here
are a subset of what the Company has
accomplished in the past 12 months. These
achievements are largely due to our talented
employees, and I wish to thank them
sincerely for their dedicated efforts in 2013.
With the wealth of technologies created,
strong talent pipeline, secular mobile trends
and lighting market demand ahead, we
consider our growth prospects to be very
strong and we have now many more
business opportunities ahead. Our ambitions
remain to continue with our above-industry
average track record, delivering increasing
profitability and stable cash flow, and build
a truly vibrant, global and diverse mixed
signal business.
Jalal Bagherli
CEO
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report
06
Introduction
The 2013 Dialog annual report differs in structure from prior years.
It is required that the report include a ‘‘Strategic Report’’ that
provides a fair review of the Company’s business performance in
the period in review; progress against key financial and non-financial
performance indicators; and sets out details of the principal risks and
uncertainties facing the business.
This report sets out on the following pages information that is
intended to convey the Dialog business model and strategy, delivery
on the Company’s strategy during 2013 and the prospects for the
business in the year ahead. It also sets out Dialog’s commitment to
corporate responsibility and sustainable business practices; and
the principal risks and uncertainties facing the business.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report The Dialog business model
07
Clients
OEMs/ODMs
Selection of
best-in-class
technologies
Suppliers
Partners
Expert
engineering
talent
Design
IP
Cash
generation
Production
Expert
engineering
talent
r o d uct develo
p
3
m
o
n
m
t
e
n
t
h
s
onths
8 m
1
-
6
a
R
pid n e w p
B
e
s
t
-
i
n
Mixed signal
analog
- class semico n d u
c t or chips
1-5 year s
Product
Clients
OEMs/ODMs
IP
Robust supply
chain
management
More information on our
performance can be found
on page 24.
Dialog’s focus and expertise is in analog
mixed signal semiconductors for personal
and portable devices and applications in the
fastest growing consumer product markets.
We seek to bring best-in-class power
management and power efficiency
technologies to sustain and build on our
position as a leading provider of highly
integrated innovative power management,
audio, display, AC/DC and short-range
wireless technologies. We design and
produce power-efficient semiconductor
chips for a range of personal portable
devices and applications in the consumer
products market as well as applications for
the automotive and industrial markets.
Innovation is at the core of our business
model and our highly skilled engineers,
their know-how and our intellectual
property (IP) are our key assets. We have
implemented a “high-touch” fabless model
– meaning we have outsourced the vast
majority of production – which allows us
to remain flexible and low capital-intensive
while retaining some core manufacturing
and packaging competencies in-house.
Our customers include some of the most
important companies in the consumer
electronics industry.
Our business model is aligned with the
requirements of our customers in the
consumer markets we operate in. We
procure the rapid development of highly
integrated semiconductors and use
best-in-class manufacturing and packaging
technologies to deliver steep production
ramps of new products.
Our business model has
three dimensions:
1 Design and innovation
2 Production partnerships
3 Product leadership
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report
08
The Dialog business model continued
1. Design and innovation
The level of innovation that we bring into
the design of a chip requires a substantial
investment in R&D. Our core technical
competencies are in mixed signal analog
technologies applied to the design of
power management and power-efficient
semiconductors. Our partnership approach,
operational flexibility and the quality of
our products are key sources of value to
our customers.
For our customers, and in particular those
in the consumer devices market, product
development times are short due to rapidly
evolving consumer requirements and
competition in this vibrant market. Dialog
has decades of experience in the rapid
development of integrated circuits (ICs) over
which time we have amassed significant IP.
The design of our customised solutions
(ASICs) is well embedded in our customers’
design cycle. We engage with our largest
customers as an “extended R&D team”,
delivering differentiation with the speed of
execution of a start-up company.
In addition to reduced design times, our
integrated design approach helps to reduce
component size and number which, in turn,
helps our customers to reduce the overall
cost of their products while ensuring
maximum performance capability.
We are continually investing in our human
capital, recruiting the best talent we can
and supporting their development in order
to maintain innovation and produce
best-in-class solutions. We have a
decentralised approach to research and
development with teams in 14 countries.
In a highly competitive talent market we
believe this flexible approach is advantageous,
allowing us to recruit talent from where
it resides.
Dialog has one of the biggest R&D
engineering teams in the world, focused
on power management and mixed signal
know-how for mobile and connected
consumer applications. The size and focus
of our engineering talent, we believe, has
become a “deep moat” advantage against
our competitors.
More information on our people
can be found on page 13.
Partnership
approach
1. Reciprocal cooperation with
clients and partners enhance
our innovation capacity
2. Fabless model allows
us to deploy the most
advanced production
processes available
Operational
fl exibility
1. Rapid new product
development
2. Decentralised R&D
with 21 hubs
3. Fabless model
provides fl exibility
on process
and capacity
Value creation model
Mixed signal
M
analog
I
Innovation
Quality of our product
1. Inherent design expertise,
world-class engineering talent
2. Best-in-class technology
3. Highly integrated and power
effi cient ICs
4. Focus on high-growth
portable platforms and
consumer devices
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report
09
Dialog has one of the
biggest R&D engineering
teams in the world, focused
on power management
and mixed signal know-
how for mobile and
connected consumer
applications.
2. Production partnerships
While we design and manage the
production of each semiconductor chip
in-house, we outsource its production to
the most suitable foundry partner. This
“high-touch” fabless model provides us
with the flexibility to deploy the most
advanced production processes and meet
market demand while keeping our fixed
asset costs low and maintaining deep
expertise on advanced processes, test
and packaging development through our
own teams. These areas of expertise are
fundamental to remaining ahead of our
competitors and supporting our customers’
development of products which are thin
and light – features highly valued by
consumers in portable devices.
Our foundry and packaging partners are
the leading companies in their field and,
over time, we have developed a strong
collaboration with them. Some of our teams
are based at manufacturing sites, enabling
a continuous quality improvement process
that helps us achieve better manufacturing
yields and reduce quality impairment issues.
Dialog has developed a robust supply
chain management approach which seeks
to ensure the delivery of a steep ramp of
new products to our customers. This is
particularly well suited to meet the
requirement of high-volume product
launches in consumer electronics,
particularly for those of our clients that
launch several products simultaneously
and on a global scale.
3. Product leadership
Our customers include the leading brands
in each of our markets who are attracted by
the quality and performance of our products
– evidenced by our inherent design
expertise, leading technology and ability to
innovate – and our focus on high-growth
portable platforms and consumer devices.
A business model based on high Tier 1 client
penetration results in high volumes, and a
strong cash generation capability. Examples
of a range of market-leading innovative
products, launched in 2013, are set out in
the section on Our Strategy on page 14.
Sustainability supports our
growth objectives
Dialog’s focus and expertise in power
management and power efficiency
semiconductors contribute to enhanced
power efficiency and lower power
consumption for a range of personal
portable devices and applications in the
consumer products market.
Corporate responsibility and a commitment
to sustainable business practices are important
to the Dialog business model and a
component of Dialog’s strategy to deliver
long-term profitable growth. Our
commitment to environmentally oriented,
sustainable business practices is evidenced
in our commitment to continue to reduce
CO2 emissions and minimise the carbon
footprint of our business. We achieved a
reduction of CO2 emissions of 40% in our
main design centres in 2013, which equates
to CO2 emissions of 618 tonnes following a
34% reduction in 2012.
In addition to a commitment to environmentally
oriented business practices, a key aspect of
corporate responsibility is a commitment to
good corporate governance; a responsibility
towards the care and development of the
Company’s employees; and in particular
a focus on fostering diversity across the
organisation. Dialog’s commitment to
sustainability and diversity is outlined in
greater detail on page 40 and also within
the Company’s annual sustainability report,
which is available on the corporate website.
Details of Dialog’s Corporate Governance
policies and practice are also set out on
pages 55 to 64 of this document.
Aligned interests
Dialog is committed to the continuing
development of market-leading innovative
products which we believe in turn create
value for our Shareholders. We achieve this
by setting stretching performance targets,
which align with Shareholders’ interests and
then motivating our executives to achieve
those targets with appropriate incentive
arrangements. Dialog’s remuneration policy
is set out in greater detail within the Directors’
remuneration policy report on page 65.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 10
Our marketplace
Worldwide demand for power is expected to continue to grow fast.
The World Energy Outlook 2012 and Electricity Information 2012
reports from the OECD’s International Energy Agency (IEA) estimate
that from 2000 to 2010 total world primary energy demand grew by
26%, and to 2020 it is projected to grow by 20%. Under current
policies, growth from 2012 to 2035 is forecast at 47%.
Regulatory bodies such as the EPA, and the
International Energy Agency have launched
a number of initiatives to encourage more
efficient consumption of energy. In this
context, consumer demand for better power
management and more power-efficient
products is expected to continue to rise.
Dialog Semiconductor’s primary focus is in
consumer electronics, particularly in mobile
and portable applications. We have been
at the centre of the mobile computing
revolution, constantly supporting a better
consumer experience by enabling our
customers to produce lighter and thinner
portable applications with better power
efficiency and a longer battery life. In the
period 2012 to 2015, units of smartphones
and tablets are estimated to grow to 26%
CAGR and 41% CAGR respectively.
The introduction of more powerful
telecommunications networks like 4G,
the emergence of the low-end smartphone
and rapid adoption of tablets are the key
enablers of such a strong level of growth.
Smartphones and tablets have now become
a ubiquitous part of our life, allowing us to
stay connected on the go and enjoy a huge
amount of processing power in the palm
of our hands.
Bluetooth and Bluetooth Smart are now
provided as a standard technology in
smartphones and tablets. Bluetooth Smart
(low energy Bluetooth) was specifically
developed to target low bit-rate, low power,
battery-operated wireless devices, which
makes it a prime candidate for personal
connectivity. From a customer perspective,
personal connectivity devices will have to
fulfil three major criteria. First, these devices
will have to virtually “last forever”, requiring
a long battery life. Time and again consumer
studies have shown that battery life is the
leading dissatisfaction source for users of
battery-operated portable products. Second,
these devices will have to be unobtrusive and
consumers will be looking at devices they
can enjoy wearing or even forget they are
wearing until they need them. Third,
consumers will want the products to be
simple to use. New types of applications in
a wide range of industries are making their
way into the market and we are witnessing
the beginning of exciting new areas such as
wearable computing.
The influence of consumer electronics in the
development of the traditional computing
products is pervasive. The market continues
to evolve towards a convergence of features
between the next generation of computing
devices such as all-in-one PCs, hybrids and
UltrabooksTM and consumer electronics. One
particular example of this influence is the
increasing presence of multi-touch screens
into next generation computing devices.
In 2013, we launched our first multi-touch
semiconductor (IC), SmartWaveTM enabling
a new touch screen technology developed
by FlatFrog, a Swedish start-up backed up
by Intel capital targeting high-volume
consumer devices.
Consumers’ appetite for more power-
efficient platforms of communication
remains very strong. The processing power
of the latest devices available in the market
is steadily increasing and consumers want
to use it while consuming minimum power.
Dialog is well positioned to enable this.
Our core technical expertise in mixed signal
analog, power management and power
efficiency integrated circuits (ICs) will
continue to play a vital role in all our markets
and will continue to enable consumers to
make the most out of the processing power
available in the palm of their hands.
In 2013, with the acquisition of iWatt Inc.
a leading provider of digital-centric power
management integrated circuits (ICs), we
gained access to two new markets:
• LED solid-state lighting (“SSL”): this
refers to a type of lighting that uses
semiconductor light emitting diodes (LED).
Adoption has increased due to regulatory
mandates and incentives and reduced
costs from improvements in technology
and manufacturing yields. According to
McKinsey, total LED SSL shipments are
expected to grow from 272 million
units in 2011 to 1.9 billion units in 2015.
LED SSL has many advantages over
competing light sources, including low
energy consumption, longer lifetime
and minimal environmental impact.
Challenges associated with LED adoption,
such as flicker and compatibility with the
installed base of existing fixtures and
dimmers, demand high-performance
solutions with smaller form factors.
• AC/DC power conversion: The vast
majority of the world’s electronic devices
that plug into an electric wall outlet
require the conversion of high voltage AC
power to low voltage DC. Robust growth
in portable device markets including
smartphones, tablets and Ultrabooks™
is driving the increased need for a new
generation of intelligent AC/DC chargers
that will be more power efficient, enable
a quicker charge time and be available in
a smaller form factor.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 11
Audio
accessories
a
S
n
m
d
r
e
a
g
r
m
a
t
Mixed
signal
analog
o
m
T
t
V
e
s
i
n
g
s
e
l
b
a
ar
We
bile ap plic a ti o n s
o
M
P
o
r
t
a
b
l
e
a
p
plications
H I D s
Governments across the
world are focused on
improving energy efficiency
by implementing policies
and subsidies to accelerate
the transition to more efficient
forms of lighting, including
LEDs, by requiring the
elimination of incandescent
bulbs within specified
time frames.
Product/device
Million units
Market trends
2012
2015
2012
2015
Mobiles
758
1,529
0
500
1,000
1,500
2,000
Source: Dialog-Gartner September 2013
Tablets
120
338
0
50
100
150
200
250
300
350
Source: Dialog-Gartner September 2013
Notebooks
2012
15
2015
188
0
50
100
150
200
Source: Dialog-Gartner September 2013
• Multicore and LTE platforms
•
Emergence of low-end smartphone
– 26% CAGR 2012-2015
•
Rapid adoption of tables
– 41% CAGR 2012-2015
• The UltrabookTM opportunity
– 132% CAGR 2012-2015
– 40% of notebook market by 2015
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report
12
Our marketplace continued
350m+ Bluetooth smart ICs
to ship by end of 2016
(IHS Inc. forecast, 2013)
Wearables
CAGR 70%
Human interface
devices (HIDs)
CAGR 109%
Bluetooth
Proximity and
indoor navigation
CAGR 90%
+
Bluetooth smart ICs to ship
Smart TV and
gaming remotes
CAGR 105%
Thousand units
2012
9,907
2015
107,823
0
20,000
40,000
60,000
80,000 100,000 120,000
Source: Dialog-Gartner September 2013
Including PC peripherals, home entertainment, sports and fitness, proximity sensors, watches, health and wellness and other.
LED SSL drivers
Million units
404
2012
2015
2,550
0
500
1,000
1,500
2,000
2,500
3,000
Source: Dialog-Gartner September 2013
Demand for greater performance, increased
power efficiency and reduced size in all of
the markets we serve, positions Dialog for
continued growth. We provide our
customers with solutions that help to
maximise the performance of their products
while also minimising weight and size.
Through our recently acquired iWatt
business, we can now also capitalise on the
transition to more efficient forms of lighting
and the progressive use of LEDs over less
efficient, less durable lighting products.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report Our people
13
Our people are at the centre of our success
Innovation is at the core of our business and attracting, developing
and motivating our talented people is fundamental to underpinning our
creative and innovative capability. Dialog is committed to sustaining and
promoting a positive learning culture which supports the development
of the individual and ensures that our teams perform at their best.
At the end of the year we employed 1,100
people worldwide; a 36% increase on the
prior year. In July 2013, following the
acquisition of iWatt Inc. we welcomed
approximately 180 new people to Dialog.
Excluding these, the number of our
employees grew by 15%.
We now operate from 21 locations
in 14 countries and our increasing global
workforce has also become increasingly
diverse – now incorporating 50 nationalities.
Dialog takes equality and equal opportunity
for all employees very seriously. We are
committed to creating an inclusive working
environment that attracts and retains the
best talent and supports business growth.
Women now comprise 15% of the overall
workforce of 1,100 employees and the
Company actively supports various initiatives
in the areas of STEM (Science, Technology,
Engineering and Mathematics) education.
There is currently no female representation
on our Board or Senior Management team.
A high proportion of our people are
engineers. As of 31 December 2013, 75%
of our people were professional graduate
engineers. Typically more than 50% of our
engineers hold Masters or PhD degrees.
We continue to recruit globally for the
most talented people, identify centres of
engineering talent and build our business
around them. In 2013, we increased our
presence in Asia, expanded our newest
design centres in Italy and Turkey.
Our people play an important role in the
Company’s governance and sustainability
efforts and engage actively within the
communities in which they work. Further
details are set out on pages 40 to 43.
More than 50% of our
engineers hold Masters
or PhD degrees.
Key demographic indicators
1,100(1)
50
Number of employees
(2012: 806)
Number of nationalities
(2012: 51)
15%(2)
Women
(2012: 15%)
825
Engineers
(2012: 606)
5.2%(3)
Employee turnover rates
(2012: 5.6%)
Notes:
1 Represents the number of employees as of
31 December 2013
2 As a percentage of total number of employees
3 Number of leavers divided by average number
of employees in the reporting period
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 14
Our strategy
Dialog’s objective is to be the leading provider of analog and mixed signal
semiconductors for personal and portable devices and applications in the
fastest growing consumer product markets. Our ambition is to continue to
bring innovation into the market and enable our customers to provide a better
consumer experience. We aim to achieve this with best-in-class power
management and power efficiency technologies which sustain and build
on our position as a leading provider of highly integrated innovative power
management, audio, AC/DC and short-range wireless technologies.
Our approach to achieve this is based on four key strategic pillars.
01.
Diversification: Extend our
portfolio of highly integrated mixed
signal, lower power products for
portable platforms
In 2013, Dialog developed the SmartWave™ Multi-Touch
Integrated Circuit (MTIC™), the world’s first chip to enable
touch technology from FlatFrog in high volume consumer
devices. Leading ODM Wistron was announced as Dialog’s
first customer for SmartWave™ MTIC™.
02.
Customers: Extend our global
customer base
Increased our focus with Asia-based customers outside of
our existing Tier 1 customers. The acquisition of iWatt Inc.
in Q3 2013 brought in new customers such as Nokia, htc,
Motorola, Osram, GE, Philips and IKEA.
Dialog’s Green VoIP chipset enables Avantec’s customers to
reduce the power usage of hotel room phones by half and
increase the sound quality.
Quick reference: pages 16-17
Feel the pressure…
Quick reference: pages 18-19
Intelligent rapid charging…
03.
Innovation: Continuous innovation
to drive value
04.
In 2013, Dialog developed and launched SmartBond™ – the
world’s lowest power and smallest Bluetooth® smart chip
which more than doubles the battery life of an app-enabled
smartphone accessory or computer peripheral in comparison
to competing solutions on the market. It’s designed to
connect keyboards, mice and remote controls wirelessly to
tablets, laptops or smart TVs and enables consumers to use
innovative new apps on their smartphones and tablets –
connected with watches, wristbands and smart tags.
Acquisitions: Acquisitions and
strategic cooperation to drive
access to innovative technologies
In 2013, Dialog acquired iWatt Inc., a leading provider
of digital power management integrated circuits (ICs).
The acquisition enhances Dialog’s leadership in power
management for tablets and smartphones and diversifies
Dialog’s product portfolio, adding two high-growth product
families: AC/DC charger adaptor ICs and a broad range of
LED solid-state lighting ICs.
Quick reference: pages 20-21
Wear your life…
Quick reference: pages 22-23
Lighting the way to successful acquisitions…
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 15
Strategy: Driving value in our main business segments through 2013 and beyond
Mobile systems
Key drivers
2013 progress
Forward focus
•
•
Increasing processing power of
smartphones and tablets
Increasing battery drain of additional new
features and peripherals
• High-growth in mid- to low-end
smartphone segment of the market
• Fast adoption of tablets and ultraslims
• Extended our relationship with Samsung,
winning third and fourth platforms
adopting our power management IC with
integrated audio functionality
• Launched our first range of sub-PMICs for
multicore processor design scalability and
optimisation of overall power scheme
• Expanded collaboration with Intel for the
development of a single chip power
management IC for tablets; Bay Trail
• Announced Richtek partnership for China
smartphone and tablet markets
• Continue focus on power efficiency and
integration and increasing digital content
• PMIC for multi-cell battery market (tablets,
notebooks and ultraslims)
• Fast and intelligent charging
• Power management for the Internet
of my Things
Connectivity
Key drivers
2013 progress
Forward focus
• Rapid market acceptance of Bluetooth
Smart™ following adoption by Apple and
Google in smartphone platforms
• Launched Dialog’s first Bluetooth smart IC
SmartBond™ in the market, with Murata
announced as lead customer
• Enter the market with SmartBond™.
Expect to announce additional
SmartBond™ customers during 2014
•
Increasing trend to use the proven DECT
standard in new applications like smart
home and low latency audio
ULE smart home solution
• Design win with Avantec for their VoIP
• Everspring selected Dialog for their DECT
• Continue to invest in the SmartBond™
platform: product roadmap and application
reference designs
• Focus on the growth segments of the DECT
market, such as ULE and audio applications
• Maturity of DECT handset market as
hotel phones
volumes start to decline
Power conversion
Key drivers
2013 progress
Forward focus
• Expand our LED driver solutions for the
mainstream retrofit SSL bulb market
• Extend our focus in the commercial
solid-state lighting market space
•
Intelligent Quick Charge 2.0-compliant
smartphone and tablet adapter solutions
• Sold State Lighting (SSL) continues
to be a high-growth segment for the
semiconductor industry, fuelled in part
by stringent governmental regulations
to phase out incandescent light bulbs
in favour of more energy-efficient,
LED-based solutions
• Higher semiconductor dollar content in
the charger driven by emerging “rapid-
charging” standards which require more
semiconductor “intelligence” in the power
adapter to communicate with the power
management IC in the phone
• Emerging energy regulatory guidelines
for power adapters are becoming more
stringent, mandating higher operating
efficiency, lower standby power
consumption and high efficiency
• Partnering with Qualcomm Technologies
and MediaTek in the development of
AC/DC converter ICs that comply with the
Quick Charge 2.0 and MediaTek’s Pump
ExpressTM proprietary fast charge protocols.
This gives Dialog control of “both sides of
the wire” for complete, end-to-end rapid
charging solutions
• LED driver solutions for the commercial LED
lighting market, offering the industry’s first
driver optimised for commercial lighting
with a built-in 0-10V dimming interface
and 30% to 40% cost savings versus
competitive solutions
• Launched smarteXite™ LED SSL driver
platform with the first retrofit LED lamp
driver to support the next generation
LEDOTRON™ industry-standard digital
dimming protocol, and optimised for low
energy Bluetooth wireless control
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 16
Expanding our total addressable
market, enabling a cost-effective
touch experience with superior
performance.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 17
Our strategy in action
Feel the
pressure...
By adopting SmartWaveTM-enabled touch technology
we have expanded our portfolio.
Touch technology has revolutionised
the way we interact with our computing
devices, and has become the user interface
of choice. Most studies conclude touch
technology is a superior interface that is
easy to learn, easy to use and more
intuitive than either keyboard or mouse.
Touch technologies are rapidly innovating as
they progress from consumer applications to
the mainstream IT workplace. The demand
for touch applications in being driven by
advanced touch-enabled operating systems
preloaded on powerful and nimble devices.
Growth in the touch screen market will be
driven by increasing penetration in markets
beyond the smartphone and tablet
businesses. Touch screens are dramatically
increasing in use across a broader range
of products such as 2-in-1 PCs, UltrabookTM
and all-in-one PCs.
In 2012, we started our collaboration
with Swedish multi-touch pioneer, FlatFrog,
culminating in the launch of our first
multi-touch IC in 2013. FlatFrog has
developed a new touch technology called
Plannar Scatter Detention (PSD) which uses
edge-to-edge, in-glass infrared light and
can detect and track multiple touches,
gestures and pressures from gloved hands
and other objects. It is the first multi-touch
display technology to offer pressure
detection, which can be used in a number
of ways to help users better interact with
content in multi-touch interfaces.
PSD works with glass or plastic cover lenses,
eliminating the need for expensive ITO
layers. It uses standard low-cost electrical
components and high-yielding assembly
processes, providing a premium, true-touch
user experience at performance levels
surpassing the latest capacitance-based
solutions, but at a lower cost.
Our collaboration with
Swedish company FlatFrog
into touch display culminated
with the launch of our first
multi-touch IC (MTIC).
Our collaboration with FlatFrog led to
the launch of SmartWaveTM, Dialog’s first
multi-touch IC (DA8901). SmartWaveTM is
optimised for any display between 11 and
36 inches using FlatFrog PSD Touch and is
suitable for use in a full range of products
from notebooks, tablets, 2-in-1 PCs and
UltrabooksTM to stationary and portable
all-in-one PCs and monitors. In addition to
being optimised for Microsoft Windows 8.1,
SmartWaveTM is also able to support
Google android-based touch-enabled
operating systems.
Three months after the launch of
SmartWaveTM, we announced our first
customer engagement with Wistron,
a leading Taiwanese ODM. Wistron
developed a 23 inch SmartWaveTM-enabled
touch module that can be used as a
direct one-to-one replacement of today’s
projected capacitance touch module,
offering OEMs fast-to-market, low risk
and low-cost multi-touch technology
without the need for product redesigns.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 18
Our strategy in action continued
Intelligent rapid
charging…
The endless surge in more power-hungry smartphone
and tablet applications requires faster processors,
larger battery capacities and longer charge times.
Yet consumers want devices that charge even
faster than ever before.
Building on our existing market leadership
position in AC/DC adapter ICs for
smartphones and tablets from our iWatt
acquisition, Dialog is uniquely positioned
to benefit from the rapid charging trend
based on our intelligent digital technology,
while much of the rest of the industry is
still focused on analog approaches.
Key industry players Qualcomm® and
MediaTek have developed proprietary
rapid charge communication standards
– Qualcomm’s Quick Charge 2.0 battery
charging technology and MediaTek’s Pump
Express™ protocol, which enable up to
75% faster charge times.
Digital communication between the
smartphone and power adapter facilitates
the higher power transfer needed for
rapid charging using these protocols.
Dialog produces the digital AC/DC controller
chips that are the “brains” of the wall
adapters for smartphones, tablets and
portable devices. Using this technology
leadership, we collaborated with Qualcomm
and MediaTek to quickly deliver AC/DC
rapid charge solutions compatible with
Qualcomm’s Quick Charge 2.0 protocol
and MediaTek’s Pump Express™ protocol.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 19
Our innovative thinking and SmartBondTM
system-on-chip (SoC) enables consumers
to wirelessly connect on the move.
Highest efficiency for Qualcomm
Quick Charge 2.0 rapid charging
Dialog’s iW620+iW1760 rapid charge
AC/DC adapter solution for Qualcomm
Quick Charge 2.0 power supplies offers
inherently higher efficiency versus
competing solutions – without adding
components. Dialog’s solution results in
faster charging times and enables the
higher power density needed for smaller
form-factor rapid charging adapters.
Built-In digital intelligence
for MediaTek Pump Express™
Rapid Charging
Dialog’s iW1680 MediaTek Pump ExpressTM
-compatible solution is a single-chip
approach that uses digital intelligence
to significantly reduce charge times in USB
AC/DC wall chargers – all with no bill of
materials cost premium over slower
conventional charging technologies.
The iW1680 dynamically scales the
output voltage of the charger to deliver
the optimised level required by the phone
at any given time. This lowers the overall
system cost by eliminating the need for
additional voltage conversion circuitry in
the phone and reduces charge times by
enabling more efficient power transfer
to the battery.
Dialog produces
the digital AC/DC
controller chips
that are the ‘‘brains’’
of the wall adapters for
smartphones, tablets
and portable devices.
75%
Qualcomm’s Quick Charge 2.0 battery
charging technology and MediaTek’s Pump
Express™ protocol enable up to 75% faster
charge times.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 20
Our strategy in action continued
Wear your life...
We are all looking for ways to improve different
aspects of our lives. Some want to improve their
productivity, some their health and others want
to improve various aspects of their lifestyle.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report With smartphones becoming a ubiquitous
part of our life, we now have a huge
amount of processing power in the palm
of our hands and the capability to interpret
any measured data in a precise way. We
can now for example extract concrete
information from an automated or on-the-
spot diagnosis of our health or evaluate
what would be the appropriate next training
step to improve our cycling performance.
We refer to this ability to connect one’s
“self” to the “internet as personal
connectivity” or the “Internet of my Things”
and Bluetooth Smart is playing a crucial
role in enabling this.
21
Bluetooth Smart, was specifically developed
to target low bit-rate, low power, battery-
operated wireless devices and is now
provided as a standard technology in
smartphones. We believe it will be the
technology of choice for system integrators
to enable the connectivity of wireless
devices to the smartphone or tablet.
From a customer perspective, personal
connectivity devices will have to fulfil three
major criteria.
1 First and foremost, these devices will have
to virtually last forever.
2 Second, personal connectivity wireless
sensors will have to be unobtrusive.
Consumers will be looking at devices they
can enjoy wearing or even forget they are
wearing until they need them.
3 Third, consumers will want products that
are easy to use. Consumers’ experience in
setting up and using personal connectivity
devices will have to be very intuitive,
easy and simple to understand. The
standardisation of Bluetooth Smart
profiles that the Bluetooth SIG has taken
up will play an important role in meeting
the inter-operability requirement while
the user interface will still depend on
the system integrator’s capabilities.
In order to meet the consumers’ criteria for
personal connectivity devices in 2013 we
introduced SmartBond™ – the world’s
lowest power and smallest Bluetooth®
Smart system-on-Chip (SoC).
It’s designed to enable consumers to use
innovative new apps on their smartphones
and tablets – connected with watches,
wristbands and smart tags – to, for example,
“self-track” their health or fitness levels or
locate lost keys and connect keyboards, mice
and remote controls wirelessly to tablets,
laptops or smart TVs and gaming consoles.
Half the power consumption
SmartBondTM more than doubles the
battery life of an app-enabled smartphone
accessory or computer peripheral in
comparison to competing solutions on
the market. It is the first Bluetooth Smart
solution to break the 4mA current barrier
for wireless transmission and reception,
enabling designers to double a product’s
battery life or reduce the number and size
of cells required. Its low power architecture
draws 50% less voltage than other Bluetooth
Smart solutions on the market – with a deep
sleep current of under 600nA. This means
a 225mAh coin-cell battery in a product
sending 20 bytes of data per second would
last four years and five months in comparison
to just two years with previous generations
of Bluetooth Smart technology.
Half the size
SmartBondTM also has a size advantage.
It comes in three different form factors –
the smallest Wafer-Level Chip-Scale
(WL-CSP) is just 2.5 x 2.5 x 0.5mm. This
enables Bluetooth to be now added to the
most space-constrained wireless accessories.
Next generation Bluetooth Smart SoCs will
need to find new ways to integrate more
of the embedded system components to
accommodate for the additional sensors
required by personal connectivity. This will
come at the cost of battery lifetime for
which Bluetooth Smart SoC vendors will
need to compensate by reducing the power
consumption of each and every block of
their SoCs as well as finding a solution to
harness the power of alternative energy
sources through energy harvesting.
Our innovative thinking and SmartBondTM
system-on-chip (SoC) enables consumers
to wirelessly connect on the move.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 22
Our strategy in action continued
Lighting the way
to successful acquisitions...
The acquisition of iWatt in July 2013 was a key development in Dialog’s
diversification strategy and opened new opportunities for us in the
fastest growing semiconductor market – solid-state LED lighting. It also
extended our power management integrated circuits (PMIC) strength
in portable devices, expanding our addressable market to include the
adjacent, high-growth AC/DC power charger/adapter space.
PrimAccurate™ control – at the
core of our AC/DC converters and
LED SSL drivers
Dialog’s patented PrimAccurateTM
digital control technology reduces the
material costs and allows our customers
to produce smaller, lower-cost adapters,
chargers and LED SSL retrofit lighting by
eliminating the secondary-side regulator,
the optical feedback isolator and 30+
discrete components typically required
by conventional approaches. This
PrimAccurateTM technology uses digital
control algorithms that reduce operating
and standby power consumption and
improve light load efficiency to meet
emerging, stringent energy regulations for
power supplies, including those put forth
by the European Code of Conduct (CoC)1
and the US Department of Energy (DoE)2.
AC/DC converter solutions – digital
intelligence for smaller, faster
charging power adapters
Robust growth in the portable device
market is driving increased demand for
ultra-low power consumption AC/DC
chargers that are also smaller and charge
faster. Dialog’s digital AC/DC pulse width
modulation (PWM) converters use
PrimAccurateTM control to solve these
challenges in power adapters and chargers
for smartphones, tablets, Ultrabooks™,
laptops, ebooks, media players, home
networking equipment and even household
appliances. Combining our AC/DC power
management expertise from iWatt with our
existing embedded PMICs enables us to
deliver smart, ultra-small, end-to-end power
management solutions for a new generation
of rapid charging portable devices.
LED drivers for solid-state lighting –
innovating to solve our customers’
design challenges
Solid-state LED lighting is displacing
traditional incandescent and CFL lighting
technologies due to its superior energy
efficiency and long life. Dialog is positioned
to address the range of challenges that arise
in this progressive shift from traditional
lighting to solid-state LED lighting. Two
key challenges in retrofit bulb applications
are dimmer compatibility and dimmer
performance. There is a huge installed base
of existing dimmers using a wide array of
technologies, including leading-edge,
trailing-edge, digital, and universal dimmers
– all originally designed to operate with
incandescent bulbs, which create resistive
loads. Since LED drivers are high-switching
devices, they cannot match the resistive
load. Dialog’s patented intelligent digital
dimming control solves this problem, using
1 European Code of Conduct (CoC) on Energy Efficiency of External Power Supplies Version 5
2 US Department of Energy (DoE), Regulatory Information Number RIN-1904-AB57
Dialog’s PrimAccurate™ digital control
technology slashes the bill of materials cost
for smaller, lower-cost adapters with faster
charge time.
Operating as Dialog’s
Power Conversion
Business Group, iWatt
brings over 10 years
of experience and
extensive intellectual
property (IP), with more
than 110 patents covering
intelligent digital power
management technologies.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report advanced digital analytics to interrogate
the dimmer and provide algorithms that
automatically adapt to the dimmer type.
This technology yields the added benefits
of flicker-free dimming, from 1-100% and
tight +/-5% LED current regulation needed
for consistent LED light intensity.
Another challenge our SSL customers face
is heat, especially in installations where
airflow is restricted. The problem is that
bulb designers don’t know how or where
bulbs will be used – in closed lighting
fixtures with limited airflow or open
fixtures with free airflow. In restricted
airflow applications, poor thermal design
can result in overheating, which dramatically
reduces SSL bulb operating life and can
potentially cause fires.
Dialog solves this problem with its patented
over-temperature protection (OTP) derating
technology that monitors the temperature
inside the sealed SSL bulb. When thermal
conditions get too hot, the LED driver
automatically reduces the current drive
to the LEDs, resulting in cooler operation.
This prevents exceeding the temperature
rating of the electrolytic capacitors in the
system and helps ensure the long-term
reliability and safety consumers expect
from LED replacement bulbs.
Our products for the LED SSL market also
use PrimAccurateTM control to reduce BOM
costs – an important factor for the mass
consumer adoption of SSL lighting. We
offer a wide range of dimmable and
non-dimmable solutions up to 45 watts,
which is equivalent in brightness to
a 200 watt incandescent bulb.
Dialog LED SSL drivers use proprietary
temperature management technology that
can automatically reduce current drive to the
LEDs. This provides cooler operation in low
airflow bulb installations and helps ensure
the long-term reliability and safety consumers
expect from LED replacement bulbs.
Dialog Semiconductor Plc | Annual report and accounts 2013 24
Our performance in 2013
The Board uses a range of indicators to continually assess performance; ensure
performance is delivering on the Group’s stated strategy; and to ensure continued
alignment with Shareholder interests. The key performance indicators are set out
below. To provide a more accurate reflection of performance in 2013, measurement
is on an underlying basis, eliminating the impact of accounting adjustments
including those arising from the acquisition of iWatt in July 2013. Details of the
reconciliation items between IFRS and underlying KPIs can be found on page 33.
Revenue growth
Performance indicator
Definition and relevance
2013 performance
IFRS
+17%
Underlying
+18%
Actual and prior year’s full-year underlying
revenue measured in our functional currency,
US dollars. Monitoring this revenue trend
provides a measure of business growth.
Underlying revenue is used in order to
provide a better reflection of business
growth by eliminating the impact of
accounting adjustments.
Full-year underlying revenue in 2013 was 18%
above 2012. This growth is the result of volume
and ASP increase, reflecting not just market
volume trends but the increased value we
continue to bring to our clients.
Gross margin
Performance indicator
Definition and relevance
2013 performance
IFRS
39%
Underlying
40%
Actual and prior year’s underlying gross
margin. Gross margin is gross profit expressed
as a percentage of revenue and shows the
economic substance of the Group’s products.
Monitoring this trend provides a measure of
our ability to increase the economic value of
our products over a period of time. Underlying
gross margin provides a better reflection of the
economic value of our products by eliminating
the impact of accounting adjustments.
Underlying Gross margin in 2013 was 240 bps
above 2012. This increase reflects the higher
economic value of our products as a result of
the high level of innovation and integration of
our products and the level of efficiency of our
high-touch fabless model.
Operating expenses as a percentage of revenue
Performance indicator
Definition and relevance
2013 performance
IFRS
28%
Underlying
25%
Actual and prior year’s underlying operating
expenses (OpEx) expressed as a percentage
of underlying revenue. Underlying OpEx %
provides a measure of our effort in innovation
and the efficiency of our operating structure
over a period of time and it reflects the need
for current returns as well as an investment in
future revenue growth. Underlying OpEx %
provides a better reflection of the focus and
efficiency of our operating structure by
eliminating the impact of accounting
adjustments. Operating expenses include
Selling and Marketing expenses, General
and Administrative expenses and Research
and Development expenses.
Underlying OpEx % in 2013 was 25%,
90 bps above 2012. Excluding the first-time
consolidation of iWatt into the Group, OpEx %
in 2013 was below 2012. This decrease reflects
our continuing effort to improve the efficiency
of our General and Admin function and the
strategic commitment to innovation by increasing
our research and development efforts.
It is important to note that our research and
development effort is not directly linked to
the revenue of the same period. Our R&D
programmes represent an investment in future
revenue growth.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 25
In 2013, Dialog delivered an exceptional set of financial results, with revenue growth,
increased underlying profitability and strong cash generation. We brought exciting
innovation into the market and sustained our R&D effort in order to underpin our future
revenue growth. We made good progress on the four key pillars of our strategy and
laid the foundations for a more diversified business that we believe will deliver superior
returns for our Shareholders over the medium term.
EBIT growth
Performance indicator
Definition and relevance
2013 performance
IFRS
+13%
Underlying
+30%
Actual and prior year’s full-year underlying
EBIT measured in US dollars. Monitoring this
EBIT trend provides a measure of the economic
value of our operating business. Underlying
EBIT is used in order to provide a better
reflection of economic value by eliminating
the impact of accounting adjustments.
Underlying EBIT in 2013 was 30% above
2012. This increase reflects the higher
economic value of our business and it’s
underpinned by the increasing economic
value of our products and the efficiencies
achieved in our operating structure.
EBIT margin
Performance indicator
Definition and relevance
2013 performance
IFRS
11%
Underlying
15%
Actual and prior year’s underlying EBIT margin.
Monitoring this trend provides a measure of
our ability to increase the economic value of
our operating activity over a period of time.
Underlying EBIT provides a link to our ability
to generate cash as we are a low capital
intensity business.
Underlying EBIT margin in 2013 was 150 bps
above 2012. This increase reflects the higher
economic value of our business and it’s
underpinned by the increasing economic value
of our products and the efficiencies achieved
in our operating structure.
Basic EPS
Performance indicator
Definition and relevance
2013 performance
IFRS (US$)
0.95
Underlying (US$)
1.49
Actual and prior year’s underlying basic EPS.
Monitoring this trend provides a measure of
our ability to increase the inherent value of
our business for our Shareholders over a
period of time. Underlying basic EPS provides
a better reflection of the inherent value of
the business by eliminating the impact of
accounting adjustments.
Basic underlying EPS was 20% up over 2012
at US$1.49. This increase reflects the higher
inherent value of our business as a whole.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 26
Operating review
2013...
Has been a stand out year for Dialog in terms of
innovation, laying the foundations for a more diversified
business and a stronger financial performance.
Our markets
Dialog is primarily focused on high-growth
portable and consumer applications.
• SmartPulse™ short-range wireless ICs,
based on the ultra-low energy DECT
standard, for smart home applications
Mobile
• Power management ICs and audio
CODECs for smartphones, tablets
and Ultrabooks™
• Additionally, our products address a
range of secondary embedded systems
such as automotive infotainment,
wearable technology and energy-
efficient microcontroller platforms
PCs, UltrabooksTM, monitors
In 2013, we launched our first multi-touch
IC enabling FlatFrog Planar Scatter Detection
(PSD) Touch for laptops, all-in-one PCs,
UltrabooksTM and monitors
Connectivity
• Single chip transceivers for DECT-
based cordless telephones, wireless
microphones, headsets and
gaming consoles
• SmartBond™ single chip wireless ICs,
certified to the Bluetooth Smart™
standard, for personal accessory and
peripheral applications
• Energy-efficient multicore Voice-over IP
(VoIP) processors, audio CODECs and
amplifiers, interfacing with Bluetooth,
Wi-Fi and DECT, to enable headset and
handset connectivity
Automotive and industrial
• Custom motor control ICs for windscreen
wipers and companion processor
integrated power management and clock
ICs for automotive infotainment systems
• Electronic ballasts for fluorescent or
high-intensity industrial lighting and
energy-efficient retrofit bulb LED
lighting solutions
Power conversion
• AC/DC converter solutions –
digital intelligence for smaller,
faster charging power adapters
for smartphones and tablets
• LED drivers for solid-state lighting –
innovating to solve our customers’
design challenges
• LED drivers for display backlighting
for LED TVs
See our business model
on page 7.
FlatFrog Planar Scatter Detection (PSD) Touch
for laptops and monitors.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 27
Our key customers and products
Customers increasingly look to Dialog for
innovation, technical expertise and high
integration, fast product development and
support. Given the rapidly evolving nature of
the technology used in our target markets,
our focus is to develop and retain long-term
relationships with all our major customers
and adopt a partnership approach for both
ASIC and standard product solutions.
discrete power management components
with highly integrated, single chip solutions
that provide design simplicity, reduce energy
usage, save board space for other components
and lower cost. Dialog’s Power Management
Integrated Circuits (PMICs) are fully
configurable, which means they can be
programmed to meet the exact voltage
and current needs of every component.
Customers with a significant contribution
to revenue include (in order of contribution)
Apple, Gigaset, Samsung, Bosch and Panasonic.
These top five customers represented 90%
of revenues in 2013. We recognise there is
risk associated with this level of customer
concentration and the revenue derived from
our largest customer is shown on page 136.
We are delighted to have such a strong
relationship and during 2013 we have been
able to broaden and deepen our interactions
based upon excellent service delivery. The
diversification of our business is a key
strategic objective and we made progress
towards this objective in acquiring iWatt
during 2013. Further details on the
management of risk is set out on page 44.
Mobile systems
Consumers today want to be able to use
exciting new entertainment apps on their
smartphones and tablets and interact via
high-speed, 4G LTE networks. Video
streaming, sharing and calls are becoming
increasingly popular, alongside enhanced
gaming, GPS, data and voice services.
Our power management, audio and display
semiconductor solutions are designed for
portable devices, including smartphones,
tablets, Ultrabooks™ and other ultra-mobile
computing devices. Dialog replaces
Effective power management in many
portable devices presents an increasingly
complex array of design challenges.
Smartphones, tablets and Ultrabooks™
increasingly need to be able to run high
definition video, games, GPS maps and
audio content and connect via high-speed
4G LTE and legacy 3G networks, Wi-Fi and
short-range wireless stands like Bluetooth.
4G LTE, for example, requires a lot more
processing power to decode far greater
amounts of data in the wireless spectrum.
At the same time, consumers demand
displays that are brighter, bigger and
incorporate touch functionality and, in
the future, tactile feedback technology.
Each of these features is a major battery
drain, creating a need for effective power
management technologies.
Multicore devices delegate simple tasks
to one core, while directing more complex,
power-hungry tasks to the other core.
Each of the quad- or octal-core application
processors needs to be powered up and
down into and out of sleep state in
particular sequences.
SmartBondTM single chip wireless ICs, certified
to the Bluetooth standard.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 28
Operating review continued
Dialog brought exciting innovation to the market and
extended its product portfolio and customer base with
the acquisition of iWatt Inc.
Our power management solutions are
specifically designed for portable devices.
Our DECT-based transceivers are designed
for professional headsets.
Our key customers and products continued
Dialog’s solutions excel at handling this
power management complexity, enhancing
device performance and maximising the use
of available battery power, which is crucial
in today’s world of mobile technologies.
As a platform-based PMIC can support
multiple phone designs, Dialog helps its
customers reduce inventories and respond
to the consumer market’s need for
volume flexibility.
Dialog’s charging solutions for lithium
ion battery systems also support faster,
safer charging and from a wider variety
of sources.
With a proven track record of delivering
different power management designs for
world-leading mobile phone manufacturers
and portable consumer OEMs, we seek to
optimise all aspects of the design, including
electrical, thermal and mechanical
packaging considerations. These designs
offer sophisticated integration with multiple
power management and analog functions
on the chip, including programmable
high-performance LDOs (low dropout
voltage regulators), high-efficiency DC/DC
voltage converters, intelligent battery
charging circuits, software programmable
LED drivers, sensor ADCs, USB interfaces,
and multi-channel audio capabilities.
In 2013, Dialog launched the first in a
family of sub-PMICs designed as companion
devices to our system PMICs. Such scalability
allows, for example, one design to address
single, dual and quad processors, reducing
time-to-market and enabling our customers
to optimise the overall power scheme for
cost, area and power which are vital for
high-volume consumer devices.
Our configurable PMICs enable late
changes in board level designs as additional
functionality that is added into smartphone
platforms during the R&D process.
Our audio technology allows the capture
of speech and audio with high-quality and
low power consumption while at the other
end of the audio channel enables speaker
playback at maximum loudness and power
efficiency while extending battery usage
time. Dialog’s audio CODECs provide
full-range, high-fidelity audio capture and
playback to a variety of portable devices
and audio accessories. They feature
programmable Digital Signal Processors
(DSPs) that offload audio software from
the host processor including DTS SRS™,
advanced echo cancellation and
microphone beamforming.
Dialog is one of the first companies to
combine a fully configurable PMIC with
a low power audio CODEC that is
monolithically integrated, or stacked, in a
single package to deliver significant board
space and cost savings to its customers.
This can involve the integration of over
40 different high- and low-voltage circuits
and analog functions on a single chip.
Connectivity and VoIP solutions
Dialog’s DECT-based transceivers are
designed for wireless microphones,
speakers, gaming controllers as well as
professional headsets and cordless phones
using this secure, reliable, interference-free
short-range connectivity standard that
offers ceiling to cellar reach and can also
extend out into consumers’ gardens.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report
29
Our innovation and expertise allow portable
devices to perform better.
DECT is optimised for the short-range
wireless spectrum, giving audio priority in
the home or office. It is also ideally suited to
handling other types of signal that require a
real-time response with no buffering. Use of
DECT avoids the problems of co-channel
interference when multiple Wi-Fi, Bluetooth,
microwave and other proprietary signals
compete, slowing response times and
causing device drop-offs. For example, DECT
ensures that microphones capturing voice
are perfectly in sync with the backing tracks
and musicians and consumers can enjoy
reliable, real-time control when using their
gaming consoles.
Dialog has also developed SmartPulse™,
based on DECT ultra-low energy, to enable
consumers to wirelessly monitor and control
electric plugs, solar panels, lighting switches,
heating thermostats and other innovative
smart home applications over the cloud
using the always-on computing power
of a smartphone or tablet.
Dialog developed SmartBond™ in 2013, its
first Bluetooth Smart™ certified system-on-
chip (SoC). Bluetooth Smart™ is a part of
the Bluetooth™ 4.0 standard that address
peripheral and accessory applications with
lower power and lower connection times
than classic Bluetooth™. These features are
expected to open up new applications in the
areas of health and fitness, proximity devices,
human interface devices for tablets and
smartphones, wearables, and a variety of
new applications. The Bluetooth Smart™
market is forecast to experience strong
growth in the coming years. Dialog has
leveraged its expertise in power management
and in radio SoCs to enter the market with a
highly integrated, ultra-low power solution.
By enabling voice and data to run over
a single network Voice-over IP (VoIP)
technology can enable businesses to
increase bandwidth efficiencies and reduce
costs and migrate away from traditional
copper wire switched telephone systems.
Dialog engages with the leading global
VoIP phone manufacturers with our
energy-efficient Green VoIP solution to
address the large enterprise, small to
medium business (SMB) and hotel markets.
Dialog offers high-performance, energy-
saving VoIP chipsets that integrate the
building blocks for best-in-class audio,
security and graphics functionality. They
use acoustic echo cancellation and active
noise reduction to deliver crystal clear
conversations, with the option of video
calling or phone number directories on
a high resolution, colour touch screen
LCD, and banking-grade levels of
security authentication.
Automotive and industrial
Dialog supplies motor control ICs to a
leading European automotive supplier who
in turn delivers Dialog-based windscreen
wiper motor products addressing mid- to
high-end European cars. Our first product
for a customer in Japan went into
production in 2012, and is currently being
rolled-out further to new car models.
These devices capitalise on Dialog’s
expertise and knowledge of technologies
ranging from power management systems
and mixed signal design, to high voltage
circuits and embedded microprocessors on
a single integrated circuit in an automotive-
qualified CMOS process, including
flash memory.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 30
Operating review continued
We believe successful delivery on the Group’s
stated strategy, and ensuring continuing operational
efficiency and effectiveness, will provide the basis for
strong financial performance and, in turn, superior
Shareholder returns.
Our key customers and products continued
For the industrial market, Dialog develops
innovative control ASICs for conventional
light sources, such as fluorescent or
High-Intensity Discharge (“HID”) lamps,
and for other industrial applications. Our
future development focus is on energy-
efficient retrofit bulb LED lighting solutions.
These devices seek to deliver optimal control
and regulation of light sources, while
maximising their service life. Through
intelligent control, using advanced digital
signal processing, these devices help to
minimise energy consumption.
Power conversion
AC/DC converter solutions – digital
intelligence for smaller, faster charging
power adapters for portable devices.
Robust growth in the portable device
market is driving increased demand for
ultra-low power consumption AC/DC
chargers that are also smaller and charge
faster. Combining our AC/DC power
management expertise from iWatt with
our existing embedded PMICs enables us to
deliver smart, ultra-small, end-to-end power
management solutions for a new generation
of rapid charging portable devices.
LED drivers for solid-state lighting –
innovating to solve our customers’
design challenges. Solid-state LED
lighting is displacing traditional incandescent
and CFL lighting technologies due to its
superior energy-efficiency and long life.
Dialog is positioned to address the range
of challenges that arise in this progressive
shift from traditional lighting to solid-state
LED lighting. Two key challenges that exist
in retrofit bulb applications are dimmer
compatibility and dimmer performance.
There is a huge installed base of existing
dimmers using a wide array of technologies,
including leading-edge, trailing-edge,
digital, and universal dimmers – all originally
designed to operate with incandescent
bulbs, which create resistive loads. Since
LED drivers are high-switching devices, they
cannot match the resistive load. Dialog’s
patented intelligent digital dimming control
solves this problem, using advanced digital
analytics to interrogate the dimmer and
provide algorithms that automatically
adapt to the dimmer type.
Faster charging, smaller ultra-low power
consumption AC/DC chargers.
Details about Dialog’s Board of
Directors and management team
are on pages 48 to 51.
Superior energy-efficient long life
LED lightbulbs.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 31
Our “high-touch” fabless operating model
Outsourcing our production process provides
exceptional operational flexibility and low
CAPEX while maintaining deep expertise
on advanced process, test and packaging
development through our own teams.
Manufacture, assembly and testing
Dialog operates a scalable “high-touch”
fabless operating model with access to
leading-edge manufacturing technologies,
almost unlimited production capacities and
maximum flexibility in terms of delivery,
technology offer and cost base. We partner
with and source only from state-of-the-art
manufacturing facilities for industry-leading
performance with wafer foundries like TSMC,
UMC, Global Foundries and assembly and
test vendors such as SPIL, ASE and UTAC.
Geographically the production locations
are spread out which helps to mitigate risk
and disaster recovery in Taiwan, Singapore,
China and Thailand. The entire supply chain
is managed by Dialog to streamline volume
manufacturing and to ensure competitive
lead times, rapid delivery of prototypes to
secure the optimal time-to-market. This is
supported by globally located supply chain
teams as well as process, assembly, test and
quality engineers on-site within Dialog’s
Global Operations and Quality organisation.
In order to meet our stringent product
quality and qualification requirements,
all test programmes are developed and
maintained by Dialog’s Test and Product
engineering; when characterised and
qualified, the test solution is deployed to
our back-end partners. We have our own
manufacturing and technical engineers
close to foundries and assembly, and test
subcontractors in Asia. By being “on the
spot” to resolve any potential engineering
F
a b l e s s b usiness model
s e a d vanced proce
c k a ging develo
a
u
o
s
s,
p
ASIC
m
e
n
t
In- h
test a n d p
Mixed
signal
analog
ASS P
V
o
l
u
m
e
t
e
s
tin
F
o
u
n
d
r
y p
g and packa g i n g s
artners: TSMC, U M C ,
b
o
G l
d
b contracte
a l F o u ndries
u
issues quickly, we have also installed control
ramp processes to ensure there are no
problems during mass production.
Quality and environment control
We have an uncompromising approach
to quality assurance in every area of
our business by strict deployment of
our zero failures policy. Active employee
participation in error prevention approaches
has enabled us to win the approval of our
major customers and to beat their parts
per million (ppm) failure rate expectations.
The overall objective of our quality
management system is to provide all our
customers with the assurance that our
products and services not only fulfil their
current contractual requirements, but will
also meet their future needs.
We are committed to minimising our impact
on the environment by developing and
promoting environmentally compatible
products, and operate in accordance with
the ISO 14001 international environmental
quality standard. We promote awareness
and knowledge of environmental and social
responsibility throughout the organisation to
ensure that they become a natural part of
the decision-making process. As we demand
the same standards from our suppliers, we
only form subcontractor partnerships with
those who are accredited to the same
international standards.
Further details on our commitment to
corporate responsibility and sustainable
business practices – which are integral to
the Dialog business model – are set out
on page 40.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report
32
Section 2 | Strategic report
Financial review
At Dialog, we remain focused on long-term
sustainable and profitable growth. Our continuous
reinvestments in innovation coupled with financial
and operational excellence are key drivers
towards achieving that goal.
Jean-Michel Richard, CFO, Vice President Finance
+18%
Revenue growth*
(2012: US$774m)
*Underlying
40.4%
Gross margin*
(2012: 38.0%)
+30%
EBIT growth*
(2012: US$107.5m)
US$1.49
Basic EPS*
(2012: US$1.24)
The following tables detail the historical consolidated statements of the operations of Dialog for the years ended 31 December 2012 and
31 December 2013 both on an IFRS and underlying (*) and basis.
Dialog Semiconductor’s IFRS and underlying financial performance for 2013 and 2012
US$000
Revenues
Cost of sales
Gross profit
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Restructuring expenses
Other operating income
Operating profit
Foreign currency exchange gains and
losses, net
Result before income taxes
Income tax expense
Net profit
Earnings per share (in US$)
Basic
Diluted
EBITDA2
2013
2012
IFRS
Adjustments
Underlying1
IFRS
Adjustments
Underlying1
902,907
(551,099)
351,808
(49,000)
(44,255)
(159,287)
–
3,394
102,660
(168)
89,712
(27,508)
62,204
0.95
0.92
6,222
9,492
15,714
10,243
9,442
4,930
–
(3,394)
36,935
–
8,935
–
45,870
(10,459)
35,411
0.54
0.52
909,129
(541,607)
367,522
(38,757)
(34,813)
(154,357)
–
–
139,595
565
(4,410)
(168)
135,582
(37,967)
97,615
1.49
1.44
773,583
(480,971)
292,612
(38,669)
(33,476)
(127,886)
(1,549)
–
91,032
1,360
(6,466)
199
86,125
(23,612)
62,513
0.97
0.93
–
1,142
1,142
6,286
4,296
4,716
–
–
773,583
(479,829)
293,754
(32,383)
(29,180)
(123,170)
(1,549)
–
16,440
107,472
–
4,668
–
21,108
(3,659)
17,449
0.27
0.26
1,360
(1,798)
199
107,233
(27,271)
79,962
1.24
1.19
151,256
22,959
174,215
124,352
10,162
134,514
Interest income and other financial income
565
Interest expense and other financial expense
(13,345)
1
2
The term “underlying” is not defined in IFRS and therefore may not be comparable with similarly titled measures reported by other companies. Underlying measures are not
intended as a substitute for, or a superior measure to, IFRS measures. Underlying results (net of tax) have been fully reconciled to IFRS results (net of tax) above. All other
underlying measures disclosed within this report are a component of this measure and adjustments between IFRS and underlying measures for each of these measures are
a component of those disclosed above.
EBITDA is defined as operating profit excluding depreciation for property, plant and equipment (2013: US$18.6 million, 2012: US$12.7 million), amortisation for intangible assets
(2013: US$28.6 million, 2012: US$19.6 million) and losses on disposals and impairment of fixed assets (2013: US$1.4 million, 2012: US$1.0 million).
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 2 | Strategic report
33
Dialog Semiconductor’s underlying adjustments for 2013
US$000
Revenues
Cost of sales
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Other operating income
Operating profit
Interest expense and
other financial expense
Option
expenses
Accrual
National
Insurance
PPA BV
Convertible
Bond
Licence
agreement
Acquisition
and
integration
costs
2013
PPA iWatt
BenQ
TOTAL
–
(681)
(1,769)
(2,473)
(3,564)
–
(5)
(123)
(625)
(121)
–
(806)
(3,197)
(2)
(1,063)
–
–
–
(8,487)
(874)
(5,068)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(15)
(404)
(6,342)
(182)
(7,073)
(7,985)
(4,750)
–
–
851
–
–
–
–
(6,222)
(9,492)
(10,243)
(9,442)
(4,930)
–
3,249
145
3,394
(6,943)
(16,559)
996
(36,935)
–
–
–
(7,801)
(1,134)
–
–
–
(8,935)
Result before income taxes
(8,487)
(874)
(5,068)
(7,801)
(1,134)
(6,943)
(16,559)
996
(45,870)
Income taxes
Net income
1,334
(7,153)
248
1,267
–
322
638
6,933
(283)
10,459
(626)
(3,801)
(7,801)
(812)
(6,305)
(9,626)
713
(35,411)
See underlying definition note on page 35.
Dialog Semiconductor’s financial performance on an IFRS basis for 2013 and 2012
2013
2012
US$000
% of revenues
US$000
% of revenues
Change %
Revenues
Mobile Systems
Automotive/Industrial
Connectivity
Power conversion
Corporate sector
Revenues
Cost of sales
Gross profit
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Restructuring expenses
Other operating income
Operating profit
Interest income and other financial income
Interest expense and other financial expense
Foreign currency exchange gains and losses, net
Result before income taxes
Income tax expense
Net profit
744,869
37,814
92,588
26,768
868
902,907
(551,099)
351,808
(49,000)
(44,255)
(159,287)
–
3,394
102,660
565
(13,345)
(168)
89,712
(27,508)
62,204
82.4
4.2
10.3
3.0
0.1
100.0
(61.0)
39.0
(5.5)
(4.9)
(17.6)
0.0
0.4
11.4
0.0
(1.5)
0.0
9.9
(3.0)
6.9
638,765
38,686
96,133
–
(1)
773,583
(480,971)
292,612
(38,669)
(33,476)
(127,886)
(1,549)
–
91,032
1,360
(6,466)
199
86,125
(23,612)
62,513
82.6
5.0
12.4
–
0.0
100.0
(62.2)
37.8
(5.0)
(4.3)
(16.5)
(0.2)
0.0
11.8
0.2
(0.8)
(0.1)
11.1
(3.0)
8.1
16.6
(2.3)
(3.7)
–
>1,000
16.7
14.6
20.2
26.7
32.2
24.6
–
0.0
12.8
(58.5)
106.4
(184.4)
4.2
16.5
(0.5)
Dialog Semiconductor Plc | Annual report and accounts 2013
34
Financial review continued
Results of operations
Segment reporting
Revenues for the Mobile Systems segment
for the year ended 31 December 2013 were
US$744.9 million (2012: US$638.8 million),
representing 82.4% of our total revenues
compared to 82.6% for the year ended
31 December 2012. The 16.6% year-on-year
revenue increase is primarily driven by the
continuous success of our growing range of
highly integrated and increasingly more
complex power management solutions for
portable devices such as smartphones and
tablet PCs.
Revenues from our Automotive/Industrial
Applications segment were US$37.8 million
compared to US$38.7 million in the prior
year, representing 4.2% of our total
revenues (2012: 5.0%). The marginal decrease
in revenue is mainly the result of lower sales
volumes in the area of professional lighting
applications caused by the ongoing
unfavourable economic climate in Europe
and our reduced investments in Automotive.
Although demand for our products picked
up in the second half of 2013, this was not
sufficient to compensate for the softness
experienced in the first half of the year.
The operating profit in the Mobile Systems
segment (see note 26 to the consolidated
financial statements) grew to US$141.2 million
from US$112.2 million achieved in 2012,
an increase of 25.8%. As a percentage of
Mobile Systems revenues, 2013 operating
profit was 19% compared to 17.6% in 2012.
This increased profitability was primarily
driven by higher revenue, continuous
product margin improvements and by
leveraging operating expenses.
Operating profit in the segment was
US$12.2 million (2012: US$8.1 million).
Despite lower revenues in the sector,
2013 operating profit increased by 50.3%
over 2012 to be 32.3% of Automotive
and Industrial total revenues (2012: 21.0%).
This increased profitability is the result of
continuous improvements in manufacturing
processes, the redeployment of R&D and
selling resources and attributable overhead
expenses from this segment to the Mobile
System sector in support of high growth.
Revenues from our Connectivity segment
were US$92.6 million (2012: US$96.1) million
representing 10.3% of total revenues
compared to 12.4% for the year ended
31 December 2012. This reflects the
continuous softness in the DECT cordless
phone market, especially in Europe.
The Connectivity segment contributed an
operating loss of US$2.1 million, compared
to an operating loss of US$13.1 million in
2012. As a percentage of revenues the loss
of 13.7% in 2012 reduced to 2.3% in 2013.
This development can largely be attributed
to an improved gross margin achieved
during 2013 compared to a year ago.
This improvement results from a shift to
sales of higher value products, increasing
manufacturing efficiencies and related cost
reductions. Further positive effects are
attributable to a decrease in amortisation
expenses relating to the purchase price
allocation from US$6.3 million in 2012
to US$5.1 million in 2013 as certain assets
were fully amortised in 2012. In addition,
the operating profit in 2013 includes
benefits from capitalised R&D expenses of
US$2.5 million, compared to US$0.6 million
in 2012. This capitalisation represents the
The Connectivity segment’s underlying financial performance for 2013 and 2012 is summarised below:
US$000
Revenues
Operating profit (loss)
2013
2012
IFRS
Adjustments
Underlying1
IFRS
Adjustments
Underlying1
92,588
(2,121)
–
5,182
92,588
3,061
96,133
(13,144)
–
6,887
96,133
(6,257)
1 Underlying results in 2013 are based on IFRS consolidated income statement, adjusted to exclude US$5.1 million of amortisation of intangibles associated with the acquisition
of Dialog B.V. and charges for National Insurance related to share-based compensation in the amount of US$0.1 million.
Underlying results in 2012 are based on IFRS consolidated income statement, adjusted to exclude US$6.3 million of amortisation of intangibles associated with the acquisition
of Dialog B.V. and share-based compensation charges and related charges for National Insurance of US$0.6 million.
The Power Conversion segment’s underlying financial performance for 2013 is summarised below:
US$000
Revenues
Operating profit (loss)
2013
IFRS
Adjustments
Underlying1
26,768
(22,533)
7,073
21,630
33,841
(903)
1 Underlying results in 2013 are based on IFRS consolidated income statement, adjusted to include deferred revenue in the amount of US$7.1 million. Expenses of US$8.9 million
for amortisation of intangibles associated with the acquisition of iWatt group, US$7.0 million higher cost of sales related to fair value measurement of inventories and cost
of US$3.2 million related to adjustment of deferred revenues are excluded from operating result. As one-time expenses-related acquisition and integration costs in amount
of US$1.8 million are also excluded from operating result.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report
35
Total IFRS revenues
for 2013 were
US$902.9 million, up
16.7% from 2012.
portion of R&D expenses that is expected
to provide future benefits from completely
developed technologies. Furthermore, in
2012, a one-time expense of approximately
US$1.0 million was recorded relating to
the transfer of certain legacy Connectivity
products to a new assembly site. On an
underlying (*) basis, Connectivity operating
profits were US$3.1 million in 2013, compared
to an operating loss of US$6.3 million in 2012.
The newly created Power Conversion
segment includes the operating segment
of our newly acquired subsidiary iWatt Inc.,
USA (for further information please refer
to note 4 – Business Combinations and
note 26 – Segment Reporting – of the
consolidated financial statements. Revenues
from our Power Conversion segment were
US$26.8 million or 3% of total revenues
for the five and a half months this entity
was consolidated in 2013. The operating
loss in the Power Conversion segment was
US$22.5 million in 2013. On an underlying
(*) basis revenues were US$33.9 million and
operating loss was US$0.9 million. The
underlying revenues include US$7.1 million
of deferred revenue that have been
eliminated from IFRS results as part of the
purchase accounting associated with the
acquisition of iWatt. Underlying cost of sales
include additional expenses of US$3.2 million
in relation to the aforementioned deferred
revenues. Furthermore, underlying operating
results do not include depreciation and
amortisation expenses in the amount of
US$8.9 million and additional costs for
material consumption of US$7.0 million; all
these adjustments relate to the acquisition
accounting. Further one-time costs relating
to the acquisition and integration of iWatt
of US$1.8 million were excluded from
underlying expenses.
Revenues
Total IFRS revenues for 2013 were
US$902.9 million, up 16.7% from 2012
(2012: US$773.6 million). As described
above, the newly acquired iWatt business
contributed US$26.8 million of IFRS
revenues since 16 July 2013 (underlying (*)
revenues: US$33.9 million – including
US$7.1 million of one-off deferred revenue
as part of the purchase accounting). The
revenue growth is mainly attributable to
higher sales volumes, an increase in average
selling prices (“ASPs”) from our more
complex devices in our Mobile Systems
segment and the revenue contribution
from the new Power Conversion segment.
Excluding iWatt contribution, 2013 IFRS
revenues grew 13.3% over 2012 (2013:
US$876.1 million).
Cost of sales
Cost of sales consists of material costs,
the costs of outsourced production and
assembly, related personnel costs, applicable
overhead and depreciation of test and other
equipment. IFRS cost of sales for the period
ending 31 December 2013 was up 14.6% to
US$551.1 million (2012: US$481.0 million).
The increase can largely be attributed to
increased revenues and iWatt acquisition
related accounting adjustments. 2013 IFRS
cost of sales is net of a one-time inventory
purchase price adjustment (US$7.0 million),
amortisation and depreciation expenses
relating to the purchase price allocation
of iWatt (US$4.1 million) as well as SiTel BV
acquisition (US$0.8 million) and the reversal
of cost of sales related to deferred revenues
(US$3.2 million). As a percentage of
revenues, IFRS cost of sales decreased
from 62.2% in 2012 to 61.0% in 2013.
Underlying (*) cost of sales increased
from US$479.8 million in 2012 (62.0% of
underlying revenues) to US$541.6 million
in 2013 (59.6% of underlying (*) revenues).
This reduced cost of sales contribution to
revenue drove the gross profit increase.
Underlying results (net of tax) in 2013 are based on IFRS, adjusted to exclude share-based compensation charges and related charges for National Insurance of US$7.8 million,
excluding US$3.8 million of amortisation of intangibles associated with the acquisition of SiTel BV (now Dialog B.V.), excluding US$7.8 million non-cash effective interest expense
in connection with the convertible bond, excluding US$0.8 million non-cash effective interest expense related to a licensing agreement entered into in Q3 2012, excluding
US$6.3 million acquisition and integration expenses in connection with the purchase of iWatt and US$10.3 million of amortisation and depreciation expenses associated with the
acquisition of iWatt, deferred sales and related cost of sales that were reversed in connection with the iWatt business integration of US$2.5 million were brought back. Furthermore,
the gain of US$3.2 million from the release of an earn-out provision in relation to the iWatt acquisition was reversed and a recorded income related to a payment the Company
received in connection with the insolvency of BenQ of US$0.7 million was also taken out.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 36
Financial review continued
Underlying (*)
operating profit
in 2013 was
US$139.6 million
compared to
US$107.5 million.
Gross profit
Our IFRS gross margin increased from 37.8%
of revenues in 2012 to 39.0% of revenues
for the period ending 31 December 2013.
On an IFRS basis, the acquisition of the
iWatt business contributed negatively
to the 2013 Group profit as a result of
one-time accounting related adjustments.
On an underlying (*) basis, the gross margin
improved from 38.0% in 2012 to 40.4%.
The gross margin improvements throughout
2013 were the result of three key elements:
• The realisation of the benefits of
manufacturing cost optimisation over
the last six months;
• Positive product mix contribution from
the Power Conversion Business Group,
the Connectivity segment and new
products in Mobile Systems;
• Higher revenues and the subsequent
lower allocation per unit of the fixed
component of Cost of Goods Sold.
IFRS gross profit for the period ending
31 December 2013 was US$351.8 million,
an increase of 20.2% compared to
US$292.6 million in 2012, mainly driven
by increased revenues and material
cost improvements.
Selling and marketing expenses
Selling and marketing expenses consist
primarily of salaries, travel expenses,
sales commissions, advertising and other
marketing costs. Also included are
amortisation expenses for intangible
assets such as customer relationships,
key customers and order backlog resulting
from the purchase price allocation related
to the acquisition of iWatt Inc. in the third
quarter of 2013 and SiTel BV in 2011.
IFRS selling and marketing expenses
increased from US$38.7 million in
2012 (5.0% of total IFRS revenues) to
US$49.0 million for the period ending
31 December 2013 (5.4% of total
IFRS revenues).
The newly acquired iWatt business
contributed US$10.6 million of selling and
marketing expenses, of which US$4.8 million
were amortisation expenses resulting from
the purchase price allocation. Excluding
these amortisation expenses and other
adjustments for the integration of iWatt
as well as share option and amortisation
expenses relating to the SiTel BV purchase
price allocation, on an underlying (*) basis
selling and marketing expenses were
US$38.8 million in 2013 (4.3% of total
underlying (*) revenues) compared to
US$32.4 million in 2012 (4.2% of total
underlying (*) revenues).
General and administrative expenses
General and administrative expenses consist
primarily of personnel and support costs for
our finance, human resources and other
management departments.
IFRS general and administrative expenses
were US$44.3 million (4.9% of total
revenues) in 2013, an increase of 32.2%
over the US$33.5 million (4.3% of total
revenues) recorded in 2012. This increase
predominantly reflects a growing business
and the consolidation of the newly
acquired iWatt business, which contributed
US$3.2 million additional general and
administrative expenses. Furthermore,
general and administrative expenses in
2013 include US$6.3 million acquisition
and integration expenses related to the
acquisition of iWatt (see note 4 – Business
Combinations in the consolidated financial
statements). Excluding the additional
expenses relating to the iWatt acquisition
as well as share option and amortisation
expenses relating to the SiTel BV purchase
price allocation, underlying (*) general and
administrative expenses increased from
US$29.2 million in 2012 (3.8% of total IFRS
revenues) to US$34.8 million in 2013 (3.8%
of underlying (*) revenues).
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 37
Research and development expenses
Research and development expenses consist
principally of design and engineering-related
costs associated with the development of
new Application Specific Integrated Circuits
(“ASICs”) and Application Specific Standard
Products (“ASSPs”).
IFRS research and development expenses
(net of customer funded projects) were
US$159.3 million in 2013 (2012:
US$127.9 million), representing a year-on-
year increase of 24.6%. As a percentage
of total revenues, IFRS research and
development expenses increased from
16.5% to 17.6%. This increase can
largely be attributed to an increased R&D
headcount to support our ongoing growth
strategy (our engineering headcount has
now more than doubled since 2010) despite
lower than expected revenue growth in the
first half of 2013 and the acquisition of
iWatt business in July 2013.
Excluding iWatt, 2013 IFRS R&D expenses
were US$150.5 million, US$22.6 million
above 2012 or 17.1% of 2013 revenues
excluding iWatt. Underlying (*) research
and development increased from
US$123.2 million (15.9% of total revenues)
to US$154.4 million in 2013 (17.0% of
total underlying revenues).
Operating profit
IFRS operating profit for the period ending
31 December 2013 was US$102.7 million,
compared to US$91.0 million in 2012.
Since being acquired in July 2013, iWatt
business contributed an IFRS loss of
US$22.5 million to the operating profit
of the Dialog Group, mainly as a result
of accounting adjustments booked in
connection with the acquisition and related
purchase price allocation expenses. On the
other hand, a higher gross profit and lower
amortisation expenses associated with the
acquisition of SiTel BV (US$1.2 million) had
a positive impact on operating profit.
Underlying (*) operating profit in 2013 was
US$139.6 million or 15.4% of underlying
revenues compared to US$107.5 million
or 13.9% in 2012. The year-on-year
improvement in underlying operation
profit is the result of higher revenues and
the subsequent lower allocation per unit
of the fixed component of our operating
expenses and improved product margins.
Interest income and other
financial income
Interest income and other financial income
from the Company’s investments (primarily
short-term deposits) was US$565,000 for
the period ending 31 December 2013
(2012: US$1.4 million). The decrease primarily
resulted from the cash outflow of
US$303.9 million in July 2013 in connection
with the acquisition of iWatt. Furthermore,
a general decrease of interest rates on
financial markets associated with the
short-term nature of our investments led to
an additional decrease of interest income.
Interest expense and other
financial expense
Interest expense and other financial expense
consist primarily of expenses from capital
leases, hire purchase agreements and the
Group’s factoring arrangement. Furthermore,
starting from the second quarter 2012, the
expenses included the interest charges for
the convertible bond; and starting from the
third quarter 2013, the interest charges for
new loan facilities totalled US$115 million
(outstanding at 31 December 2013:
US$105 million), which the Company
contracted in connection with the
acquisition of iWatt.
In 2013, interest and other financial
expenses were US$13.3 million (2012:
US$6.5 million). The amount in 2013 mainly
includes two components related to the
convertible bond: US$2.0 million for a 1%
coupon payable on a semi-annual basis
to the bond holders and US$7.8 million
(non-cash) for the interest expense in
connection with the measurement of the
financial liability from the bond using the
effective interest method. The interest
expenses related to new debt facilities were
US$1.6 million. The year-on-year increase
mainly results from charges relating to the
convertible bond for which in 2013 we
recorded expenses for the full 12 months
compared to only eight and a half months
in 2012. In addition, 2013 also includes
the expenses for the new loan facility
contracted in July of that year.
Income tax expense
In 2013, a net IFRS income tax charge of
US$27.5 million was recorded (2012:
US$23.6 million) resulting in an effective
tax rate of 30.7% (2012: 27.4%). The main
reasons for the increase in the effective tax
rate were that in 2013 a lower amount of
previously unrecognised deferred tax assets
was recognised and the effect on the tax
rate arising from the acquisition of iWatt.
Net profit
For the reasons described above, we
reported a net IFRS profit of US$62.2 million
in 2013 (2012: US$62.5 million). On an
underlying (*) basis, however, 2013 net
profit increased year-on-year by
US$17.6 million to US$97.6 million.
Basic and diluted IFRS earnings per
share in 2013 were US$0.95 and US$0.92
respectively compared to basic and diluted
IFRS earnings per share of US$0.97 and
US$0.93 in 2012 respectively.
On an underlying basis (*), net profit
increased from US$80.0 million in 2012
to US$97.6 million in 2013 (10.7% of
underlying total revenues).
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 38
Financial review continued
At 31 December 2013,
we had cash and
cash equivalents of
US$186.0 million.
Liquidity and capital resources
Cash flows
Cash flow from operating activities
was US$110.7 million in 2013 (2012:
US$52.4 million). Cash inflow during
2013 was US$170.8 million (2012:
US$139.7 million) and resulted from
the Company’s net profit adjusted by
depreciation, amortisation and other
non-cash effective expenses. This cash
inflow was only partially offset by cash
outflows for investments in working capital
of US$18.8 million (2012: US$77.9 million
cash outflow), demonstrating our capacity
to manage working capital tightly despite
the year-on-year revenue growth. In
addition, in 2013 the Company paid
US$41.4 million for income taxes (2012:
US$9.5 million) as a result of German tax
losses having been fully utilised in 2012.
Cash used for investing activities was
US$344.2 million for the period ending
31 December 2013 (2012: US$54.3 million).
Cash used in 2013 for investing activities
consisted primarily of the net cash outflow
of US$303.9 million in connection with
the iWatt purchase and further investments
in tooling (masks), laboratory equipment,
probe cards, load boards and other
advanced test equipment totalling
US$23.2 million (2012: US$35.0 million).
The purchase of intangible assets was
US$9.5 million (2012: US$13.4 million)
and payments relating to capitalised
development costs were US$6.0 million,
flat to 2012.
Cash flow from financing activities
was US$106.7 million in 2013 compared to
US$200.7 million in 2012. The cash inflow
in 2013 relates mainly to two debt facilities
(in total US$115 million) related to financing
activities for the iWatt acquisition of which
US$10 million was pre-paid in Q4 2013.
Further cash inflows resulted from share option
exercises in connection with the Company’s
employee share option programme. 2012
cash inflow came primarily from the
proceeds of a convertible bond issued
in April 2012 (US$196.6 million).
Statement of financial position
Assets
Cash and cash equivalents and restricted cash
All other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets
Investments
All other non-current assets
Deferred tax assets
Total non-current assets
Total assets
Liabilities and Shareholders’ equity
Current liabilities
Non-current liabilities
Net Shareholders’ equity
Total liabilities and Shareholders’ equity
At 31 December
2013
US$000
At 31 December
2012
US$000
186,025
261,419
447,444
58,465
244,878
148,591
1,531
1,608
24,935
480,008
927,452
163,024
307,778
456,650
927,452
312,435
251,067
563,502
50,318
32,283
51,789
–
1,335
8,913
144,638
708,140
142,650
182,899
382,591
708,140
Change
US$000
(126,410)
10,352
(116,058)
8,147
212,595
96,802
1,531
273
16,022
335,370
219,312
20,374
124,879
74,059
219,312
%
(40.5)
4.1
(20.6)
16.2
>500
186.9
–
20.4
179.8
231.9
31.0
14.3
68.3
19.4
31.0
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 39
represents the short-term portion of the
new debt facilities taken as a result of the
iWatt acquisition.
The increase of non-current liabilities is
mainly dominated by new debt facilities
with a total fair value of US$84.2 million,
the deferred tax liability of US$38.7 million
relating to the purchase price allocation of
the iWatt acquisition and the compounding
of the convertible bond in the amount of
US$171.9 million.
Net debt, which is defined as short- and
long-term financial liabilities less cash was
US$103.6 million at 31 December 2013.
This compares to a net cash position (cash
less financial liabilities) of US$131.7 million
at 31 December 2012. This change is
mainly related to the purchase of iWatt
as explained above.
Shareholders’ equity increased to
US$456.7 million (US$382.6 million at
31 December 2012), which is mainly a result
of our net profit (adjusted by expenses for
share-based payments). The equity ratio
was 49.2% (54.0% at 31 December 2012).
Jean-Michel Richard
CFO, Vice President Finance
Liquidity
At 31 December 2013, we had cash
and cash equivalents of US$186.0 million
(31 December 2012: US$312.4 million).
The working capital (defined as current
assets minus current liabilities) was
US$284.4 million (31 December 2012:
US$420.9 million).
Total non-current financial liabilities as of
31 December 2013 were US$265.7 million
of which US$171.9 million represents
the book value of the liability from the
convertible bond (31 December 2012:
US$164.2 million) and US$84.2 million
relate to two additional debt facilities.
Up to July 2013, the Company had a
three-year (2011-2014) revolving credit
facility of US$35.0 million available for use
that bears an interest rate of LIBOR +140bp.
At 31 December 2012, we had no amounts
outstanding under this facility. As of 16 July
2013, the facility was cancelled and replaced
by a US$25.0 million revolving credit line
facility (RCF), which is available until March
2017. At the end of July 2013, US$15.0 million
was used from this RCF in order to finance
the iWatt acquisition but US$10 million was
subsequently pre-paid in December 2013.
In addition to the RCF, Dialog Group
entered into a Base Currency term loan
facility in an aggregate amount equal to
US$100.0 million.
In addition, we have two factoring
agreements that provide the Company
with up to US$75.0 million of readily
available cash. Accordingly, we believe
the funding available from these and
other sources will be sufficient to satisfy
our working capital requirements in the
near to medium term if needed.
equivalents decreased by US$126.4 million
or 40.5% to US$186.0 million at
31 December 2013 (31 December 2012:
US$312.4 million). This decrease was mainly
caused by the cash outflows from investing
activities amounting to US$344.2 million to
finance the acquisition of iWatt Inc. in July
2013 which was partly offset by cash
inflows from operating (US$110.7 million)
and financing (US$106.7 million) activities.
Other current assets increased from
US$251.1 million at 31 December 2012 to
US$261.4 million at 31 December 2013.
The increase of 4.1% is mainly driven by
US$42.7 million incremental trade accounts
receivable but offset by a US$34.9 million
reduction in inventories when compared
to 31 December 2012.
Total non-current assets increased
significantly; mainly driven by the iWatt
acquisition in the third quarter 2013 that
led to the recognition of goodwill of
US$244.9 million (please refer to note 4
to the consolidated financial statements).
Non-current assets totalling US$134.9 million
were added to the Group’s balance sheet
during the initial consolidation of iWatt
(please refer to note 4 to the consolidated
financial statements for further information).
In addition, we have invested into tangible
and intangible assets for a total of
US$35.0 million. These additions were more
than offset by depreciation and amortisation
charges in the amount of US$47.2 million.
Furthermore, we have made a strategic
equity investment into Arctic Sand
Technologies, Inc. amounting to
US$1.5 million; for further information
please refer to our Q2 2013 interim
financial statements.
The balance sheet total was US$927.5 million
at 31 December 2013 (31 December 2012:
US$708.1 million). Cash and cash
Current liabilities increased by net
US$20.4 million, which is mainly the result
of the US$19.8 million increase in other
current financial liabilities. This increase
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 40
Corporate responsibility and sustainability
An integral part of our strategy…
Corporate responsibility and a commitment to sustainable business
practices are important to the Dialog business model and a central
component of Dialog’s strategy to deliver long-term profitable growth.
In addition to a commitment to
environmentally sound business practices,
which are set out below, a key aspect of
corporate responsibility is a commitment
to good corporate governance; and
a responsibility towards the care and
development of the Company’s employees.
The Company has a strong commitment to
corporate governance and details of Dialog’s
governance policies and practice are set out
on pages 55 to 64.
Redesign
Dialog offers a range of green IC solutions
that minimise the number of components
required within consumer electronic
products, the energy they consume, and
extend to their overall lifespan to reduce
waste. In power management, our single
chip solutions reduce the number of
discrete components that need to be used
within mobile devices, while delivering
energy savings.
Sustainable, responsible and
fair business practices
Dialog’s commitment to sustainable and
responsible business practices are woven
into the fabric of the Company. Through
innovative new technologies and
environmental, employee or supplier
policies, we strive to make a contribution
to society and a difference in the world.
Dialog’s focus and expertise in power
management and power efficiency
semiconductors contribute to enhanced
power efficiency and lower power
consumption for a range of personal
portable devices and applications in
the consumer products market.
Dialog’s environmentally responsible
approach to business underpins everything
that we do. We aim to minimise our use of
natural resources and reduce and eliminate
all types of waste, following the principles
of redesign, reduce and recycle. We are
ISO 14001 certificated and require all our
suppliers to be accredited to, and comply
with, this environmental standard.
The Company also offers a range of
low energy short-range wireless ICs for
a range of smart home devices, including
energy monitoring, metering and
management applications. In 2012, Dialog
began actively developing next generation,
highly controllable LED (Light Emitting
Diode) technologies to deliver better quality
light within homes and offices, aiming to
significantly reduce energy usage and
enabling consumers to benefit from bulbs
with an average lifespan of around ten years
in comparison to just three to four years
with Compact Fluorescent (CFL) bulbs.
Reduce
Dialog is working to systematically reduce
CO2 emissions and minimise the carbon
footprint of our business, focusing on the
impact of our design centres. The Carbon
Disclosure Project recognised Dialog as one
of ten successful companies achieving the
“Scope-2-Indirect CO2 Emission Reduction”,
with a reduction of 40% in our main design
centres in 2013, which equates to 618 tonnes
of CO2 emissions. This follows a 34%
reduction in 2012. Despite significant
growth in our employee base we have
already beaten our target of 30% by 2014.
In addition, we are actively reducing the
quantity of hazardous substances used in
our labs.
We take the scarcity of natural resources
seriously and consider the conservation
of raw materials, such as metals, to be
a priority. Dialog continues to identify
potential methods to improve existing
technologies and substitute alternatives,
such as copper for precious metals, to
minimise our impact on the environment
and reduced costs without sacrificing
quality and performance.
Recycle
We have also implemented a rigorous
recycling of precious metals, such as gold
and silver, from waste and damaged
products. In 2013, we increased the quantity
of recovered gold by 61% (2012: 26%) and
recovered silver by 300% (2012: 250%).
Dialog only uses packing material qualified
as “green packing”, and have implemented
a “non-wood packing” delivery policy. We
believe that reusing and recycling packing
material and waste (including the PET and
glass bottles used in our work areas) can
contribute to the effectiveness of our
resource management and sustainability.
Our main five design locations currently
recycle 95% of packing and waste, which
is up from 92% in 2012. We are still
considering the way to assess intensity
emissions for our business.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 41
Ethics
Dialog believes that continued success in
the semiconductor market can be achieved
only by adopting high standards of ethical
behaviour when dealing with customers,
suppliers and workers.
It is particularly important to protect
Intellectual Property (“IP”), which is the
key to ensuring the development of
innovative solutions to complex problems.
Any transfer of technology or know-how
is always done in a manner that seeks to
protect IP rights, but also enables us to
discuss products openly with our business
partners. The disclosure of information that
is related to business activities, structure,
our financial situation and performance is
always carried out in accordance with
applicable regulations and prevailing
industry practices. We expect the
highest standards of integrity from all
Dialog stakeholders.
Any malpractice is strictly prohibited and
may result in immediate employer or
supplier termination and legal action.
For further information on our
commitment to sustainability and
to download a copy of our report,
please go to www.dialog-
semiconductor.com/docs/investor/
dialog-sustainability-2013.pdf
Our main five design
locations currently
recycle 95% of packing
and waste, which is up
from 92% in 2012.
Suppliers
As a fabless semiconductor company, it is
important that all of Dialog’s manufacturing
partners are equally committed to
respecting the environment. Within our
supply chain, we continually emphasise
that environmental issues should be an
instinctive part of any decision-making
process, and suppliers should:
• Design and manufacture only
environmentally friendly products;
• Monitor, reduce and eliminate all
types of waste. This includes waste
water, solid waste, wasted energy,
ozone-depleting CO2 emissions and
other volatile organic chemicals (VOC).
We work with suppliers relentlessly to
maximise yields, minimising the number
of chips that fail performance tests and
need to be disposed of, alongside
hazardous substances used during
the production process;
•
Identify resource substitution and resource
recovery processes and take steps to
ensure that conflict minerals are not used
in the manufacturing process; and
• Ensure all environmental permits are
obtained, maintained and kept current.
Human rights and code of conduct
Dialog is committed to fair wages, healthy
and safe working conditions, respect for
human and labour rights, and honest
relationships. We have adopted the
Electronics Industry Code of Conduct (EICC)
standard as the model for our own “Code
of Conduct” to try to ensure that working
conditions for both external suppliers and
employees are safe and that all workers are
treated with respect and dignity. This is in
addition to adopting principles from the
International Labour Organization Standards
(ILO), Universal Declaration of Human Rights
(UDHR), Social Accountability International
(SAI), and the Ethical Trading Initiative (ETI).
All labour must be given voluntarily
and workers must be free to leave their
employment on reasonable notice. Child
labour must not be used at any stage of
manufacturing. Working hours must not
exceed the maximum set by local laws and
wages must comply with all applicable laws.
Dialog and its suppliers must ensure that
workers are not threatened or subjected to
inhumane or harsh treatment, harassment
or any form of unlawful discrimination.
Open communication and direct engagement
between workers and management is
encouraged, even in those countries where
there is no meaningful legal protection.
Health and safety
Dialog considers a safe and healthy
working environment to be essential in the
maintenance of morale, productivity and
the production of high-quality, innovative
products within our own operations and
those of our suppliers. We are committed
to implementing and facilitating continuous
improvements and to mitigating operations-
related risks. We expect our suppliers
to provide evidence of suitable controls,
safe working procedures, preventative
maintenance and general protective
measures in their working environments.
When hazards cannot be adequately
controlled by these means alone, suitable
protective clothing or equipment is supplied
and evacuation procedures and facilities are
in place at Dialog’s and suppliers’ premises.
Every supplier is required to complete a
self-audit questionnaire to identify and
document compliance. We also carry
out regular on-site audits of all of our
major suppliers.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report
42
Corporate responsibility
and sustainability continued
Neither we, nor our suppliers, offer or
accept inducements or any other means of
obtaining undue or improper advantage.
We have a “whistle-blower” policy in place
to protect employees’ confidentiality and
encourage our suppliers to do the same.
Employees
Dialog has a highly diverse workforce,
incorporating employees from 50
nationalities. Dialog takes equality and equal
opportunity for all employees very seriously.
Women comprise 15% of the overall
workforce of 1,100 employees. Although
this is in line with the industry standard, the
Company is supporting various initiatives
in the areas of STEM education for young
women in the UK to encourage more
women to pursue careers in engineering
and electronic engineering. An example
of this is the newly created Gary Duncan
Women in Engineering Scholarship, which
is currently supporting a second-year
student from Imperial College London.
There is currently no female representation
on our Board or Senior Management team.
Continuous innovation and
professional development
Dialog has an ongoing commitment to
the training and development of all staff
at all levels of the organisation, both in
technical and non-technical areas. We seek
to develop a positive learning culture which
fully supports the development of the
individual and the growth of the business.
The Company has a global learning and
development strategy, which is written
to support both the development of the
organisation and the individuals within it.
The strategy supports the key aims of
Dialog’s annual and mid-term business plan.
Everyone within the organisation has the
opportunity to participate in a variety of
training events, which feed into these key
aims. Commitment to the professional
development of our employees is directly
responsible for a low employee turnover
rate of 5.2% which has reduced from
a rate of 9.6% in 2010.
Dialog won the 2013 NMI Training and
Development Award in recognition of the
internal training initiatives for its staff and
also for the work done with schools and
universities to encourage young people into
electronic engineering. One of their recent
graduates also won the NMI Young Engineer
of the Year Award.
Career development
Dialog has clear career levels and paths for
those wishing to pursue a technical career
or to focus on leadership and management.
For example, Dialog has created a Technical
Ladder, which provides promotional
opportunities for those who bring great
value to the Company through their
technical expertise and want to focus their
careers on that know-how, rather than on
management and leadership. Employees
who are successful in gaining a place on the
Ladder spend around 20% of their time
researching new innovation initiatives,
developing our university partnership
programmes, speaking at external and
internal conferences, and delivering and
participating in training opportunities.
Investment in training and
development (%)
28
38
2009
2010
2011
2012
2013
52
69
89
0
10
20
30
40
50
60
70
80
90
Employees
1,100
21
Locations
Engineers
825
14
Countries
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 43
Work environment and communications
Clear and consistent communication is
achieved through regular all-hands meetings,
led by Dialog’s CEO, to keep employees fully
aware of Company matters that affect
them. We encourage employee feedback at
all levels for new ideas to improve business
efficiency and performance.
Dialog has been implementing a programme
of growth and investment in many of our
locations, expanding facilities and work
space. When we expand or refurbish a site,
employee suggestions are incorporated to
create an environment that both meets the
Company’s business needs while also being
a pleasant place in which to work, which can
have a positive impact on productivity levels.
Dialog is committed to supporting the
health of its employees. Employees and
their families are eligible to participate in
non-contributory medical plans where
local culture and practice supports this.
Additionally, Dialog currently offers a
selection of “well-being” initiatives across
a variety of locations, including a free,
on-site flu vaccination programme, cycle
to work schemes and an on-site gym.
Communities
Dialog’s increased its contribution to
charities and good causes in 2013, giving
US$485,300 during the year (2012:
US$122,560). The Company is putting in
place a plan to continue to do more and has
set a target of giving 1% of pre-tax profit
to charity by 2015. We have a formal policy
to match all employee contributions or
funds raised for charitable causes that
are important to our employees and
the community.
Some examples of this include:
Nabern, Germany
• Blood typing – Dialog are paying for its
employees in Germany to have their
blood type taken to see if they are a
potential stem cell donor for cancer of
the blood, a good example of employee
volunteering and charitable donation.
• Equipment for children with disabilities
– Dialog purchased a trampoline and a
wheelchair swing. The equipment was
installed by volunteer employees.
Swindon, UK
• Oak and Furrows – the office has
supported this local wildlife charity, who
are relocating their facilities and require
assistance with funding in order to
survive. As well as providing a donation
for an emergency hospital, there are
multiple volunteering opportunities as
well as team development activities.
• Swindon Cricket Club – Swindon Cricket
Club is one of the oldest clubs in the UK,
with a history reaching back nearly 175
years, and were in desperate need of
funds in order to survive. Dialog
sponsored necessary equipment in order
for them to continue to train and develop
young and upcoming players.
Athens, Greece
• School in Athens – due to a serious lack
of funding, Dialog provided money for
computers, toys and equipment for
children with Down’s Syndrome.
Campbell, US
• Employee matching – we have matched
funds raised by employees in our Campbell
office for local charities, including
pancreatic cancer and scleroderma.
• Teacher sponsorship – we have
sponsored a STEM teacher through her
teacher training at a US university. She
would have otherwise been unable to
achieve this qualification. In return she
will be teaching maths for a year to
children in deprived areas.
Global
• Football tournament – six offices
competed in a football tournament held
in Germany to raise money for their local
charities, totalling US$22,000.
University partnership programmes
Dialog runs a range of programmes globally
to attract the brightest and best students
of school and university age into the
electronics industry and our Company. We
sponsor 12 students (2012: 10) at leading
universities, provide access bursaries,
academic prizes, and also run a range
of schools’ outreach programmes.
In 2013, Dialog sponsored 10 electronics
engineering students from Imperial College,
York, Bristol, Manchester, Edinburgh and
Southampton, through the UK Electronic
Skills Foundation, an organisation that aims
to encourage young people into electronics
and develop sound links between
universities and industry. We also provided
industrial scholarships to students at
Karlsruhe and Aalen universities in Germany,
Edinburgh in the UK, Twente in The
Netherlands, and Stanford in the United
States. Scholars receive benefits such as
a start-up bursary for books, an annual
bursary, paid work placements, an
opportunity for a summer job and an
industrial mentor.
We give six “access bursaries” of £1,000
each at the University of Edinburgh to assist
low-income engineering students and
sponsor cash prizes at several universities,
including Imperial College London, and
a cohort of 10 universities in Tokyo. In
September 2013, we sponsored a field trip
for 20 electronic engineering students from
the University of Twente in The Netherlands,
who visited Japan to research the markets,
Japanese universities, factories and
businesses, including the Dialog design
centre in Tokyo.
Dialog staff talked to school age children
about the exciting world of the electronics
industry, offered careers counselling and
work experience placements for students,
and run interactive electronics competitions.
They have also developed a module for the
University of Edinburgh MEng programme,
and regularly act as guest lecturers at
leading universities to help ensure young
people come into the industry with the
skills they need to thrive.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 44
Managing risk and uncertainty
Dialog’s risk management process follows a sequence of risk identification,
assessment of probability and impact, and assigns an owner to manage
mitigation activities. The Company has delegated its coordination to an officer
who interacts with the executive management, the internal auditors and the
external auditors. All relevant risks are recorded in a risk register that is
reviewed quarterly by the Audit Committee.
The following section describes how Dialog responds to those risks that are most relevant in respect of its business objectives.
Market environment
Dialog operates in the fast-moving, highly competitive consumer electronics market. Consumer electronics manufacturers demand the best
quality at lowest prices from their suppliers. Typical to our market are hypes, innovation, fast-rising leaders, mass production and global
visibility. As a fabless semiconductor manufacturer, Dialog’s high performance in the segments of operation is generated from its high
degree of innovation and fast time-to-market.
Risk
Actions
Progress in 2013
Consumers
Dialog leads in providing a best quality IC
solution to innovative consumer electronics.
To keep this leading position and grow our
business, we need to understand the market
and convert trends into business opportunities.
Economy
Our ambition is to sustain growth, but the
slowing growth of the semiconductor industry
also affects the segments of our business.
Dialog invests in research and development
to anticipate and respond to new market
trends, rapidly implements new designs
to meet customers’ needs and keeps abreast
of technological changes.
Dialog invested US$159 million or 17.6%
of revenues in R&D in 2013 across a range
of highly targeted areas.
Dialog broadens its market by entrance into
new segments, either by in-house innovative
product development or through acquisition.
In Q1 2013, we started to cooperate with
Arctic Sand, a US start-up company, to develop
next generation PMIC products.
In Q1 2013, we launched a new family of
multi-touch ICs. This brings us into the high-
volume PC market and UltrabookTM market.
This was the result of a partnership with
FlatFrog, a Swedish company.
In Q2 2013, Dialog launched SmartBond™,
the world’s lowest power and smallest
Bluetooth® Smart system-on-Chip (SoC)
developed in-house.
In Q3 2013, Dialog acquired iWatt, adding
two high-growth product families to the
product portfolio; AC/DC charger adaptor
ICs and a broad range of LED solid-state
lighting ICs.
In Q3, we licenced Tensilica® Hi-Fi Audio/Voice
DSP IP from Cadence Design Systems, to
develop next generation audio solutions for
our connectivity products.
Competition
Other parties in our industry may seek to yield
from our technical innovations by duplication
of our products or parts thereof.
Meanwhile we seek to protect our current
business and our IP from being copied or used
by others by appropriate use of patents,
copyrights and trademarks on a global basis.
Dialog holds approximately 450 patent families
including more than 110 patents held by iWatt
at acquisition.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 45
Key financial metrics can be
found on page 2.
Business relations
We mitigate the cyclical volatility of our market by diversification of our product portfolio into new sectors and we broaden our customer
base to reduce exposure to the potential loss of a major customer. We need to seek partnerships that are flexible to the fluctuations in
demand and yet are able to ensure the continuity of production. We distribute our supply over multiple partners to prevent shortage in the
event that one of our suppliers faces capacity constraints, financial problems or natural disasters.
Risk
Actions
Progress in 2013
Suppliers
Dialog outsources the capital intensive
production of silicon wafers, packaging and
testing of integrated circuits to leading
suppliers in their area, mainly in Asia. Capacity
constraints and business interruption can lead
to shortage of supply, with various negative
consequential effects as a result such as loss
of revenue and adverse impact to the
appreciation of Dialog’s relation with
its customers.
Dialog has forged close partnerships with
all our suppliers and they have responded by
investing in capacity to meet demand from
our expanding customer base.
Dialog maintains intense interaction to
plan and manage capacity with its suppliers.
Dialog strives to source its large volume
components from two different manufacturers
and/or from different sites to mitigate the risk
of disruption to supply. For each supplier the
manufacturing quality, continuity of supply,
financial health and social and environmental
ethics are monitored.
Customers
Since Dialog relies on a relatively small
number of customers for a substantial
proportion of our revenue, the loss of one
or more of these customers would be likely
to have a material effect.
We are seeking to reduce the risk of our
revenues, profitability and growth being
affected by a slowdown in the wireless
communications market, by winning customers
in other sectors and by broadening our product
offering to existing customers.
Dialog works with a range of foundries and
back-end vendors, mainly in Taiwan, China and
Singapore to mitigate the risk of supply chain
disruption and constraints. This geographical
spread also helps prompt disaster recovery.
During 2013, we extended our collaboration
with Samsung to two new smartphone
platforms.
The acquisition of iWatt Inc. in Q3 2013 added
new Tier-1 customers and two new product
families: AC/DC ICs and solid-state lighting ICs.
In Q4 2013, we announced a cooperation with
Richtek to partner together in addressing the
China smartphone and tablet market, using
innovative solutions to leverage Dialog’s
technology and Richtek’s sales channel.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 46
Managing risk and uncertainty continued
Operational excellence
Dialog recognises that time-to-market is a critical factor for the success of our customers. The efficiency of our internal operation is a relevant
factor to our performance. We run programmes to drive continuous improvement through all facets of the value chain from design
to fulfilment. We also test and evaluate the quality of the supporting business functions.
Our business model is fuelled by the funds trusted to Dialog to run its operations. We realise that our financial transactions bring the risk of
currency and interest rate fluctuations and bad debts. We seek to ensure we have enough free cash flow to invest in growing our business
and seek to select the right financial service providers and products.
Risk
Actions
Progress in 2013
Design capacity
Dialog develops both application-specific ICs
per the demand of a single customer as well
as application-specific standard products to
address multiple customers in a market sector.
Dialog respects that time-to-market for our
customers is of importance to their success.
With strong demand for new innovations and
limited capacity of design engineers, we must
balance the allocation of our resources to both
our business models.
Dialog has selected specialised outsourced
agencies to support the explosive recruitment
of personnel.
In-house we dedicated human resource
managers to drive the further development of
our personnel and benchmark our employment
terms to match industry top performers.
Unlike many of our peers we have a
decentralised approach to research and
development with teams in 14 countries. In a
highly competitive talent market we believe this
flexible approach is advantageous, allowing us
to recruit talent from where it resides.
In 2013, we expanded our design capacity
by 36%.
We further extended our pool of IC design
engineers through the acquisition of iWatt in
China and USA.
In 2013, we improved our product design
methodology and trained all relevant
employees to maximise process control and
ensure the optimal output of design efforts.
Supply chain
Dialog runs a fabless model because of
the highly capital intensive production
environment. The manufacturing of our
products runs over multiple stages of
production with multiple suppliers. Each
supplier must manage capacity to ensure a
healthy financial return, leading to constraints
in times of increasing demand. Long-term
capacity planning and short-term fine tuning
are crucial to align production cycle time with
operable order lead times to our customers.
Dialog carefully selects its suppliers and
regularly audits their quality and performance.
We keep a very close relationship with intensive
communication and have implemented
automated feeds with our suppliers to ensure
swift turnaround of production orders and
to manage the transition of production stages
over multiple manufacturing locations.
We keep inventory buffers to respond
to unplanned demand fluctuations, but
manage these to consume a minimum of
working capital.
We continue to enhance our Supply Chain
Network Planning software, based on SAP,
that supports the automated scheduling of
production work orders taking into account
the capacity constraints of our suppliers.
During 2013, we have extended our supplier
audit programme to fully cover all aspects of
business ethics and environmental control.
We have published our first sustainability
report over 2012.
Interest rate fluctuations
Interest earned from bank and money
market deposits can vary according to market
fluctuations and Dialog’s cash requirements.
Dialog manages its interest income using
a matched investment strategy with a mix
of fixed and variable interest rate facilities in
highly liquid funds, which are offered by highly
reputable and rated financial institutions.
This includes investing excess funds, even
over the short term, once the operating
business has been financed.
During the year, the Group has held cash on
deposit with a range of maturities from one
week to three months.
Dialog has long-term debt of US$265 million
and no amounts outstanding under short-term
credit facilities as at 31 December 2013
(2012: nil).
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report 47
Read our Corporate Governance
statement on pages 55 to 64.
Risk
Actions
Progress in 2013
Liquidity levels
As a high-growth Company, we need to
balance the need for liquidity with the
avoidance of short-term overdrafts and
bank charges.
We structure the maturity of our current
financial assets in the Group to meet 100%
of the respective maturities and liabilities. We
monitor our liquidity on a quarterly basis, with
the objective of avoiding interest on short-term
bank liabilities or overdrafts.
We hold a US$25 million deposit with variable
run-time at one month’s notice.
Currency fluctuations
The majority of Dialog’s revenue and expenses
are in the US dollar currency. There are,
however, foreign exchange risks associated
with sales and purchases, recognised assets
and liabilities in other currencies, primarily the
euro and the pound sterling.
We use forward-currency contracts to seek to
limit our exposure associated with the payment
of salaries and wages in other currencies.
We seek to maximise the effectiveness of our
hedge derivatives by matching the terms and
conditions of the hedge to those of the
underlying obligation.
During 2013, Dialog executed forward contracts
for €92 million at an average of 1.289 for EUR
to USD. The average market rate was 1.328.
During 2013, Dialog executed forward contracts
for £35.3 million at an average of 1.573 for
GBP to USD. The average market rate was 1.563.
During 2013, Dialog executed forward contracts
for ¥555 million at an average of 0.01254 for JPY
to USD. The average market rate was 0.01025.
Total of forward transactions resulted in
a positive impact of US$1.9 million compared
to spot transactions.
During 2013, we booked one minor potential
bad debt for an amount of US$14,000.
Creditworthiness of customers
Dialog trades with selected customers on credit
terms and receivable balances, which could
create a risk of bad debts.
We view all our customers as having high
creditworthiness. However, we have factoring
agreements with two reputable financial
institutions who assume a major part of the
risks associated with the collection of
receivables from selected customers.
Jalal Bagherli
CEO
Jean-Michel Richard
CFO, Vice President Finance
20 February 2014
20 February 2014
Dialog Semiconductor Plc | Annual report and accounts 2013Section 2 | Strategic report
48
Section 3 | Management
Leadership – Dialog Board of Directors
1
2
3
4
5
The Board of Dialog currently comprises nine
Directors, the maximum allowable under
Dialog’s Articles of Association. This includes
one executive Director, one non-independent
non-executive Director and seven independent
non-executive Directors (including the Chairman).
The Board of Directors comprises a mix of the
necessary skills, knowledge and experience
required to provide leadership, control and
oversight of the management of the Company
and to contribute to the development and
implementation of the Company’s strategy.
In particular, the Board combines a Group of
Directors with diverse backgrounds within the
technology sector, in both public and private
companies, which combine to provide the Board
with a rich resource and expertise to drive the
continuing development of Dialog and advance
the Company’s commercial objectives. Director
biographies are set out below and further
details on the composition of the Board,
and the Board’s various sub-committees
are detailed on pages 63 and 64.
1. Rich Beyer
Chairman
Rich joined the Board in February 2013 as an
independent non-executive Director and was
appointed Chairman in July 2013. Rich has a
long-standing career in the technology sector.
He was the Chairman and CEO of Freescale
Semiconductor from 2008 to 2012. Prior to
this, he held successive positions as CEO
and Director of Intersil Corporation, Elantec
Semiconductor and FVC.com. He has also held
senior leadership positions at VLSI Technology
and National Semiconductor Corporation. In
2012, he was Chairman of the Semiconductor
Industry Association Board of Directors and
served for three years as a member of the US
Department of Commerce’s Manufacturing
Council. He currently serves on the Boards of
Analog Devices and Micron Technology Inc and
previously served on the Boards of Credence
Systems Corporation (now LTX-Credence),
XCeive Corporation and Signet Solar.
Rich served three years as an officer in the
United States Marine Corps. He earned
Bachelor’s and Master’s degrees in Russian
from Georgetown University, and an MBA
in marketing and international business from
Columbia University Graduate School
of Business.
External appointments
Rich currently serves on the Boards of Micron
Technology Inc and Analog Devices Inc.
Board experience
2. Dr Jalal Bagherli
Executive Director (Chief Executive Officer)
Jalal joined Dialog as CEO and an executive
Board Director in September 2005. He was
previously Vice President & General Manager
of the Mobile Multimedia business unit for
Broadcom Corporation. Prior to that Jalal was
the CEO of Alphamosaic, a venture-funded
silicon start-up company in Cambridge,
focusing on video processing chips for mobile
applications. He has extensive experience of
the semiconductor industry, through his
previous professional and executive positions
at Sony Semiconductor and Texas Instruments,
managing semiconductor product businesses
and working with customers in the Far East,
Europe and North America.
Jalal has a BSc (Hons) in Electronics Engineering
from Essex University, and holds a PhD in
Electronics from Kent University, UK.
External appointments
Jalal is a non-executive director of Lime
Microsystems Ltd since 2005 and the Chairman
of the Global Semiconductor Association
Europe since 2011.
Board experience
3. Chris Burke
Independent non-executive Director
Chris joined the Board in July 2006. He has a
career of 30 years in telecoms and technology.
Post his degree in Computer Science in 1982,
he spent 15 years in Nortel Research and
Development. Followed by technology business
leadership roles as Chief Technology Officer
(CTO) in Energis Communications (at the time
of IPO into the London Stock Exchange), then
CTO at Vodafone UK Ltd. Post-Vodafone Chris
has made over 20 technology investments
from his own investment fund, founded/
co-founded a number of start-up companies,
and provides a Strategy and Technology
Advisory service for some of the biggest
technology manufacturers in the industry
as well both private and venture investors.
External appointments
Chris serves on the Board of public company
Tranzeo Wireless, as well as the private company
boards of Aicent, One Access and Navmii.
Committee membership S* R ∆
Board experience
4. Mike Cannon
Independent non-executive Director
Mike joined the Board in February 2013. His
career in the high-tech industry spans 30 years,
including over 10 years as CEO of two Fortune
500 companies. He was President, Global
Operations of Dell from February 2007 until his
retirement in 2009. Prior to joining Dell, Mike
was the Chief Executive Officer of Solectron
Corporation, an electronic manufacturing
services company, which he joined as CEO in
2003. From 1996 until 2003 Mike served as
CEO of Maxtor Corporation, a disk drive and
storage systems manufacturer. He successfully
led the NASDAQ IPO of Maxtor in 1998. Mike
previously held senior management positions
at IBM and Control Data Corporation.
Mike studied Mechanical Engineering at
Michigan State University and completed the
Advanced Management Program at Harvard
Business School.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 3 | Management
49
6
7
8
9
External appointments
John is a Chairman of three private companies
and is a Trustee of two charities.
in 2005. Russ is a past Chairman of the
Marketing Group of Great Britain, is senior
adviser to Ariadne Capital and Founder and
Chairman of Tech London Advocates.
External appointments
Mike currently serves on the Boards of Adobe
Systems Inc., Seagate Technology and Lam
Research. He is a member of Adobe’s Audit
Committee and previously served for five years
as Chairman of the Compensation Committee.
He is also a member of both the Finance
Committee and Nominating & Governance
Committee at Seagate; and, a member of the
Nominating & Governance and Audit
Committees at Lam Research.
Committee membership R* N
Board experience
5. Aidan Hughes
Independent non-executive Director
Aidan joined the Board in October 2004. He is
a Fellow of the Institute of Chartered Accountants
in England and Wales and qualified as a
chartered accountant with PriceWaterhouse in
the 1980s. He has held senior finance roles at
Lex Service Plc and Carlton Communications
Plc. He was an FTSE 100 finance director, having
held that position at the Sage Group Plc from
1993 to 2000. From December 2001 to August
2004, he was a director of Communisis Plc.
Committee membership A N
Board experience
7. Gregorio Reyes
Non-Executive Director
Gregorio joined the Board in December 2003
and served as Chairman from 2006 to July
2013. He has been working in the
semiconductor, data storage, magnetic
recording and telecommunications industry
since 1962. Gregorio began his career with
National Semiconductor, followed by executive
positions with Motorola Inc. and Fairchild
Semiconductor Inc. He was President and
CEO of National Micronetics from 1981 to
1984, and Chairman and CEO of American
Semiconductor Equipment Technologies from
1986 to 1990. He co-founded Sunward
Technologies in 1985 and was Chairman and
CEO until 1994. He is currently non-executive
Chairman of LSI Corporation and a non-
executive Director of Seagate Technology.
External appointments
Aidan has a part-time executive role in leading
UK private software company Corelogic Limited.
He is also an investor and adviser to a number
of international private technology companies.
External appointments
Gregorio is currently non-executive Chairman
of LSI Corporation and a non-executive
Director of Seagate Technology. He is a
member of the Audit Committee and the
Finance Committee at Seagate.
Committee membership A* N S
Board experience
Board experience
6. John McMonigall
Independent non-executive Director,
Senior Independent Director
John joined the Board in March 1998. He joined
Apax Partners Worldwide LLP in 1990 and was
responsible for investments in telecommunications,
electronics and software. He has served on the
boards of a number of listed companies, including
Autonomy Corporation until its sale in 2011,
and currently serves on the boards of several
private companies. In 2012, John was appointed
the Senior Independent Director at Dialog.
8. Russ Shaw
Independent non-executive Director
Russ joined the Board in July 2006 and has
over 20 years’ senior marketing and brand
management experience in the technology,
telecoms and financial services sectors. Russ
most recently served as the Vice President
& General Manager for Skype, with
responsibilities for its Mobile Division as well
as Europe, Middle East and Africa. Previously,
he was at Telefonica, where he was the Global
Director of Innovation. Before joining
Telefonica, he was the Innovation Director
at O2, which he joined as Marketing Director
External appointments
Russ is currently a non-executive Director for
Unwire A.p.S. and Cupid Plc.
Committee membership N* R ∆
Board experience
9. Peter Weber
Independent non-executive Director
Peter joined Dialog in February 2006. He has
35 years’ experience, gained at a broad range
of companies in the semiconductor and
communication sectors, including Texas
Instruments, Intel, Siliconix, the Temic Group
and Netro Corporation. Since 1998 he has
been an investor and management consultant,
and is a director of a number of companies in
Europe, the US and Asia. Peter holds an MSEE
degree in communications engineering.
External appointments
Peter is a Director of a number of private
companies.
Committee membership A R S ∆
Board experience
Committee Membership
A = Audit Committee
N = Nomination Committee
R = Remuneration Committee
S = Strategic Transaction and
Technology Committee
* denotes Chair of the committee
Board experience
Technology
Telecommunications
Finance
Governance
∆
A previous member of the Remuneration and
Nomination Committee which was separated into
two Committees in May 2013
Dialog Semiconductor Plc | Annual report and accounts 2013
50
Section 3 | Management
Leadership – management team
1
2
3
4
5
1. Dr Jalal Bagherli
Chief Executive Officer
Jalal joined Dialog as CEO and an executive
Board Director in September 2005. He was
previously Vice President & General Manager
of the Mobile Multimedia business unit for
Broadcom Corporation. Prior to that Jalal was
the CEO of Alphamosaic, a venture-funded
silicon start-up company in Cambridge,
focusing on video processing chips for mobile
applications. He has extensive experience
of the semiconductor industry, through his
previous professional and executive positions
at Sony Semiconductor and Texas Instruments,
managing semiconductor product businesses
and working with customers in the Far East,
Europe and North America.
Jalal is a non-executive director of Lime
Microsystems Ltd since 2005 and the Chairman
of Global Semiconductor Association Europe
since 2011. He has a BSc (Hons) in Electronics
Engineering from Essex University, and holds
a PhD in Electronics from Kent University, UK.
2. Andrew Austin
Senior Vice President, Sales
Andrew joined Dialog in April 2009. He was
previously a Sales and Marketing consultant
specialising in the semiconductor and
high-performance sports industries. He has
extensive experience of the semiconductor
industry through his previous professional
positions at Texas Instruments and Raytheon
Systems. Andrew holds a degree in Electrical
and Electronics from Hertford University.
3. Christophe Chene
Senior Vice President, Asia
Christophe joined Dialog in November 2011
as Vice President, Asia and is based in Taiwan.
He has over 20 years of experience in the
semiconductor industry, focusing on building
international businesses with a strong Asian
footprint. Previously he served as Senior Vice
President and General Manager of the TV
Business Unit as well as Senior Vice President
of worldwide sales for Trident Microsystems.
Prior to that, Christophe served in various
international executive and managerial
positions at Texas Instruments, Sharp and
Xilinx. Christophe holds an Electronics
Engineering degree from INSA, Toulouse.
4. Mohamed Djadoudi
Senior Vice President, Global
Manufacturing Operations and Quality
Mohamed joined Dialog in March 2007 and
is responsible for product engineering, test
and assembly development, data automation,
software support, offshore manufacturing
operations and quality. Mohamed has more
than 25 years’ experience in the field of
semiconductor manufacturing operations,
starting initially with IBM in France and the
US. He was previously Senior Vice President
and Chief Technology Officer of the Unisem
group, an assembly and test subcontractor
based in Malaysia and China. He also held the
position of Vice President of Test Operations
at ASAT (Atlantis Technology), based in Hong
Kong, before becoming one of the original
members of the management buy-out team
of ASAT UK, where he served as the Technical
Director. Mohamed holds an Electronic and
Electrotechnic degree from the Paris University
of Technology.
5. Gary Duncan
Senior Vice President, Product Development
After 26 years of successful continuous
dedication to Dialog, Gary Duncan retired
in September 2013. In his last role as
Vice President, Product Development
Gary was responsible for all IC design
and development activities.
6. Udo Kratz
Senior Vice President and General
Manager, Mobile Systems Business Group
Udo joined Dialog in May 2006. He is
responsible for the Audio and Power
Management Business Unit, which makes
products for the mobile phone and portable
consumer markets. He has over 20 years’
experience in the semiconductor industry,
gained in general management, senior
marketing and engineering at Robert Bosch
GmbH, Sony Semiconductor and Infineon
Technologies. Udo holds an Electronic
Engineering degree from the University
for Applied Sciences, Mannheim.
7. Sean McGrath
Senior Vice President and General
Manager, Connectivity, Automotive
and Industrial Business Group
Sean joined Dialog in November 2012. Sean
has more than 15 years’ experience in RF
semiconductor businesses, introducing
innovative business models and leading
organisations to rapid growth. Prior to Dialog
he was General Manager of the Smart Home
& Energy group at NXP and General Manager
of the RF Power and Base Stations business
at NXP/Philips Semiconductors. He previously
held senior roles at Philips Semiconductors and
Mikron Austria GmbH, focusing on the RFID
and connectivity markets. Sean holds an
honours degree in Geophysics and Geology
from Harvard University and an MBA with
distinction from INSEAD.
Dialog Semiconductor Plc | Annual report and accounts 2013 Section 3 | Management
51
6
7
8
9
10
8. Martin Powell
Senior Vice President, Human Resources
Martin joined the Company in July 2010 and is
responsible for developing and driving people
strategies in support of Dialog’s business goals
and initiatives worldwide, including fostering
an environment where Dialog’s teams can
thrive. Prior to Dialog, Martin has held a
variety of senior and executive HR roles with
Medtronic Inc., General Electric (GE) and the
Dell Corporation. Most recently he was a
member of the executive team at C-MAC
MicroTechnology, a private equity-backed
leader in the high reliability electronics sector.
During his career Martin has been located in
Asia, continental Europe as well as the UK.
9. Jean-Michel Richard
CFO, Senior Vice President Finance
Jean-Michel joined the Company in September
2006 to head up its finance department. He
was previously Finance Director for the Global
Manufacturing and Technology Division of
ON Semiconductor, in Phoenix, Arizona, and
before that held senior finance and treasury
positions at ON and Motorola, in Europe
and the US. Jean-Michel holds a Masters
in Economics from the University of
Geneva, Switzerland.
10. Mark Tyndall
Senior Vice President, Corporate
Development and Strategy, General
Manager Power Conversion
Business Group
Mark joined Dialog Semiconductor in
September 2008. Prior to this, Mark was
Vice President of Business Development and
Corporate Relations at MIPS Technologies.
From 1999 to 2006, he held the position of
Vice President of Business Development at
Infineon and has also served as a board director
of a number of start-up companies, several of
which were successfully acquired. Earlier in his
career, Mark held management positions in
marketing at Fujitsu Microelectronics and in
design at Philips Semiconductors.
Vivek Bhan
Vivek Bhan joined Dialog in November 2013
and is responsible for overall direction of
engineering and technology. He brings a
wealth of engineering leadership experience
in the semiconductor industry including
technology and products for advanced cellular
systems, connectivity and medical applications
within RF, mixed signal and SOC space. He has
held senior positions at Freescale, Fujitsu
Semiconductor and Motorola. Vivek holds an
MS in Electrical Engineering and an MBA from
Arizona State University.
Management team
Name
Role
Dr Jalal Bagherli
Andrew Austin
Christophe Chene
Mohamed Djadoudi
Gary Duncan
Udo Kratz
Sean McGrath
Martin Powell
Jean-Michel Richard
Mark Tyndall
Chief Executive Officer
Senior Vice President, Sales
Senior Vice President, Asia
Senior Vice President,
Global Manufacturing
Operations and Quality
Senior Vice President,
Product Development
Senior Vice President and
General Manager, Business
Group Mobile Systems
Senior Vice President and
General Manager,
Connectivity, Automotive and
Industrial Business Group
Senior Vice President,
Human Resources
CFO, Senior Vice President
Finance
Senior Vice President,
Corporate Development
and Strategy, General
Manager Power Conversion
Business Group
Tenure with
Dialog
years
8
4
2
6
26
7
1
3
7
5
Dialog has a strong and effective management team led by Chief Executive Officer,
Dr Jalal Bagherli.
Dialog Semiconductor Plc | Annual report and accounts 2013 52
Section 3 | Management
Directors’ report
The Directors of Dialog Semiconductor Plc (‘‘Dialog’’ or ‘‘the Company’’) present
their annual report and audited financial statements for the year ended
31 December 2013. These accounts have been prepared under IFRS and are
available on the Company’s website: www.dialog-semiconductor.com
Principal activities and
review of the business
Dialog Semiconductor creates and markets
highly integrated, mixed signal integrated
circuits (ICs), optimised for personal
portable, low energy short-range wireless,
LED solid-state lighting and automotive
applications. The Company provides
customers with world-class innovation
combined with flexible and dynamic
support, and the assurance of dealing
with an established business partner.
The Company is listed on the
Frankfurt (FWB: DLG) stock exchange
(Regulated Market, Prime Standard,
ISIN GB0059822006) and is a member
of the German TecDax index. It also has
convertible bonds listed on the Euro MTF
Market on the Luxemburg Stock Exchange
(ISIN XS0757015606). The Company is
registered in the UK and the registered
number is 3505161.
Further information on the principal
activities of the business and the factors
affecting future developments are detailed
in the Group’s Strategic report set out on
pages 14 to 16. Information on treasury
policies and objectives is included in
note 2 to these financial statements.
Future developments
The Group’s stated objective is to be the
leading global supplier of highly integrated,
mixed signal integrated circuits (ICs),
optimised for personal portable, low energy
short-range wireless, LED solid-state lighting
and automotive applications. The key
aspects of the Group’s strategy are set out
in the strategic report on pages 14 to 16.
Research and development (R&D)
The Group believes that its future
competitive position will depend on its
ability to respond to the rapidly changing
needs of its customers by developing new
designs in a timely and cost-effective
manner. To this end, the Company’s
management is committed to investing in
research and development (R&D) of new
products and customising existing products.
To date, R&D projects have been in response
to key customers’ requests to assist in the
development of new custom Application
Specific Integrated Circuits (ASICs), and for
the development of Application Specific
Standard Products (ASSPs). The Company
does not expect any material change to
this approach in the foreseeable future.
Greenhouse gases
Corporate responsibility and a commitment
to sustainable business practices are
important to the Dialog business model and
a component of Dialog’s strategy to deliver
long-term profitable growth. Our
commitment to environmentally oriented,
sustainable business practices is evidenced
in our commitment to continue to reduce
CO2 emissions and minimise the carbon
footprint of our business. We achieved a
reduction of CO2 emissions of 40% in our
design centres in 2013 and this follows a
34% reduction in 2012. Further details on
the Group’s commitment to sustainable and
environmentally friendly business practices
are set out on pages 40 to 43.
Going concern
The Directors have formed a judgement
at the time of approving the financial
statements that there is a reasonable
expectation that the Group has adequate
resources to continue for the foreseeable
future. The Group holds US$186 million of
cash at the year end (2012: US$312 million)
and has continued access to a US$25 million
borrowing facility. The Group expects to
continue to deliver revenue and profit
growth in the period ahead. For these
reasons, the Directors have adopted the
going concern basis in preparing the
financial statements.
Dividends
The Directors do not recommend the
payment of a dividend for 2013 (2012: nil).
They are committed to re-investing all
profits into the business and believe
that this policy is currently in the best
interests of its Shareholders.
Purchase of own shares
The Company operates an Employee
Benefit Trust, which purchases shares in
the Company for the benefit of employees
under the Company’s share option scheme,
Long Term Incentive Plan, Executive Incentive
Plan and Employee Share Plan. Since the
Company has de facto control of the assets
and liabilities of the Trust, they are included
in the Company and Group balance sheets.
At 31 December 2013, the Trust held
2,097,799 shares, which represented 3.08%
of the total called-up share capital, at a
nominal value of £209,780.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 3 | Management
53
Share capital
The Company’s issued share capital
comprised a single class of shares referred
to as ordinary shares.
Details of the share capital are set out
in note 21 to the consolidated financial
statements.
Substantial shareholdings
Details of substantial shareholdings are on
page 78 of this annual report.
Directors
The Directors, together with their biographies,
are listed on pages 48 and 49 of this report.
Powers of Directors
The Directors are authorised to issue the
nominal amount of securities representing
the aggregate of approximately one third
of the issued share capital of the Company;
of that one third they can issue an amount
equal to 5% of the issued share capital on
a non-pre-emptive basis. The Directors have
additional power to issue up to a further
third of the issued share capital of the
Company, provided it is only applied on
the basis of a rights issue.
Directors’ remuneration and interests
Directors’ remuneration and interests are
detailed in the Directors’ remuneration
policy report on pages 65 to 74 of this
report. No Director had a material interest
during the year ended 31 December 2013
in any contract of significance with any
Group Company.
Directors’ third-party
indemnity provisions
The Company has granted an indemnity to
its Directors against proceedings brought
against them by third parties, by reason of
their being Directors of the Company, to the
extent permitted by the Companies Act
2006. Such indemnity remains in force as at
the date of approving the Directors’ report.
Election and re-election of Directors
In accordance with the Company’s Articles
of Association, one-third of the Directors
have to stand for re-election at the Annual
General Meeting. Any Director who has
been on the Board for more than nine years
is subject to annual re-election. The next
Annual General Meeting will be held on
1 May 2014 at 9am.
Corporate Governance
The Company’s Corporate Governance
statement is set out on pages 55 to 64
of this report.
Supplier payment policy
It is the Group’s policy to pay creditors in
accordance with the terms and conditions
agreed with them, and in accordance with
contractual and other legal obligations.
Days payable outstanding for the Group
at 31 December 2013 were 65 days
(2012: 81 days).
Principal risks and uncertainties
The Company is exposed to a number of
risks and uncertainties that could affect
the performance of the Company and its
prospects. The Board of Directors and
Audit Committee are responsible for the
Company’s process of internal control and
risk management and for reviewing its
continuing effectiveness. The Board ensures,
to the extent possible, that the system
of internal procedures and controls is
appropriate to the nature and scale of the
Company’s activities and that appropriate
processes and controls are in place to
effectively manage and mitigate strategic,
operational, financial and other risks facing
the Company. A detailed list of risks and
their management are set out on pages
44 to 47 of this report.
Financial instruments
The Group’s financial risk management and
policies, and exposure to risks, are set out
on pages 136 to 141 of this report.
Political and charitable contributions
The Group made no political contributions
during the period. Dialog made charitable
contributions of US$485,300 to local
community projects (2012: US$122,560).
Employee policies
It is our policy to support our people
through training, career development and
opportunities for promotion. We operate
an open management approach and consult
with our staff on matters that are of
concern to them. We share information
with employees on the performance of
the Company which, together with
profit-related bonuses and stock option
awards, encourage staff involvement.
Diversity and equal opportunity
In 2013, Dialog operated from 21 locations
in 14 countries with a highly diverse
workforce, incorporating employees
from 50 nationalities.
Dialog takes equality and equal opportunity
for all employees very seriously. Women
comprise 15% of the overall workforce of
1,100 employees. Although this is in line
with the industry standard, the Company
is supporting various initiatives in the areas
of STEM education for young women in
the UK to encourage more women to
pursue careers in engineering and
electronic engineering.
Disabled persons
Our policy provides for disabled persons,
whether registered or not, to be considered
for employment, training and career
development in accordance with their
aptitudes and abilities.
Statement on disclosure of
information to auditors
The Directors who were members of
the Board at the time of approving the
Directors’ report are listed on pages 48 and
49 of this report. Having made enquiries of
fellow Directors and of the Company’s
auditors, each of the Directors affirms that:
• To the best of their knowledge and
belief, there is no information relevant to
the preparation of their report of which
the Company’s auditors are unaware; and
• They have taken all reasonable steps to
be aware of relevant audit information
and to establish that the Company’s
auditors are aware of that information.
Dialog Semiconductor Plc | Annual report and accounts 2013 54
Section 3 | Management
Directors’ report continued
Responsibility statement under the
disclosure and transparency rules
Each of the Directors listed on pages 48 and
49 of this report confirm that to the best of
their knowledge:
• The financial statements, prepared in
accordance with IFRS as adopted by the
European Union, give a true and fair
view of the assets, liabilities, financial
position and profit of the Company
and the undertakings included in the
consolidation taken as a whole; and
• The Strategic report and the Directors’
report include a fair, balanced and
understandable review of the
development and the performance of
the business and the position of the
Company and the undertakings included
in the consolidation taken as a whole,
together with a description of the
principal risks and uncertainties that
they face
Takeovers directive
At 31 December 2013, the Company’s
issued share capital comprised a single
class of shares referred to as ordinary shares.
Details of the share capital can be found
in note 21 to the consolidated financial
statements. On a show of hands at a
general meeting of the Company every
holder of shares present in person and
entitled to vote shall have one vote, and
on a poll every member present in person
or by proxy and entitled to vote shall have
one vote for every ordinary share held.
The notice of the general meeting specifies
deadlines for exercising voting rights either
by proxy notice or by presence in person
or by proxy in relation to resolutions to be
passed at a general meeting. All proxy votes
are counted and the numbers for, against
or withheld in relation to each resolution
are announced at the AGM and published
on the Company’s website after the
meeting. There are no securities carrying
special rights, nor are there any restrictions
on voting rights attached to the ordinary
shares. There are no restrictions on
the transfer of shares in the Company
other than:
• Certain restrictions may from time to
time be imposed by laws and regulations
(for example, insider trading laws); and
• Employees of the Company are not
allowed to trade in shares or exercise
options in certain close periods (such
close periods normally start two weeks
before the end of each quarter and
end 48 hours after the release of the
financial results)
Details of changes in share capital can
be found in note 21 to the consolidated
financial statements. The Company did
not purchase its own shares in treasury
during 2013.
The Company is not aware of any
agreements between Shareholders that
may result in restrictions on the transfer
of securities and for voting rights.
Dialog has an Employee Benefit Trust
which holds Dialog shares for the benefit
of employees, including for the purpose of
satisfying awards made under the various
employee and executive share plans. The
trustee may vote the shares as it sees fit, and
if there is an offer for the shares the trustee
is not obliged to accept or reject the offer
but will have regard to the interests of the
employees and may otherwise take action
with respect to the offer it thinks fair.
In the case of a change of control of the
Company, the CEO’s contract is extendable
to 12 months’ notice. Ordinarily, the CEO’s
contract provides for six months’ notice
on either side during which only basic pay
and benefits are payable. There is no
acceleration of bonus on a change of
control. The CEO has no entitlement to
a bonus if his employment is terminated
before the end of the bonus year unless his
employment is terminated after 1 October
in any year. In this case he is entitled to a
pro rata bonus for that year. Other factors
impacted by a change in control, such
as the redemption rights of bondholders
and the impact on share options are
disclosed in the relevant section to these
financial statements.
There are no agreements between the
Company and its Directors or employees
providing for compensation for loss of
office or employment (whether through
resignation, purported redundancy or
otherwise) that occur because of a takeover
bid. The agreement between the Company
and its Directors for compensation for
loss of office are given in the Director’s
remuneration policy report on page 70
of this report.
The Company’s Articles of Association may
only be amended by a special resolution at
a general meeting of Shareholders.
Annual General Meeting
The notice convening the Annual General
Meeting will be published separately and
posted on the Company’s website. The
meeting will be held at Tower Bridge House,
St Katharine’s Way, London E1W 1AA on
1 May 2014 at 9am.
Auditors
In accordance with Section 384 of the
Companies Act 2006, a resolution for the
reappointment of Ernst & Young LLP as
auditors of the Company is to be proposed
at the forthcoming Annual General Meeting.
By order of the Board
Dr Jalal Bagherli
Director
20 February 2014
Dialog Semiconductor Plc | Annual report and accounts 2013 Corporate Governance statement
55
Dear Shareholder,
Dialog continues to grow and develop as
a business and made significant progress
during 2013. In addition to continued
progress on the execution of its strategy,
the Board of Dialog continues to enhance its
oversight and Corporate Governance practice
including the continuing review of the skills
and experience of the Board; and, the
development of the company’s Corporate
Governance policies. We publish, on our
website, our own Corporate Governance
principles which have regard to the UK
Combined Code and other best practice
corporate governance policies. These have
been updated as of January 2014 and are
updated on an ongoing basis. We have
complied with these principles during the
year ended 31 December 2013.
During 2013, as part of the process of
ongoing Board refreshment and renewal –
and to ensure that the Company has a
Board which comprises the appropriate skills
and expertise to drive the business through
its next stage of development – two new
Directors were appointed to the Board.
In February 2013, Mike Cannon and Rich
Beyer joined the Board and both have made
a strong and significant contribution since
their appointment.
The Board also appointed Rich Beyer to
succeed Gregorio Reyes as Chairman with
effect from 23 July 2013. Greg has been
Chairman of Dialog for seven years and
been central to the growth of the business
during that period. Dialog has created
significant value for Shareholders under
his stewardship. Recognising the value he
has brought to the Board, the Directors
agreed that Greg remain on the Board as a
Director. His leadership, talent and expertise
have been a great asset to Dialog and we
are pleased to have had his continued
involvement as a Director. Greg has indicated
he will not seek re-election to the Board at
the AGM on 1 May 2014 and we would like
to record our appreciation for his significant
contribution to Dialog over many years.
Rich brings with him significant experience
both within the technology sector and as
leader of a publicly listed company. Rich
served as the Chairman and CEO of
Freescale Semiconductor, a NYSE listed
manufacturer of microcontrollers,
microprocessors and other semiconductors,
from March 2008 to June 2012. He retired
from the Freescale Board in April 2013.
Prior to his role at Freescale, he held
successive positions as CEO and Director of
Intersil Corporation, Elantec Semiconductor
and FVC.com. He has also held senior
leadership positions at VLSI Technology
and National Semiconductor Corporation
and served as an officer in the US Marine
Corps. In 2012, he was Chairman of the
Semiconductor Industry Association Board
of Directors and served for three years as
a member of the US Department of
Commerce’s Manufacturing Council. He
currently serves on the Boards of Micron
Technology Inc. and Analog Devices Inc.,
both NASDAQ listed semiconductor
companies. There is no doubt that Rich
is uniquely placed to lead Dialog in the
next phase of its development and we are
fortunate to have a Chairman of his calibre.
Following the appointment of Mike and
Rich to the Board, we continued to review
the composition of the Board as a whole
to search for new Directors to broaden and
deepen our collective skills and expertise
and also to replace the position left vacant
on the retirement of CB Yoon. Mike and
Rich bring significant sector expertise and
our objective in seeking an additional
Director will be to find an individual with
a strong financial background who will,
over time, assume the role as Chair of the
Group’s Audit Committee.
Dr Chang-Bun Yoon, who joined our Board
in April 2012 as an independent Director,
stepped down from his role at Dialog in
August 2013. The decision to step down
followed his appointment as the Senior
Secretary to the President for Future Strategy
by the President of the Republic of Korea.
In view of this new role and the expected
time commitment, CB Yoon took the
decision to resign as a Director of Dialog.
We would like to record our appreciation
to CB Yoon for his valuable contribution to
Dialog and wish him every success in his
new governmental role in South Korea.
During 2013, given the evolving regulatory
and governance environment, we also
reviewed the number and composition of
our Board sub-committees. This time last
year, we had three Board sub-committees:
Audit; Remuneration and Nomination;
and Strategic Transaction and Technology.
After careful review and consultation
with advisers on changes to remuneration
disclosure requirements in particular,
it was decided to separate responsibility
for remuneration and nominations into
two committees.
We now have separate Remuneration and
Nomination Committees chaired by Mike
Cannon and myself respectively. Corporate
Governance is a matter for the Board as
a whole; however, the Board delegates
much of the responsibility for review of the
Group’s Corporate Governance practice to
relevant Board sub-committees.
The changes we have made to the
composition of your Board during 2013
position us well for the future. We have the
range and depth of skills and expertise to
lead Dialog in its next stage of development.
As a Board, we are open to feedback from
Shareholders and our Senior Independent
Director, John McMonigall, is available to
Shareholders as are the Chairman and Chief
Executive. All Directors are also available at
the Group’s Annual General Meeting and
we encourage you to take advantage of this
opportunity should you wish to meet with
and engage in discussion with any member
of your Board.
Russ Shaw
Chairman, Nomination Committee
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 56
Corporate Governance statement continued
The Board of Dialog Semiconductor is
committed to maintaining high corporate
governance standards to protect the
interests of all stakeholders. Such principles
reflect a range of guidelines which apply
to the Company given its status as a UK
incorporated, Frankfurt Stock Exchange
listed company. In this context the Company
has published on its website its Corporate
Governance principles which have regard
to the UK Combined Code and other best
practice corporate governance policies.
These have been updated as of January
2014 and are updated on an ongoing basis.
Board of Directors – role and
responsibilities
As Dialog is incorporated in the UK and
follows governance principles which have
regard to the UK Combined Code and other
best practice governance principles, it
maintains a single Board structure. The
Board has overall responsibility for the
leadership, control and oversight of the
Company. The day-to-day responsibility
for the management of the Company has
been delegated by the Board to the Chief
Executive Officer, who is accountable to
the Board. The Chief Executive Officer
executes this authority through an
executive management team outlined on
pages 50 and 51 of this report. In addition,
a number of responsibilities of the Board are
delegated to sub-committees of the Board;
details of which are set out below.
Matters reserved for the Board
While the Board has delegated day-to-day
responsibility for the management of the
Company to the Chief Executive Officer,
certain matters are formally reserved for the
Board. The Board has overall responsibility
for: Company objectives; strategy; annual
budgets; risk management; acquisitions or
major capital projects; remuneration policy;
and, Corporate Governance. It defines the
roles and responsibilities of the Chairman,
Chief Executive, other Directors and the
Board sub-committees. In addition, the
Board approves the quarterly financial
statements and reviews the Company’s
systems of internal control. It approves all
resolutions and related documentation put
before Shareholders at general meetings.
Chairman
Mr Rich Beyer is Chairman of the Board.
Rich was appointed on 23 July 2013 and
was determined by the Board to be
independent on his appointment to the
Board. The Chairman is responsible for the
effective working of the Board while the
Chief Executive Officer (CEO), together
with the executive management team, is
responsible for the day-to-day running of
the Company. The functions of Chairman
and CEO are not combined and both roles’
responsibilities are clearly divided.
The Chairman, CEO and the Company
Secretary work together in planning a forward
programme of Board meetings and meeting
agendas. As part of this process the
Chairman ensures that the Board is supplied,
in a timely manner, with information in a
form and of a quality to enable it to discharge
its duties. The Chairman encourages
openness, debate and challenge at Board
meetings. The Chairman holds a number of
other directorships and the Board considers
that these do not interfere with the discharge
of his duties to the Company. The Chairman
is available to meet Shareholders on request.
Board composition
The Board currently comprises nine Directors
who are listed below. During 2013, Rich
Beyer and Mike Cannon were appointed to
the Board as independent non-executive
Directors. Details on their recruitment are
set out below. Chang-Bun Yoon also served
as a Director on the Board during 2013 up
until his retirement on 22 August 2013.
The Board of Directors comprises a mix
of the necessary skills, knowledge and
experience required to provide leadership,
control and oversight of the management
of the Company and to contribute to the
development and implementation of the
Company’s strategy. In particular, the Board
combines a Group of Directors with diverse
backgrounds within the technology sector,
in both public and private companies, which
combine to provide the Board with a rich
resource and expertise to drive the
continuing development of Dialog and
advance the Company’s commercial
objectives. In addition, the geographic
background of the Board is diverse and it
includes Directors who have worked in
North America, Europe and Asia. Director
biographies are set out on pages 48 and 49.
Board refreshment and renewal
The Board is committed to a policy of ongoing
Board refreshment and renewal. The
Nomination Committee continually reviews
the composition and diversity, including
gender diversity, of the Board; and the skills
and experience of each of the Directors. The
relevant skills and experience of each Director
are set out under individual biographies,
which are detailed on pages 48 and 49.
Subject to approval at the Annual General
Meeting by Shareholders, Directors are
appointed for a term of three years. Any
Director who has been on the Board for
more than nine years is subject to annual
re-election. Consistent with this policy John
McMonigall, given his tenure on the Board,
Director
Rich Beyer
Status
Independent/Non-independent
Current
Independent (Chairman)
Dr Jalal Bagherli
Current
Non-independent (Executive)
Chris Burke
Mike Cannon
Aidan Hughes
John McMonigall
Russ Shaw
Gregorio Reyes
Peter Weber
Chang-Bun Yoon
Current
Current
Current
Current
Current
Current
Current
Retired
Independent
Independent
Independent
Independent
Independent
Non-independent
Independent
Independent
*Note: Concurrent tenure means tenure on the Board concurrently with the Company’s CEO.
Tenure
years
Concurrent
tenure* years
1
8
7
1
9
16
7
10
8
–
1
N/A
7
1
8
8
7
8
8
–
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 57
is appointed for a one-year term and subject
to annual re-election. The standard terms of
the letter of appointment of non-executive
Directors are available, on request, from
the Company Secretary. Directors seeking
re-election are subject to a performance
appraisal, which is overseen by the
Nomination Committee. In accordance
with its Articles of Association a third of
Directors stand for re-election at each
Annual General Meeting.
Consistent with a commitment to ongoing
Board refreshment and renewal, two new
Directors were appointed to the Board in
2013. The Nomination Committee engaged
in a process to appoint new Directors
who would bring specific industry
experience to the Board. An additional
objective was to recruit Directors who
had experience serving on the Boards of
publicly listed companies. Candidates were
identified through a variety of methods.
The Nomination Committee engaged
external search and recruitment agents to
identify potential candidates and to assist
in selecting and recommending candidates.
The recruitment agent has no other
relationship with Dialog other than in
the role to assist in the identification and
recruitment of Board Directors. Informal
industry contacts were also used. The
Committee, which is committed to achieving
a greater level of gender diversity on the
Board over time, made considerable effort
to ensure that gender was a significant
consideration factor in the identification
of potential candidates in addition to
relevant industry and public company
board experience.
Board size
At the end of 2013, the Board comprised
nine Directors. A maximum of 10 Directors
is allowable under Dialog’s Articles of
Association. The nine members of the
Dialog Board includes one executive
Director, one non-independent, non-
executive Director and seven independent,
non-executive Directors (including the
Chairman). The Nomination Committee has
reviewed the size and performance of the
Board during the year. A Board of nine
Directors has and continues to function
effectively; comprises the skills, knowledge
and experience required by Dialog; is not
so large as to be unwieldy; and meets
Corporate Governance best-practice
guidelines on independence.
Board independence
Corporate Governance best practice states
that at least half the Board, excluding the
Chairman, should comprise non-executive
Directors determined by the Board to
be independent.
The Company has determined that Chris
Burke, Mike Cannon, Aidan Hughes, John
McMonigall, Russ Shaw and Peter Weber
and are independent. While the Company
views Gregorio Reyes as independent in
character and judgement, given his prior
role as Chairman, the Board has deemed
him a non-independent non-executive
Director in line with Corporate Governance
best practice. The Chairman, Rich Beyer, was
independent on his appointment to the Board.
The Company’s Chief Executive Officer, Dr
Jalal Bagherli, is the only executive Director
on the Board.
Following a thorough process, candidates
met with Committee members and the
Chairman prior to appointment. Rich Beyer
and Mike Cannon were appointed
to the Board on the strength of industry
experience and skills and the value they can
bring to the Board of Directors as a whole
for the benefit of all Dialog Shareholders.
Excluding the Chairman, the Board now
comprises six independent non-executive
Directors, one non-independent non-executive
Director and one executive Director and is,
therefore, compliant with the principle that
at least half the Board, excluding the
Chairman, should comprise Directors
determined by the Board to be independent.
During the year, Chang-Bun Yoon stepped
down from the Board. Gregorio Reyes has
indicated he will not seek re-election to the
Board at the AGM on 1 May 2014.
As part of its annual review, the Board
specifically considered the independence of
Mr John McMonigall given his tenure on the
Board. When assessing the potential impact
of tenure on any Director’s independence,
the Board views the issue of concurrency
with executive Directors as central to that
process. The Board’s unanimous view is that
Mr McMonigall’s independence and
objectivity, as evidenced by his continuing
valuable contribution at Board meetings,
is in no way compromised by his length
of tenure on the Board. The Board also
believes that his industry experience and
contribution to the continuing development
of Dialog is of significant benefit to the
Board as a whole.
While the Board is satisfied that
Mr McMonigall is wholly independent,
in line with the best-practice principles,
as he has been a member of the Board
for in excess of nine years, he is subject
to annual re-election by shareholders.
The Board also notes that Aidan Hughes has
reached an absolute tenure of nine years on
the Board and will be nine years concurrently
on the Board during 2014. The Board
intends to review the composition of each
of its Board sub-committees during the
course of 2014.
Senior Independent Director
The Board has appointed John McMonigall
as Senior Independent Director. He is
available to Shareholders who have concerns
for which contact through the normal
channels of Chairman or Chief Executive
Officer has failed to resolve or for which
such contact is inappropriate. He is available
to meet Shareholders on request.
The Board recognises that tenure on a
Board may be perceived as a factor that
could compromise the independence and
objectivity of a Director. As set out above,
the unanimous view of the Board is that
John McMonigall’s independence and
objectivity, as evidenced by his continuing
valuable contribution at Board meetings,
is in no way compromised by his length
of tenure on the Board.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 58
Corporate Governance statement continued
2013 Board and sub-committees
Notes
Board
Audit
Remuneration6
Nomination6
Number of meetings in 2013
Meetings attended
Richard Beyer
Dr Jalal Bagherli
Chris Burke
Michael Cannon
Aidan Hughes
John McMonigall
Russ Shaw
Gregorio Reyes
Peter Weber
Chang-Bun Yoon
5
4
5
5
4
5
5
5
5
5
2
1
2
3
4
5
5
5
4
3
3
5
3
3
2
5
5
2
5
2
5
5
Strategic
Transaction and
Technology4
3
3
3
3
Notes:
1 Richard Beyer was appointed to the Board on 14 February 2013 and attended all Board meetings since the date of his appointment. He has also attended all meetings of the newly
established Remuneration Committee during his appointment to that Committee.
2 Michael Cannon was appointed to the Board on 14 February 2013 and attended all Board Committee meetings since the date of his appointment. He has also attended all
meetings of the newly established Remuneration Committee since his appointment to that Committee.
3 Aidan Hughes has attended all meetings of the newly established Nomination Committee since his appointment to that Committee.
4 Peter Weber has attended all Audit Committee meetings since his appointment to that Committee.
5 Chang-Bun Yoon stepped down from the Board on 22 August 2013.
6 The first two meeting of the Remuneration Committee and Nomination Committee were combined and the members were Russ Shaw (Chair), Chris Burke and Peter Weber.
Aidan Hughes, Chairman of the Audit
Committee; Russ Shaw, Chairman of the
Nomination Committee; Mike Cannon,
Chairman of the Remuneration Committee;
and, Chris Burke, Chairman of the Strategic
Transaction and Technology Committee are
also available to Shareholders should they
have specific concerns or issues relevant to
their respective Committees.
Audit Committee Financial Expert
The Board has determined that Aidan
Hughes, who chairs the Audit Committee,
has recent and relevant financial experience
and is the Audit Committee financial
expert. He is a qualified chartered
accountant; a Fellow of the Institute of
Chartered Accountants in England and
Wales; and has significant experience as a
senior accountant and Finance Director at a
number of public companies. His biography
is set out on page 49.
Company Secretary
All Directors have access to the advice and
services of the Company Secretary, who is
responsible to the Board for ensuring that
Board procedures are complied with. The
Company Secretary seeks to ensure that the
Board members receive appropriate induction
and ongoing training and development to
enable them to discharge their duties.
The Company Secretary is also responsible
for advising the Board on all Corporate
Governance matters. The appointment and
removal of the Company Secretary is a
matter for the Board.
Board meetings
The Board holds at least five Board meetings
each year. The Board may meet more
frequently as required. The number of
meetings of Board sub-committees each
year varies by Committee.
There were five Board meetings in 2013.
The attendance at Board and sub-committee
meetings by the Directors who held office
in 2013 is set out above. The Board places
considerable importance on attendance at
both scheduled Board and sub-committee
meetings. During the year, no Director
attended less than 75% of scheduled Board
meetings to which they were entitled to
attend. At scheduled Board meetings, the
Board also meets without the executive
Director present.
There were changes to the number (and
composition) of Board sub-committees
during 2013. Specifically, in May 2013, the
Remuneration and Nomination Committee
was separated into two committees.
Following the change to the number of
Committees, there was one instance where
one Director was unable to attend one of
the three Committee meetings held
following the change to Committee
structure and membership. The Board
recognises the importance of meeting
attendance and expects Directors to
generally attend at least 75% of scheduled
Committee meetings annually. Given the
changes to the composition and number
of Board Committees this year, the Board
recognises there were scheduling issues
which meant that John McMonigall was
unable to join one of the three scheduled
Nomination Committee meetings following
the establishment of that Committee.
However, John attended 100% of all Board
meetings and over 75% of Audit Committee
meetings during 2013.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 59
Director induction and
continuing development
Following appointment to the Board,
new Directors are provided with
induction materials and are briefed
on the Company, its structure, strategy,
technologies, operations, Corporate
Governance practice, and their duties
and responsibilities as a Director.
Briefings for all non-executive Directors
are held with the executive management
at Board meetings. Throughout the year,
Directors are also provided with detailed
briefing materials on the performance
of the Company and market analysis
on the performance of, and prospects
for, the business.
Director training and development
The Board is committed to a programme of
periodic training and development of its
Directors. As part of this process, at least
one Board meeting is held at the location of
one of the Company’s international offices
each year. During 2013 one Board meeting
was held at the Company’s office in Nabern,
Germany and another was held at the
Company’s office in Los Gatos, California.
The Company has also put in place a
process of periodic training sessions for
Directors which are facilitated by a third
party. In June 2013, the Board received a
presentation and training session on
“Anti-Bribery and Corruption”.
At the Board meeting held in February 2014,
a presentation and training session on
“Corporate Reputation and Crisis
Management” was facilitated.
Performance evaluation
The Board recognises the importance of
continuing evaluation of the performance of
the Board and its Committees and a review
of the operation and performance of the
Board and its Committees is undertaken
annually. An annual, internal review was
conducted in December 2013 and follows
a similar process which was undertaken in
2011 and 2012. It is conducted anonymously
and is co-ordinated by the Company
Secretary. The findings of the review will
be presented to the Board in 2014 for
consideration and the implementation
of related recommendations.
The Board also recognises the merit in an
independent third-party evaluation process
and intends to engage a third party to
conduct an evaluation during calendar 2014.
In addition, in line with the Company’s
updated Corporate Governance guidelines,
the non-executive Directors will meet during
2014 to review the performance of the
Chairman. From 2014 onwards, this will
become an annual review process.
External non-executive directorships
The Board believes that a broadening of
the skills, knowledge and experience of
non-executive Directors is of benefit to
the Company. The Company welcomes
the participation of the non-executives on
the Boards of other companies. To avoid
potential conflicts of interest, non-executive
Directors inform the Chairman of the
Nomination Committee before taking up
any external appointments. Details of the
non-executive positions of each Director are
set out under individual biographies which
are detailed on pages 48 and 49.
Directors’ fees
The annual fee for non-executive Directors
is £80,000. The annual fee for the Chairman
is £110,000. The Chairmen of the Audit
Committee, the Remuneration Committee,
the Nomination Committee and the
Strategic Transaction and Technology
Committee receive an additional fee of
£10,000 for their role on that Committee.
The other Committee members receive
no additional fee for serving on those
Committees. Details of the activities of
these Committees during 2013 are set out
on pages 63 and 64.
Directors’ fees are paid in cash. Non-
executive Directors are not eligible to
participate in the Company’s bonus or share
award schemes. In the past, non-executive
Directors were awarded share options.
This is no longer the practice at Dialog
and no share options will be awarded to
non-executive Directors in the future.
None of the remuneration of the non-
executive Directors is performance related.
Non-executive Directors’ fees are not
pensionable and non-executive Directors
are not eligible to join any Company
pension plans. Non-executive Directors
are reimbursed for their reasonable travel
and accommodation expenses incurred
in connection with attending meetings
of the Board or related committees.
The compensation of the executive
Director comprises a base salary and
variable components. Variable compensation
includes an annual bonus linked to, and
dependent on, certain business targets as
well as long-term incentives. The executive
Directors’ remuneration is inclusive of any
Director’s fee. Further details are set out in
the Directors’ report on remuneration which
begins on page 52.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 60
Corporate Governance statement continued
Audit Committee
Aidan Hughes (Chair)
John McMonigall
Peter Weber
Nomination
Committee
Russ Shaw (Chair)
John McMonigall
Aidan Hughes
Mike Cannon
Remuneration
Committee
Strategic Transaction
and Technology Committee
Mike Cannon (Chair)
Chris Burke (Chair)
Chris Burke
Russ Shaw
Peter Weber
Aidan Hughes
Peter Weber
100% independent (3 of 3)
100% independent (4 of 4)
100% independent (4 of 4)
100% independent (3 of 3)
Share ownership and dealing
Details of Directors’ shareholdings are set
out on page 78. The Company has a policy
on dealing in shares that applies to all
Directors and senior management. Under
this policy, Directors are required to obtain
clearance from the Chief Executive Officer
(or in the case of the Chief Executive Officer
himself, from the Chairman) before dealing.
Directors and senior management are
prohibited from dealing in the Company’s
shares during designated close periods and
at any other time when the individual is in
possession of Inside Information (as defined
by the Market Abuse (Directive 2003/6/EC)
Regulations).
Board sub-committees
The Board has established four permanent
sub-committees to assist in the execution
of its responsibilities. These are the: Audit
Committee, Remuneration Committee,
Nomination Committee and Strategic
Transaction and Technology Committee.
During 2013, given the evolving regulatory
and governance environment, the Board
reviewed the number (and composition) of
its Board sub-committees. Consequent upon
that review and, in particular, the increased
burden on the Remuneration Committee
due to evolving regulation and disclosure
requirements, the Board decided to separate
responsibility for remuneration and
nominations into two separate committees.
Transactions in securities of the Company’s
own shares carried out by members of the
Board of Directors and of their family
members will be reported within five
business days and published without delay,
if the total value of such transactions in
any one year exceeds €5,000, pursuant
to and in accordance with section 15a
of the German Securities Trading Act
(Wertpapierhandelsgesetz).
Loans to Directors or senior executives
The Company will not provide or guarantee
any loans to Directors or senior executives.
Ad hoc committees are formed from time
to time to deal with specific matters.
The composition of the Board sub-
committees, as at 20 February 2014, is set
out above. Attendance at meetings held in
2013 is set out in the table on page 58.
Each of the permanent Board Committees
has terms of reference under which
authority is delegated to them by the Board.
These terms of reference are available on
the Company’s website. The Chairman of
each sub-committee attends the Annual
General Meeting and is available to answer
Shareholder questions. The reports of
each of the Board sub-committees are set
out on pages 63 and 64 of this report.
Relations with Shareholders
The Company is committed to ongoing and
active communication with its Shareholders.
Dialog has a Head of Investor Relations who
manages communication between the
Company, its Shareholders and the broader
financial community. The Company also
retains independent advisers in the UK and
Germany to help manage communication
with both English- and German-speaking
Shareholders. Dialog prepares annual and
quarterly consolidated financial statements
in accordance with generally accepted
accounting principles in accordance with
International Financial Reporting Standards.
The Company maintains an investor
relations section on its website:
www.dialog-semiconductor.com/investor-
relations. This contains copies of investor
presentations and annual reports as well
as providing other financial statements
and corporate press releases.
There is regular discussion between
Company management and analysts,
brokers and institutional Shareholders,
ensuring that the market is appropriately
informed on business activities. Dialog
hosted a day of presentations and product
displays, for institutional investors and
analysts, in September 2013. The event was
attended by Dialog’s senior management
team as well as members of the Board
of Directors.
Dialog promptly discloses price sensitive
information to all market participants.
Notifications are first sent to the Frankfurt
Stock Exchange and the Federal Financial
Supervisory Authority in Germany
(Bundesanstalt für Finanzdienstleistungsaufsicht
– BaFin) and then published via an electronic
information system.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 61
Significant Shareholders
The provisions of the UK Disclosure Rules
and Transparency Rules (DTR) require that
any person or fund acquiring a direct or
indirect interest of 3% or more of a class of
shares issued by the Company – with voting
rights at the Company’s general meeting –
must inform the Company of its interest
within two working days. If the 3% interest
is exceeded, the Shareholder must inform
the Company of any increase or decrease
of one percentage point in its interest.
In accordance with DTR 5.1.5 with respect
to voting rights attached to shares held by
investment managers (on behalf of clients),
by scheme operators and ICVCs, the first
threshold for disclosure is set at 5%, with
the next level set at 10% and every
percentage above 10%.
Once Dialog is notified, the Company must
then notify BaFin and the Stock Exchange.
Under S.15a of the German Securities
Trading Act (Wertpapierhandelgesetz)
transactions in the Company’s shares
carried out by members of the Board of
Directors and their family members are
reported and published without delay.
Dialog’s shares are listed with Clearstream
Germany as legal owner. As far as the
Company is aware, based on TR-1 notifications
received, those holding a significant
beneficial interest (i.e. greater than 3%)
in the Company as of 31 December 2013
and as of 12 February 2014 were:
6.9% Deutsche Bank AG
5.12% Black Creek Investment Management
3.9% Kleinwort Benson (Jersey) Trustees
(2011) Limited as Trustee of the Dialog
Semiconductor plc Employee Benefit Trust
Dialog’s free-float is 65,971,131 or 96.9%
of the outstanding shares. The free-float
is calculated by excluding the 2,079,799
shares held in the Dialog Semiconductor Plc
Employee Benefit Trust.
The free-float includes the following shares
held on behalf of discretionary clients as per
the share register on 31 December 2013.
BNP Paribas
Securities Services
6,585,572
Citigroup Global Markets
4,726,182
The Bank of New York
Mellon SA/NV
RBC Investor
Services Trust
Clearstream Banking S.A.
Chase Nominees Ltd
CACEIS Bank France
Nortrust Nominees Limited
State Street
3,894,662
3,735,605
3,277,641
3,230,903
3,146,379
2,706,714
2,130,831
Internal control and risk management
In accordance with the EU Transparency
Directive (DTR 7.2.5), the Board of Directors
and Audit Committee acknowledge that they
are responsible for the Company’s process
of internal control and risk management and
for reviewing its continuing effectiveness.
Such processes are designed to manage
rather than eliminate the risk of failure
and can only provide reasonable and not
absolute assurance against material
misstatement or loss.
The Board ensures, to the extent possible,
that the system of internal procedures and
controls is appropriate to the nature and
scale of the Company’s activities and that
appropriate processes and controls are in
place to effectively manage and mitigate
strategic, operational, financial and other
risks facing the Company. A detailed list of
risks and their management is set out on
pages 44 to 47.
The Company has an ongoing process of
identifying, evaluating and managing risk.
This process is reviewed in accordance with
the EU Transparency Directive. The process
was in place during 2013 and up to the date
of the approval of the 2013 annual report
and financial statements. The Board and
Audit Committee can confirm that necessary
actions are being undertaken to remedy any
perceived failings or weakness identified
from these ongoing process reviews.
Audit Committee report
The Board of Directors has established
an Audit Committee and has delegated
authority to this Committee to consider
and report to the Board on the Company’s
financial reporting; internal control and risk
management procedures; and the work of
the internal and external auditors.
The Audit Committee comprises only
independent non-executive Directors.
The committee currently comprises Aidan
Hughes (Chairman), John McMonigall and
Peter Weber. There was a change to the
membership of the Audit Committee in
2013 as Dr CB Yoon retired during the
year. Peter Weber joined the Committee
in his place.
As set out on page 49, the Board has
determined that Aidan Hughes has recent
and relevant financial experience and is the
Audit Committee financial expert. He is a
qualified chartered accountant; a Fellow of
the Institute of Chartered Accountants in
England and Wales; and has significant
experience as a senior accountant and
Finance Director at a number of public
companies. The other members of the
Audit Committee have a wide range of
business experience, which is evidenced
by their biographies on pages 48 and 49.
The Board also notes that Aidan Hughes
has reached an absolute tenure of nine
years on the Board and will be nine years
concurrently on the Board with the CEO
during 2014. The Board will seek to appoint
a further independent Director to the Board
in 2014 with recent and relevant financial
experience. During the course of 2014, it is
expected that this Director will also join and,
in time, assume the role as Chair of the
Audit Committee.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance
62
Corporate Governance statement continued
Meetings
The Audit Committee meets a minimum
of four times a year. During 2013, the
Committee met five times. Attendance
at meetings held is set out in the table
on page 58. The Committee also meets
privately with the internal and external
auditors and separately with the executive
management and executive Director.
The Audit Committee’s main responsibilities
include to:
• review and advise the Board on the
integrity of the financial statements of
the Company, including the annual
report, quarterly financial statements and
other formal announcements relating to
the Company’s financial performance
• review and advise the Board on the
effectiveness of the Company’s
internal controls
• review the nature and scope of the work
performed by the external and internal
auditors, the results of their audit work
and the response of the management team;
• make recommendations on the
appointment and remuneration of
external auditors and to monitor their
performance and independence
• approve and monitor the policy for
non-audit services provided by the
external auditors to ensure that the
independence and objectivity of the
auditors is not compromised
In order to fulfil its duties, the
Committee receives sufficient, reliable
and timely information from the Dialog
management team.
The full terms of reference of the Committee
are available on our website under the
Corporate Governance section of the
Investor Relations section.
Activity in 2013
The Audit Committee discharged its
obligations during the year as follows:
• the Audit Committee reviewed the 2012
full-year results announcement issued in
February 2013
• the Audit Committee reviewed
the annual report and financial
statements – including the report of
the external auditor – for the year
ended 31 December 2012 issued in
February 2013
• the Audit Committee reviewed the
quarterly financial statements issued in
May, July and October 2013
• the Audit Committee considered whether
or not to recommend the reappointment
of the external auditor
• the Audit Committee reviewed the
external audit plan presented by the
external auditor in advance of the audit
for the year ended 31 December 2013
• the Audit Committee approved the
annual internal audit plan and received
and reviewed internal audit reports
including the annual assessment and
review of internal controls, and
• the Audit Committee reviewed and
monitored the effectiveness of the
Group’s risk management process
External auditor
The Committee is responsible for the
development, implementation and
monitoring of the Group’s policy on
external audit. This policy assigns
oversight responsibility for monitoring the
independence, objectivity and compliance
with ethical and regulatory requirements
to the Audit Committee and day-to-day
responsibility to the Chief Financial Officer.
The external auditor audits the Group’s
consolidated financial statements. Prior
to the Audit Committee proposing the
appointment or reappointment of the
external auditor, the proposed auditor
provides details of any professional, financial
and other relationship which may exist
between the auditor and the Company that
could call its independence into question.
This includes the extent to which other
(non-audit) services were performed for
the Company in the past year or which
are contracted for the following year.
The external auditor has committed
to inform the Chairman of the Audit
Committee of any grounds for
disqualification or impartiality of the
auditor occurring during the audit,
unless such grounds are eliminated.
The external auditor has committed
to report to the Audit Committee,
without delay, on all facts and events
of importance that should be brought
to the attention of the Board of
Directors, which come to light during
the performance of the audit, including
the Company’s financial performance
and compliance with the Company’s
Corporate Governance principles.
The external auditor takes part in Audit
Committee meetings on the annual
consolidated financial statements and
reports on the essential results of its audit.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance
63
Responsibilities
The primary role of the Committee is to
regularly review Board structure, size and
composition and make recommendations to
the Board; and identify and nominate Board
candidates for approval by the Board. The
Committee is also responsible for succession
planning for Directors.
The full terms of reference of the Committee
are available on our website under the
Corporate Governance section of the
Investor Relations section.
Activity in 2013
The key activities of the Committee during
the year were:
• Reviewed composition of the Board
to ensure the Directors have the skills
and expertise to effectively oversee
the implementation of the Group’s
stated strategy
•
Identify and recruit new Directors to
the Board: two new Directors were
recruited during the course of 2013
• Reviewed existing Board sub-committee
structure and recommended to the
Board to separate remuneration and
nomination into two separate committees
External auditor and non-audit work
The Company has a policy in place
governing the conduct of non-audit work
by the external auditor. Under this policy
the auditor is prohibited from performing
services where the auditor:
• May be required to audit his/her own work
• Would participate in activities that would
normally be undertaken by management;
•
Is remunerated through a “success fee”
structure
• Acts in an advocacy role for the Company
Other than the above, the Company does
not impose an automatic ban on the external
auditor undertaking non-audit work. The
external auditor is permitted to provide
non-audit services that are not, or are not
perceived to be, in conflict with auditor
independence, provided it has the skill,
competence and integrity to carry out
the work.
Details of the amounts paid to the external
auditor during the year for audit and other
services are set out on page 108. The Audit
Committee has adopted a policy that except
in exceptional circumstances with the prior
approval of the Audit Committee non-audit
fees paid to the Company’s auditor should
be capped at a maximum of 100% of audit
fees in any one year.
During 2013, the non-audit fees paid to the
external auditor represented over 100%
of the audit fee. Dialog has a policy that
non-audit fees should not exceed audit fees
save in exceptional circumstances. The
majority of fees paid for non-audit services
in 2013 relate to due diligence and other
work on the acquisition and integration of
the iWatt business and a specific corporate
tax planning exercise. The Audit Committee
carefully considered whether this work, and
the related non-audit fees, could, or could
be perceived to, compromise the
independence and objectivity of the external
auditor. The Audit Committee concluded
that it did not, in any way, compromise their
independence and objectivity. However,
the Committee committed to ensure, to the
extent appropriate, that such work would,
in future, be conducted by another audit firm
where the appointment of another audit
firm would not: compromise the integrity of
such work; increase the likelihood of a leak
of information or result in a dramatic
increase in fees for Dialog.
As set out in the Company’s Corporate
Governance principles, Dialog is committed
to putting out the statutory audit to tender
every ten years. The Company’s existing
external auditor, Ernst & Young, was appointed
in 2006. As part of good governance
practice, the lead audit partner was rotated
in 2011 after a period of five years.
Nomination Committee
During 2013, the Board reviewed the
number and composition of its Board
sub-committees. After careful review and
consultation with advisers on changes to
remuneration disclosure requirements in
particular, it was decided to separate
responsibility for remuneration and
nominations into two committees.
The new Nomination Committee comprises
Russ Shaw (Chair), John McMonigall, Aidan
Hughes and Mike Cannon. The Committee
comprises only independent non-executive
Directors. By invitation, other members of
the Board may attend the Committee’s
meetings. The Committee is free to seek
its own advice free from management as
it deems appropriate.
During the year the Committee used the
services of an external search agency to
assist with the recruitment of new Directors.
The firm, Russell Reynolds, is an independent
third party and has no other connection
with Dialog.
During the year the Committee met formally
on five occasions, the first two of which
were as the combined Remuneration and
Nomination Committee. Attendance at
scheduled meetings is set out on page 58.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance
64
Corporate Governance statement continued
The Remuneration Committee
During 2013, as set out above, the Board
reviewed the number and composition of
Board sub-committees. After careful review
and consultation with advisers on changes
to remuneration disclosure requirements,
in particular, it was decided to separate
responsibility for remuneration and
nominations into two committees.
The new Remuneration Committee
comprises Mike Cannon (Chair) Chris Burke,
Russ Shaw and Peter Weber. The Committee
comprises only independent non-executive
Directors. Rich Beyer served on the Committee
during 2013 and attended two meetings. He
also served as Chairman of the Committee
during this period. He stepped down from
the Committee at the second of these two
meetings following his appointment as
Chairman of the Board.
By invitation, other members of the Board
may attend the Committee’s meetings.
The CEO and the Vice President, Human
Resources, may also attend by invitation but
take no part in discussions or decisions on
matters relating to their own remuneration.
The Committee is free to seek its own
advice free from management as it
deems appropriate.
During the year the Committee sought
and received general advice relating to
remuneration from Towers Watson, which is
a signatory to the Remuneration Consultants
Group Code of Conduct and any advice was
provided in accordance with this code.
Towers Watson provided no other services
to Dialog during 2013. Towers Watson has
no other connection with the Company
other than as adviser on issues relating
to remuneration. Remuneration advice
was provided in 2013 and also in the prior
year, 2012.
During the year the Committee met formally
on five occasions, the first two of which
were as the combined Remuneration and
Nomination Committee. In addition, the
Committee Chairman held a number of
meetings with advisers. Attendance at
scheduled meetings is set out on page 58.
The full terms of reference of the Committee
are available on our website under the
Corporate Governance section of the
Investor Relations section.
Responsibilities
The Remuneration Committee’s main
responsibilities include to:
• Determine the salaries and incentive
Strategic Transaction and
Technology Committee
The Board has established a Strategic
Transaction and Technology Committee
and has delegated authority to this
Committee to review, evaluate and make
recommendations in relation to strategic
transactions (such as acquisitions, disposals
or licensing arrangements) and the Company’s
technology and the technological market
in which it operates.
The Strategic Transaction and Technology
Committee comprises only independent
non-executive Directors. The members
during the year were Chris Burke (Chair),
Aidan Hughes and Peter Weber.
compensation of the Company’s officers
and the officers of the Company’s
subsidiaries;
During the year the Committee met formally
on three occasions. Attendance at scheduled
meetings is set out on page 58.
• Provide recommendations for other
employees and consultants as
appropriate; and
The full terms of reference of the Committee
are available on our website under the
Corporate Governance section of the
Investor Relations section.
Activity in 2013
During the year, the Committee reviewed
and determined the criteria and focus of
the Company in terms of technology
enhancement and potential M&A activity.
This included assessment, review and
oversight of the acquisition of the iWatt
business in 2013.
• Administer the Company’s compensation,
stock and benefits plans.
Activity in 2013
The key activities of the Committee during
the year were:
• Review 2012 Annual General
Meeting outcome
• Review and approve Executive
Management compensation
• Discuss and review senior level talent;
and,
• Review, plan and recommend CEO
remuneration to the full Board
Details of 2013 remuneration and
Dialog’s remuneration policy are set out
in the Director’s remuneration report on
pages 65 to 74.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance
Directors’ remuneration policy report
65
Annual statement from Mike Cannon, Chairman of the Remuneration Committee
I am pleased to present our report on Directors’ remuneration at the end of another very successful year. The Committee believes that
the performance of our CEO, Jalal Bagherli, has been once again outstanding throughout 2013. Under his strong leadership Dialog has
continued to expand at a rapid pace in line with our ambitions for sustained success in an increasingly competitive industry.
Our approach to pay for executive Directors has developed over time, reflecting Dialog’s growth and development. When the CEO was
hired the Company was still at a relatively early stage in its development and expansion. The CEO’s primary objectives were to establish and
execute effective growth and profitability strategies, as a result, pay arrangements approved by Shareholders were put in place in 2008/09
that supported the achievement of these objectives. Like many companies in this phase of development, we provided awards of options to
acquire Dialog shares, along with short-term incentive arrangements designed to drive high growth in profitability, which in turn has been
the primary driver of share price appreciation.
These arrangements were successful and the CEO has led the Company through a period of extraordinary growth. During a period of very
challenging market conditions the Dialog share price grew from 70 cents at the end of 2008 to its current level of €15.64 at the end of 2013.
As shown on page 80, an investment of €100 made in Dialog shares in 2008 would be worth €2,450 at the end of 2013. A corresponding
investment in either of the most relevant share indices would be worth an average of around €232, meaning that Dialog has outperformed
these indices by a factor of approximately 10x or 1,000%.
As a result of this growth, awards of options made to the CEO under the previous LTI plan, as approved by Shareholders at the 2008 AGM,
had significant value at the time when many of these options vested in 2011. This value appears in the single figure table on page 75.
The value vesting to the CEO in 2011 reflects the value generated by Dialog for investors over this period.
Since 2010/11, the Company’s strategic focus has evolved to include product and market diversification in addition to profitable and
sustained growth. The growth strategy since 2012 has been underpinned by virtue of two significant acquisitions. The structure of a much
larger and mature Dialog incorporates a truly global profile. The Remuneration Committee has recognised this in the incentive arrangements
in place for the CEO which have moved to reflect a larger global enterprise, bringing with it new challenges in respect of competitive factors,
retention and appropriate incentivisation.
Accordingly, steps have been taken to address base pay, annual bonus arrangements, and long-term compensation under the current
Shareholder EIP (Executive Incentive Plan). The CEO is subject to stretching annual objectives set by the Board; his annual bonus plan is
subject to a minimum profitability gate and any award that meets the criteria for an allocation of deferred shares, these shares must be
held for three years.
The Remuneration Committee closely monitors the CEO’s compensation, allied to personal performance against predetermined objectives,
competitive pressures as well as, at all times, the ongoing development, success, health and vitality of the Company.
At all times the Board of Directors and the Remuneration Committee are focused on ensuring that our pay practices for executive Directors
are consistent with serving the best long-term interests of the Company and its Shareholders.
The following guiding principles characterise our key compensation objectives:
• Pay for performance at all times, align reward appropriately for the achievement of demanding stretch targets
• Align pay with a balance of short-term and medium- to long-term objectives in mind
• Ensure our pay metrics are competitive when compared to global market practices for our industry
• Observe and always strive to meet best practice transparency and United Kingdom governance standards, mindful of the sensitivity
necessary in relation to our key commercial data and measurements
The Committee considers it essential to ensure that our executive Directors’ pay arrangements are fully aligned with our ambitions for the
Company and at the same time recognise the need to apply a clear commitment to governance and shareholder engagement so that our
executive Directors’ pay reflects the views of our Shareholders and good corporate governance.
Mike Cannon
Chairman, Remuneration Committee
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 66
Directors’ remuneration policy
report continued
1.1 Our policy on remuneration
Dialog’s remuneration policy for executive Directors is set by the Remuneration Committee. The Committee’s primary objective is to ensure
that remuneration is structured so as to attract and retain executive Directors of a high calibre, with the skills and experience necessary to
develop and grow the Company successfully. Executives should be rewarded in a way that aligns with Shareholder interests and promotes
the creation of sustained value for the Company’s Shareholders.
During 2013, the Committee reviewed its remuneration objectives and determined that they remain fit-for-purpose. The Committee believes
that a simple approach is most effective and the key elements of executive remuneration are fixed pay – including base salary, benefits and
pensions – annual bonus and a long-term incentive. A significant portion of remuneration is linked to, and paid in, Company shares, which
enables alignment with Shareholder interests and reinforces our pay for performance philosophy. The Committee believes that executives
should hold a meaningful number of shares personally. The individual remuneration elements operated for executives are described in more
detail in the policy table below. Since there is currently only one executive Director – the CEO – we refer to remuneration for the executive
Director, the executive Directors and the CEO interchangeably throughout this report.
The Committee reviews the CEO’s remuneration package annually both in the context of Company performance and against a range of peer
companies. In reviewing the CEO’s pay arrangements the Committee takes into account:
• The history and growth profile of the Company
• The Company’s UK incorporation and associated corporate governance expectations
• The Company’s international focus, operations and talent market
• The general external environment and the market context for executive pay, and
• The pay and employment practices of Dialog employees generally
1.2 Directors’ remuneration policy table
The table below summarises Dialog’s remuneration policy for executive Directors and – where indicated – for non-executive Directors.
It is designed to give the Remuneration Committee the ability over the life of the policy – expected to be three years – to make decisions
without the need to seek Shareholders’ approval on an annual basis. The policy is intended to take effect from the 2014 AGM although the
Remuneration Committee proposes that in practice the policy framework described will apply from 1 January 2014 subject to approval by
Shareholders at the 2014 AGM.
Base salary
Executive Directors
Purpose and link to strategy
Maximum opportunity
Operation
Facilitate recruitment and retention of the best executive talent globally – executives with the
experience and expertise to deliver our strategic objectives at an appropriate level of cost.
Base salary increases will not ordinarily exceed those for other UK-based Dialog employees
with comparable levels of individual performance and potential.
In cases where an executive Director’s base salary lies materially below the appropriate
market competitive level and where such positioning is not sustainable in the view of the
Remuneration Committee, annual increases may exceed those for other employees described
above. The rationale for any such increase will be described in the annual report on
remuneration for the relevant year.
Salary is reviewed annually, with any increases taking effect in July. A number of factors are
considered including but not limited to market pay levels among a group of international
industry peers and FTSE 250 companies, and base salary increases for other Dialog employees.
Performance framework
n/a
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 67
Retirement benefits
Executive Directors
Purpose and link to strategy
Provide market competitive retirement benefits which help foster loyalty and retention.
Maximum opportunity
Operation
The value of contributions made by Dialog is consistent with those for other Dialog employees.
Executive Directors are provided with a pension arrangement with a cost to Dialog of 9% of
base salary, the same cost as for all other UK employees. Dialog also contributes half of the
employer National Insurance contributions saved through the salary sacrifice. The pension
arrangement facilitates an accelerated provision of pension for the executive through a salary
sacrifice arrangement.
The executive Directors are provided with a defined benefit pension arrangement. Each year
an amount of pension is purchased by a contribution that is paid by the Company and the
executive contributes to the cost by a salary sacrifice. The amount of pension secured each
year is an amount that will not increase between now and pension age.
Newly appointed executive Directors may participate in the plan described here or in the
Company’s Defined Contribution plan, with a maximum employer contribution of 9% of
base salary.
Performance framework
n/a
Other benefits
Executive Directors
Purpose and link to strategy
Provide market competitive benefits at an appropriate cost which help foster loyalty
and retention.
Maximum opportunity
Operation
Relocation benefits may also be provided based on business need, individual circumstances
and location of employment.
The total annual value of benefits will not exceed 10% of base salary except in cases where
relocation applies. The Committee retains discretion to approve a higher cost in exceptional
circumstances or where factors outside the Company’s control have changed materially, e.g.
increases in insurance premiums.
In the case of relocation, additional benefits may be provided, including but not limited to
the cost of relocation expenses, real estate fees, tax equalisation to home country and tax
return filing assistance, temporary housing and schooling. The Remuneration Committee
has discretion to determine the value of such benefits and details of any such benefits
provided will be disclosed in the annual report on remuneration covering the year in which
they were provided.
Executive Directors are eligible to receive benefits in line with those for other UK employees,
including but not limited to a cash allowance in lieu of a company car, medical insurance for
the executive Director and his/her immediate family members, life and disability insurance,
holiday (25-30 days a year, based on length of service) and pay in lieu thereof where
applicable, and services to assist with preparation of a tax return or returns where necessary
due to the international nature of work completed.
Performance framework
n/a
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 68
Directors’ remuneration policy
report continued
Annual bonus plan
Executive Directors
Purpose and link to strategy
Motivate executive Directors to achieve stretching financial and commercial objectives
consistent with and supportive of Dialog’s growth plans.
Maximum opportunity
Annual “base bonus” of up to 200% of salary.
Create a tangible link between annual performance and individual pay opportunity.
Operation
The Committee retains discretion to adjust the overall bonus to take account of performance
outside the normal bounds.
In addition, a “further bonus” may be paid, equivalent to 1% of the Group’s annual
consolidated profit after tax and interest but before extraordinary items, less the value of the
maximum base bonus described above (i.e. 200% of salary). Further bonus awards may not
be deferred into shares and are not eligible for invested awards under the EIP. This further
bonus will not apply to new or future executive Directors.
Awards in respect of performance up to 100% of base salary are paid in cash, and awards
in respect of performance above target are paid in deferred shares.
Deferred shares must be held for three years. Up to 100% of an executive Director’s cash
bonus can be voluntarily deferred in shares at his/her election.
The Committee may vary the performance measures and mix used to adapt to changing
Company circumstances. Financial measures will be a significant portion.
Performance framework
Performance metrics include:
• Financial goals (which determine a significant portion of bonus every year)
• Commercial goals, and
• Organisational and employee-related goals
For financial metrics, performance is set in line with the stretch annual budget.
Full details of performance measures and targets will be disclosed in the annual report on
remuneration following expiration of the relevant performance period except where the
Committee considers them to be commercially sensitive. In cases where details are
commercially sensitive, the Committee will explain its rationale and commit to disclosure
in the future where appropriate.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 69
Executive incentive plan (“EIP”)
Executive Directors
Purpose and link to strategy
Maximum opportunity
Operation
Performance framework
Motivate executive Directors to deliver sustainable long-term Shareholder value through
long-term profitability and share price growth.
The maximum level of the “basic award” is US$2,750,000. For each share deferred in annual
bonus, an additional share will be awarded under the EIP (an “invested award”).
The maximum value of the invested award is 200% of salary, which assumes receipt of
maximum bonus and deferral of the total cash amount in shares.
Annual award delivered in performance shares (structured as options with nominal exercise
price). Performance is measured over three years, based on three annual targets.
Vesting is dependent on continued employment with the Company at the time of vesting.
Certain “leaver” provisions apply and are described in the section headed “Termination
Arrangements” below.
Performance metrics are entirely based on Company financial performance (75%) and a share
price-based condition (25%). The Committee reviews and selects appropriate measures and
their weightings in advance of each award.
For the Company financial performance component, targets are set annually over the three-
year performance period of the EIP.
For each annual period a third of this part of the award is banked based on actual Dialog
performance against targets set at the beginning of each year.
20% of awards vest for threshold performance, 40% vest for target performance and 100%
for maximum performance as defined by the Remuneration Committee under the plan.
Shares banked during the performance period are released to executive Directors as soon as
practicable after the third anniversary of the award.
For the share price condition, targets are measured on each of the three anniversary dates of
the award and a third of this part of the award is banked provided the share price is higher
than at any previous measurement point.
Full details of performance measures and targets will be disclosed in the annual report on
remuneration following expiration of the relevant performance period except where the
Committee considers them to be commercially sensitive. In cases where details are
commercially sensitive, the Committee will explain its rationale and commit to disclosure
in the future where appropriate.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 70
Directors’ remuneration policy
report continued
Termination arrangements
Executive Directors
Purpose and link to strategy
Maximum opportunity
To limit the Company’s liability for payments in cases of termination, and to provide a fair and
equitable settlement where appropriate.
The Company will provide six months’ notice of termination or payment in lieu of notice.
Payment in lieu of notice will be limited to the pro rata value of base salary and the other
benefits described under the Retirement benefits and Other benefits sections above.
The notice period provided will extend to 12 months on a change of control of Dialog.
Where applicable, executive Directors are also entitled to receive payment on termination in
lieu of holiday accrued but not used.
In the event that an executive Director is terminated during a financial year, his/her entitlement
to an annual bonus award in respect of that year will be limited as follows:
•
•
If termination occurs prior to 1 October in any year, no bonus will be paid in respect of
that year.
If termination occurs on, or after, 1 October in any year, and subject to the leaver provisions
included in the EIP plan rules and described below, a time pro-rated bonus award may
be paid following the end of the year and in accordance with full-year performance
against targets.
Termination provisions also apply under the EIP – these are as follows:
•
•
If an executive Director is not employed by the Company at the time of vesting the award
will lapse, except in circumstances as determined by the Board including death, disability
and retirement. The portion of any award which vests will be determined by the Board
based on a number of factors including performance against targets. Alternatively, the
Board may decide that outstanding awards will vest in accordance with the normal vesting
schedule. Unless the Board decides otherwise, in all cases the number of awards vesting
will be reduced in accordance with the period of service.
In the event of a change in control of the Company, EIP shares will vest and be released at
the discretion of the Board and in accordance with performance against targets assessed
at the time of the change of control and all deferred shares shall vest and be released.
If an offer to exchange is made and accepted by an EIP award holder, or the Board so
determines, shares subject to the award will be exchanged for shares in the new company
on equivalent terms.
Non-executive Directors (Chairman’s fee)
Purpose and link to strategy
Supports recruitment and retention of a Chairman with the experience and skills that will make
a major contribution to the Dialog Board.
Maximum opportunity
The maximum annual fee increase is consistent with that described above for executive Directors.
Operation
Performance framework
Fees are provided entirely in cash and may be reviewed annually. The Chairman’s fee is
determined by the executive Directors with input from the Remuneration Committee.
Fee reviews take account of individual performance and contribution, company size, growth
and complexity, level of experience and market profile, and time committed.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 71
Non-executive Directors’ fee
Purpose and link to strategy
Supports the recruitment of non-executive Directors with appropriate experience and skills.
Maximum opportunity
The maximum annual fee increase is consistent with that described above for executive Directors.
Operation
Non-executive Directors receive an annual fee paid in cash plus additional fees for chairing
a Board Committee where relevant.
Performance framework
Fee reviews take account of individual performance and contribution, company size, growth
and complexity, level of experience and market profile, and time committed.
Fees may be reviewed annually by the Chairman and executive Directors.
Remuneration of Directors on
recruitment and appointment
Dialog is an international company and
competes for executive talent on a global
basis. In order to recruit and retain Directors
of the calibre needed to execute the
Company’s growth objectives it may be
necessary to provide remuneration and
benefits consistent with practice among
other global semiconductor companies.
The following principles apply in the case
of the external recruitment of Directors
and the appointment of internal candidates
who may be promoted to the Board.
• As far as possible, the remuneration of
new Directors will be set in accordance
with the existing Directors’ remuneration
policy described in the table above.
• The Remuneration Committee will seek
to pay no more than is necessary while
ensuring that it can attract the best
candidates on a global basis.
• The remuneration package provided
will take account of a range of factors
including but not limited to the calibre
of a candidate, the level of existing
remuneration, the jurisdiction the
candidate is recruited from, and the
individual’s skills and experience.
• The remuneration package will take
account of internal relativities and
appropriate international market
comparisons.
• The Remuneration Committee has the
discretion to determine the fixed elements
of a remuneration package (comprising
base salary, retirement and other
benefits) as it deems necessary and in
Shareholders’ interests. Exercise of such
discretion may be necessary for example
in the event of a new appointment to the
Board following an acquisition or where
commitments have been made as part
of a transaction. The Remuneration
Committee will in all cases be guided by
reasonable market practice and will take
appropriate advice where necessary.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 72
Directors’ remuneration policy
report continued
The table below outlines policy in respect of recruitment where it differs from that outlined in the table above. Policy in respect of
other components of pay is unchanged in recruitment situations from that outlined above. Note that only the fee section applies to
non-executive Directors.
Pay component
Approach in application to recruitment situations
Annual base salary or fee
The following factors will be taken into account when determining appropriate base salary/fee:
• the candidate’s existing salary/fee, location of employment, skills and experience and
Other benefits
Long-term incentive
Compensation for forfeited
remuneration
expected contribution to the new role
• the previous incumbent’s salary/fee for the same role
• the current salaries/fees of other Dialog Directors
• current relevant market pay data for the role
• the value of other elements of remuneration to be provided and the combined value of the
total package
The Company recruits executives on a global basis and recruitment is one case in which the
Remuneration Committee may choose to exercise the discretion described in the policy table
above to provide relocation benefits. In cases where the Committee believes that the Company
and its Shareholders’ interests will be served best by provision of relocation benefits the
Committee will seek to limit these benefits both in terms of their value and the period over
which they are provided. Benefits provided may include relocation allowances and global
mobility benefits such as housing or schooling as described in the policy table, which may be
provided on consideration of family size and business need.
The Committee has discretion to provide awards under the EIP which exceed the maximum
outlined in the policy table above in cases where it considers it necessary in order to facilitate
recruitment of high-calibre executives. Such awards may be provided as compensation for
remuneration foregone at a previous employer as described in the row below. The Committee
also has discretion to provide such awards in other circumstances where it considers them
necessary to secure an executive’s appointment. In cases other than compensation for or
“buy-out” of previous awards, EIP awards in addition to normal policy levels will be limited to
100% of a target executive’s Dialog salary.
The Committee may choose to compensate for or “buy-out” forfeited remuneration when
recruiting an external candidate by providing additional awards under the EIP. The Committee
may also in such situations – where it considers it strictly necessary – remove the performance
conditions attached to vesting of all or a portion of such awards.
Where a “buy-out” is deemed to be necessary, the structure and level will be carefully
designed in accordance with the recruitment principles above. “Buy-out” awards will be
subject to continued employment for an appropriate period and “clawback” provisions in the
event that the individual resigns or is terminated. An explanation of the basis of any “buy-out”
will be provided as soon as practicably possible after appointment.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 73
Remuneration policy for executive
Directors compared to that for
other employees
The Company’s remuneration policy for
executive Directors, outlined in the table
above and the sections that follow it,
is similar to that for all other Dialog
employees. Differences in policy are
outlined below.
• Retirement benefits – other Dialog
employees participate in the Company’s
defined contribution pension plan.
The value of contributions made by
the Company is consistent for all UK
employees including executive Directors
at 9% of base salary. Retirement
provisions in locations other than the
UK are operated in accordance with
local market practice and their value
varies by location.
• Annual bonus – all Dialog employees
participate in annual bonus plans. The
nature of those plans varies somewhat by
location and employee category. Most
employees participate in a profit-sharing
plan; a smaller group participates in a
plan based on performance against
individual objectives.
• EIP – participation in the EIP is limited to
around 30 Dialog employees including
executive Directors, individuals in other
senior roles, and other key employees.
Deferral of bonus into invested awards
is limited to executive Directors.
• Notice periods – most other UK
employees’ contracts of employment
include three-month notice periods.
Clawback and malus policy
Under the rules of the deferred bonus plan
and the EIP, the Remuneration Committee
is entitled to cancel or clawback some or all
of a participant’s deferred shares, invested
shares or EIP shares in the event that
the Audit Committee of the Company
determines that the financial accounts of
the Company were misstated to a material
extent (such determination must be made
within two years of the award date or six
years if in relation to fraud or reckless
behaviour by an executive). Such clawback
may be applied through direct repayment
or a reduction in unvested awards or future
grants, or a reduction in such other payments
as might otherwise be due from the Company
to the individual.
Contract terms
The CEO’s contract provides for six months’
notice on either side (which is extendable to
12 months’ notice in the case of a change of
control), during which only base salary and
benefits are payable, and bonus if he is
employed at the year end as described in
the termination arrangements section above.
Share options for
non-executive Directors
Until 2012, non-executive Directors received
part of their fees in the form of options over
Dialog shares. This practice was felt to align
their interests with those of Shareholders.
Use of options was stopped ahead of the
2013 financial year and the last awards
made (in 2012) will vest in 2015. No further
options were awarded in 2013 and none
will be awarded in future years. Provision of
share options is not included in the policy
table above as options are not part of the
Company’s forward-looking remuneration
policy. According to UK regulations
however, reference to options must be
made in the policy section of the Directors’
remuneration report, in order to permit
payments under outstanding awards,
hence the inclusion of this section here.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance
74
Directors’ remuneration policy
report continued
Indicative remuneration levels resulting from policy
The graphs below represent the pay mix between the different elements of remuneration for the CEO, assuming threshold, target and
maximum performance.
The scenarios shown below are based on
the following assumptions:
• Minimum performance: fixed pay only
(base salary, benefits and pension;
• Target performance: fixed pay, annual
bonus of half maximum opportunity
(100% of salary) and 40% of maximum
EIP award vesting (we assume the CEO
voluntarily defers 50% of his cash bonus
and receives additional shares under the
EIP accordingly); and
• Maximum performance: fixed pay,
maximum annual bonus of 200% of
salary and 100% of maximum EIP award
vesting (including EIP shares provided as
a result of assumed investment of 100%
of cash bonus – for simplicity we assume
no change in salary over the period).
Note that this scenario assumes maximum
performance is achieved under both
the annual bonus and the long-term
incentive plans. Long-term incentive
plan performance is measured over
a three-year period as described in
the policy table on page 72
Chief Executive
7,000
6,000
5,000
4,000
3,000
2,000
1,000
642,127
0
5,703,913
49%
20%
20%
11%
2,608,995
42%
11%
22%
25%
Stakeholder views
Shareholder proxy advisory groups are
engaged when the Company is considering
material changes to policy, including
approval of any new share plans, as was
the case in 2013 in respect of the 2012
reporting year. In 2013, such groups were
informed of changes to the CEO’s base
salary, as explained in last year’s Directors’
remuneration report.
There is no formal engagement with
employees on matters of executive
remuneration but employees are
encouraged to provide their view on
any aspect of the Company’s operations
through the Company’s intranet-based
feedback system VP Blog.
Long-Term Incentive – EIP award
Long-Term Incentive – EIP deferred
bonus match
Annual Variable Element
Fixed Elements
Notes:
1 Fixed elements comprise base pay of US$596,229 less
3% sacrificed into the pension plan, plus pensions
and benefits.
2 Pension value is based on the 2013 value of
US$36,636 in line with the notes on page 76.
3 Benefit levels are assumed to be US$27,000 based on
Minimum On target Maximum
previous years.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance Annual report on remuneration
75
Audited information
Incumbent
Year
Total salary
US$1
Benefits
US$
Pension
US$
Total
fixed pay
US$2
Annual
bonus
US$3
LTI award
US$4
Total
variable pay
US$5
Total
excluding
LTI awards
US$6
Total
US$7
Dr Jalal Bagherli
2013
501,631
26,767
36,636
565,034
1,097,104
157,885 1,254,989
1,662,139 1,820,023
Dr Jalal Bagherli
2012
475,005
27,094
138,905
641,004
1,053,333
472,887 1,526,220
1,694,337 2,167,224
Incumbent
Chris Burke8
Chris Burke
Aidan Hughes
Aidan Hughes
John McMonigall
John McMonigall
Gregorio Reyes9
Gregorio Reyes
Russ Shaw
Russ Shaw
Peter Weber
Peter Weber
Chang-Bun Yoon
Chang-Bun Yoon
Richard Beyer10
Richard Beyer
Michael Cannon
Michael Cannon
Year
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Total fees
US$
126,340
84,477
128,945
95,037
114,618
84,477
137,085
116,156
128,945
95,037
114,618
84,477
70,107
63,358
114,292
–
93,778
–
Benefits
US$
Other
remuneration
US$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
US$
126,340
84,477
128,945
95,037
114,618
84,477
137,085
116,156
128,945
95,037
114,618
84,477
70,107
63,358
114,292
–
93,778
–
Base salary earned during the financial year ending 31 December and excludes amounts sacrificed into pension (2012: US$38,037; 2013: US$55,857).
Notes:
1
2 The sum of basic salary, benefits and pension.
3
4
5
6
7
8
9
10 Richard Beyer became Chairman of the Board on 23 July 2013.
Annual bonus cash element and deferred share element awarded in relation to the financial year ending 31 December.
LTI reflects the gain on options which vested during each year.
The sum of annual bonus (cash and deferred share element) and long-term incentives.
The sum of basic salary, benefits, pension and annual bonus (cash and deferred share element).
The sum of basic salary, benefits, pension, annual bonus (cash and deferred share element) and long-term incentives which vested during the year.
Chris Burke waived £50,000 in fees as tax was due for share options previously exercised, the figure presented here is the total figure prior to the waiver.
Gregorio Reyes stepped down as Chairman of the Board on 23 July 2013.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 76
Annual report on remuneration continued
Executive Director
Fixed remuneration
Base salary
The CEO was awarded a 15% increase in
annual salary with effect from 1 July 2013.
His current salary is £381,570 (US$596,299).
The rationale for this increase was reported
in our 2012 annual report and has been
communicated to Shareholders. In the
light of his performance and contribution,
the growth of the Company and the
increasing competitive market pressure, the
Remuneration Committee considers that the
CEO’s base salary is too far behind market
median to be sustainable. For this reason
the Committee proposes to make above-
market increases annually until such time as
it is comfortable that his salary is sufficient
to mitigate the risk to the Company and its
Shareholders of him leaving. The Committee
will monitor market conditions carefully to
ensure that salary does not exceed median
market levels and continues to represent
good value for money for Shareholders.
Other benefits
The CEO received a cash allowance in lieu
of a company car, medical insurance for
himself and his spouse and life and disability
insurance. The total value of taxable benefits
provided was US$26,767, equivalent to
4.5% of his current salary.
Pension
The executive is provided with a defined
benefit pension arrangement, a Defined
Benefit Small Self-Administered Scheme.
This arrangement commenced in May 2012.
Each year, on the advice of the Scheme
Actuary, a fixed amount of pension is
secured from the Scheme by the payment
of a contribution by the employer.
The employer pays part of the cost of the
benefit as a contribution equivalent to 9% of
salary, with any balance met by the executive
through a salary sacrifice arrangement.
The amount of pension secured each year
is set by the Actuary to be funded in full by
the contribution so that there is no funding
shortfall and the assets are always sufficient
to meet the liabilities (the intention is that
no further funding will be required by the
Company). The pension purchased each year
will not increase between now and pension
age (60).
For the purposes of the single figure
included in the table on page 75 we have
valued the pension in line with required
defined benefit methodology. In 2013, the
employer contribution was US$109,301, of
which US$55,857 resulted from salary
sacrifice. The cost to Dialog is set at 9% of
base pay in line with the pension provision
for all other employees excluding the salary
sacrifice. Dialog also contributes half the
National Insurance contributions saved on
the salary sacrifice.
Variable compensation
Annual bonus
For 2013, the CEO was eligible for annual
bonus of up to 200% of salary for maximum
performance, with 100% of salary being
paid for target performance and no awards
payable if profit was below threshold.
Performance measures used were:
• Financial goals (30%) comprising
revenue (10%), gross margin (7.5%),
EBIT (12.5%);
• Commercial goals (40%) comprising
product-related measures (30%) and
customer-related measures (10%); and
• Organisational and employee-related
goals (30%).
Performance against targets set in these
areas was as shown in the table below.
Performance under gross margin, product-
related, customer-related, organisational
and employee-related measures is
considered by the Board to be commercially
sensitive and will be disclosed in the annual
report in a future year if it is considered no
longer to be commercially sensitive.
Accordingly, the Committee determined
that a bonus equivalent to 183.96% of base
salary should be paid. This amount will be
released to the CEO in March 2014 with
50% of bonus received in cash and 50%
deferred into Dialog shares.
Long-term incentive plans
In 2013, share options with a total value
of US$157,885 vested to the CEO under
awards made in 2009. No performance
measures were attached to the vesting of
these options but their value was dependent
on share price growth. In addition, the CEO
was required to remain in service for a total
period of four years from grant in order to
receive all of the awards made.
Measure
Revenue
EBIT
Outcome
US$876m
14.7%
Below target
On target
Above target
X
X
Revenue is defined as Total Dialog 2013 IFRS Revenue (US$902.9 million) excluding iWatt IFRS revenues recorded in 2013 (US$26.8 million). EBIT is defined as Total Dialog 2013 IFRS EBIT
(US$102.7 million) excluding iWatt related IFRS EBIT (US$22.5 million loss), acquisition accounting adjustments and related cost (US$3.7 million). These normalisation adjustments are required
on the basis that 2013 Dialog budget did not include iWatt.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 77
Share awards made during the year
As noted in the policy section above, shares awarded are structured as nominal priced options, hence the reference to options throughout.
Awarded during the year
Date of award
EIP – performance shares
Granted
number
Market price at
date of grant
Face value
of award
% of award that
will vest at threshold
performance
Performance
period
Dr Jalal Bagherli
16/02/2013
98,084
€13.77
€1,350,617
15%
01/01/2013 – 31/12/2015
Deferred shares
Dr Jalal Bagherli
EIP – invested shares
18/02/2013
42,611
€13.61
€579,936
100% 18/02/2013 – 18/02/20162
Dr Jalal Bagherli
18/02/2013
42,611
€13.61
€579,936
15%
01/01/2013 – 31/12/2015
Notes:
1 Face value is calculated as the number of shares, multiplied by the market price at the date of grant.
2 Dates reflect the service period which must be completed for the award to vest, there are no further performance conditions attached to the deferred bonus.
3 In 2013, the CEO was awarded 98,084 EIP shares (in the form of nominal price options), which at the date of grant (16 February 2013) had a value of €1,350,617. Receipt of
these shares is subject to achievement of performance conditions as outlined on page 69.
Banked shares are not subject to further
performance conditions. Shares banked
during the performance period are released
to executive Directors as soon as practicable
after the third anniversary of the award.
As disclosed in the 2012 annual report,
share dilution as a result of equity-based
incentive awards to all Dialog employees is
managed to an average 1% flow rate in
order to ensure that it moves over time
towards a rolling 10% in 10 years.
Non-executive Directors’ fees
In 2013, the Chairman’s fee was £110,000.
Fees for non-executive Directors were
£80,000, with an additional £10,000 paid
for chairmanship of Board Committees.
Of his 2012 annual bonus (paid in 2013),
the CEO deferred 75% of the bonus paid
which at the share price on the date of
award (€13.61) was equivalent to 42,611
shares. These shares were matched on a
one-for-one basis under the EIP, meaning his
total EIP award in 2013 was 140,695 shares
with total value of €1,930,553. As noted
above, receipt of these shares is subject to
achievement of performance conditions as
outlined on page 69.
Performance metrics attached were:
• 75% EBIT and revenue, equally weighted
• 25% share price growth
EBIT and revenue targets are set annually
over the three-year performance period of
the award. For each annual period a third of
this part of the award is banked based on
actual Dialog performance against targets
set at the beginning of each year.
Share price growth is measured at the
anniversary date of the award over the
three-year performance period. Shares
subject to share price growth conditions
are banked based on annual share
price performance.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 78
Annual report on remuneration continued
Directors’ interests in shares
The CEO is expected to establish and hold a shareholding of at least 200% of salary excluding unvested EIP awards. The CEO currently
complies with this requirement.
Number at
31 December 2013
Dr Jalal Bagherli
1, 2, 3, 4, 9,
10, 11, 12
Chris Burke
Aidan Hughes
John McMonigall
Gregorio Reyes
Russ Shaw
Peter Weber
Chang-Bun Yoon
5, 13
6, 14
5, 15
7
6, 16
5
8, 17
10 pence
ordinary
shares
EIP –
performance
shares
Deferred
shares
EIP –
invested
shares
Share
options
– unvested
Share options
– vested but
unexercised
in the year
Share
options
– exercised
in the year
268,676
187,557
42,611
42,611
–
682,412
15,593
25,000
76,000
–
9,946
22,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,889
4,374
3,889
5,347
4,374
3,889
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
1,223,867
19,482
29,374
79,889
5,347
14,320
25,889
0
Number at
31 December 2012
10 pence
ordinary
shares
EIP –
performance
shares
Deferred
shares
EIP –
invested
shares
Share
options
– unvested
Share options
– vested but
unexercised
in the year
Share
options
– exercised
in the year
Total
Dr Jalal Bagherli
1, 2, 3, 4, 9,
10, 11, 12
266,679
97,603
Chris Burke
Aidan Hughes
John McMonigall
Gregorio Reyes
Russ Shaw
Peter Weber
Chang-Bun Yoon
5, 13
6, 14
5, 15
7
6, 16
5
8, 17
15,593
25,000
76,000
20,000
19,891
33,000
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
10,690
671,722
329,940
1,378,631
3,889
4,374
3,889
5,347
4,374
3,889
1,850
0
0
0
0
0
0
0
23,757
44,168
8,550
0
40,000
0
0
43,239
73,542
88,439
25,347
64,265
36,889
1,850
Current options outstanding as per dates:
1
EIP award as of 31 December 2013, includes two awards granted on 16/02/2013 (98,084 options) and 16/02/2012 (89,473 options (97,603 originally granted, however,
8,130 lapsed at first measurement point on 16/02/2013)). Exercise price for 16/02/2012 grant is €0.12. Exercise price for 16/02/2013 grant is €0.12.
2 2013 deferred shares includes an award granted on 18/02/2013, exercise price is €0.01. Total award size is 42,611 options.
3 2013 EIP invested shares includes an award granted on 18/02/2013, exercise price is €0.12. Total award size is 42,611 options.
4
2013 share options vested but unexercised includes three awards granted on 04/02/2010 (155,000 options), 18/02/2011 (508,170 options), and 13/05/2009 (19,242 options).
Exercise price for 04/02/2010 grant is €0.11. Exercise price for 18/02/2011 grant is €0.12. Exercise price for 13/05/2009 grant is €1.52.
2013 and 2012 share options unvested includes two awards granted on 21/07/2011 (2,039 options) and 18/07/2012 (1,850 options). Exercise price for 21/07/2011 grant is €0.15.
Exercise price for 18/07/2012 grant is €0.15.
2013 share options unvested includes two awards granted on 21/07/2011 (2,293 options) and 18/07/2012 (2,081 options). Exercise price for 21/07/2011 grant is €0.15.
Exercise price for 18/07/2012 grant is €0.15.
2013 share options unvested includes two awards granted on 21/07/2011 (2,803 options) and 18/07/2012 (2,544 options). Exercise price for 21/07/2011 grant is €0.15.
Exercise price for 18/07/2012 grant is €0.15.
5
6
7
8 2013 share options unvested includes an award granted on 18/07/2012, exercise price is €0.15.
9 2012 EIP award granted on 16/02/2012, exercise price is €0.12.
10 2012 share options unvested includes an award granted on 13/05/2009, exercise price is €1.52.
11 2012 share options vested but unexercised includes three awards granted on 04/02/2010 (155,000 options), 18/02/2011 (508,170 options), and 13/05/2009 (8,552 options).
Exercise price for 04/02/2010 grant is €0.11. Exercise price for 18/02/2011 grant is €0.12. Exercise price for 13/05/2009 grant is €1.52.
12 2012 share options exercised in the year includes those exercised from two awards granted on 04/02/2010 (290,290 options) and 13/05/2009 (39,650 options).
Exercise price for 13/05/2009 grant is €1.52. Exercise price for 04/02/2010 is €0.11.
13 2012 share options exercised in the year includes two awards granted on 12/07/2006 (5,210 options) and 22/04/2009 (18,547 options). Exercise price for 12/07/2006
grant is €1.40. Exercise price for 22/04/2009 is €1.17.
14 2012 share options exercised in the year includes three awards granted on 19/06/2006 (4,168 options), 30/04/2008 (20,000 options) and 22/04/2009 (20,000 options).
Exercise price for 19/06/2006 grant is €1.27. Exercise price for 30/04/2008 is €1.35. Exercise price for 22/04/2009 is €1.17.
15 2012 share options exercised in the year includes two awards granted on 19/06/2006 (5,210 options) and 22/04/2009 (3,340 options). Exercise price for 19/06/2006 grant
is €1.27. Exercise price for 22/04/2009 is €1.17.
16 2012 share options exercised in the year includes two awards granted on 30/04/2008 (20,000 options) and 22/04/2009 (20,000 options). Exercise price for 30/04/2008 grant
is €1.35. Exercise price for 22/04/2009 is €1.17.
17 Options awarded to Chang-Bun Yoon lapsed on his resignation date of 22 August 2013.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance
79
Unaudited information
Annual change in CEO pay versus employee pay
The table below compares the change in base salary, benefits (excluding pension) and bonus awards for the CEO and for an average UK
employee over the period 2012 to 2013. The salary increase shown for the CEO was referred to in the 2012 annual report and communicated
to investors in 2013. It reflects the Remuneration Committee’s view that the salary positioning of the CEO is too far behind market levels to
be sustainable. In accordance with the discretion referred to in the policy section above, the Committee increased the CEO’s salary in 2013
at a rate higher than that for other employees.
Chief Executive base salary
Relevant average comparator employees’ base salary
Chief Executive taxable benefits
Relevant average comparator employees’ taxable benefits
Chief Executive annual bonus
Relevant average comparator employees’ annual bonus
Chief Executive total
Relevant average comparator employees’ total
Year ended
31 December 2013
Year ended
31 December 2012
Percentage
change
£381,570
£60,570
£17,126
£837
£701,936
£7,788
£1,100,632
£69,195
£331,800
£58,571
£17,069
£805
£663,600
£8,572
£1,012,469
£67,958
15.0%
3.4%
0.3%
4.1%
5.8%
(9.1)%
8.7%
1.8%
Note:
Figures in this table are in GBP and differ to those in the single figure table on page 75 which a) are presented in USD, and b) exclude amounts contributed by the CEO to pension.
At the time of preparation for this report annual bonuses for the Group had yet to be finalised and the numbers presented overleaf reflect
expected payouts.
UK employees include all UK-based Dialog employees and were selected for comparison since they are located in the same market as the
CEO and receive similar benefits as described in the policy section above.
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 80
Annual report on remuneration continued
Relative importance of spend on pay
This chart shows the amounts spent in 2012
and 2013 by Dialog on employee pay and
research and development, and also the
Group’s accumulated retained earnings at
the relevant year end.
US$000
250,000
200,000
150,000
100,000
50,000
0
CEO pay and relative
TSR performance
The following graph compares Dialog
Semiconductor’s TSR performance to
that of the same investment in the
German TecDAX Index. This comparison
has been chosen because it reflects the
local market and industry in which Dialog
is listed. We also show a comparison to
the Philadelphia SE Semiconductor Sector
Index (Price return) as an additional industry
comparator, recognising that Dialog
competes with companies on an
international basis.
TSR is the measure of the returns that a
company has provided for its shareholders,
reflecting share price movements and –
where relevant – assuming reinvestment
of dividends. Data is averaged over 30 days
at the end of each financial year.
2012
2013
Pay spend
for Group
Research and
development
Accumulated retained
earnings
Value of a hypothetical US$100/€100 investment
3,000
2,500
2,000
1,500
1,000
500
€2,450
$257
€240
0
2008
Source: DataStream
2009
2010
2011
2012
2013
Dialog Semiconductor – TSR
German TecDAX Index – TSR
Philadelphia Semiconductor Index – Price return
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 81
We also present in the table below the annual change in the single figure total remuneration provided to the CEO over the same period.
Financial year ending
31/12/2009
31/12/2010
30/12/2011
31/12/2012
31/12/2013
Total remuneration including unrealised gains (single
figure basis)1,2
US$1,028,853
US$4,809,398
US$30,426,678
US$2,167,224
US$1,820,023
Long-term variable pay (% of maximum)
95%
100%
100%
100%
100%
1 The total remuneration for 2010 and 2011 includes awards made under the 2008 LTIP plan approved by Shareholders at the 2008 AGM. The values vested to the CEO from
this plan were US$3,593,299 (2010) and US$29,103,138 (2011), resulting from the exceptional performance and share price growth of the Company, as can be seen in the TSR
performance chart above. There are no further awards under this plan. Total remuneration includes the value of long-term incentive awards at the time they vest, as required
by UK reporting regulations. The actual value realised by the CEO is based on the market value on the date they are permitted (under directors’ trading restrictions) and/or
choose to exercise options or sell shares. The value presented does not therefore reflect exactly that received by the CEO.
2 Under the Company’s annual bonus plan the CEO may receive “maximum base bonus” of 200% of salary, with a “further bonus” equivalent to 1% of the Company’s annual
consolidated profit after tax and interest but before extraordinary items, less the value of the maximum base bonus described above (i.e. 200% of salary). No “further bonus”
has ever been paid.
Operation of policy in the
following year
As described in the policy section above,
the Committee is satisfied that the CEO’s
current remuneration arrangements remain
fit for purpose and proposes to make no
material changes to the operation of the
remuneration policy in 2014. The Committee
will continue to monitor closely the alignment
of policy with Dialog’s strategic objectives
and the competitiveness of the CEO’s base
salary in particular, as described above.
Governance
Remuneration Committee
The Board as a whole is responsible for
setting the Company’s policy on Directors’
remuneration. The Board of Directors has
established a Remuneration Committee
(“the Committee”) and has delegated
authority to this Committee to determine
and recommend to the Board: the salaries
and incentive compensation of the
Company’s officers and changes to
Board structure, size and composition.
The Committee comprises only
independent, non-executive Directors.
The members during the year were Mike
Cannon (Chair from 25 October 2013), Rich
Beyer (Chair from 2 May 2013 to 25 October
2013), Russ Shaw (Chair until 2 May 2013),
Chris Burke and Peter Weber. Mike Cannon
and Rich Beyer were joint Chairmen of the
Committee meeting held on 24 October
2013 in order for Rich Beyer to hand over
his responsibilities to Mike Cannon. The
Committee’s members have no financial
interest in the Company other than as
Shareholders and through the fees paid
to them.
By invitation, other members of the Board
may attend the Committee’s meetings.
The CEO and the Senior Vice President,
Human Resources, may also attend by
invitation but take no part in discussions or
decisions on matters relating to their own
remuneration. The Committee is free to seek
its own advice free from management as it
deems appropriate.
During the year, the Committee sought
and received general advice relating to
remuneration from Towers Watson. Towers
Watson was appointed by the Committee in
2012 following a competitive tender process.
The Committee are satisfied that the advice
received from Towers Watson is objective
and independent and is not subject to any
material conflict of interest.
Towers Watson are signatories to the UK
Remuneration Consultants Group Code of
Conduct and all advice received during the
year was provided in accordance with this
code. They provide no other services to the
Company. Fees paid to Towers Watson
during the year in respect of advice relating
to Directors’ pay totalled £163,011
(excluding VAT).
The Committee also received advice from
the Senior Vice President, Human Resources
and the Company Secretary. During the
year the Committee met formally on five
occasions, in addition the Committee
Chairman held a number of meetings
with advisers.
Responsibilities
The Remuneration Committee’s main
responsibilities include to:
• Determine the salaries and incentive
compensation of the Company’s officers
and the officers of the Company’s
subsidiaries
• Provide recommendations for other
employees and consultants as
appropriate, and
• Administer the Company’s
compensation, stock and benefits plan
The key activities of the Committee during
the year were to:
• Review, plan and approve CEO and
Executive Management remuneration
• Review and address 2012 Annual General
Meeting outcomes
• Consider market trend, and
• Review changes to disclosure regime in
the UK
Shareholder voting results
from 2013 AGM
The table below summarises the number
of votes for and against the Dialog
remuneration report at the 2013 AGM.
We also include the number of abstentions
(referred to as votes withheld).
AGM resolution
Votes for (m)
% for
Votes against (m)
% against
Total votes cast (m)
Votes witheld (m)
2
24,132,887
94.75%
1,337,154
5.25%
25,470,041
4,400
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance 82
Statement of Directors’ responsibilities
The Directors are responsible for
preparing the annual report and the
Group and parent company financial
statements in accordance with the
applicable law and regulations. UK
company law requires the Directors to
prepare Group and parent company
financial statements for each financial
year. Under the law the Directors are
required to prepare the Group financial
statements in accordance with IFRS as
adopted by the EU and have elected
to prepare the parent company financial
statements on the same basis.
The Group and parent company financial
statements are required by law and IFRS
as adopted by the EU to present fairly
the financial position of the Group and
the parent company and the financial
performance and cash flows for that
period; the Companies Act 2006 provides
in relation to such financial statements
that references in the relevant part of
the Act to financial statements giving a
true and fair view are references to their
achieving a fair presentation.
In preparing each of the Group and
parent company financial statements,
the Directors are required to:
1 Select suitable accounting policies and
then apply them consistently;
2 Present information, including
accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information;
3 Provide additional disclosures
when compliance with the specific
requirements in IFRS is insufficient to
enable users to understand the impact
of particular transactions, other events
and conditions on the entity’s financial
position and financial performances;
4 State whether they have been
prepared in accordance with IFRS as
adopted by the EU; and
5 Make judgements and estimates that
are reasonable and prudent.
The Directors are responsible for keeping
proper accounting records that disclose
with reasonable accuracy at any time
the financial position of the parent
company and enable them to ensure that
its financial statements comply with the
Companies Act 2006 and article 4 of the
IAS Regulation.
They have a general responsibility for
taking such steps as are reasonably open
to them to safeguard the assets of the
Group and to prevent and detect fraud
and other irregularities.
Under applicable law and regulations,
the Directors are also responsible for
preparing a Strategic report, Directors’
report and Directors’ remuneration
report that comply with that law and
those regulations.
The Directors are responsible for the
maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the UK governing the
preparation and dissemination of
financial statements may differ from
legislations in other jurisdictions.
Responsibility statement
The Directors confirm, to the best of their
knowledge, that:
•
In accordance with the applicable
reporting principles, the consolidated
financial statements, prepared in
accordance with IFRS as adopted
by the EU, give a true and fair view
of the assets, liabilities, financial
position and profit and loss of the
issuer and undertakings included
in the consolidation.
• The annual report and accounts includes
a fair review of the development and
performance of the business and the
position of the Company and the Group,
together with a description of the principal
risks and uncertainties associated with
the expected development of the
Company and the Group.
The annual report and accounts, taken
as a whole, is in line with good corporate
governance standards, provides the
information necessary for Shareholders
to assess the Company’s performance,
business model and strategy and is fair,
balanced and understandable.
Dr Jalal Bagherli
Chief Executive Officer
Jean-Michel Richard
CFO, Vice President Finance
20 February 2014
Dialog Semiconductor Plc | Annual report and accounts 2013Section 4 | Corporate Governance
Section 5 | Consolidated financial statement and notes
83
Independent Auditors’ report to the members
of Dialog Semiconductor Plc
We have audited the financial statements of Dialog Semiconductor Plc for the year ended 31 December 2013 which comprise the
Consolidated and Company Statements of financial position, the Consolidated income statement, the Consolidated statement of
comprehensive income, the Consolidated and Company statement of cash flows and the Consolidated and Company statements of changes
in equity and the related notes 1 to 35. The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial
statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors
As explained more fully in the Directors’ responsibility statement set out on page 82, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether
the accounting policies are appropriate to the Group’s and the parent company’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the
financial statements.
In addition, we read all the financial and non-financial information in the annual report and accounts to identify material inconsistencies with
the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2013
and of the Group’s profit for the year then ended; and
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as
applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
Dialog Semiconductor Plc | Annual report and accounts 2013 84
Section 5 | Consolidated financial statement and notes
Independent Auditors’ report to the members
of Dialog Semiconductor Plc continued
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
• the information given in the Corporate Governance statement set out on page 61 with respect to internal control and risk management
systems in relation to financial reporting processes and about share capital structures is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the parent company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
• a Corporate Governance statement has not been prepared by the Company.
Tony McCartney
(Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Reading
20 February 2014
Dialog Semiconductor Plc | Annual report and accounts 2013 Section 5 | Consolidated financial statements and notes
85
Consolidated statement of financial position
As at 31 December 2013
Assets
Cash and cash equivalents
Trade accounts receivable and other receivable
Inventories
Income tax receivables
Other financial assets
Other current assets
Total current assets
Property, plant and equipment
Goodwill
Other intangible assets
Investments
Deposits
Income tax receivables
Deferred tax assets
Total non-current assets
Total assets
Liabilities and Shareholders' equity
Trade and other payables
Other financial liabilities
Provisions
Income taxes payable
Other current liabilities
Total current liabilities
Provisions
Other non-current financial liabilities
Deferred tax liabilities (non-current)
Total non-current liabilities
Ordinary shares
Additional paid-in capital
Retained earnings
Other reserves
Employee stock purchase plan shares
Net Shareholders´ equity
Total liabilities and Shareholders´ equity
Notes
At 31 December
2013
US$000
At 31 December
2012
US$000
7
8
9
6
10
11
12
4, 5, 13
13
14
6
6
15
16
17
18
17
19
6
186,025
127,336
117,541
72
3,994
12,476
447,444
58,465
244,878
148,591
1,531
1,450
158
24,935
480,008
312,435
82,887
152,455
60
3,120
12,545
563,502
50,318
32,283
51,789
–
1,137
198
8,913
144,638
927,452
708,140
91,391
23,923
8,000
5,354
34,356
163,024
1,488
265,657
40,633
307,778
12,852
246,289
199,881
(130)
(2,242)
106,216
4,117
1,288
9,359
21,670
142,650
603
176,617
5,679
182,899
12,852
243,829
129,190
(427)
(2,853)
21
456,650
382,591
927,452
708,140
These financial statements were approved by the Board of Directors on 20 February 2014 and were signed on its behalf by:
Dr Jalal Bagherli
Director
Dialog Semiconductor Plc | Annual report and accounts 2013
86
Section 5 | Consolidated financial statements and notes
Consolidated income statement
For the year ended 31 December 2013
Revenue
Cost of sales
Gross profit
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Restructuring
Other operating income
Operating profit
Interest income
Interest expense
Foreign currency exchange gains (losses), net
Result before income taxes
Income tax expense
Net profit
Earnings per share (in US$)
Basic
Diluted
Weighted average number of shares (in thousands)
Basic
Diluted
Notes
3, 26, 29
3
2013
US$000
902,907
(551,099)
2012
US$000
773,583
(480,971)
351,808
292,612
(49,000)
(44,255)
(38,669)
(33,476)
26
(159,287)
(127,886)
–
(1,549)
3, 4, 29
3,394
–
3
3
6
2
102,660
91,032
565
(13,345)
(168)
1,360
(6,466)
199
89,712
86,125
(27,508)
(23,612)
62,204
62,513
2013
2012
0.95
0.92
65,641
67,676
0.97
0.93
64,681
67,354
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
87
Consolidated statement of comprehensive
income
For the year ended 31 December 2013
Net profit
Other comprehensive income to be reclassified to profit or loss in
subsequent periods:
Exchange differences on translating foreign operations
Cash flow hedges
Income tax relating to components of other comprehensive income
Other comprehensive income (loss) for the year, net of tax
Total comprehensive income for the year
2013
US$000
2012
US$000
62,204
62,513
269
91
(63)
297
(322)
8,871
(725)
7,824
62,501
70,337
Dialog Semiconductor Plc | Annual report and accounts 2013
88
Section 5 | Consolidated financial statements and notes
Consolidated statement of cash flows
For the year ended 31 December 2013
Cash flows from operating activities:
Net profit
Adjustments to reconcile net profit to net cash generated from operations:
Interest expense, net
Income tax expense
Impairment of inventories
Depreciation of property, plant and equipment
Amortisation of intangible assets
Losses on disposals of fixed assets and impairment of fixed assets
Expense related to share-based payments
Changes in working capital:
Trade accounts receivable, other receivables and factoring
Inventories
Prepaid expenses
Trade accounts payable
Provisions
Other assets and liabilities
Cash generated from operations
Interest paid
Interest received
Income taxes paid
Cash flow from operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase of iWatt net of acquired cash
Purchase of intangible assets
Payments for capitalised development costs
Sale (purchase) of other investments
Change in other long term assets
Cash flow used for investing activities
Cash flows from financing activities:
Cash flow from the convertible bond
Net cash flow from financial liabilities
Sale of employee stock purchase plan shares
Cash flow from financing activities
Notes
2013
US$000
2012
US$000
62,204
62,513
3
6
12
13
23
8
12
4
13
13
12,780
27,508
14,445
18,581
28,646
1,369
8,487
(33,418)
26,871
(923)
(19,490)
4,135
4,067
5,106
23,612
8,207
12,698
19,593
1,029
6,955
(36,158)
(105,015)
(159)
55,652
293
7,462
155,262
61,788
(3,805)
587
(41,365)
(1,141)
1,277
(9,483)
110,679
52,441
(23,173)
(303,851)
(9,519)
(5,974)
(1,500)
(186)
(344,203)
–
103,650
3,071
106,721
(35,025)
–
(13,417)
(5,956)
–
98
(54,300)
196,631
–
4,114
200,745
Cash flow from (used for) operating, investing and financing activities
(126,803)
198,886
Net foreign exchange difference
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
393
(41)
(126,410)
198,845
312,435
113,590
Cash and cash equivalents at end of period
7
186,025
312,435
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
89
Consolidated statement of changes in equity
For the year ended 31 December 2013
Additional paid-in
Ordinary Shares
capital
Retained earnings
US$000
US$000
US$000
Currency
translation
adjustment
US$000
Other reserves
Employee stock
purchase plan
Hedges
US$000
shares
US$000
Total
US$000
Balance at 1 January 2012
12,380
203,911
59,722
(1,879)
(6,372)
(3,158)
264,604
–
62,513
(85)
7,909
Total comprehensive income (loss)
Conversion right embedded in Convertible
Bond
Convertible Bond transaction cost
attributable to conversion right
Capital Increase for employee share option
plan (gross proceeds)
Transaction cost of capital increase -
employee share option plan
Sale of employee stock purchase plan
shares
Equity settled transactions, net of tax
–
–
–
37,393
(814)
472
2,680
–
–
–
(33)
692
–
–
–
–
–
–
6,955
–
–
–
–
–
–
–
–
–
–
–
–
(3,152)
–
–
–
–
3,457
–
70,337
37,393
(814)
-
(33)
4,149
6,955
Changes in Equity total
472
39,918
69,468
(85)
7,909
305
117,987
Balance at 31 December 2012 /
1 January 2013
Total comprehensive income (loss)
Sale of employee stock purchase plan
shares
Equity settled transactions, net of tax
Changes in Equity total
12,852
243,829
129,190
(1,964)
1,537
(2,853)
382,591
–
–
–
–
–
62,204
254
2,460
–
–
8,487
–
–
2,460
70,691
254
43
–
–
43
–
62,501
611
–
611
3,071
8,487
74,059
Balance at 31 December 2013
12,852
246,289
199,881
(1,710)
1,580
(2,242)
456,650
For further details, please refer to note 21.
Dialog Semiconductor Plc | Annual report and accounts 2013
90
Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
Notes to the consolidated financial
statements
statements continued
For the year ended 31 December 2013
1. General
The consolidated financial statements of Dialog Semiconductor Plc (“Dialog” or the “Group”) for the year ended 31 December 2013 were
authorised for issue in accordance with a resolution of the Directors on 20 February 2014. Dialog Semiconductor Plc is a company
incorporated in the UK, whose shares are publicly listed in Frankfurt/Main, Germany. The principal activities of the Group are set out in the
segment reporting (note 26).
Company name and registered office
Dialog Semiconductor Plc
Tower Bridge House
St Katharine’s Way
London E1W 1AA
United Kingdom
Basis of presentation
The consolidated financial statements are prepared on the historical cost basis except that derivative financial instruments are stated at their
fair value. The consolidated financial statements are presented in US dollars (“US$”) and all values are rounded to the nearest thousand
(US$000) except when otherwise stated.
Statement of compliance
The accompanying consolidated financial statements have been prepared on the basis of the recognition and measurement requirements of
International Financial Reporting standards (IFRS) and its interpretation as adopted by the EU. Based on these standards, management has
applied the accounting policies as provided in note 2.
2. Summary of significant accounting policies
Changes in accounting policies and disclosures
The accounting policies are consistent with those of the previous financial year except for the changes resulting from the adoption of the
following amended, revised and new standards and the new IFRIC interpretation during the year:
IAS 1 Presentation of Financial Statements
The amendments to IAS 1 were issued in June 2011 and are effective for annual periods beginning on or after 1 July 2012. The amendments
require companies preparing financial statements in accordance with IFRSs to group together items within Other Comprehensive Income (“OCI”)
that may be reclassified to the profit or loss section of the income statement. The amendments also reaffirm existing requirements that items in
OCI and profit or loss should be presented as either a single statement or two consecutive statements. The amendment primarily results in a
grouping of OCI items. However all OCI items presented by the Group are reclassifiable.
IAS 12 Income taxes
The amendments to IAS 12 Income Taxes were issued in December 2010 and are effective for annual periods beginning on or after 1 January
2012, however the amendment was adopted by the EU for periods beginning on 1 January 2013. IAS 12 requires an entity to measure the
deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It
can be difficult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value
model in IAS 40 Investment Property. The amendment provides a practical solution to the problem by introducing a presumption that recovery
of the carrying amount will normally be through sale. As a result of the amendments, SIC-21 Income Taxes—Recovery of Revalued Non-
Depreciable Assets would no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the
remaining guidance previously contained in SIC-21, which is accordingly withdrawn. The amendment had no material effect on the financial
statements of the Group.
IAS 19 Employee Benefits (amended)
The amendments to IAS 19 Employee Benefits were issued in December 2010 and are effective for annual periods beginning on or after
1 January 2013. The amendments especially relate to:
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
91
2. Summary of significant accounting policies continued
eliminating an option to defer the recognition of gains and losses, known as the ‘corridor method’, improving comparability and
faithfulness of presentation;
streamlining the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements
to be presented in other comprehensive income (OCI), thereby separating those changes from changes that many perceive to be the
result of an entity’s day-to-day operations;
enhancing the disclosure requirements for defined benefit plans, providing better information about the characteristics of defined benefit
plans and the risks that entities are exposed to through participation in those plans.
Since the Group does not operate any defined benefit plan, the amendment had no effect on its financial statements.
IAS 36 Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36)
The amendments made to this standard were issued in May 2013 and are effective for annual periods beginning on or after 1 January 2014,
early application is permitted. These narrow-scope amendments to IAS 36 Impairment of Assets address the disclosure of information about
the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. In addition the amendment removes the
requirement to disclose the recoverable amount for a cash generating unit which is not impaired. Dialog makes use of the early application of
this amendment.
IFRS 7 Financial Instruments: Disclosures (amended / IAS 32 Financial Instruments: Presentation (amended))
The amended IFRS 7 / IAS 32 were issued in December 2011 and are effective for periods beginning on or after 1 January 2013 in respect of
IFRS 7 and 1 January 2014 in respect of IAS 32. The amendment standards comprise additional guidance in respect of offsetting financial
assets and financial liabilities and introduce disclosure requirements to assess the effect or potential effect of offsetting arrangements on a
company’s financial position. The new disclosure requirements also improve transparency in the reporting of how companies mitigate credit
risk, including disclosure of related collateral pledged or received. As the Group is not setting off financial instruments in accordance with IAS
32 and does not have relevant offsetting arrangements, the amendment does not have an impact on the Group.
IFRS 13 Fair Value Measurement
The new IFRS 13 was issued in May 2011 and is effective for periods beginning on or after 1 January 2013. The requirements of IFRS 13 do not
extend the use of fair value accounting, but provide guidance on how it should be applied where its use is already required or permitted by
other standards within IFRSs. This includes recurring (eg financial instruments) and non-recurring fair value measurements (eg. purchase price
allocations) in the balance sheet throughout the IFRSs, as well as disclosures of fair value in the notes. Beside additional disclosures in note 24,
the standard had no material effect on the financial statements of the Group.
Improvements to IFRSs – a collection of amendments to International Financial Reporting Standards (annual improvements
project)
The International Accounting Standards Board (IASB) has also issued a collection of amendments to various IFRSs (“Improvements to IFRSs”) in
May 2012, which are effective for annual periods beginning on or after 1 January 2013. This includes amendments to various existing IFRSs.
Dialog does not expect a material impact on the financial position nor the financial performance of Dialog.
In addition, the following interpretation has been issued:
Interpretation
Title
IFRIC 20 1)
Stripping Costs in the Production Phase of a Surface Mine
Effective date
1 January 2013
1) IFRIC 20 is not relevant to the operations of the Group
Dialog Semiconductor Plc | Annual report and accounts 2013
92
Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
2. Summary of significant accounting policies continued
Recently issued accounting standards not yet adopted (Standards and Interpretations are endorsed by the EU except as
noted otherwise)
IFRS 9 Financial Instruments
The new IFRS 9 was issued in November 2009. The new standard for financial instruments sets out provisions for the classification and
measurement of financial assets. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value,
replacing the many different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments (its business
model) and the contractual cash flow characteristics of the financial assets.
In October 2010 additions to IFRS 9 Financial instruments were issued. The additions outline the requirements on the accounting for financial
liabilities. The new requirements address the problem of volatility in profit or loss (P&L) arising from an issuer choosing to measure its own
debt at fair value (often referred to as the ‘own credit’ problem). The IASB decided to maintain the existing amortised cost measurement for
most liabilities, limiting change to that required to address the own credit problem. With the new requirements, an entity choosing to
measure a liability at fair value will present the portion of the change in its fair value due to changes in the entity’s own credit risk in the other
comprehensive income (OCI) section of the income statement, rather than within profit or loss.
In 2013, the IASB removed the previous effective date (i.e. 1 January 2015) of the new IFRS 9. A new effective date will be decided upon once
the project is closer to its completion. IFRS 9 has not yet been endorsed by the EU. The impact will be further analysed in the future when the
project is complete.
IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosures of Interests in Other Entities, IAS 27
(revised) Separate Financial Statements, IAS 28 (revised) Investments in Associates and Joint Ventures
The IASB completed in May 2011 its improvements to the accounting requirements for off balance sheet activities and joint arrangements by
issuing IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities (amended
in June 2012 in order to clarify the transition guidance in IFRS 10 and to provide additional transition relief in IFRS 10, IFRS 11 and IFRS 12).
The new and revised standards are effective for periods beginning on 1 January 2013, however the standards were adopted by the EU for
periods beginning on 1 January 2014, at the latest.
IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be
included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the
determination of control where this is difficult to assess.
The new standard has no effect on the financial statements of the Group.
IFRS 11 provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather
than its legal form (as is currently the case). The standard addresses inconsistencies in the reporting of joint arrangements by requiring a
single method to account for interests in jointly controlled entities.
The new standard has no effect on the financial statements of the Group, as the Group is not engaged in joint arrangements.
IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint
arrangements, associates, special purpose vehicles and other off balance sheet vehicles.
The new standard introduced additional disclosures.
IAS 27 (revised) now includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been
included in the new IFRS 10.
IAS 28 (revised) now includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS
11.
IFRIC Interpretation 21: Levies
The new IFRIC was issued in May 2013 and is effective for annual periods beginning on or after 1 January 2014. The IFRIC outlines the
accounting for liabilities to pay levies imposed by governments, other than income taxes, especially when the entity should recognise a liability
to pay a levy.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
93
2. Summary of significant accounting policies continued
IFRIC 21 is an interpretation of IAS 37 Provisions, Contingent Liabilities and Contingent Assets. IAS 37 sets out criteria for the recognition of a
liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (known as an obligating
event). The Interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant
legislation that triggers the payment of the levy. The Group already applies the requirements clarified by IFRIC 21 on the accounting of the
National Insurance related to Share based payments. The liability is recognised progressively if the obligating event occurs over a period of time.
IAS 19 Employee Benefits entitled Defined Benefit Plans: Employee Contributions (Amendments to IAS 19)
The amendments made to this standard were issued in November 2013 and are effective for annual periods beginning on or after 1 July 2014
with early application permitted. The narrow-scope amendments apply to contributions from employees or third parties to defined benefit plans.
The objective of the amendments is to simplify the accounting for contributions that are independent of the number of years of employee
service, for example, employee contributions that are calculated according to a fixed percentage of salary. Dialog does not expect a material
impact on the financial position nor the financial performance of Dialog. The amendment has not yet been endorsed by the EU.
IAS 39 Financial Instruments: Recognition and Measurement entitled Novation of Derivatives and Continuation of Hedge
Accounting (Amendments to IAS 39).
The amendments made to this standard were issued in June 2013 and are effective for annual periods beginning on or after 1 January 2014.
The narrow-scope amendments will allow hedge accounting to continue in a situation where a derivative, which has been designated as a
hedging instrument, is novated to effect clearing with a central counterparty as a result of laws or regulation, if specific conditions are met.
Dialog does not expect a material impact on the financial position nor the financial performance of Dialog.
Annual Improvements to IFRSs 2010–2012 Cycle and Annual Improvements to IFRSs 2011–2013 Cycle- a collection of amendments
to International Financial Reporting Standards (annual improvements project)
The IASB has also issued a collection of amendments to various IFRSs (“Improvements to IFRSs”) in December 2013, which are effective for
annual periods beginning on or after 1 July 2014. The Annual Improvements to IFRSs 2010–2012 Cycle is a collection of amendments to IFRSs
in response to eight issues addressed during 2010–2012. The Annual Improvements to IFRSs 2011–2013 Cycle is a collection of amendments
to IFRSs in response to four issues addressed during 2011–2013. Dialog is evaluating, whether there might be a material impact on the
financial position or the financial performance of Dialog. The amendment has not yet been endorsed by the EU.
The Group does not intend to make early application of the amended or revised standards and Interpretation listed above.
Principles of consolidation and investments in affiliated companies
The consolidated financial statements include Dialog Semiconductor Plc and its subsidiaries as at 31 December each year:
Dialog Semiconductor Plc | Annual report and accounts 2013
94
Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
2. Summary of significant accounting policies continued
Name
Dialog Semiconductor GmbH
Dialog Semiconductor B.V.
Dialog Semiconductor (UK) Limited
Dialog Semiconductor Operations Services Limited
iWatt Inc.1
iWatt Cayman1
Dialog Semiconductor KK
iWatt MFG (HK) Limited1
IKOR Acquisition Corporation1
iWatt L.L.C.1
Dialog Argo Holdings Inc.
Dialog Argo Holdings L.L.C. 1
iWatt Cooperatief U.A.1
Dialog Semiconductor Hong Kong Limited1
iWatt B.V.1
iWatt HK Limited1
iWatt Integrated Circuits Technology (Shenzhen) Limited1
iWatt Integrated Circuits Technology (Tianjin) Limited1
Dialog Semiconductor (Italy) S.r.l.
Dialog Semiconductor Arastirma Gelistirme ve Ticaret A.S.
Dialog Semiconductor Hellas Societe Anonyme of Integrated Circuits1
Dialog Semiconductor Trading (Shanghai) Limited 1
Country of incorporation
Participation
Germany
The Netherlands
UK
UK
USA
Cayman Islands
Japan
Hong Kong
USA
USA
USA
USA
The Netherlands
Hong Kong
The Netherlands
Hong Kong
China
China
Italy
Turkey
Greece
China
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
[1] Held indirectly
Subsidiaries are fully consolidated from the date of acquisition, being the date on which Dialog obtains control, and continue to be
consolidated until the date such control ceases.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting
policies.
All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If Dialog loses control
over a subsidiary, it:
Derecognises the assets (including goodwill) and liabilities of the subsidiary;
Derecognises the carrying amount of any non-controlling interest;
Derecognises the cumulative translation differences, recorded in equity;
Recognises the fair value of the consideration received;
Recognises the fair value of any investment retained;
Recognises any surplus or deficit in profit or loss;
Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings,
as appropriate.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
95
2. Summary of significant accounting policies continued
Business combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each
business combination, the Group measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the
acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in
accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the
separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree
is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to
the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in
profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured
until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-
controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net
assets of the subsidiary acquired, the difference is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill
acquired in a business combination is allocated to each of the Group’s cash-generating units that are expected to benefit from the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a
cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is
included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this
circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
Fair value measurement
The Group measures financial instruments, such as, derivatives (forward contracts and as hedging designated deposits), at fair value at each
balance sheet date. Also, fair values of financial instruments measured at amortised cost are disclosed in note 24. Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
In the principal market for the asset or liability; or
In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the
asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value,
maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
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96
Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
2. Summary of significant accounting policies continued
Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly
Observable;
Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have
occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
The Group’s board of non-executive directors and the chief financial officer determine the policies and procedures for both recurring fair value
measurement, such as investment properties and unquoted AfS financial assets, and for non-recurring measurement.
External valuers are involved for valuation of significant assets, such as investments and AfS financial assets, significant liabilities, such as
contingent consideration and share option expense. Involvement of external valuers is decided upon annually by the board of non-executive
directors after discussion with and approval by the Company’s audit committee. Selection criteria include market knowledge, reputation,
independence and whether professional standards are maintained. The board of non-executive directors decides, after discussions with the
Group’s external valuers, which valuation techniques and inputs to use for each case.
At each reporting date, the board of non-executive directors analyses the movements in the values of assets and liabilities which are required
to be re-measured or re-assessed as per the Group’s accounting policies. For this analysis, the board of non-executive directors verifies the
major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant
documents.
The board of non-executive directors, in conjunction with the Group’s external valuers, also compares significant changes in the fair value of
each asset and liability with relevant external sources to determine whether the change is reasonable.
On an interim basis, the board of non-executive directors and the Group’s external valuers present the valuation results to the audit committee
and the Group’s independent auditors. This includes a discussion of the major assumptions used in the valuations.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics
and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Foreign exchange
The functional currency for the Group entities is generally the currency in which they primarily generate and expense cash. Each entity in the
Group determines its own functional currency. Accordingly, the assets and liabilities of companies whose functional currency is other than the
US dollar are included in the consolidation by translating the assets and liabilities into the presentation currency (US$) at the exchange rates
applicable at the end of the reporting period. Equity accounts are measured at historical rates. The statements of income and cash flows are
translated at the average exchange rates during the year. The exchange differences arising on the translation are directly recognised in equity
(other reserves). On disposal of an entity, the component of other comprehensive income relating to that particular entity is recognised in the
income statement.
Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All
differences are taken to profit and loss with the exception of differences on monetary items that form part of a net investment in a foreign
operation. These are taken directly to equity until the disposal of the net investment at which time they are recognised in profit or loss. Tax
charges and credits attributable to exchange differences on those monetary items and borrowings are also dealt with in equity. Non-monetary
items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial
transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair
value is determined. Foreign currency transaction gains and losses are disclosed separately in the income statement, at each reporting period.
Key exchange rates against US dollars used in preparing the consolidated financial statements were:
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
97
2. Summary of significant accounting policies continued
Currency
Pound Sterling
Japanese Yen
Euro
Exchange rate at
Annual average exchange rate
31 December 2013
31 December 2012
US$1 =
0.61
104.96
0.73
US$1 =
0.62
86.20
0.76
2013
US$1 =
0.64
97.54
0.75
2012
US$1 =
0.63
79.74
0.78
Financial instruments
A financial instrument is any contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in another.
Financial assets include, in particular, cash and cash equivalents, trade receivables and other loans and receivables, held-to-maturity
investments and derivative and non-derivative financial assets accounted for at fair value through profit or loss, as well as investments
available for sale.
Financial liabilities generally substantiate claims for repayment in cash or another financial asset. In particular, this includes trade payables,
liabilities to banks and derivative financial liabilities.
Financial assets and financial liabilities are offset and the net amount is presented in the balance sheet when, and only when, the entity
currently has a legal right to set off the recognised amounts and intends to settle on a net basis.
Financial assets
Financial assets within the scope of IAS 39 are classified as being at fair value through profit or loss, held-to-maturity investments, loans and
receivables or available-for-sale financial assets, as appropriate. When financial assets are first recognised, they are measured at fair value, plus,
in case of investments not at fair value through profit or loss, directly attributable transaction costs.
The Group determines the classification of its financial assets on first recognition and, where allowed and appropriate, re-evaluates this
designation at each financial year end.
All regular purchases and sales of financial assets are recognised on the settlement date, which is the date that the Group receives the asset.
Regular purchases or sales are classified as purchases or sales of financial assets that require delivery of assets within the period generally
established by regulation or convention of the market place.
At each reporting date, the Group assesses whether a financial asset or group of financial assets is impaired.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial
recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in
the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging
instruments in hedge relationships as defined by IAS 39. Derivatives, including separated embedded derivatives are also classified as held for
trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit and loss are carried in the
statement of financial position at fair value with changes in fair value recognised in finance income or finance costs in the income statement.
The Group has not entered into trading actions nor designated financial asset as financial asset through profit or loss in 2013 and 2012.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market, such as
trade accounts receivable. Loans and receivables are recorded initially at fair value and do not bear interest. As of 31 December 2013 as well as
31 December 2012, loans and receivables of the Group comprise trade accounts receivable from customers, cash and cash equivalents (except
for deposits designated as hedging instruments). After initial recognition, loans and receivables are subsequently carried at amortised cost
using the effective interest method, less any allowance for impairment, if necessary.
Dialog Semiconductor Plc | Annual report and accounts 2013
98
Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
2. Summary of significant accounting policies continued
Gains and losses are recognised in the income statement when the loans and receivables are de-recognised or impaired. Interest income and
expense on the application of the effective interest method are also recognised in profit or loss.
The Group continuously reviews its allowance for doubtful accounts. Management considers the collectability of a trade account receivable to
be impaired when it is probable that the Group will be unable to collect all amounts due according to the sales terms, based on current
information and events regarding the customers’ ability to meet their obligations. The amount of the impairment loss on loans and receivables
is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows, discounted at
the original effective interest rate of the financial asset. The amount of the impairment loss is recognised in profit or loss.
If, in a subsequent reporting period, the amount of the impairment loss decreases, and the decrease can objectively be related to an event
occurring after the impairment was recognised, the previously recognised impairment loss is reversed and recognised in profit or loss.
When a trade receivable is considered to be impaired, any credit losses are included in the allowance for doubtful accounts through a charge
to bad debt expenses. Account balances are set off against the allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. Recoveries of trade receivables previously written-off are recorded as other income when received. Reversals
of impairment losses are recognised in profit and loss. The Group does not have any off-balance sheet credit exposure related to its customers.
Receivables from work in process for customer specific development projects according to IAS 11 are recorded in the balance sheet line “trade
accounts receivable and other receivables” and are disclosed in the notes respectively.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as loans
and receivables, held-to-maturity investments or as financial assets at fair value through profit or loss.
After initial measurement available-for-sale financial assets are measured at fair value. Unrealised gains and losses, net of the related tax effect,
on available-for-sale financial assets are excluded from earnings and are reported as a component of other reserves until realised, or the
investment is determined as being impaired.
At each reporting date, the carrying amounts of available-for-sale assets are assessed to determine whether there is objective, significant
evidence of impairment as outlined in IAS 39.59. Any impairment losses on available-for-sale financial assets are charged to profit or loss. The
Group does not use allowance accounts in order to record the impairment in the statement of financial position but credits the impairment
loss directly against the book value of the financial assets. If this impairment relates to losses previously recognised in equity then the
impairment loss is transferred from equity to the income statement. Reversals of impairment losses in respect of equity instruments or
investment funds that are classified as available-for-sale are not recognised in profit or loss. Reversals of impairment losses on debt
instruments are reversed through profit or loss if the increase in fair value of the instrument can be objectively related to an event occurring
after the impairment loss was recognised in profit or loss.
The fair value of available-for-sale financial assets actively traded in organised financial markets is determined by reference to quoted market
bid prices at the close of business on the reporting date.
For investments in which there is no active market, fair value is determined using valuation techniques, including recent arm’s length market
transactions; reference to the current market value of another instrument which is substantially the same; discounted cash flow analysis; or
other valuation models. If the fair value of unquoted equity instruments cannot be measured with sufficient reliability, these instruments are
measured at cost (less any impairment losses, if applicable).
Derecognition of financial assets
A financial asset is derecognised when:
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99
2. Summary of significant accounting policies continued
the right to receive cash flows from the asset have expired;
the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay
to a third party under a “pass through agreement”; or
the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and
rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred
control of the asset.
When the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks
and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in
the derecognition as receivables under factoring agreement.
Financial liabilities
Financial liabilities primarily include trade accounts payable, liabilities due to banks, derivative financial liabilities and other liabilities.
Financial liabilities measured at amortised costs
After initial recognition at fair value, less directly attributable transaction costs, financial liabilities are subsequently measured at amortised cost
using the effective interest method.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include liabilities held for trading and financial liabilities designated upon initial
recognition as at fair value through profit or loss. Gains and losses on liabilities held for trading are recognised in profit or loss.
During the financial years 2013 and 2012 the Group did not classify any financial liabilities as financial liabilities at fair value through profit or
loss.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a
currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and
settle the liabilities simultaneously.
Hedging instruments and hedge accounting
The Group uses derivative financial instruments, such as forward contracts, mainly for the purposes of hedging currency risks that arise from
its operating activities. Beside the derivative financial instruments the Group designated certain deposits as hedging instruments in order to
hedge foreign currency risks as well. Such derivative financial instruments and deposits were initially recognised at fair value on the date on
which a derivative contract was entered into or the cash deposit was designated as a hedging instrument and was subsequently remeasured
at fair value on each subsequent reporting date. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair
value is negative.
Any gains and losses arising from changes in the fair value on derivatives and the deposits during the year that do not qualify for hedge
accounting are taken directly to profit or loss.
The fair value of derivatives is equal to their positive or negative market value. The fair value of forward currency contracts is calculated by
reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of the deposits was measured based on
foreign currency market rates at each reporting date.
If the requirements for hedge accounting set out in IAS 39 are met, the Group designates and documents the hedge relationship from the
date a derivative contract is entered into or the cash deposit is designated as a hedging instrument, either as a fair value hedge or a cash flow
hedge.
Dialog Semiconductor Plc | Annual report and accounts 2013
100 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
2. Summary of significant accounting policies continued
The Group did not enter into fair value hedges in 2013 and 2012.
In a cash flow hedge, the variability of cash flows to be received or paid related to a recognised asset or liability, or a highly probable forecast
transaction, or a firm commitment (in case of currency risks) is hedged. To hedge a currency risk of an unrecognised firm commitment, the
Group makes use of the option to recognise this as a cash flow hedge. The documentation of the hedge relationship includes identification of
the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging
instrument’s effectiveness in offsetting the exposure to changes in the hedged cash flows attributable to the hedged risk. Such hedges are
expected to be highly effective in achieving offsetting changes in cash flows, and are assessed on an on-going basis to determine that they
actually have been highly effective throughout the financial reporting periods for which they were designated.
For cash flow hedges, fair value changes of the effective portion of the hedging instrument are recognised in other reserves, net of applicable
taxes, while any ineffective portion of the fair value changes are recognised immediately in profit or loss. Amounts taken to equity are
transferred to the income statement when the hedged transaction affects the income statement, such as when the forecast or committed
expenses occur. If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are
transferred to profit or loss.
If the hedging instrument does not, or no longer, qualifies for hedge accounting because the qualifying criteria for hedge accounting are not,
or are no longer met, the derivative financial instruments are classified as held for trading and the deposits are classified as loans and
receivables. Amounts previously recognised in equity are transferred to profit or loss, if the transaction is no longer expected to occur.
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked,
amounts previously recognised in equity remain in equity until the forecast transaction or the firm commitment occurs.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with original maturity dates of three months or less and are subject to an
insignificant risk of changes in value. The financial position cash and cash equivalents also includes deposits designated as hedging
instruments.
Inventories
Inventories include assets held for sale in the ordinary course of business (finished goods), in the process of production (work in process) or in
the form of materials to be consumed in the production process (raw materials). Inventories are valued at the lower of cost and net realisable
value. Cost, which includes direct materials, labour and overhead, plus indirect overhead, is determined using the first-in, first-out (FIFO)
method. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated
costs to make the sale.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. These include the cost of
replacing part of the plant and equipment when that cost is incurred, if the recognition criteria are met. Depreciation is charged on a straight-
line basis over the estimated useful lives of the assets as follows:
Category of assets
Test equipment
Leasehold improvements
Office and other equipment
Useful life
3 to 8 years
Shorter of useful life or lease term
18 months to 13 years
The asset’s residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
101
2. Summary of significant accounting policies continued
Intangible assets
Intangible assets acquired separately (primarily licences, software and patents) are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination (primarily customer based intangible assets, technology and marketing related intangible
assets) is its fair value as at the date of acquisition. Intangible assets with finite useful lives are carried at cost less accumulated amortisation
and accumulated impairment losses, if any. The amortisation period and the amortisation method for an intangible asset with a finite useful
life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of
future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are
treated as changes in accounting estimates.
Intangible assets are amortised on a straight-line basis over the estimated useful lives as follows:
Intangible assets
Customer related intangible assets
Purchased software, licenses and other
Patents
Intangible assets from internal development
Useful life
1.5 to 8,5 years
3 to 10 years
10 years
1 to 9,5 years
Amortisation expenses are allocated to the cost of goods sold, selling expenses, research and development expenses, or general
administration expenses. Other than its goodwill, the Group has no intangible assets with an indefinite useful life.
Self-developed intangible assets are recorded on a cost basis. They are amortised on a straight-line basis over the estimated usefulness of 12-
114 months. The costs of internally generated intangible assets comprise all directly attributable costs necessary to create, produce and
prepare the asset to be capable of operating in a manner intended by management, e.g. costs of materials and services used or consumed in
generating the intangible asset, costs of employee benefits or fees to register a legal right. Reference is also made to the accounting policy
regarding research and development costs in this section.
Patents have been granted by the relevant government agency for a certain period, depending on the specific country, with the option of
renewal at the end of this period. In most cases the maximum lifetime of the patents is 20 years. They are amortised over the shorter period of
expected future benefit, which is principally ten years. Acquisition costs for patents are based on the cost of patent registration.
Impairment of non-monetary assets including Goodwill
Dialog assesses at each reporting date whether there is an indication that an asset may be impaired. Goodwill is tested for impairment
annually (as at 30 November) and when circumstances indicate that the carrying value may be impaired. Impairment testing involves
comparing the carrying amount of each cash-generating unit including goodwill or item of intangible assets, property, plant or equipment to
the recoverable amount, which is the higher of its fair value less costs to sell or its value in use. If the carrying amount exceeds the recoverable
amount, the asset is considered impaired and is written down to its recoverable amount. An impairment is determined for an individual asset,
unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets (cash-generating
unit). Dialog considers its operating segments as cash-generating units. If a cash generating unit is found to be impaired, an impairment loss is
first recognized on any goodwill allocated to it. Any remaining impairment amount is then allocated among the other assets of the cash-
generating unit, and pro-rated impairment losses are recognized on the carrying amounts of these assets.
Impairment losses of continuing operations, are recognised in the income statement in expense categories consistent with the function of the
impaired asset, except goodwill. Impairment losses on goodwill are recognized in “other expense”.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. These are forecasted on the basis of the Group’s
current planning, the planning horizon normally being three years including one year of budgeted and two additional forecasted years. In
determining the fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be
identified, an appropriate valuation model is used.
Dialog Semiconductor Plc | Annual report and accounts 2013
102 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
2. Summary of significant accounting policies continued
Forecasting for the entire planning period involves making assumptions, especially regarding future selling prices, sales volumes and costs.
Where the recoverable amount is the fair value less costs to sell, the cash-generating unit or individual asset is measured from the viewpoint
of an independent market participant. Where the recoverable amount is the value in use, the cash-generating unit or individual asset is
measured as currently used. In either case, net cash flows beyond the planning period are determined on the basis of long-term business
expectations using the respective individual growth rates derived from market information.
The net cash inflows are discounted at a pre-tax discount rate. To allow for the different risk and return profiles of the Group’s principal
businesses, the discount rate is calculated separately for each strategic business unit (synonymously cash generating unit from impairment test
perspective)-specific capital structure is defined by benchmarking against comparable companies in the same industry sector. The cost of
equity corresponds to the return expected by stockholders, while the cost of debt is based on the conditions on which comparable companies
can obtain long-term financing. Both components are derived from capital market information.
For assets other than goodwill, an assessment is made at each reporting date as to whether any indication that previously recognised
impairment losses may no longer exist or may have decreased. If such indication exists, an estimation of the recoverable amount is made. A
previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable
amount. That increased amount, however, cannot exceed the carrying amount that would have been determined, net of depreciation, had no
impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date of
whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the
asset.
Where the Group is lessee, finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the
leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, the present value of the minimum
lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance charges are reflected in profit and loss.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that Dialog will obtain ownership by
the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably
measured. Revenue is measured at the fair value of the consideration received or receivable, excluding discounts, rebates, and other sales
taxes or duty. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent.
The Group has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also
be met before revenue is recognised:
Sale of goods
Revenue from the sale of goods is derived from the sale of products, application specific integrated circuit (“ASIC”) and application specific
standard product (“ASSP”) to end customers. These products are manufactured and tested in accordance with customers’ technical
specifications prior to delivery.
Revenue is recognised when title passes, the risks and rewards of ownership have been transferred to the customer, the fee is fixed or
determinable, and collection of the related receivable is probable. Revenues are recorded net of sales taxes and customer discounts, if any.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
103
2. Summary of significant accounting policies continued
The Group has insurance for product claims and also records a provision for warranty costs as a charge in cost of sales, based on historical
trends of warranty costs incurred as a percentage of sales, which management has determined to be a reasonable estimate of the probable
costs to be incurred for warranty claims in a period.
Customer returns are permitted only for quality-related reasons within the applicable warranty period and any potential warranty claims are
subject to the Group’s determination that it is at fault for damages. Such claims must usually be submitted within a short period of the date of
sale.
Research and development
Revenue from customer-specific research and development contracts involving the development of new customer-specific technology is
recognised on the percentage of completion basis when the outcome of the contract can be estimated reliably. A contract’s outcome can be
estimated reliably when total contract revenue can equally be estimated, it is probable that economic benefits associated with the contract will
flow to the Group, and the stage of contract completion can be measured reliably. When the Group is not able to meet those conditions, the
policy is to recognise revenues only to the extent the expenses incurred are eligible to be recovered. Completion is measured by reference to
costs incurred to date as a percentage of estimated total project costs. The percentage of completion method relies on estimates of total
expected contract revenue and costs, as well as the dependable measurement of the progress made towards completing the particular project.
Losses on projects in progress are recognised in the period they become likely and can be estimated.
Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attaching conditions will be
complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a
systematic basis to the costs that it is intended to compensate. Grants are deducted in reporting the related expense.
Cost of sales
Cost of sales consists of the costs of outsourced production, assembly and test, personnel costs and applicable overheads and depreciation of
equipment. Provisions for estimated product warranties are recorded in cost of sales at the time the related sale is recognised. This item also
includes amortisation charges related to capitalised development cost. Impairment charges are shown either in cost of sales when revenues
had already been realized or in research and development expenses if not.
Sales and marketing expenses
Sales and marketing expenses consist primarily of salaries, travel expenses, sales commissions, bad debt expenses and costs associated with
advertising and other marketing activities.
General and administrative expenses
General and administrative expenses consist primarily of personnel and support costs for finance, human resources, ERP system and other
management departments which are not attributable to development, production or sales functions.
Research and development costs
Costs identified as research costs are expensed as incurred, whereas development costs on an individual project are capitalised as an intangible
asset and amortised over the period of expected future benefit if the Group can demonstrate the following:
The technical feasibility of completing the intangible asset so that it will be available for use or sale;
Its intention to complete the intangible asset and use or sell it;
Its ability to use or sell the intangible asset;
How the intangible asset will generate probable future economic benefits. Among other things, the Group can demonstrate the
existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of
the intangible asset;
The availability of adequate technical, financial and other resources to complete the development and use or sell the intangible asset; and
Its ability to measure reliably the expenditure attributable to the intangible asset during its development.
Dialog Semiconductor Plc | Annual report and accounts 2013
104 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
2. Summary of significant accounting policies continued
Interest income/expense
Interest income is recognised as interest accrues. Interest income includes interest income from investments in securities, cash and cash
equivalents. Income and expense resulting from the allocation of premiums and discounts is also included. Interest expense is generally
expensed as incurred.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of
time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed
in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Foreign currency exchange gains and losses
The foreign currency exchange gains and losses mainly result from foreign currency cash transactions and period end revaluation of foreign
currency denominated cash into US dollars. It is the Group’s view that these gains and losses are driven by the financing activities of the Group
and are therefore shown as non-operating results.
Employee benefits – defined contribution plans
Contributions to defined contribution and state-funded pension plans are recognised in the income statement as incurred.
Income taxes
Current income taxes for current and prior periods are measured at the amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are accounted for using the liability method and are recognised for the future tax consequences attributable
to differences between the financial statement carrying amounts of assets and liabilities, and their respective tax bases, as well as on the carry-
forward of unused tax losses that can be utilised.
Deferred tax assets and liabilities are measured using tax rates that have been enacted, or substantially enacted, by the reporting date and
which are expected to apply to taxable income in the years, in which those temporary differences are expected to be recovered or settled. The
effect of a change in tax rates on deferred tax assets and liabilities is recognised in income in the period that includes the enactment date.
A deferred tax asset is recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is
no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised
deferred tax assets are reassessed at each reporting date and are recognised to the extent, that it has become probable that future taxable
profit will allow the deferred tax asset to be recovered. Deferred tax assets being reduced in the past are presented in the notes gross less
respective provisions. If in future periods it becomes probable that taxable profits will be available against which the unused tax losses can be
utilized, it is generally assumed that tax losses incurred first will be utilized first and the respective provision will be reversed.
Deferred tax assets and deferred tax liabilities are offset, only if a legally enforceable right exists, to set off current tax assets against current
tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
Income tax is charged or credited to other comprehensive income if it relates to items that are charged or credited to other comprehensive
income. Similarly, income tax is charged or credited directly to equity if it relates to items that are credited or charged directly to equity.
Otherwise income tax is recognised in the income statement.
Sales tax
Revenues, expenses and assets are recognised net of the amount of sales tax, except:
Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax
is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable;
Receivables and payables that are stated with the amount of sales tax included.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
105
2. Summary of significant accounting policies continued
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the
statement of financial position.
Share-based payments
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date, reflects the extent to which
the vesting period has expired and the best estimate of the number of equity instruments that will ultimately vest. The income statement
charge or credit for a period represents the movement in cumulative expense in the period.
Stock options
The Group has established an equity-settled share option scheme under which employees may be granted stock options to acquire shares of
Dialog.
The fair value of options granted is recognised as a compensation expense with a corresponding increase in equity. The fair value is measured
at grant date and spread over the service period during which the employees become unconditionally entitled to the options.
The fair value of the options granted is measured using the Black-Scholes option pricing model, taking into account the terms and conditions
on which the options were granted. Expectations of early exercise are accounted for within the average life of the options.
Executives’ Long Term Incentive Plan
The Group operates an equity settled Long-Term Incentive Plan (LTIP). Under this plan, key executives are eligible to share in a percentage of
the value created for Shareholders in excess of an annual return hurdle measured over a four year performance period.
Each participant in the LTIP is awarded a number of units which convert into Company shares according to the level of outperformance of the
Company’s share price over the annual return hurdle. If this hurdle is not reached no units convert into Company shares.
The fair value of the awards is recognised as a compensation expense with a corresponding increase in equity. The fair value is measured at
grant date, using a Monte Carlo Model, taking into account the terms and conditions on which awards are granted and is spread over the
service period during which the key executives become unconditionally entitled to the awards.
The last measurement date for the LTIP was 31 January 2011, the LTIP was then replaced by the Executive Incentive Plan, see below.
For further information please refer to note 23.B.
Executive Incentive plan
In 2011 the Group established an equity settled Executives Incentive Plan (EIP). As described above, the EIP replaces the LTIP. Under this plan,
key executives and other key value drivers of the business are eligible to share in a percentage of the value created for Shareholders. Pay-outs
are now in addition to share price growth also based on corporate performance targets.
Each participant in the EIP is awarded a number of units which convert into Company shares according to the level of the Company’s share
price, EBIT and revenue growth over a term of three years from the date of grant.
The fair value of the awards is recognised as a compensation expense with a corresponding increase in equity. The fair value is measured at
grant date, using a Monte Carlo Model, taking into account the terms and conditions on which awards are granted and is spread over the
service period during which the key executives become unconditionally entitled to the awards.
For further information please refer to note 23.C.
Employee benefit trust – Treasury shares
The Group has an employee benefit trust. The employee benefit trust is separately administrated and is funded by the Group, which
consolidates the assets, liabilities, income and expenses in its own accounts. The shares held by the trust are recorded at cost and are shown
under “Employee stock purchase plan shares” in the statement of changes in Shareholders’ equity.
Dialog Semiconductor Plc | Annual report and accounts 2013
106 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
2. Summary of significant accounting policies continued
Earnings per share
Basic earnings per share amounts are calculated by dividing net profit (loss) for the year attributable to ordinary equity holders of Dialog by the
weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of Dialog by the weighted
average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued if
all the securities or other contracts to issue ordinary shares were exercised.
The weighted average number of shares outstanding is as follows:
Basic number of shares
Effect of dilutive options outstanding
Dilutive number of shares
2013
000
65,641
2,035
67,676
2012
000
64,681
2,673
67,354
The number of anti-dilutive share options outstanding was 3,179,646 (2012: 1,071,524).
In 2013 the potential ordinary shares of the convertible bond were antidilutive as their conversion to ordinary shares would increase earnings
per share.
Significant accounting judgements, estimates and assumptions
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the reported
amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
The significant accounting estimates and assumptions are outlined below:
Impairment of non-financial assets
The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. In case of such an
indicator, an impairment test is made. This requires the determination of the value in use and the fair value less costs to sell respectively of the
assets. Estimating the value in use requires management to make an estimate of the expected future cash flows from the asset and also to
choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of such assets at 31 December
2013 was US$569,475,000 (2012: US$286,845,000), please refer to notes 4, 9, 12 and 13.
Business Combinations
In accordance with business combination accounting, we allocate the purchase price of acquired companies to the tangible and intangible
assets acquired and liabilities assumed, based on their estimated fair values. We engage third-party appraisal firms to assist management in
identifying certain intangible assets acquired and in determining the fair values of certain assets acquired and liabilities assumed. Such
valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.
Management makes estimates of fair value based upon assumptions believed to be reasonable. These estimates are based on historical
experience and information obtained from the management of the acquired companies and are inherently uncertain. Critical estimates in
valuing certain assets acquired and liabilities assumed include but are not limited to: future expected cash flows from the sale of products, and
engineering service sales, the acquired company’s brand awareness and discount rate. Unanticipated events and circumstances may occur that
may affect the accuracy or validity of such assumptions, estimates or actual results. Subject to these estimates are the fair values recorded as
shown in note 4 (Business Combinations).
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
107
2. Summary of significant accounting policies continued
Goodwill is allocated to cash generating units or groups of cash generating units, that is expected to benefit from the synergies of the
business combination, irrespective of whether other assets or liabilities of the acquire are assigned to these units or group of units. The
estimates of these synergies include but are not limited to: future cash flows from the sale of products, changes in fair values of cash
generating units and discount rate. We refer to note 5 (Impairment testing) for the accounting treatment including applied approach and
assumptions related to the current business combination.
Deferred tax assets and liabilities
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which
the losses can be utilised.
Significant management judgement on projected future taxable profits and cash flows is required to determine the amount of deferred tax
assets that can be recognised, based upon the likely timing of future taxable profits, together with future tax planning strategies. At year-end
2013, net deferred tax liabilities amounting to US$15,698,000 were recognised (2012: net deferred assets US$3,234,000).
Further information regarding the assessment of future taxable income is disclosed in note 6.
Share-based employee compensation awards
Stock options
Share-based payment transactions for stock options are measured by reference to the fair value at the date on which they are granted.
The fair value of share-based payments is determined using the Black-Scholes model, which involves making assumptions about interest
rates, volatilities, market conditions, dividend yield, expected life and fluctuation. Due to the nature of these assumptions, such estimates
are subject to significant uncertainty. In 2013, the expense related to stock options was US$5,642,000 (2012: US$5,466,000). For further
information on stock options please refer to note 23.A and 23.D.
Executives’ Long Term Incentive Plan
The fair value of the awards is recognised as a compensation expense with a corresponding increase in equity. The fair value is measured
at grant date, using a Monte Carlo Model, based on standard inputs such as the Company’s share price, interest rate, and volatility of the
Company’s share price, dividend yield, expected life and fluctuation. Due to the nature of these assumptions, such estimates are subject
to significant uncertainty. In 2013, an expense of nil was booked (2012: US$74,000). Further information regarding LTIP is provided in
note 23.B and 23.D.
Executives Incentive Plan
The fair value of the awards is recognised as a compensation expense with a corresponding increase in equity. The fair value is measured
at grant date, using a Monte Carlo Model, based on standard inputs such as the Company’s share price, interest rate, and volatility of the
Company’s share price, dividend yield, expected life and fluctuation. Due to the nature of these assumptions, such estimates are subject
to significant uncertainty. In 2013, an expense of US$2,846,000 was booked (2012: US$1,415,000). Further information regarding EIP is
provided in note 23.C and 23.D.
Customer-specific research and development
For the determination of revenue and costs for customer-specific research and development contracts, management judgement is required. It
is, therefore, necessary to determine the stage of completion based on the progress made towards completing the particular project, as well
as the contract revenue and the contract costs. Besides an advance payment received from one customer, at 31 December 2013 no
receivables or liabilities from constructions contracts were outstanding (2012: nil).
Self-developed intangible assets
Development costs are capitalised in accordance with the accounting policy mentioned above, i.e. they are recorded on a cost basis. However,
initial capitalisation of costs is based on management’s judgement that technological and economic feasibility is confirmed, usually when a
product development project has reached a defined milestone according to an established project management model. The amortisation starts
when the capitalized product is ready for intended use. In determining the probable future economic benefits of the self-developed intangible
asset, management makes assumptions regarding the expected future cash generation of the assets, discount rates to be applied and the
expected period of benefits. At 31 December 2013, the carrying amount of capitalised development costs was US$57,352,000 (2012:
US$13,425,000), please refer to note 13.
Actual results may differ from all of the above judgements and estimates.
Dialog Semiconductor Plc | Annual report and accounts 2013
108 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
3. Other disclosures to the income statement
a) Operating expenses and revenues
The operating result before income taxes is stated after charging:
Auditors' remuneration
for the audit of the Group financial statements
for the statutory audit of the subsidiaries
for other audit related assurance services
Other fees for auditors
Services related to Corporate Finance transaction
Tax advisory services
2013
US$000
2012
US$000
(736)
(9)
(170)
(335)
(2,019)
(3,269)
(302)
(154)
(70)
(373)
(7)
(906)
Depreciation of property, plant and equipment
(18,581)
(12,698)
Amortisation of intangible assets
thereof included in cost of sales
thereof included in selling and marketing expenses
thereof included in general and administrative expenses
thereof included in research and development expenses
Personnel costs
Wages and salaries
Social and security costs
Share-based payments
Pension costs from defined contribution plans1)
Included in revenues
Revenue from the sale of goods
Revenue from customer specific research and development contracts
Revenue from royalties
Included in revenue from sale of goods income attributable to prior periods from BenQ cash settlement
(see note 29)
Included in cost of sales
Costs in relation to customer specific research and development contracts
Amount of inventory recognised as expense
Impairment of inventories recognised as an expense
Included in other operating income
Release of an earn out provision (see note 4)
BenQ Settlement (see note 29)
[1] The pension costs from defined contribution plans include costs for the state funded pension plan in Germany of US$2,732,000 (2012: US$2,242,000).
Dialog Semiconductor Plc | Annual report and accounts 2013
(10,940)
(8,203)
(983)
(8,520)
(4,454)
(5,426)
(637)
(9,076)
(28,646)
(19,593)
(115,913)
(12,055)
(8,487)
(7,703)
(85,684)
(9,049)
(6,955)
(6,455)
(144,158)
(108,143)
899,660
772,919
1,527
869
851
664
–
–
(1,527)
(484,957)
(14,445)
(664)
(437,939)
(8,207)
3,249
145
3,394
–
–
–
Section 5 | Consolidated financial statements and notes
109
3. Other disclosures to the income statement continued
b) Directors’ remuneration
Aggregate remuneration in respect of qualifying services
Number of directors who received shares in respect of qualifying services
Number of directors who exercised share options
In respect of the highest paid director:
Aggregate remuneration
Of which pension contribution for the year
The highest paid director exercised nil (2012: 329,940) share options during the year.
c) Interest income and interest expense
Interest income and expenses comprise the following items:
Interest income
Interest expense
Of which: from financial instruments relating to categories in accordance with IAS 39
Loans and receivables and liabilities
Financial liabilities measured at amortised cost
2013
US$000
2,849
2013
No.
1
–
2013
US$000
1,820
37
2013
US$000
565
(13,345)
(12,780)
(3,845)
(8,935)
(12,780)
2012
US$000
1,690
2012
No.
8
5
2012
US$000
1,046
56
2012
US$000
1,360
(6,466)
(5,106)
204
(5,310)
(5,106)
d) Government grants
The Group receives government grants for research and development activities of its Dutch design centre. Under the condition that
technologies are new to the company and performed by the Group’s employees, a grant can be received for its development. This grant is
based on the hours spent on these R&D activities. In 2013 the Group received grants in the amount of US$1,055,000 (2012: US$1,078,000).
In the profit and loss account the grants received were deducted from research and development expenses. In addition in 2013 the company
has applied for a grant in the form of a tax relief, an amount of up to US$3,567,000 (2012: US$2,356,000) can be deducted from a positive
taxable income in the Netherlands.
Dialog Semiconductor Plc | Annual report and accounts 2013
110 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
3. Other disclosures to the income statement continued
e) Headcount
The average number of persons employed by the Group (including the Executive Director) during the year, analysed by category, was as
follows:
Research and Development
Production
Sales and Marketing
Admin
IT
2013
588
127
156
71
30
972
2012
445
95
92
58
24
714
4. Business combination
Acquisition in 2013
On 16 July 2013 Dialog Semiconductor Plc acquired 100% of the voting rights of iWatt Inc. (“iWatt”) for a purchase price with a fair value of
US$ 311,449,000 of which US$306,261,000 was paid in cash at the time of the acquisition. Headquartered in Campbell, California, with
approximately 180 employees worldwide, iWatt is a leading provider of digital power management integrated circuits with a patent portfolio
of more than 110 patents and a strong design and application engineering presence in Asia. Its innovative PrimAccurate™ technology
platform enables high performance, energy-efficient, small form-factor and cost-effective solutions for markets such as AC/DC power
conversion and LED Solid State Lighting (SSL). The Company’s solutions are designed into the products of leading global OEMs and it has
shipped more than one billion power management ICs since 2007.
This acquisition underscores Dialog's strategy to diversify its markets and growth opportunities through select strategic acquisitions. iWatt’s
business is highly complementary to Dialog’s existing PMIC business. It will enable the resulting business combination to address adjacent
emerging power management segments and increase its Total Addressable Market. It diversifies Dialog’s product portfolio adding two high
growth product families; AC/DC charge adaptor IC and a broad range of LED Solid State Lighting ICs. iWatt’s business contributes to the
diversification of Dialog’s client portfolio by adding new Tier-1 customers and expanding the business opportunities at existing smartphone
Tier-1 OEMs.
The acquisition has been accounted for using the acquisition method as required by IFRS 3.4. Due to the timing of the acquisition the initial
accounting for the business combination is incomplete at the time the financial statements were authorized for issue. The fair values
recognized on the acquisition represent provisional amounts.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
111
4. Business combination continued
Assets acquired and liabilities assumed
The book values at iWatt and provisional fair values of the identifiable assets and liabilities of iWatt as at the date of acquisition were:
Book values at iWatt
Fair value adjustments
Fair value recognised
US$000
US$000
on acquisition
US$000
Assets
Cash and cash equivalents
Trade accounts receivable and other receivable
Inventories
Other current assets
Property, plant and equipment
Intangible assets 1)
Deferred tax assets
Other non-current assets
Total assets
Liabilities
Trade and other payables
Provisions
Income taxes payable
Other current liabilities
Deferred tax liabilities
Total liabilities
Total identifiable net assets at fair value
Goodwill arising on acquisition
Purchase price
Fair value of contingent consideration (earn out)
Purchase consideration transferred
–
–
6,996
–
3,117
113,499
–
–
2,410
11,017
13,030
776
4,866
113,553
16,200
314
123,612
162,166
2,410
11,017
6,034
776
1,749
54
16,200
314
38,554
11,585
7,342
227
3,431
–
22,585
–
(3,903)
–
–
44,630
40,727
15,969
82,885
11,585
3,439
227
3,431
44,630
63,312
98,854
212,595
311,449
(5,188)
306,261
[1] For further information please refer to note 13 for allocation of fair value adjustments to Group’s asset classes
The fair value of the trade receivables amounts to US$11,017,000. None of the trade receivables have been impaired and it is expected that
the full contractual amounts will be collected. The fair value of inventories contains a step-up of US$6,996,000 which has an adverse impact
on gross margin and the financial results for the current reporting period (for further details see management report on page 35).
The intangible assets comprise mainly customer and technology (including core technology) related intangible assets.
The deferred tax assets mainly represent tax loss carryforwards, temporary differences relating to intangible assets, other temporary
differences and tax credits.
The deferred tax liability mainly comprises the tax effect on fair value adjustments from the purchase price allocation.
Dialog Semiconductor Plc | Annual report and accounts 2013
112 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
4. Business combination continued
The goodwill of US$212,595,000 comprises the value of expected significant synergies, especially with the Company’s mobile system segment,
and other benefits from combining the assets and activities of iWatt with those of the Dialog Group as explained above. The allocation of
Goodwill to existing and new segments will be based on commercial information available on the acquisition date and finalised during the
measurement period of 12 months subsequent to the acquisition date. None of the goodwill recognised is expected to be deductible for
income tax purposes.
From the date of the acquisition, iWatt has contributed US$26,768,000 of revenue (net of US$7,073,000 of deferred revenue which was not
accounted for due to acquisition accounting rules) and a loss of US$22,533,000 before tax which are presented in the Group’s newly created
segment Power Conversion. If iWatt had been acquired on 1 January 2013, revenue of the Group in 2013 would have been US$942,520,000.
However, due to a lack of IFRS-specific data prior to the acquisition of iWatt, pro-forma profit or loss of the combined entity in 2013 cannot
be determined reliably.
Purchase consideration
The total purchase price consideration amounted to US$306,261,000. There is an additional total contingent consideration (earn out) of up to
35,000,000.
Analysis of cash flows from acquisition
Transaction costs of the acquisition (included in cash flows from operating activities)
Total cash outflow for acquisition (included in cash flows from investing activities)
Net cash acquired with the subsidiary (included in cash flows from investing activities)
Net cash flow on acquisition
US$000
(3,974)
(306,261)
2,410
(307,825)
Acquisition costs of US$3,974,000 have been expensed and are included in general and administrative expenses in the income statement.
Contingent consideration
As part of the purchase agreement with the previous owner of iWatt, a contingent consideration has been agreed.
The contingent consideration is based on post-acquisition revenue targets to be achieved within two earn out periods, the six months ended
31 December 2013 (the “First Earn-Out Period”) and the nine months ended September 30, 2014 (the “Second Earn-Out Period”). The
maximum payment relating to the first earn out period is US$17.0 million and the maximum payment relating to the second earn out period
is US$18.0 million. In relation to these earn outs we have initially recognized a provision of US$5.2 million which was reduced to US$1.9
million at 31 December 2013. The reduction of US$3.3 million resulted in a gain which is included in other operating income in the
consolidated income statement. We note that a minimum of 90% of the stretch targets set by former iWatt owners must be achieved before
any earn out is achieved.
Other earn outs which are related to post acquisition employment are treated as post acquisition compensation and are expensed in the
income statement over the relevant period.
The acquisition is being funded from both Dialog’s existing cash resources and additional debt facilities of US$115 million of which US$10
million have been repaid in December 2013.
Consideration for unvested share options
At the Effective Date of acquisition, each unvested option on iWatt shares was cancelled. Instead, a cash compensation has been offered to
employees with unvested options which had an Exercise Price per Option lower than the implied Share Price, calculated based upon the
effective date consideration. This compensation will be paid out by Dialog over the former vesting period of the cancelled option subject to
the employee remaining with Dialog and will be recorded as compensation expense in the income statement. The maximum amount of
compensation that will be paid out is US$3,175,000.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
113
5. Impairment testing
Impairment testing of goodwill
For impairment testing purposes, goodwill acquired thorough business combinations (2013: iWatt and 2011: SiTel) has been allocated, as
follows:
Unallocated
Mobile Systems
Connectivity
2013
US$000
Goodwill
212,595
2012
US$000
–
2013
US$000
5,150
2012
US$000
5,150
2013
US$000
2012
US$000
Total
2013
US$000
2012
US$000
27,133
27,133
244,878
32,283
Unallocated goodwill
The balance of unallocated goodwill represents the provisional amount acquired through the acquisition of iWatt Inc. on 16 July 2013 which
could not be reliably allocated to cash generating units. At 31 December 2013, the integration of iWatt Inc. and its subsidiaries is still on-
going. During the integration process, one of the key activities is the evaluation of the complementarity between the two groups as it relates
to technology, product portfolio, customer base and sales channels, in an effort to properly and reliably identify cross selling opportunities
between the newly acquired group and Dialog’s existing segments. In view of the significant differences that exist between the Dialog Group
and the former iWatt Group when it comes to sales channels and the geographical foot print in particular, the evaluation is still on going at
31 December 2013. During this on-going process, we are focusing on the evaluation of commercial data which had an impact on the
purchase price at the acquisition date. Based on a review at year end, there were no indicators of impairment at 31 December 2013.
Mobile Systems and Connectivity segment
As described in note 2 in more detail an impairment loss must be recognized if the carrying amount of a cash generating unit exceeds its
recoverable amount. The recoverable amount can either be measured as the fair value less cost to sell or the value in use. In Q4-2013 the
company performed a separate impairment test for the two relevant CGU’s (Mobile Systems and Connectivity) based on the value in use to
determine the recoverable amount.
Key assumptions used in value in use calculations
The calculation of value in use for both connectivity and mobile systems units is most sensitive to the following assumptions:
Return on sales;
Discount rates;
Growth rates used to extrapolate cash flows beyond the planning period.
Return on sales – Return on sales is calculated by dividing the EBITDA by net sales for each of the units. The EBITDA is defined as the
operating profit (loss) excluding depreciation and amortisation expenses as reported in note 26.
Discount rates – Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time
value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate
calculation is based on the specific circumstances of the Group and its operating segments and is derived from its weighted average cost of
capital (WACC). The WACC takes into account both debt and equity. The applied discount rate represents a pre-tax WACC. The cost of equity
is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the interest bearing borrowings the
Group is obliged to service. Segment-specific risk is incorporated by applying individual beta factors. The beta factors are evaluated annually
based on publicly available market data. The calculation of the recoverable amount is based on pre-tax cash flows discounted using a pre-tax
discount rate.
Growth rate estimates – Rates are based on company’s industry research and applied for calculation of perpetuity.
The discounted cash flow calculations use projections that are based on management’s expectations covering the assessment year 2014. The
planning horizon reflects the assumptions for short-to mid-term market developments. Cash flows for the assessment years 2015 and 2016
are extrapolated using appropriate growth rates. Key assumptions on which management has based its determination of the value in use
include the development of key assumptions mentioned above. Cash flow calculations are supported by external sources of information.
Dialog Semiconductor Plc | Annual report and accounts 2013
114 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
5. Impairment testing continued
Impairment Testing Parameters
Actual
Return on sales
Pre-tax discount rate
Growth rates
3 year planning period
Return on sales
Pre-tax discount rate
Growth rates
Perpetual annuity
Return on sales
Pre-tax discount rate
Growth rates
Mobile Systems
Connectivity
in %
in %
22.0
11.3
16.6
3.7
11.3
(4.7)
26.5 - 29.1
12.2 - 21.1
11.3
11.3
10.8 - 25.3
15.6 - 41.9
28.0
11.3
1.0
21.0
11.3
1.0
Sensitivity to changes in assumptions
The implications of the key assumptions for the recoverable amount are discussed below:
Growth rate assumptions - Management recognises that the speed of technological change in the company’s industry sector and the
possibility of new entrants can have a significant impact on growth rate assumptions. The effect of new entrants is not expected to have an
adverse impact on the forecasts, but could yield a reasonably possible alternative to the estimated long-term average growth rate of 12.3%
for Mobile Systems segment and 28.7% for Connectivity segment. A reduction to 0.0% in the long-term average growth rate in Mobile
Systems Segment with all other factors being held constant would not result in a further impairment. For the Connectivity Segment, a
reduction of the average growth rate to 15.0% over the short term planning period with all other factors being held constant would result in
impairment.
Discount rates - A rise in pre-tax discount rate to 31.0% in the Mobile System segment with all other factors being held constant would result
in a further impairment. A rise in pre-tax discount rate to 32.6% in the Connectivity segment with all other factors being held constant would
result in impairment.
Management concluded that no impairment charge against goodwill should be recognised in either of the two strategic business units.
However, although the assumptions concerning the macroeconomic environment and developments in the industries in which Dialog operates
and estimates of the discounted future cash flows are believed to be appropriate, changes in assumptions or circumstances could require
changes in the analysis. This could lead to impairment losses in the future.
6. Income taxes
Income (loss) before income taxes consists of the following:
Germany
Foreign
Dialog Semiconductor Plc | Annual report and accounts 2013
2013
US$000
118,932
(29,220)
89,712
2012
US$000
96,999
(10,874)
86,125
Section 5 | Consolidated financial statements and notes
115
6. Income taxes continued
Income tax benefit (expense) is comprised of the following components:
Current taxes:
Germany
Foreign
Deferred taxes:
Germany
Foreign
Income tax expense
Current taxes:
Current income tax charge
Adjustments in respect of current income tax of previous year
Deferred taxes:
Relating to origination and reversal of temporary differences
Relating to a reversal of a previous write-down of a deferred tax asset
Income tax expense
2013
US$000
2012
US$000
(36,105)
403
943
7,251
(27,508)
(12,819)
(852)
(14,860)
4,919
(23,612)
2013
US$000
2012
US$000
(36,105)
403
8,194
–
(27,508)
(13,391)
(280)
(12,073)
2,132
(23,612)
Although Dialog Plc. is a UK company, its principal operations are located in Germany. Accordingly, the following information is based on
German corporate tax law.
The tax rate for its German subsidiary is 15%; considering the impact of the solidarity surcharge of 5.5%, the federal corporate tax rate
amounts to 15.8%. Combining the federal corporate tax rate with the trade tax rate of 12.6%, the combined statutory tax rate of the
German subsidiary is 28.4%.
Dialog Semiconductor Plc | Annual report and accounts 2013
116 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
6. Income taxes continued
A reconciliation of income taxes determined using the combined German income tax rate of 28.4% (2012: 28.4%), is as follows:
Expected income tax expense
Tax rate differential
Non-deductible portion of share based payments
Tax benefit from share based payments
Tax free income (non-deductible expenses)
Recognised deferred tax assets relating to a reversal of a previous write-down of deferred tax assets and
first time recognition of deferred tax assets relating to prior years
Benefit from previously unrecognised deferred tax assets that is used to reduce current tax expense
Additional losses for which no deferred tax asset is recognised
Adjustments recognised for tax of prior periods
Differences arising from differences between functional currency and tax currency
Other
Actual income tax expense
Deferred income tax assets and liabilities are summarised as follows:
Temporary differences relating to intangible assets
Other temporary differences
Deferred taxes in relation to tax credits
Net operating loss carryforwards
Total net deferred tax assets / (liabilities)
Impaired deferred tax assets
2013
US$000
2012
US$000
(25,457)
(24,439)
(652)
(2,276)
1,487
(71)
–
1,983
(2,827)
302
(45)
48
(568)
(1,782)
3,434
(291)
2,132
1,631
(2,543)
(388)
(773)
(25)
(27,508)
(23,612)
At 31 December 2013
At 31 December 2012
US$000
(43,028)
1,913
2,771
22,646
(15,698)
–
US$000
(5,111)
2,178
–
6,167
3,234
–
Recognised net deferred tax assets / (liabilities)
(15,698)
3,234
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
117
6. Income taxes continued
Tax loss carryforwards, temporary differences and net deferred tax assets are summarised as follows:
Germany
UK
Netherlands
US1)
Other
Total
31 December 2013
31 December 2012
Tax loss
Temporary
Net deferred tax
Tax loss
Temporary
Net deferred tax assets
carryforwards
Differences
assets (liabilities)
carryforwards
US$000
–
73,600
23,258
64,509
–
US$000
1,026
31,968
(7,863)
(112,154)
1,563
US$000
288
–
3,849
(20,398)
563
US$000
629
69,739
19,384
4,029
–
161,367
(85,460)
(15,698)
93,781
Differences
US$000
(2,181)
23,084
(13,244)
928
1,296
9,883
(liabilities)
US$000
(440)
–
945
2,132
597
3,234
[1] Including an estimated amount of US$39,847,000 (2012: US$2,806,000) for state tax loss carryforwards
The amount of deductible temporary differences and unused tax loss carryforwards for which no deferred tax asset is recognised in the
balance sheet is US$121,579,000 (2012: US$95,179,000). In addition, no deferred tax asset is recognised in respect of tax credits of
US$3,643,000 (2012: nil).
In assessing whether the deferred tax assets can be used, management considers the probability that some, or all, of the deferred tax assets
will not be realised. The utilisation of deferred tax assets depends upon generating taxable profit during the periods in which those temporary
differences become deductible or tax-loss carryforwards can be utilised. Management considers the reversal of deferred tax liabilities,
projected future taxable income, benefits that could be realised from available tax planning strategies and other positive and negative factors
in making this assessment.
The utilisation of tax loss carryforwards and temporary differences for which currently no deferred tax asset is recognized is subject to the
achievement of positive income in periods which are beyond the Company’s current business plan and therefore this utilisation is uncertain.
Consequently no deferred tax assets were recognised for these losses and temporary differences.
The tax loss carryforwards in the US will expire between 2018 and 2033 and in the Netherlands between 2017 and 2019; other tax loss
carryforwards have no expiration date.
The amount shown under “income tax receivables” in the statement of financial position includes a corporation tax refund claim of the
Group’s German subsidiary. The total amount the German subsidiary is entitled to receive amounts to €414,000 to be paid out in ten equal
amounts during 2008 to 2017. The amount shown within the non-current assets represents the discounted part of the claim that is due after
2014. The amount that will be paid in 2014 is shown within the current assets.
7. Cash and cash equivalents
Cash at bank
Short-term deposits
Deposits designated as a hedging instrument
Cash and cash equivalents
At 31 December
At 31 December
2013
US$000
151,016
35,009
–
186,025
2012
US$000
136,117
170,000
6,318
312,435
Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of
the Group. Deposits designated as a hedging instrument are classified as cash flow hedges to cover firm commitments and forecast
transactions in Euros, Pound Sterling and Japanese Yen.
Dialog Semiconductor Plc | Annual report and accounts 2013
118 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
8. Trade accounts receivable and other receivable
Trade accounts receivable
Receivables from factoring agreement
At 31 December
At 31 December
2013
US$000
113,236
14,100
127,336
2012
US$000
70,490
12,397
82,887
Trade receivables are non-interest bearing and are generally on 30-60-day terms.
As described in note 27, the Group has two selective factoring agreements, one since 2007 and the other since 2012. The amount shown as
receivables from the factoring agreements represents respectively a 15% or 10% retainer kept by the factoring bank against sold receivables.
The retainer is released only once the receivable is fully paid by the customer, at the latest, 120 days after the receivable becomes due or if the
insurance event occurs. There are no significant risks related to the continuing involvement. The amounts are non-interest bearing and are
generally on 30-60-day terms.
The recorded trade accounts receivable for which an impairment has been recognised, was US$82,000 and US$1,130,000 at 31 December
2013 and 2012, respectively. The related allowance for doubtful accounts was US$82,000 and US$1,130,000 at 31 December 2013 and 2012,
respectively.
The allowance for doubtful accounts developed as follows:
Allowance for doubtful accounts at beginning of year
Additions charged to bad debt expense
Write-offs charged against the allowance
Reductions credited to income
Effect of movements in foreign currency
Allowance for doubtful accounts at end of year
As at 31 December 2013 and 2012, the aging analysis of trade accounts receivable is as follows:
Receivables neither past due nor impaired
Receivables past due, not impaired individually
Less than 30 days
30 to 59 days
60 to 89 days
90 to 130 days
Total
Dialog Semiconductor Plc | Annual report and accounts 2013
At 31 December
At 31 December
2013
US$000
1,130
20
(670)
(168)
(230)
82
2012
US$000
1,180
8
(26)
(2)
(30)
1,130
At 31 December
At 31 December
2013
US$000
109,087
–
3,272
456
28
393
2012
US$000
66,374
–
3,410
706
–
–
113,236
70,490
Section 5 | Consolidated financial statements and notes
119
9. Inventories
Inventories are comprised of the following:
Raw materials
Work-in-process
Finished goods
Deposits
10. Other financial assets
Other financial assets comprise:
Deposits for hedging contracts
Hedging instruments
At 31 December
At 31 December
2013
US$000
14,276
26,815
76,438
12
2012
US$000
20,686
51,739
79,942
88
117,541
152,455
At 31 December
At 31 December
2013
US$000
1,532
2,462
3,994
2012
US$000
368
2,752
3,120
The deposits for hedging contracts are an advance settlement for hedging instruments with a negative fair value. The deposits do not bear
interests and are offset with amounts due when the hedge is settled.
The amount shown under hedging instruments includes the fair value of derivative financial instruments used for cash flow hedges. The
Group is exposed to currency risks in the course of its operating activities. These risks are reduced by the use of forward currency exchange
contracts.
The Group has clear guidelines as to the use of those derivatives, and compliance is constantly monitored. For further information on the
Group’s hedging policy please see note 27.
11. Other current assets
Other current assets comprise:
Prepaid expenses 1)
Other tax receivables
Other
[1] Including US$3,440,000 (2012: US$3,557,000) prepayments made to a major supplier
At 31 December
At 31 December
2013
US$000
10,713
1,017
746
12,476
2012
US$000
9,138
1,650
1,757
12,545
Dialog Semiconductor Plc | Annual report and accounts 2013
120 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
12. Property, plant and equipment, net
A summary of activity for property, plant and equipment for the years ended 31 December 2013 and 2012 is as follows:
Leasehold
Office and other
Construction in
Test equipment
improvements
US$000
US$000
equipment
US$000
progress
US$000
Total
US$000
Cost
Balance at 31 December 2011 / 1 January 2012
Effect of movements in foreign currency
Additions
Reclassifications
Disposals
85,732
19
23,744
–
(1,297)
7,617
85
2,007
22
(101)
24,661
177
9,284
242
(1,786)
Balance at 31 December 2012 / 1 January 2013
108,198
9,630
32,578
Additions relating to the iWatt acquisition 1)
Effect of movements in foreign currency
Additions
Reclassifications
Disposals
4,440
(12)
6,640
170
108
256
195
3,468
12,321
10
(1,112)
(157)
(1,477)
Balance at 31 December 2013
118,154
13,219
43,883
Depreciation and impairment losses
Balance at 31 December 2011 / 1 January 2012
(74,684)
(1,410)
(13,779)
Effect of movements in foreign currency
Depreciation charge for the year
Disposals
(9)
(6,030)
1,114
(25)
(1,221)
16
(70)
(5,447)
1,445
Balance at 31 December 2012 / 1 January 2013
(79,609)
(2,640)
(17,851)
Effect of movements in foreign currency
Depreciation charge for the year
Impairment charges
Disposals
2
(10,107)
(171)
1,028
(28)
(1,546)
–
61
(90)
(6,928)
(346)
734
Balance at 31 December 2013
(88,857)
(4,153)
(24,481)
267
1
13
(264)
(5)
12
–
12
686
(10)
–
700
–
–
–
–
–
–
–
–
–
–
118,277
282
35,048
–
(3,189)
150,418
4,866
303
23,115
–
(2,746)
175,956
(89,873)
(104)
(12,698)
2,575
(100,100)
(116)
(18,581)
(517)
1,823
(117,491)
Net book value
At 31 December 2011 / 1 January 2012
At 31 December 2012 / 1 January 2013
At 31 December 2013
11,048
28,589
29,297
6,207
6,990
9,066
10,882
14,727
19,402
267
12
700
28,404
50,318
58,465
Finance leases
The carrying value of property, plant and equipment held under finance leases at 31 December 2013 was US$288,000 (31 December 2012:
US$628,000). Additions during the year were US$40,000 (2012: US$506,000). As of the reporting date future minimum lease payments
under those finance lease contracts were US$ nil (2012: US$221,000). The present value of the net minimum lease payments was US$ nil
(2012: US$211,000).
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
121
13. Goodwill and other intangible assets
A summary of activity for intangible assets for the years ended 31 December 2013 and 2012 is as follows:
Goodwill
Other intangible assets
52,214
6,704
31,099
104,117
Customer related
Purchased software,
intangible assets
licenses and other
US$000
US$000
US$000
Cost
Balance at 31 December 2011 /
1 January 2012
Effect of movements in foreign currency
Additions
Reclassifications
Disposals
Balance at 31 December 2012 /
1 January 2013
32,283
–
–
–
–
32,283
Additions relating to the iWatt acquisition 1)
212,595
Effect of movements in foreign currency
Additions
Reclassifications
Disposals
–
–
–
–
14,100
–
–
–
–
14,100
62,975
–
–
–
–
26,237
96
26,606
–
(725)
979
168
4,146
–
(50)
Balance at 31 December 2013
244,878
77,075
57,457
Amortisation and impairment losses
Balance at 31 December 2011 /
1 January 2012
Effect of movements in foreign currency
Amortisation charge for the year
Impairment charges
Disposals
Balance at 31 December 2012 /
1 January 2013
Effect of movements in foreign currency
Amortisation charge for the year
Impairment charges
Disposals
Balance at 31 December 2013
Net book value
–
–
–
–
–
–
–
–
–
–
–
(5,428)
–
(5,076)
–
–
(10,504)
–
(7,805)
–
–
(17,227)
(50)
(5,197)
–
575
(21,899)
(71)
(7,891)
(21)
38
Intangible assets
from internal
development
US$000
25,530
–
5,956
–
(387)
Patents
US$000
5,754
–
950
–
–
Total
US$000
71,621
96
33,512
–
(1,112)
–
–
1,711
–
–
8,415
(1,116)
–
(1,135)
–
–
(2,251)
–
(1,304)
–
–
49,599
–
5,988
–
(14)
113,553
168
11,845
–
(64)
86,672
229,619
(9,489)
–
(8,185)
–
–
(17,674)
–
(11,646)
–
–
(33,260)
(50)
(19,593)
–
575
(52,328)
(71)
(28,646)
(21)
38
(18,309)
(29,844)
(3,555)
(29,320)
(81,028)
At 31 December 2011 / 1 January 2012
At 31 December 2012 / 1 January 2013
At 31 December 2013
32,283
32,283
8,672
3,596
244,878
58,766
9,010
30,315
27,613
4,638
4,453
4,860
16,041
13,425
57,352
38,361
51,789
148,591
[1] Internally developed by iWatt pre-acquisition
Dialog Semiconductor Plc | Annual report and accounts 2013
122 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
13. Goodwill and other intangible assets continued
A key element of the 2013 additions was the acquisition of iWatt Inc. In connection with this acquisition the company acquired goodwill,
internally developed intangible assets, patents and customer related intangible assets, such as customer relationship and order backlog. For
further information, please refer to note 4.
Customer related intangible assets comprise intangible assets acquired in a business combination containing key customers, other customer
relationships and order backlog. Intangible assets from internal development represent capitalised development costs of individual projects.
We refer to Note 2 for a description of applied accounting policies as well as applied ranges of useful lives for subsequent measurement.
A key element of the 2012 additions relates to a new US$26,4 million, 6 years licensing agreement (with the option to extend the term of the
agreement by a period of two years) which the Company entered into during the third quarter of 2012 as part of the Company’s on-going
strategy to invest in R&D. This agreement allows Dialog to access patents in the area of portable power management and battery charging
technology.
Dialog paid an initial amount of US$6 million in Q3-2012. In addition to this payment 24 subsequent quarterly payments of US$850,000 will
be made by Dialog amounting to a total investment of US$26,4 million. Upon initial recognition, the license agreement was capitalised with
its net present value of US$22,077,000. The discount rate used for this calculation represents the imputed interest rate which consists of a
credit- and risk spread component reflecting the business risk of the entity. The useful life has been determined being 6 years.
Hire purchase
The carrying value of intangible assets held under hire purchase leases at 31 December 2013 was US$17,162,000 (31 December 2012:
US$21,315,000). Additions during the year were US$343,000 (2012: US$23,173,000). As of the reporting date future minimum payments
under those hire purchase contracts were US$15,300,000 (2012: US$19,177,000). The present value of the net minimum payments was
US$12,743,000 (2012: US$15,462,000).
14. Investments
The Investment in amount of US$1.5 million relates to strategic equity investment into Arctic Sand Technologies, Inc., an MIT spin-off
commercialising an innovative new approach to power conversion for multiple markets, including smartphones, tablets, ultrabooks(TM) and
data centres. The investment was part of a Series A funding round, with Dialog participating alongside other venture capital and strategic
investors. The investment of US$1.5 million represents a 7.69% share in Arctic Sand on fully diluted position. We refer to note 24 Additional
disclosures on financial instruments in terms of fair value determination.
15. Trade and other payables
Trade and other payables comprise:
Trade accounts payable
Other payables
Terms and conditions of the above trade and other payables:
trade payables are non-interest bearing and are normally settled on 30-60-day terms; and
other payables are non-interest bearing and have a term of less than three months.
At 31 December
At 31 December
2013
US$000
83,778
7,613
91,391
2012
US$000
100,616
5,600
106,216
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
123
16. Other financial liabilities
Other financial liabilities comprise:
Hire purchase agreements and finance lease obligations
Accrued interest and bank liabilities
Fair value of derivative financial instruments
At 31 December
At 31 December
2013
US$000
3,236
20,431
256
23,923
2012
US$000
3,645
–
472
4,117
The Group is exposed to currency risks in the course of its operating activities. These risks are reduced by the use of forward currency
exchange contracts. Accrued interest and bank liabilities represent the short-term re-payment instalment related to facility due in Q3 2014.
17. Provisions
The Group issues various types of contractual product warranties under which it guarantees the performance of products delivered for a
certain period or term. The estimated provision is based on historical warranty data. The provision for dilapidation includes costs of
dismantling and restoring the offices of the Group to their original condition at end the end of the lease terms. The changes in the provision
are summarised as follows:
Obligations for product warranties
Pending legal claims
Earn-out and related matter in
relation to the iWatt acquisition 1)
Other 2)
Total current
Dilapidation
Lease obligations
Severence
Total non-current
Total
At 1 January
2013
Currency change
US$000
US$000
Discount
US$000
812
307
–
169
1,288
603
–
–
603
1,891
–
14
–
1
15
16
–
–
16
31
–
–
–
–
–
41
–
–
41
41
Additions
US$000
1,266
–
5,188
4,416
Used
US$000
(788)
–
–
(96)
Released
US$000
(24)
–
(3,249)
(16)
10,870
(884)
(3,289)
221
303
304
828
–
–
–
–
–
–
–
–
11,698
(884)
(3,289)
At 31 December
2013
US$000
1,266
321
1,939
4,474
8,000
881
303
304
1,488
9,488
[1] We refer to Note 4 Business combination for explanation
[2] Including deferred revenue in amount of US$6.5 million and related cost of sales in amount of US$2.1 million, resulting in a net provision of US$4.4 million
Dialog Semiconductor Plc | Annual report and accounts 2013
124 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
18. Other current liabilities
Obligations for personnel and social expenses
Advances received in relation to customer specific research and development contracts
Other
At 31 December
At 31 December
2013
US$000
19,415
2,400
12,541
34,356
2012
US$000
15,348
2,100
4,222
21,670
Terms and conditions of the above other current liabilities:
obligations for personnel and social expenses have an average term of three months (2012: three months); and
other payables are non-interest bearing and are normally settled on 30 day terms.
19. Other non-current financial liabilities
Other non-current financial liabilities comprise:
Liabilities relating to the convertible bond 1)
Bank loan 2)
Liabilities relating to hire purchase and finance lease obligations
[1] Please refer to note 20 Convertible Bond
[2] Please refer to note 27 Financial risk management objects and policies
At 31 December
At 31 December
2013
US$000
2012
US$000
171,971
164,589
84,179
9,507
–
12,028
265,657
176,617
20. Convertible bond
During Q1-2012, the Company launched a 5 year Convertible Bond Offering raising gross proceeds of US$201 million. The offering closed on
12 April 2012. The bonds, which are listed on the Luxembourg Stock Exchange’s Euro MTF market, will be convertible into ordinary shares of
Dialog Semiconductor Plc., listed on the Regulated Market of the Frankfurt Stock Exchange. 1,005 Bonds with a principal amount of
US$200,000 each were issued at 100% with a coupon of 1.0% per-annum payable semi-annually in arrears. The initial conversion price is
US$29.5717 (€22.367).
After deduction of cost in amount of US$4,369,000 related to commission and other costs incurred in connection with the bond issuance the
net proceeds of issuing the Bonds were US$196,631,000 in Q1-2012. In accordance with IAS 32, US$163,607,000 of gross proceeds was
allocated to financial liabilities and US$37,393,000 was allocated to equity. The debt component of convertible bonds is measured using the
market interest rate obtainable on a similar debt instrument but one that is not convertible. This debt component is measured as liabilities at
amortised cost until it is converted into equity or becomes due for repayment. The component of the net proceeds allocated to equity
represents the fair value of the conversion right at the time of issuance.
The volume outstanding as per 31 December 2013 for this bond totals US$201 million, taking account of conversions into shares.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
125
21. Shareholders’ equity and other reserves
Ordinary shares
The amount of authorized shares at 31 December 2013 was 104,311,860 (2012: 104,311,860) with a par value of £0.10 per share, of which
68,068,930 (2012: 68,068,930) shares were issued and outstanding.
At 1 January 2012
Issued on 7 March 2012
At 31 December 2012 / 2013
Amount of shares
65,068,930
3,000,000
68,068,930
US$000
12,380
472
12,852
Dialog’s stock is issued in the form of registered shares. All shares are fully paid.
Additional paid-in capital
The account comprises additional paid-in capital in connection with the issue of shares. Since the launch of convertible bond in 2012 the
conversion rights with a fair value in amount of US$36,579,000 have been classified as equity instruments in accordance with IAS 32 and
disclosed as additional paid-in capital.
Retained earnings
Retained earnings comprise losses and non-distributed earnings of consolidated Group companies.
Other reserves
Currency translation reserve
The currency translation reserve is used to record exchange differences arising from the translation of the financial statements of
subsidiaries and branches whose functional currency is not the US$. At 31 December 2013 and 2012, the negative currency translation
reserve was US$1,710,000 and US$1,964,000 respectively.
Cash flow hedge reserve
The cash flow hedge reserve is used to record the portion of the gain or loss on a hedging instrument that is determined to be a highly
effective cash flow hedge. At 31 December 2013 the positive cash flow hedge reserve was US$1,580,000 compared to a positive cash flow
hedge reserve of US$1,537,000 at 31 December 2012. Please refer to note 27 for the amounts reclassified from other comprehensive income
and recognized in profit and loss statement.
The related tax effects allocated to each component of other reserves for the years ended 31 December 2013 and 2012 are as follows:
Currency translation adjustment
Hedges
Other comprehensive income (loss)
2013
Tax effect
US$000
(15)
(48)
(63)
Pre-tax
US$000
269
91
360
Net
US$000
254
43
297
2012
Tax effect
US$000
237
(962)
(725)
Pre-tax
US$000
(322)
8,871
8,549
Net
US$000
(85)
7,909
7,824
Dialog Semiconductor Plc | Annual report and accounts 2013
126 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
21. Shareholders’ equity and other reserves continued
Employee stock purchase plan shares
The employee stock purchase plan shares contain the acquisition cost of the shares held by the employee benefit trust (the “Trust”). Please
refer to note 23. At 31 December 2013 and 31 December 2012, the Trust held 2,097,799 and 2,679,768 shares respectively. These shares are
legally issued and outstanding for accounting purposes and accordingly have been reported in the caption “employee stock purchase plan
shares” as a reduction of shareholders’ equity.
22. Pension scheme
The Group operates defined contribution pension schemes. The pension cost charge for the year represents contributions payable by the
Group to the funds and amounted to US$4,971,000 (2012: US$4,213,000). At 31 December 2013, contributions amounting to US$772,000
(2012: US$674,000) were payable to the funds and are included in other current liabilities. Pension costs also include payments to the state
funded pension plan in Germany in the amount of US$2,732,000 (2012: US$2,242,000).
23. Share-based payments
A) Stock option plans
On 7 August 1998, the Group adopted a stock option plan (the “Plan”) under which employees, the executive management and the
Executive Directors may be granted from time to time, at the discretion of the Board, stock options to acquire up to 3,840,990 shares of the
Group’s authorised but unissued ordinary shares. On 16 May 2002 the Shareholders of the Group approved a resolution increasing the
maximum amount of unexercised stock options which may be granted by the Group at any time, to 15% of Dialog’s issued share capital, from
time to time on a diluted basis. At 31 December 2013, 12,012,164 shares could be issued. Notwithstanding the foregoing the Company has
determined that dilution will be managed using an average annual flow rate of 1% per annum such that the Company will move dilution
towards a rolling 10% in 10 years.
Unless otherwise determined by the Board, stock options granted to employees are granted with an exercise price not less than the quoted
price at the date of grant, and vest during the service period of the employee without any further vesting conditions. Stock options granted
before 31 October 2006 have terms of ten years and vest over periods of one or five years from the grant date. On 19 June 2006 the Board
amended the stock option plan under which stock options now have a seven-year life and vest monthly over a period of one to 48 months.
The new stock options may not be exercised until they have been held for one calendar year from the grant date. The new rules were
implemented on grants made on or after 31 October 2006. The stock option plan was extended by the Board in 2008 to expire 6 August
2018. At the 2013 Annual General Meeting, Shareholders approved the new Dialog Semiconductor PLC Employee Share Plan 2013 (ESP)
which will be operated alongside, and within the same aggregate dilution limit detailed above, the existing share option plan. No options
were granted under the ESP in 2013.
At the 2011 Annual General Meeting, Shareholders approved a change of the fee structure for Non-Executive Directors. 2/3 of the total fees
are delivered in cash and 1/3 of the Non-Executive Directors’ annual total fees are delivered in Company equity. The number of shares is
calculated using the average 30 day share price preceding the date of the Annual General Meeting. Shares are delivered in the form of
conditional shares or options (an exercise price has been attached at Euro 15 cents). Each individual shall be entitled to sell their shares, or
exercise their options, if any, no earlier than the day preceding the third AGM following the grant (unless specific circumstances such as a
change of control apply). At the 2013 Annual General Meeting, Shareholders resolved that all Non-Executive Directors fees be paid in cash
only. Accordingly no stock options were granted to Non-Executive Directors in 2013.
The fair value of all grants in the two-year period ended 31 December 2013 was estimated using the Black-Scholes option pricing model.
Expectations of early exercise are considered in the determination of the expected life of the options.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
127
23. Share-based payments continued
The following assumptions were used for stock option grants for the years ended 31 December 2013 and 2012:
Expected dividend yield
Expected volatility
Risk free interest rate
Expected life (in years)
Weighted average share price during the year (in €)
Weighted average share price for option grants (in €)
Weighted average exercise price (in €)
Weighted-average fair value (in €)
2013
0%
46%
0.8%
2012
0%
38%
0.2%
2.0 - 6.0
2.0 - 6.0
12.66
13.56
13.56
4.41
15.87
15.68
15.48
4.34
B) Executives’ Long Term Incentive Plan (LTIP)
The Group also operates the Dialog Semiconductor Plc Long Term Incentive Plan (LTIP) which was approved by shareholders at the Annual
General Meeting in April 2008. Under the LTIP, key executives are eligible to share in a percentage of the value created for shareholders in
excess of an annual return hurdle measured over a four-year performance period (this was originally a three-year period, extended by one year
at the Annual General Meeting in April 2009). This value is delivered to a participant in the form of a series of nil-cost options which can be
exercised within five years of the date of grant. The first award under the LTIP was made on 8 May 2008.
In 2010 a second award under LTIP was made to selected new and existing members of the executive management. In 2012 and 2013, no
further awards under the LTIP plan were made or can be made.
The fair value of the LTIP, where the number of nil-cost options granted to an individual is contingent upon the returns to Shareholders, was
calculated using a Monte Carlo simulation model. As a portion of each award is capable of vesting at three separate measurement dates each
tranche has been valued separately in accordance with IFRS2.
Measurement date 31 January 2010
The measurement share price at 31 January 2010 (average share price over the prior 30 days) was €9.8942. As this price was above the return
hurdle for January 2010 of €1.82 (prior year return hurdle of €1.62+12.5%), 3,055,064 nil cost option grants were approved by the Board on
4 February 2010, with 25% exercisable from 22 February 2010 and the remaining 75% exercisable for 5 years from 21 February 2011.
Measurement date 31 January 2011 (Last Measurement Date)
The measurement share price at 31 January 2011 (average share price over the prior 30 days) was €17.6632. As this price was above the
return hurdle for January 2011 of €11.1310 (prior year return hurdle of €9.8942+12.5%), 1,575,327 nil cost option grants were approved by
the Board on 18 February 2011, all exercisable for 5 years from 18 February 2011.
C) Executives Incentive Plan (EIP)
The Group also operates the Dialog Executive Incentive Plan (EIP) which was approved by the shareholders at the Annual General Meeting in
May 2010. Under this plan, key executives and other key value drivers of the business are eligible to share in a percentage of the value created
for Shareholders. The Remuneration Committee may not grant awards under the EIP more than five years after its approval.
Dialog Semiconductor Plc | Annual report and accounts 2013
128 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
23. Share-based payments continued
Under the EIP, up to 0.75% of the issued share capital at the date of grant will be made available for the Remuneration Committee to grant
to participants in the EIP on an annual basis. It is envisaged that these shares will be granted to approximately 10 – 15 key executives. A
portion of the total number of shares which can be awarded each year would be reserved for grants to new recruits. However, there is no
requirement for the Remuneration Committee to allocate all available shares on an annual basis.
Continuity of Employment Condition
25% of the EIP Award will be banked in equal annual instalments (1/3 of 25% each year) based on the achievement of a share price hurdle
measured at the end of each year (Continuity Award). The hurdle is such that the Company’s share price at each measurement point (being
the anniversary of the date of grant – the first grant was on 16 February 2012 the second grant was on 16 February 2013) must be greater
than the higher of the share price on the date of grant or previous measurement points. Where the share price hurdle has not been achieved
at the end of the year, that proportion of the Continuity Award will lapse.
At the end of the three year holding period, the Continuity Award will vest and become exercisable subject to continuity of employment.
Individuals have three years with which to exercise vested options.
Corporate Performance Conditions
75% of any EIP Award will vest subject to the achievement of challenging performance conditions (Performance Award). The primary
performance measure relates to EBIT and Revenue Growth targets. The vesting of 50% of the Performance Award relates to EBIT growth
with the other 50% relates to revenue growth targets. The number of shares which vest under the primary performance measure would then
be subject to a secondary performance measure (as set out below). The Company believes that these two measures are directly relevant to the
Company’s strategy at its current stage of development and that the executives should be rewarded on this basis and that focusing on these
metrics are critical to driving shareholder value over the medium to long term. Targets are set on an annual basis, rather than over the long-
term, to ensure that they remain challenging and relevant. These targets take into consideration budget and market expectations for EBIT and
revenue growth for the relevant financial year on the following basis:
Threshold (e.g. an acceptable level of performance growth which must be attained for an award to begin to vest)
Target (e.g. the level of performance for achieving budgeted growth and which ensures that the business is online for achieving its long-term
objectives)
Exceptional (e.g. the level of performance which is acknowledged by the Remuneration Committee as exceptional)
At the end of the three year performance period, the Remuneration Committee will determine the level of vesting based on the actual level of
growth achieved over the three year period relative to the compounding of the three yearly targets.
Provided that the threshold level of growth has been achieved for both targets, at the end of the performance period, the level of vesting for
both metrics will be as follows:
Level of Corporate Performance
Threshold1)
Target1)
Exceptional1)
[1] Straight-line between points
% of EIP Award vesting
20%
40%
100%
Where the threshold level of growth has not been achieved for either the EBIT or revenue target the Performance Award will lapse.
Under the secondary performance measure the number of shares vesting at the end of the performance period as determined under the
primary performance measure can be adjusted using a downward multiplier of up to 20% against a customer diversification target.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
129
23. Share-based payments continued
For example, in measuring customer diversity this could be calibrated as the increase in the regional revenues in key strategic market as a
percentage of total revenues.
The level of vesting of the Performance Award at the end of the three year period will therefore be based on:
Growth in Revenues (50%) + Growth in EBIT (50%) X - 20% Adjustment Factor
The balance of any Performance Award which does not vest in accordance with the above performance conditions will lapse.
The following assumptions were used for the fair value calculations:
Share price at grant date
Exercise price
Expected volatility
Risk-free-interest-rate
Assumed level of vesting regarding the performance conditions
Option lifetime
Grant in 2013
Grant in 2012
€13.61
€16.43
€0.12
45%
0.8%
50%
€0.12
38%
0.2%
50%
6 Years
6 Years
D) Development of plans
Stock option plan activity (including stock options granted under the LTIP and the EIP) for the years ended 31 December 2013 and 2012 was
as follows:
2013
2012
Weighted average
exercise price
Weighted average
exercise price
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Options
5,878,825
1,062,623
(581,969)
(323,428)
6,036,051
€
7.83
6.29
3.99
7.83
7.93
Options
6,160,579
1,557,339
(1,584,866)
(254,227)
5,878,825
Options exercisable at year end
3,417,287
6.82
2,976,684
€
5.48
11.22
1.93
9.07
7.83
4.46
The weighted average share price at the date of exercise of options was €13.55 and €16.30 in the years ended 31 December 2013 and 2012
respectively.
Liabilities from share option exercises to employees were US$113,000 at 31 December 2013 (2012: nil).
Dialog Semiconductor Plc | Annual report and accounts 2013
130 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
23. Share-based payments continued
The following table summarises information on stock options outstanding (including stock options granted under the LTIP and the EIP) at 31
December 2013:
Range of Exercise Prices
€0.11 - 2.99
€3.00 - 8.00
€8.00 - 15.50
€0.11 - 15.50
Options outstanding
Weighted average
Options exercisable
Number
remaining
Weighted average
Weighted average
outstanding at 31
contractual life
exercise price
Number exercisable
exercise price
December 2013
(in years)
€
at 31 December 2013
2,432,096
334,238
3,269,717
6,036,051
3.0
2.9
5.0
4.0
0.39
6.91
13.65
7.93
1,545,281
334,238
1,537,768
3,417,287
€
0.54
6.91
13.12
6.82
E) Employee benefit trust
The Group established an employee benefit trust (the “Trust”). The Trust purchases shares in the Group for the benefit of employees under
the Group’s share option scheme. At 31 December 2013 the Trust held 2,097,799 shares (2012: 2,679,768).
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
131
24. Additional disclosures on financial instruments
Amount categorised in accordance with IAS 39:
Amounts recognised in the statement of financial position according to IAS 39
Carrying
amount
Category
31 December
Fair value
Fair value
recognised
recognised in
in accordance
with IAS 39
2013
Amortised cost
in OCI
profit or loss
Fair-Value-
US$000
US$000
US$000
US$000
Hierarchy
Fair value
31 December
2013
US$000
Assets
Cash at bank and Short-term deposits
Trade accounts receivable and other receivable
Other non-derivative financial assets
Deposits for hedging
contracts
Derivative financial assets
Derivatives without hedging relationship
Derivatives with hedging relationship
Investments
Liabilities
Trade account payables
Other payables
Other financial liabilities
Hire purchase agreements and finance lease obligations
Convertible Bond
Derivative financial liabilities
Derivatives without hedging relationship
Derivatives with hedging relationship
Of which aggregated by category in
accordance with IAS 39:
Loans and receivables (LaR)
Held-to-maturity investments (HtM)
Available-for-sale financial assets (AfS)
Derivatives without hedging relationship
Derivative financial assets with hedging relationship
Derivative financial liabilities with hedging relationship
LaR
LaR
LaR
n/a
n/a
AfS
FLAC
FLAC
FLAC
FLAC
FLAC
n/a
n/a
186,025
186,025
127,336
127,336
1,532
1,532
–
2,462
1,531
–
–
–
83,778
83,778
7,613
7,613
104,190
104,190
12,744
12,744
172,390
172,390
–
256
–
–
314,893
314,893
–
1,531
–
2,462
(256)
–
–
–
–
–
Financial liabilities at amortised cost (FLAC)
(380,715)
(380,715)
–
–
–
–
2,462
–
–
–
–
–
–
–
256
–
–
–
–
2,206
(256)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
n/a
n/a
186,025
127,336
Level 1
1,532
Level 2
Level 3
–
2,462
1,531
n/a
n/a
n/a
83,778
7,613
104,190
Level 2
13,006
Level 2
186,411
Level 2
–
256
314,893
–
–
–
2,206
(256)
(394,998)
The fair value of derivatives has been determined with reference to available market information (interest rate and forward currency translation
rate: Level 2) applying the mark-to-market method. The carrying amounts of the loans and receivables and other financial liabilities approximate
their fair values due to short-term maturities. Since the market conditions affecting the non-current liability component of the convertible bond
and liability related to long term finance lease contract have changed the fair value at 31 December 2013 deviates from the carrying amount.
Equity investments and securities are recognised at fair value if there is an active market for them with publicly available prices. Due to the lack of
a reliable measurement basis for the fair value of the equity investment this is held at cost of US$1.5 million. Instruments allocated to the column
“fair value recognised in other comprehensive income” are derivative financial instruments designated as cash flow hedges.
Dialog Semiconductor Plc | Annual report and accounts 2013
132 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
24. Additional disclosures on financial instruments continued
Amounts recognised in the statement of financial position according to IAS 39
Category
Carrying
amount
in accordance
31 December 2012
Amortised cost
with IAS 39
US$000
US$000
Cost
US$000
Fair value
recognised
in OCI
US$000
Fair value
Fair value
recognised in
31 December
profit or loss
US$000
2012
US$000
Assets
Cash at bank and Short-term deposits
LaR
306,117
306,117
Deposits designated as a hedging
instrument
Trade accounts receivable and other
receivable
Other non-derivative financial assets
Deposits for hedging
contracts
Derivative financial assets
Derivatives without hedging
relationship
Derivatives with hedging
relationship
Liabilities
Trade account payables
Other payables
Other financial liabilities
Derivative financial liabilities
Derivatives without hedging
relationship
Derivatives with hedging
relationship
Of which aggregated by category in
accordance with IAS 39:
Loans and receivables (LaR)
n/a
6,318
–
LaR
82,887
82,887
LaR
368
368
n/a
n/a
–
2,752
–
–
FLAC
FLAC
FLAC
100,616
100,616
5,600
5,600
180,262
180,262
n/a
n/a
–
472
–
–
389,372
389,372
Deposits designated as a hedging instrument
6,318
Held-to-maturity investments (HtM)
Available-for-sale financial assets (AfS)
Derivatives without hedging relationship
Derivatives with hedging relationship
–
–
–
2,280
–
–
–
–
–
Financial liabilities at amortised cost (FLAC)
(286,478)
(286,478)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,318
–
–
–
2,752
–
–
–
–
472
–
6,318
–
–
–
2,280
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
306,117
6,318
82,887
368
–
2,752
100,616
5,600
180,262
–
472
389,372
6,318
–
–
–
2,280
(286,478)
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
133
25. Commitments
Operating lease, software and service commitments
The Group leases all its office facilities and vehicles, and some of its office and test equipment, under operating leases. Future minimum lease
payments under non-cancellable operating rental and lease agreements and payments for other commitments are as follows:
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Thereafter
Total minimum payments
Operating leases and
Other commitments Operating leases and
Other commitments
software
commitments
software commitments
2013
US$000
9,610
7,048
6,170
5,957
4,342
9,700
2013
US$000
6,145
708
46
21
2
–
42,827
6,922
2012
US$000
8,896
6,536
4,321
3,875
3,484
10,782
37,894
2012
US$000
3,572
693
–
–
–
–
4,265
Total payments for operating leases and software commitments, charged as an expense in the income statement, amounted to
US$10,021,000 and US$8,896,000 for the years ended 31 December 2013 and 2012 respectively.
Finance lease, hire purchase and software commitments
The Group has finance leases and hire purchase contracts for test and IT equipment and has software contracts. The leases have terms of
renewal but no purchase options and escalation clauses. Renewals are at the option of the specific entity that holds the lease. Future
minimum payments under finance leases and hire purchase and software contracts together with the present value of the net minimum
payments are as follows:
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Thereafter
Total minimum payments
Less amounts representing finance charges
Present value of minimum payments
Minimum payments
2013
US$000
3,400
3,400
3,400
3,400
1,700
–
15,300
(2,557)
12,743
2012
US$000
4,097
3,400
3,400
3,400
3,400
1,700
19,397
(3,724)
15,673
Capital commitments
The Group has contractual commitments for the acquisition of property, plant and equipment in 2013 of US$5,161,000 (2012: US$3,014,000)
and for the acquisition of intangible assets of US$1,207,000 (2012: US$1,229,000).
In addition the company has a contingent liability of US$400,000 in connection with the purchase of intangible assets. This liability is
contingent to certain shipping volumes, relating to the acquired technology, being met. We expect to reach these shipping volumes in third
Quarter 2014.
For contingent consideration resulting from business combination with iWatt please refer to Note 4.
Dialog Semiconductor Plc | Annual report and accounts 2013
134 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
26. Segmental reporting
Following the provisions of IFRS 8, reportable operating segments are identified based on the “management approach”. The management
approach requires external segment reporting based on the Group’s internal organisational and management structure and on internal
financial reporting to the chief operating decision maker, which considered the Group as being the Board of Management.
The Group reports on four (2012: three) operating segments, which are independently managed by bodies responsible for the respective
segments depending on the nature of products offered. The fourth segment was added in 2013 and represents the newly acquired iWatt
business. The identification of Company components as operating segments is based in particular on the existence of business unit managers
who report directly to the Board of Management of Dialog and who are responsible for the performance of the segment under their charge.
a) Operating segments
The Group’s operating segments are:
Mobile Systems
This segment includes our power management and audio chips especially designed to meet the needs of the wireless systems markets and a
range of advanced driver technologies for low power display applications – from PMOLEDs, to electronic paper and MEMS displays.
Automotive and Industrial
In the automotive and industrial market our products address the safety, management and control of electronic systems in cars and for
industrial applications.
Connectivity
The activities of this segment include short-range wireless, digital cordless and VoIP technology. The Connectivity segment includes the
operating results of our subsidiary Dialog Semiconductor B.V.
Power conversion
The new Power conversion and LED Solid State Lighting (SSL) segment includes the operating segment of our newly acquired subsidiary iWatt
Inc. (please refer to Note 4 for further information).
Mobile
Automotive/
Power
Mobile
Automotive/
2013
2012
Systems
Industrial
Connectivity
Conversion
US$000
US$000
US$000
US$000
Corporate 3)
US$000
Total
US$000
Systems
US$000
Industrial
Connectivity
Corporate
Total
US$000
US$000
US$000
US$000
Revenues 1)
744,869
37,814
92,588
26,768
868 902,907 638,765 38,686
96,133
(1) 773,583
R&D expenses
118,091
1,194
21,705
8,806
9,491 159,287
96,586
3,613
24,590
3,097 127,886
Operating profit (loss) 2) 141,242
12,211
(2,121) (22,533)
(26,139) 102,660 112,244
8,127
(13,144)
(16,195) 91,032
Depreciation/
amortisation
Inventory impairment,
impairment of fixed
assets and fixed asset
disposal losses
Investments
35,230
152
5,467
5,163
1,215
47,227
26,268
508
5,515
–
32,291
11,832
27,199
154
117
2,200
1,504
124
15,814
8,470
26
740
4,220
At 31 Dec 2013
3,986
938 36,4604)
55,693
1,077
11,692
At 31 Dec 2012
–
9,236
– 68,4624)
Inventories
93,604
7,460
11,227
4,752
498 117,541 129,121
7,989
14,868
477 152,455
[1] All revenues are from sales to external customers
[2] Certain overhead costs are predominantly allocated based on sales and headcount.
The Operating loss of the Corporate Segment results from Holding and Trust related expenses, share option and business development costs
[3]The revenue in the corporate column include mainly the BenQ settlement (please refer to note 29) and sales discounts
[4] Including 23,115 US$000 additions to PPE, 11,844 US$000 additions to intangible assets and -1,501 US$000 purchase of other investments
[5] Including 35,048 US$000 additions to PPE, 33,512 US$000 additions to intangible assets and -98 US$000 deposits
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
135
26. Segmental reporting continued
Investments comprise additions to property, plant and equipment, and intangible assets.
In 2013 and 2012 the Group had no inter-segment sales, income, expenses, receivables, payables or provisions.
There are no differences between the measurements of the reportable segments profits and losses, inventories and the Group’s profit and
losses, assets and liabilities.
b) Corporate
Revenues in the Corporate column include sales discounts on early payment of US$ nil (2012: US$1,000). The amount in 2013 also includes
the BenQ Cash settlement of US$851,000.
R&D expenses in the Corporate column predominantly include stock option expenses, expenses for the Management Long Term Incentive Plan
(LTIP) and expenses for the Executive Incentive Plan (EIP) of US$ 3,564,000 (2012: US$2,950,000). Furthermore there are US$5,789,000 (2012:
US$478,000) development expenses for new technology projects.
The operating losses recorded in the corporate column for the year ended 31 December 2013 of US$26,139,000 (2012: US$16,195,000) are
primarily resulting from stock option expenses US$8,487,000 (including LTIP and EIP) (2012: US$5,808,000 ), the costs of the holding
company US$12,838,000 (2012: US$9,910,000) and expenses for developing new technology projects US$8,783,000 (2012: US$478,000).
Additionally in 2013 the BenQ cash settlement in the amount of US$996,000 (2012: US$ nil) was included as well as another operating
income of US$3,249,000 resulting from release of earn out provision.
c) Geographic information – Revenues by shipment destination
Revenues
United Kingdom
Other European countries
China
Other Asian countries
Other countries
Total revenues
Investments
Germany
Japan
United Kingdom
Netherlands
USA
Taiwan
Singapore
Other
Total investments
2013
US$000
2012
US$000
945
63,183
742,324
87,994
8,461
902,907
21,072
121
8,266
3,599
1,796
145
97
1,364
36,460
2,317
72,722
600,991
90,294
7,259
773,583
38,278
41
3,044
3,391
22,686
420
369
233
68,462
Dialog Semiconductor Plc | Annual report and accounts 2013
136 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
26. Segmental reporting continued
Assets
Germany
USA
Japan
United Kingdom
Netherlands
Other
Total assets
At 31 December 2013
At 31 December 2012
US$000
US$000
438,816
377,293
1,946
54,316
51,477
3,604
927,452
461,824
23,334
2,459
159,978
57,608
2,937
708,140
Revenues are allocated to countries based on the location of the shipment destination. Segmental investments and assets are allocated based
on the geographic location of the asset.
27. Financial risk management objects and policies
Vulnerability due to certain significant risk concentrations
The Group’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Group’s future operating
results and cause actual results to vary materially from historical results include, but are not limited to, the highly cyclical nature of both the
semiconductor and wireless communications industries, dependence on certain customers and the ability to obtain an adequate supply of
sub-micron wafers.
The Group's products are generally utilised in the wireless and automotive industries. The Group generates a substantial portion of its revenue
from the Mobile Systems Segment, which accounted for 82,5% and 77% of its total revenue for the years ended 31 December 2013 and
2012, respectively.
Changes in foreign currency exchange rates influence the Group’s results of operations. The Group’s sales, purchases of raw materials and
manufacturing services are primarily denominated in US$.
The Group depends on a relatively small number of customers for a substantial portion of its revenues, and the loss of one or more of these
customers may result in a significant decline in future revenue.
During 2013, one (2012; one) customer individually accounted for more than 10% of the Group's revenues. Total revenues from this
customer were US$718,733,000 (2012: US$598,183,000). Net receivables from this customer at 31 December 2013 were US$111,799,982
(2012 US$69,035,306). This customer is part of the Mobile Systems Segment (for further information please see Section 2 – Principal
customers).
The Group is performing on-going credit evaluations of its customers' financial condition.
Financial risk management objectives and policies
The Group’s principal financial instruments, other than derivatives, comprise cash, cash equivalents, and short-term deposits. The main
purpose of these financial instruments is to raise finance for the Group’s operations. The Group has other financial instruments which mainly
comprise trade receivables and trade payables which arise directly from its operations.
The Group also entered into derivative transactions (forward currency contracts). The purpose is to manage the currency risks arising from the
Group’s operations.
It is, and has been throughout 2013 and 2012, the Group’s policy that no trading in derivatives shall be undertaken.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
137
27. Financial risk management objectives and policies continued
Exposure to currency, interest rate and credit risk arises in the normal course of the Group’s business. The Board of Directors reviews and
agrees policies for managing each of these risks which are summarised below:
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices.
Market prices comprise three types of risk: interest rate risk, currency risk and other price risk, such as equity risk. Financial instruments
affected by market risk include loans and borrowings, deposits, available-for-sale investments, and derivative financial instruments.
Interest risk
The Group earns interest from deposits and uses money market deposits with highly rated financial institutions. During the year, the Group
has held cash on deposit with a range of maturities from one week to one month. This can vary in view of changes in the underlying
currency’s interest rates and the Group’s cash requirements.
The Group pays interest on amounts received in connection with the factoring agreement, convertible bond (please refer to Note 20) and
loans as prescribed below.
The Group has long-term debt outstanding resulting from Base Currency term loan facility in an aggregate amount equal to US$100.0 million
and a multicurrency revolving loan facility in an aggregate amount of US$15.0 million equal to the total revolving facility commitments. The
applied interest rate contains the margin, LIBOR and mandatory cost. These are the cost of compliance with the requirements of the Bank of
England and/or the Financial Conduct Authority and the requirements of the European Central Bank. The termination date of both facilities is
the 31 March 2017.
The Group’s policy is to manage its interest income using a mix of fixed and variable interest rate debts. In order to achieve this policy, the
Group invests in highly liquid funds having a matching investment strategy. Once the operating business has been financed, short-term excess
funds are invested in floating interest rate securities. Only short-term deposits bear fixed interest rates.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the
Group’s profit before tax as well as the Group’s equity:
2013
2012
Increase/decrease in
Effect on profit
Effect on equity
basis points
US$000
US$000
31
(22)
83
(54)
794
(565)
2,081
(1,360)
794
(565)
2,081
(1,360)
Currency risk
The main functional currency within the Group and the presentation currency for the consolidated financial statements is the US$. Accordingly,
foreign exchange risks arise from transactions, and recognised assets and liabilities, the functional currency of which is not the US$. The
currencies giving rise to these exposure risks are primarily the Euro and Pound Sterling. The majority of the Group’s revenue and material
expenses are denominated in US$. The majority of other operating expenses are denominated in Euros and Pounds Sterling. The Group has
transactional currency exposures. Such exposure arises from the sales or purchases by an operating unit in currencies other than the unit’s
functional currency. In 2013 and 2012 nearly all the Group’s sales were denominated in US$.
Dialog Semiconductor Plc | Annual report and accounts 2013
138 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
27. Financial risk management objects and policies continued
The Group uses forward currency contracts as well as certain deposits (together referred to as the “hedging instruments”) to eliminate the
currency exposure of recurring expected payments, such as salaries, wages and office rents non-US$ denominated. The hedging instruments
must be the same currency as the hedged item.
It is the Group’s policy not to enter into forward contracts nor classify deposits as non-derivative hedging instruments until a firm commitment
is in place and to maximise hedge effectiveness by negotiating the terms of hedge instruments to match the terms of the hedged item.
The following table demonstrates the sensitivity to a reasonably possible change in the US$ exchange rate, with all other variables held
constant, of the Group’s profit before tax (resulting from changes in the fair value of monetary assets, excluding securities, and liabilities) and
changes in the Group’s equity (resulting in addition from changes in the fair value of deposits designated as cash flow hedges).
2013
Euro
Pound Sterling
Euro
Pound Sterling
2012
Euro
Pound Sterling
Euro
Pound Sterling
[1] Categories according to IAS 39
Loans and receivables (LaR) and deposits
designated as cash fow hedges 1)
Financial liabilities at amortised cost (FLAC) 1)
Increase/decrease
Effect on profit
Effect on equity
Effect on profit
Effect on equity
against US$
US$000
US$000
US$000
US$000
4.4%
2.2%
(4.4%)
(2.2%)
1.9%
4.6%
(1.9%)
(4.6%)
236
23
(236)
(23)
178
42
(178)
(42)
236
23
(236)
(23)
279
42
(279)
(42)
(401)
(83)
401
83
(134)
(148)
134
148
(401)
(83)
401
83
(134)
(148)
134
148
A risk analysis for the Group’s securities was done separately, based on the inherent historic volatility of the specific securities, see below.
Credit risk
The Group is exposed to credit risk from its operating activities and certain financing activities. The Group trades only with recognised,
creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification
procedures. In addition, receivable balances are monitored on an on-going basis, with the result that the Group’s exposure to bad debts is not
significant. Regarding the risk concentration please see above, “vulnerability due to certain significant risk considerations”.
In order to finance its growth the Group entered into two factoring agreements with reputable financial institutions. The maximum amount of
cash that can be received under these agreements is US$92,000,000 (2012: US$60,000,000). The agreements, which comprise receivables
from selective customers, significantly reduce the underlying credit risk because the financial institutions assume all credit risks associated with
the collection of the receivables financed under the programmes.
The Group’s exposure to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents, would arise
from default by counterparty.
Liquidity risk
The Group uses quarterly cash flow forecasts to monitor its liquidity risk. It takes financial investments and financial assets (e.g. trade accounts
receivable and other financial assets) into consideration, as well as projected cash flows from operations. The Group’s objective is to minimise
interest expense by avoiding the use of short-term bank liabilities or bank overdrafts within the Group.
At 31 December 2013, the Group had cash and cash equivalents of US$186,025,000 (2012: US$312,435,000).
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
139
27. Financial risk management objectives and policies continued
The Group’s policy is to structure its maturities of current financial assets within the Group to meet 100% of the respective maturities of the
liabilities. The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2013, based on contractual
undiscounted payments:
Financial year ended 2013
Trade accounts payable
Other payables
Other financial liabilities
Other current liabilities
Financial year ended 2012
Trade accounts payable
Other payables
Other financial liabilities
Other current liabilities
Less than 3 months
3 to 12 months
US$000
US$000
1 to 5 years
US$000
Total
US$000
83,778
7,613
8,923
34,356
–
–
–
–
15,000
265,657
–
–
134,670
15,000
265,657
100,616
5,600
3,868
21,670
131,754
–
–
249
–
249
–
–
176,617
–
176,617
83,778
7,613
289,580
34,356
415,327
100,616
5,600
180,734
21,670
308,620
The non-current other financial liabilities as of 31 December 2013 were US$265.7 million of which US$172.0 million represents the book
value of the liability from the convertible bond (31 December 2012: US$164.2 million) and US$84.2 million related to two additional debt
facilities. The remaining amount of US$9.5 is related to liabilities from hire purchase and finance lease obligations.
We had a three-year (2011-2014) revolving credit facility of US$35.0 million available for use that bears an interest rate of LIBOR +140bp. At
31 December 2012 we had no amounts outstanding under this facility. As of 16 July 2013 the facility was cancelled and replaced by a
US$ 25.0 million revolving credit line facility which is available until March 2017. This facility has been used in the amount of US$15.0 million
in order to finance the iWatt acquisition US$ 10 million were repaid in December 2013.
Capital management
The primary objective of the Group’s capital management is to ensure that it maintains healthy and strong capital ratios in order to support its
business and strategies for growth. The company is considering its total equity as capital.
The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions. To maintain or adjust its
capital structure, the Group may generally issue new shares. Also in 2012 the Group launched a 5 year convertible bond offering amounting
to US$201 million which has a significant impact on the capital structure of the Group, amongst others it led to a decrease of the equity ratio
in 2012 and 2013. During the assessment year 2013 none conversion rights have been exercised. For further information please refer to note
20.
The Group monitors capital using an equity ratio (total equity divided by total assets). The equity ratio as of 31 December 2013 was 49.2%
(2012: 54.0%). Capital includes net Shareholders’ equity. The Group’s policy is to finance operational business development and growth if at
all possible with equity and long-term liabilities. It is, therefore, also its policy to keep a strong equity ratio. This policy will be reconsidered as
soon as sustainable profits are earned in order to achieve leverage. However financing of strategic decisions focused on long term growth is
ensured by long-term liabilities. For this reason, the funding of iWatt acquisition was partially subject of new debt facilities, a Base Currency
term loan facility in an aggregate amount equal to US$100.0 million and a multicurrency revolving loan facility in an aggregate amount of
US$15.0 million equal to the total revolving facility commitments. The termination date of both facilities is the 31 March 2017.
Dialog Semiconductor Plc | Annual report and accounts 2013
140 Section 5 | Consolidated financial statements and notes
Notes to the consolidated financial
statements continued
27. Financial risk management objects and policies continued
Hedging activities
At 31 December 2013, the Group held Forward exchange contracts and deposits (referred to as the “hedging instruments”) designated as
hedges of firm commitments and forecast transactions in Pound Sterling and Japanese Yen.
The hedging instruments are being used to hedge the foreign currency risk of contractual cash flows, principally resulting from wages and
salaries, and rental payments with the aim of eliminating the currency risk by transforming these cash flows from Euros, Pounds Sterling or
Japanese Yen into US Dollars. The fair values of the hedging instruments which equal the book values are as follows:
Fair values
Forward exchange contracts
Deposits
At 31 December 2013
At 31 December 2012
Assets
US$000
2,462
–
Liabilities
US$000
256
–
Assets
US$000
2,752
6,318
Liabilities
US$000
472
–
The critical terms of the deposits have been set to match the terms of the hedged cash flows.
The cash flow hedges of the expected future cash flows in each month from January 2014 to December 2014 and January 2013 to December
2013 respectively were assessed to be highly effective and, at 31 December 2013, a net unrealised gain of US$1,580,000 was included in
other comprehensive income in respect of these cash flows (2012: gain of US$1,537,000). During the financial year 2013 a gain of
US$1,417,000 (2012: gain of US$2,171,000) was recognised in other comprehensive income and a gain of US$1,656,000 (2012: loss of
US$6,701,000) was reclassified from other comprehensive income and recognised in profit and loss. The months of occurrence of the cash
flows are the same as the month when the income statement is affected.
The following tables show the contractual maturities of the payments for which deposits are used as hedging instruments, i.e., when the
hedged item will be recognised in profit or loss.
Maturity
2013
Nominal amount €000
Forward rate US$/€ Nominal amount €000
Historical rate US$/€
Derivatives
Deposits
January 2014 - December 2014
–
–
–
–
2012
January 2013
February 2013
March 2013
April 2013
May 2013
June 2013
July 2013 - December 2013
2,500
6,500
5,000
5,000
5,000
5,000
–
1.2655
1.2546
1.2483
1.2492
1.2500
1.2180
–
4,000
1.3334
–
–
–
–
–
–
–
–
–
–
–
–
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 5 | Consolidated financial statements and notes
141
27. Financial risk management objects and policies continued
Hedging instruments for Pound Sterling commitments:
Maturity
2013
January 2014
February 2014
March 2014
April 2014
May 2014
June 2014
July 2014 - December 2014
2012
January 2013
February 2013
March 2013
April 2013
May 2013
July 2013 - December 2013
Hedging instruments for Japanese Yen commitments:
Nominal amount £000
Forward rate US$/£
Derivatives
3,200
3,200
3,200
3,200
3,200
3,200
–
1,900
1,900
1,900
1,900
1,900
–
1.5214
1.5213
1.5213
1.5288
1.5287
1.5287
–
1.5516
1.5515
1.5513
1.5503
1.5501
–
Maturity
2013
January 2014
February 2014
March 2014
April 2014
May 2014
June 2014
July 2014 - December 2014
2012
January 2013
February 2013
March 2013
April 2013
May 2013
June 2013
July 2013
August 2013
September 2013
October 2013
November 2013
December 2013
Nominal amount ¥000
Forward rate ¥/US$
Nominal amount ¥000
Historical rate ¥/US$
Derivatives
Deposits
50,000
50,000
50,000
50,000
50,000
45,000
–
94.810
94.750
94.700
95.000
99.000
99.300
–
50,000
78.0000
50,000
78.0000
50,000
78.0000
45,000
78.0000
45,000
78.0000
45,000
78.0000
45,000
78.0000
45,000
82.0000
45,000
82.0000
45,000
82.0000
45,000
83.0000
45,000
83.0000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
45,000
45,000
–
–
78.253
78.253
–
–
Dialog Semiconductor Plc | Annual report and accounts 2013
142 Section 5 | Consolidated financial statements and notes
Notes to the consolidated
statements continued
28. Transactions with related parties
For the relationship between the parent company, Dialog Semiconductor Plc, and its subsidiaries please see note 2.
Related parties are comprised of eight (2012: eight) non-executive members of the Board of Directors and nine (2012: ten) members of the
executive management which are named in the management and governance section. These are the only related parties of the Group.
All transactions with related parties are carried out at arm´s length.
Compensation of key management personnel of the Group
For the composition of our key management please see management and governance beginning on page 55. Compensation of key
management personnel of the Group is as follows:
Short term employee benefits
Post-employment benefits1)
Share based payments
[1] The amounts include payments for defined contribution plans.
2013
US$000
4,283
193
3,097
7,573
2012
US$000
4,447
208
1,301
5,956
Compensation of Non-Executive Directors
The compensation of Non-Executive Directors was US$1,029,000 (2012: US$657,000). As at 31 December 2013 the amount of Board
member fees outstanding was US$ nil (2012: nil). For further information please see the Directors’ remuneration report within the
management and governance section on pages 55 to 81.
Other related party transactions
In 2013 and 2012 there were no other transactions with related parties. None of the related parties has a major influence in one of the
Group’s major suppliers or customers.
29. BenQ settlement
In the fourth quarter of 2013, the company received an unexpected cash settlement of US$996,000. As the allocation of the payment was
not confirmed by the paying party, we were only able to allocate it in Q4 to receivables which had been previously written down and revenues
that had not been recognised in 2006 as a result of the insolvency of BenQ Mobile. The amount represents 15% of the original claim to BenQ
Mobile. Of this amount, US$851,000 were classified as revenue and US$145,000 were classified as other operating income. The amount
shown as revenue represents prior period revenue. As one of the criteria for revenue recognition under IFRS was not met, for this amount the
related revenue was not accounted for in 2006. The amount shown as other operating income was previously recognised as revenue in the
periods preceding the insolvency but the underlying receivables were written down against other operating expenses.
30. Subsequent event
There are no known events after the date of the Statement of Financial Position that require disclosure.
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 6 | Company financial statements and notes
143
Company statement of financial position
For the year ended 31 December 2013
Assets
Cash and cash equivalents
Amounts owed by Group undertakings
Other current assets
Total current assets
Investments
Total non-current assets
Total assets
Other financial liabilities
Amounts owed to Group undertakings
Trade and other payables
Other current liabilities
Total current liabilities
Other non-current financial liabilities
Ordinary Shares
Share Premium
Retained earnings
Employee stock purchase plan shares
Total Shareholders´ equity
Total liabilities and Shareholders´ equity
Notes At 31 December 2013
At 31 December 2012
US$000
US$000
40,355
336,450
109
376,914
443,741
443,741
155,112
203,191
520
358,823
161,896
161,896
820,655
520,719
31
20,419
21,280
2,565
1,510
45,774
256,150
12,852
246,289
261,832
(2,242)
–
–
2,005
2,029
4,034
164,589
12,852
243,829
98,268
(2,853)
33
518,731
352,096
820,655
520,719
Profit for the financial year
As permitted by Section 408 of the Companies Act 2006, the parent company’s profit and loss account has not been included in these
financial statements. The parent company’s profit after taxation was US$163,564,000 (2012: profit of US$107,677,000).
These financial statements were approved by the Board of Directors on 20 February 2014 and were signed on its behalf by:
Dr Jalal Bagherli
Director
Dialog Semiconductor Plc | Annual report and accounts 2013
144 Section 6 | Company financial statements and notes
Company statement of changes in equity
For the year ended 31 December 2013
Balance at 31 December 2011 /
1 January 2012
Total comprehensive income (loss)
Sale of employee stock purchase
plan shares
Conversion right embedded in
Convertible Bond
Convertible Bond transaction cost
attributable to conversion right
Capital Increase for employee share
option plan (gross proceeds)
Transaction cost of capital increase -
employee share option plan
Equity settled transactions, net of
tax
Ordinary Shares
US$000
Additional paid-in
capital
US$000
12,380
203,911
–
–
–
–
–
692
37,393
(814)
472
2,680
–
–
(33)
–
Other reserves
Employee stock
Retained earnings
Hedges
purchase plan shares
US$000
US$000
US$000
Total
US$000
(9,519)
107,677
(231)
231
(3,158)
–
203,383
107,908
–
–
–
–
–
110
–
–
–
–
–
–
3,457
4,149
–
–
(3,152)
–
–
37,393
(814)
–
(33)
110
Changes in Equity total
472
39,918
107,787
231
305
148,713
Balance at 31 December 2012 /
1 January 2013
Total comprehensive income (loss)
Sale of employee stock purchase
plan shares
Changes in Equity total
12,852
243,829
98,268
–
–
–
–
163,564
2,460
2,460
–
163,564
Balance at 31 December 2013
12,852
246,289
261,832
–
–
–
–
–
(2,853)
352,096
–
163,564
611
611
3,071
166,635
(2,242)
518,731
Dialog Semiconductor Plc | Annual report and accounts 2013
Section 6 | Company financial statements and notes
145
Company statement of cash flows
For the year ended 31 December 2013
Cash flows from operating activities:
Net income
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Interest expense (income), net
Expense related to share-based payments
Changes in working capital:
Trade accounts payable
Other assets and liabilities
Cash generated from operations
Interest paid
Interest received
Cash flow from operating activities
Cash flows from investing activities:
Foundation of other affiliated companies
Loans made to other group companies
Cash flow used for investing activities
Cash flows from financing activities:
Cash flow from the convertible bond
Net cash flow from financial liabilities
Sale of employee stock purchase plan shares
Cash flow from financing activities
Net foreign exchange difference
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
2013
US$000
2012
US$000
163,564
107,677
722
–
560
(8,438)
900
110
1,321
2,184
156,408
112,192
(3,265)
528
(1,005)
4,151
153,671
115,338
(281,845)
(101,634)
(41)
(188,592)
(383,479)
(188,633)
–
196,631
111,980
3,071
115,051
–
4,114
200,745
–
233
(114,757)
127,683
155,112
27,429
40,355
155,112
Dialog Semiconductor Plc | Annual report and accounts 2013
146 Section 6 | Company financial statements and notes
Notes to the Company financial statements
For the year ended 31 December 2013
31. Investments
This represents the investment of the Company in Dialog Semiconductor GmbH, Dialog Semiconductor B.V., in 2012 the newly incorporated
subsidiaries in Italy and Turkey and in 2013 the newly acquired iWatt Inc. and Dialog Semiconductor Ltd. The proportion of ownership interest
is at 100% on all investments mentioned above.
Investments in subsidiaries are stated at cost less any provision for impairment in value.
The aggregate amount of capital and reserves and the results of these undertakings were as follows:
Capital and reserves
Profit for the year
Based on preliminary unaudited results.
2013
US$000
359,690
153,060
2012
US$000
155,927
99,323
32. Deferred tax
The utilisation of tax loss carryforwards and temporary differences of the holding company is subject to the achievement of positive income in
periods which are beyond the company’s current business plan and therefore this utilisation is uncertain. Consequently no deferred tax assets
were recognised for these losses and temporary differences.
33. Share capital and share options
Details of the Company’s share capital and share options are set out in notes 21 and 23 to the consolidated financial statements as at
31 December 2013.
34. Headcount and costs
The Company does not have any employees.
35. Events after the reporting period
There are no known events after the date of the Statement of Financial Position that require disclosure.
Dialog Semiconductor Plc | Annual report and accounts 2013
Glossary of terms
Section 7 | Additional information
147
Technical glossary
Analog A type of signal in an electronic circuit that takes on a
continuous range of values rather than only a few discrete values.
LED A Light Emitting Diode is a semiconductor device that
emits light when charged with electricity, often used for LCD
display backlights.
ASIC An Application Specific Integrated Circuit is an integrated chip,
custom-designed for a specific application.
LTE Long-Term Evolution is a standard for wireless communication of
high-speed data for mobile phones and data terminals.
ASSP An Application Specific Standard Product is a semiconductor
device integrated circuit (IC) dedicated to a specific application and
sold to more than one user.
Audio CODEC The interface between analog signals (such as the
human voice) and the digital data processing inside a mobile phone,
determining voice quality.
BCD process platform The incorporation of analog components
(Bipolar), digital components (CMOS) and high-voltage transistors
(DMOS) on the same die to reduce the number of components
required in the bill of materials, minimise board space, costs and the
parasitic losses in comparison to a non-integrated solution.
Buck converter A DC-to-DC buck converter accepts a direct current
input voltage and produces a direct current output voltage to a
plurality of channels.
CAD Computer Aided Design usually refers to a software tool used
for designing electronics hardware or software systems.
CDMA Code Division Multiple Access is an alternative to GSM
technology for mobile wireless networks.
Chips Electronic integrated circuits.
CMOS Complementary Metal Oxide Semiconductor: the most
popular class of semiconductor manufacturing technology.
Digital A type of signal used to transmit information that has only
discrete levels of some parameter (usually voltage).
Fabless A company that designs and delivers semiconductors by
outsourcing the fabrication (manufacturing) process.
FET A Field Effect Transistor uses an electric field to control the
shape and hence the conductivity of a channel of one type of charge
carrier in a semiconductor material.
Foundry A manufacturing plant where silicon wafers are produced.
Hi-Fi High-Fidelity is the reproduction of sound with little or
no distortion.
IC Integrated Circuit: an electronic device with numerous
components on a single chip.
Imaging The capture and processing of images via an image sensor
for use by an electronic device to send to a display for viewing by
a user.
Liquid Crystal Display (LCD) A display technology found in many
portable electronics products, including personal organisers, cellular
handsets and notebook computers.
LDO Low dropout voltage regulators are used in battery operated
systems, where the output voltage is typically lower than the
input voltage.
Mixed signal A combination of analog and digital signals being
generated, controlled or modified on the same chip.
OEM An Original Equipment Manufacturer that builds products or
components that are used in products sold by another company.
Power Management The management of the power requirements
of various subsystems, important in handheld and portable
electronics equipment.
PMIC Power Management IC.
Semiconductor A base material halfway between a conductor and
an insulator, which can be physically altered by mixing in certain
atoms. Semiconductors form the basis for present-day electronics.
Silicon A semi-metallic element used to create a wafer – and the
most common semiconductor material – in about 95% of all
manufactured chips.
Smartphone A mobile phone offering advanced capabilities,
often with pc-like functionality (PC-mobile handset convergence).
A smartphone runs complete operating system software providing
a standardised interface and platform for application developers.
SmartMirror™ A technology patented by Dialog Semiconductor
which simplifies circuit design and provides very low current
consumption in Power Management circuits.
SmartPulse™ A wireless sensor network connectivity solution
based on the DECT ULE (Ultra-Low Energy) standard for home
automation applications.
SmartXtend™ A technology patented by Dialog Semiconductor
that extends the life and reduces power consumption of high-
resolution, passive matrix OLED displays.
Subcontractor A business that signs a contract to perform part or
all of the obligations of another’s contract.
Tablet PC A tablet PC refers to a slate- or tablet-shaped mobile
computer device, equipped with a touchscreen or stylus.
TAM Total addressable market, TAM measures the potential market
for your product – and your product only – assuming you could
reach 100% of your customers.
Ultrabook™ A higher-end, compact sub-notebook that is designed
to be compact, thin and light without compromising performance
and battery life. Ultrabooks™ typically feature low power processors
and solid-state drives.
USB Universal Serial Bus: a universal interface standard to connect
different electronics devices.
Wafer A slice of silicon from a 4, 5, 6 or 8 inch diameter silicon bar
and used as the foundation on which to build semiconductor products.
4G Wireless broadband standard.
Dialog Semiconductor Plc | Annual report and accounts 2013 148
Section 7 | Additional information
Glossary of terms continued
Financial glossary
AGM Annual General Meeting.
CAGR Compound Annual Growth Rate, a method of assessing
the average growth of a value over time.
Cash flow The primary purpose of a statement of cash flow is
to provide relevant information about the cash receipts and cash
payments of an enterprise during a period. It helps to assess the
enterprise’s ability to generate positive future net cash flows.
A statement of cash flows shall explain the change in cash and
cash equivalents during the period by classifying cash receipts
and payments according to whether they stem from operating,
investing or financing activities.
Cash flow from operating activities includes all transactions and
other events that are not defined as investing or financing activities
in paragraphs. Operating activities generally involve producing and
delivering goods and providing services. Cash flows from operating
activities are generally the cash effects of transactions and other
events that enter into the determination of net income.
Comprehensive income The purpose of reporting comprehensive
income is to report a measure of all changes in equity of an
enterprise that results from recognised transactions and other
economic events of the period other than transactions with owners
such as capital increases or dividends. An example of items affecting
comprehensive income is foreign currency translation adjustments
resulting from the process of translating an entity’s financial
statements in a foreign currency into the reporting currency.
Corporate Governance The system by which business corporations
are directed and controlled. The Corporate Governance structure
specifies the distribution of rights and responsibilities among
different participants in the corporation, such as the Board,
managers, Shareholders and other stakeholders, and spells out
the rules and procedures for making decisions on corporate affairs.
By doing this, it also provides the structure through which the
Company’s objectives are set, and the means of attaining those
objectives and monitoring performance.
Deferred taxes Deferred tax assets or liabilities are temporary
differences between the tax basis of an asset or liability and its
reported amount in the financial statements that will result in
taxable or deductible amounts in future years when the reported
amount of the asset or liability is recovered or settled, respectively.
Derivative financial instruments A financial instrument that
derives its value from the price or expected price of an underlying
asset (e.g. a security, currency or bond).
Dividends Payments made by a company to its shareholders. When
the company earns a profit, that money can be put to two uses: it
can either be reinvested in the business (called retained earnings) or
it can be paid to the shareholders of the company as a dividend.
DTR The UK Disclosure and Transparency Rules implementing the
provisions of the Transparency Directive.
EURIBOR The Euro Interbank Offered Rate is the rate at which euro
interbank term deposits within the euro zone are offered by one
prime bank to another prime bank.
Free-float The proportion of an issuer’s share capital that is
available for purchase in the public equity markets by investors.
Gross margin This is difference between revenues and cost of sales
as presented in the statement of operations.
Impairment The condition that exists when the carrying amount of
a long-lived asset exceeds its fair value (the sum of the undiscounted
cash flows expected to result from the use and eventual disposition
of the asset).
IFRS (International Financial Reporting Standards) Accounting
standards generally to be used for financial years commencing on or
after 1 January 2005 by all publicly listed European Union companies
in compliance with the European Parliament and Council Regulation
adopted in July 2002.
Prime Standard The new segmentation of the equity market of
the German Stock Exchange comprises a Prime Standard segment
in addition to the General Standard segment that applies the
statutory minimum requirements. The Prime Standard segment
addresses companies that wish to target international investors.
These companies are required to meet high international
transparency criteria, over and above those set out by the
General Standard.
Restructuring charges Costs associated with an exit or disposal
activity, e.g. termination benefits provided to employees that are
involuntarily terminated.
Securities Debt securities are instruments representing a creditor
relationship with an enterprise and includes government securities,
corporate bonds, commercial paper and all securitised debt
instruments. Available-for-sale securities are debt securities not
classified as held to maturity or trading securities.
Shareholders’ equity This reflects the investment of Shareholders
in a Company. Shareholders’ equity comprises ordinary shares,
additional paid-in capital, retained earnings and accumulated
other comprehensive income.
Stock option plans This refers to all agreements by an entity to
issue shares of stock or other equity instruments to employees.
Stock option plans provide employees the opportunity to receive
stock resulting in an additional compensation based on future share
price performance. The purpose of stock option plans is to motivate
employees to increase Shareholder value on a long-term basis.
Total assets All current and non-current assets. Total assets equal
total liabilities and Shareholders’ equity.
Working capital The excess of current assets over current liabilities
and identifies the relatively liquid portion of total enterprise capital
that constitutes a margin or buffer for meeting obligations within
the ordinary operating cycle of the business.
Dialog Semiconductor Plc | Annual report and accounts 2013 Advisers and corporate information
Section 7 | Additional information
149
Public relations
FTI Consulting
Holborn Gate
26 Southampton Buildings
London EC4R 9HA
UK
Legal adviser
Reynolds Porter Chamberlain LLP
Tower Bridge House
St Katharine’s Way
London E1W 1AA
UK
Auditors
Ernst & Young LLP
Apex Plaza
Reading
Berkshire RG1 1YE
UK
FTI Consulting
Park Tower
Bockenheimer Anlage 44
60322 Frankfurt am Main
Germany
Registered office
Dialog Semiconductor Plc
Tower Bridge House
St Katharine’s Way
London E1W 1AA
UK
Website: www.dialog-semiconductor.com
Registered number
3505161
Financial calendar
Annual General Meeting
Q1 2014 Results
Q2 2014 Results
Q3 2014 Results
Preliminary results for 2014
1 May 2014
7 May 2014
30 July 2014
29 October 2014
February 2015
Principal bankers
HSBC Bank Plc
Thames Valley Corporate Banking Centre
Apex Plaza
Reading
Berkshire RG1 1AX
UK
Deutsche Bank AG
Global Banking
Am Hafenmarkt
D-73728 Esslingen
Germany
Designated sponsors
Close Brothers Seydler
Schillerstrasse 27-29
D-60313 Frankfurt
Germany
Credit Agricole Cheuvreux
Tatnnusarlage 14
D-60325 Frankfurt
Germany
Shares
Information on the Company’s shares and on significant
shareholdings can be found on page 61.
Dialog Semiconductor Plc | Annual report and accounts 2013
150
Section 7 | Additional information
Group directory
Germany
Dialog Semiconductor GmbH
Neue Strasse 95
D-73230 Kirchheim/Teck-Nabern
Germany
Phone: (+49) 7021 805-0
Fax: (+49) 7021 805-100
Email: dialog.nabern@diasemi.com
United Kingdom
Dialog Semiconductor (UK) Ltd
Delta 200
Delta Business Park
Welton Road
Swindon
Wiltshire SN5 7XB
UK
Phone: (+44) 1793 757700
Fax: (+44) 1793 757800
Email: dialog.swindon@diasemi.com
100 Longwater Avenue
Green Park
Reading RG2 6GP
United Kingdom
Tel: +44 1793 756959
Fax: +44 1189 450219
The Netherlands
Dialog Semiconductor B.V.
Het Zuiderkruis 53
5215 MV ‘s-Hertogenbosch
The Netherlands
Phone: (+31) 73 640 88 22
Fax: (+31) 73 640 88 23
Email: dialog.nl@diasemi.com
North America
Dialog North America
2560 Mission College Boulevard
Santa Clara
California 95054
USA
Phone: (+1) 408 845 8500
Fax: (+1) 408 845 8505
Email: NA_sales_enquiries@diasemi.com
Japan
Dialog Semiconductor K.K.
Kamiyacho MT Bldg 16F
4-3-20 Toranomon
Minato-ku
Tokyo 105-0001
Japan
Phone: (+81) 3 5425 4567
Fax: (+81) 3 5425 4568
Email: dialog.tokyo@diasemi.com
Taiwan & Greater China
Dialog Semiconductor GmbH
Taiwan Branch
9F, No 185, Sec 2, Tiding Blvd
Neihu district
Taipei city 114
Taiwan, R.O.C.
Phone: (+886) 281 786 222
Fax: (+886) 281 786 220
Email: dialog.taiwan@diasemi.com
Singapore
Dialog Semiconductor GmbH
Singapore branch
10 Ang Mo Kio. Street 65.
Unit # 03-11A Techpoint
Singapore 569059
Phone: (+65) 64849929
Fax: (+65) 64843455
Email: dialog.singapore@diasemi.com
Korea
Dialog Semiconductor (UK) Ltd
Korea Branch
501 Dongsung B/D,
158-9, Samsung-Dong
Kangnam-Ku, Seoul
Korea, 135-830
Phone: (+82) 2 569 2301
Fax: (+82) 2 569 2302
Email: dialog.korea@diasemi.com
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Dialog Semiconductor Plc
Tower Bridge House
St Katharine’s Way
London E1W 1AA
UK
www.dialog-semiconductor.com