Dialog Semiconductor Annual Report 2016

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Dialog Semiconductor Plc
Annual report and accounts 2016

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Corporate
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Strategic report

Corporate governance

Additional information

Here we set out our investment case – how we
are structured with the right skills and resources
in place, how we understand our markets
allowing us to capitalise on opportunities,
how we have a proven track record in terms of
performance and how our integrated approach
to sustainability and risk management ensures
we are a long-term proposition.

Positioned for success

Financial highlights

Chairman’s statement

Q&A with our CEO

At a glance

Our business model

Our culture and values

Our people

Responding to
growth opportunities

Our markets

Our strategy

Case Studies
e Charging ahead
e Always connected
e Always ahead
e Always innovating
e Always charging

Performing in
our chosen markets

Segmental review

Key performance indicators

Financial review

Ensuring our
long-term viability

Corporate responsibility and sustainability

Managing risk and uncertainty

Here we describe our governance framework,
including the role and effectiveness of the
Board and the alignment of the interests of our
leaders with long-term value creation. We are
committed to strong governance and driving
a culture of responsibility throughout Dialog.

Committed to
strong leadership
and governance

Introduction to governance

Board of Directors

Management team

Directors’ report

Corporate governance statement

Statement of Directors’ responsibilities

Responsibility statement

Rewarding the
right behaviour

Directors’ remuneration report

Annual report on remuneration

Directors’ remuneration policy report

Financial statements

Here we explain our annual
financial performance

Delivering
consistent results

Independent Auditor’s report

Consolidated statement of income

Consolidated statement
of comprehensive income

Consolidated balance sheet

Consolidated statement of cash flows

Consolidated statement
of changes in equity

Notes to the consolidated financial statements 93

Company balance sheet

145

Company statement of changes in equity

146

Notes to the Company financial statements 147

Financial performance measures

152

Glossary of Terms – Technical

Glossary of Terms – Financial

Advisers and corporate information

Group directory

Related undertakings

Branches and representative offices

159

161

162

163

164

165

“ Our culture is
sustained by a strong
Board with good
Governance oversight.”

Richard Beyer
Chairman

Ideas

Agility

The
power
of...

Many

Difference

The “Spirit of Dialog” is the articulation of our
values and culture. It has helped us to deliver
success for our customers, our employees and
our shareholders.

Our business
model

Our strategy

Dialog Semiconductor Plc Annual report and accounts 20161

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Powering the smart connected world

Our passion for innovation and
entrepreneurial spirit ensures we
remain at the core of mobile computing
and the Internet of Things (“IoT”).

Through our collaborative R&D
approach and responsible supply chain
management, we develop and market
highly-integrated power management
and power efficient mixed signal
integrated circuits (“ICs”).

Our technologies contribute to extend
battery life in portable devices and
efficient connectivity in IoT applications,
enhancing consumer experience and
enabling our customers to differentiate
and move fast to market.

You can also read more about our
corporate responsibility performance at
www.dialog-semiconductor.com/company/
corporate-social-responsibility

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Financial highlights

A transition year of strong
cash flow generation and
solid strategic progress

Against the backdrop of lower year-on-year smartphone
volumes, our gross margin and cash flow generation
remained strong. In line with our strategic objectives, we
sustained a healthy level of R&D investment to generate
future profitable growth.

Read about our KPIs in detail on Page 38

2016 Financial highlights

Revenue decline (US$m)

-12%

2016

2015

Operating margin (%)

25.9%

2016

2015

Gross margin (%)

45.7%

Cash flow from operating activities (US$m)

US$249m

1,198

2016

1,355

2015

45.7

2016

46.1

2015

249

318

Diluted EPS (US$)

US$3.25

25.9

2016

3.25

19.2

2015

2.29

Underlying revenue decline (US$m)

Underlying gross margin (%)

-12%

2016

2015

46.3%

1,198

2016

1,355

2015

Underlying operating margin (%)

Underlying diluted EPS (US$)

18.5%

2016

2015

US$2.09

18.5

2016

2.09

23.4

2015

3.02

Underlying measures of profitability are non-IFRS
measures because they exclude amounts that
are included in, or include amounts that are
excluded from, the most directly comparable
measure calculated and presented in accordance
with IFRS or are calculated using financial
measures that are not calculated in accordance
with IFRS. We do not regard non-IFRS measures
as a substitute for, or superior to, the equivalent
IFRS measures. Underlying measures presented
by Dialog may not be directly comparable
with similarly-titled measures used by
other companies

46.3

46.7

An explanation of the adjustments made to
the equivalent IFRS measures in calculating
the non-IFRS measures and reconciliations of
the non-IFRS measures to the equivalent IFRS
measures for each of the periods presented
are set out in the section entitled “Financial
performance measures” on pages 152 to 158.

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Chairman’s statement

Embedding the right culture
to ensure success

“ This year we
strengthened our
governance practice,
and the experience and
diversity of the Board.”

Richard Beyer
Chairman

Fellow shareholder,
2016 was a year of transition for Dialog.
Against a backdrop of weaker year-on-year
volume demand for our mobile systems
products, we made good progress on delivering
innovative and differentiated energy-efficient
solutions to power the smart connected world.

The business successfully navigated new
challenges brought by the 12% year-on-year
revenue decline and delivered the next phase
of high-volume products for our customers.
The underlying strength of our products and
our business is reflected in our strong cash flow
generation capability which drives our strong
balance sheet.

During 2016, the Board and senior management
team continued to place great emphasis on
articulating, internally and externally, our culture
and values. Embodied in the “Spirit of Dialog”,
it is the Board’s responsibility to ensure our
culture and values are shared and understood
throughout the organisation; and, among our
suppliers, partners and customers. They inform
the way we behave towards each other;

how we interact with all of our stakeholders;
and are the basis for long-term success and
value creation.

industry; provide market-leading innovation
for our customers; and drive long-term value
for shareholders.

A strong corporate culture is built and sustained
by a strong Board with good governance
oversight. During 2016, we continued to
review and enhance our corporate governance
practice; and strengthen the experience and
diversity of your Board. We welcomed two
new independent non-executive Directors
to the Board during the year: Nick Jeffery and
Mary Chan. Nick brings a wealth of international
business experience; having scaled new
enterprise-focused businesses and successfully
led multiple acquisition and integration projects.
Mary brings invaluable experience and insight
into how pervasive connectivity and the Internet
of Things are driving change across multiple
industries. The appointment of Nick and Mary
builds on our appointment of Alan Campbell
and Eamonn O’Hare to the Board over the past
two years. Our Board today comprises the range
of skills, expertise and international experience
which we believe will enable us to continue
to position Dialog at the forefront of our

The success of our business is attributable to
the hard work and commitment of our 1,766
employees around the world – ably led by
our Executive Team and, in particular, our CEO,
Jalal Bagherli. We thank all of our employees
for their work and dedication to the business
during the year.

Finally, we would like to thank you, our
shareholders, for your continued support and
the trust you have placed in us as your Board.
We look to 2017 and beyond with confidence.
We are proud of the business we are building;
of our employees who work hard to deliver
every day; and of the customers whom we serve.

Sincerely,

Richard Beyer
Chairman

Our values
Our culture and values
encompass our approach to
doing business. They guide us
in everything we do and ensure
the team spirit, dynamism and
a “can do” attitude, essential
for our continued success.

Read more on Page 36

We are not exposed to the wider automotive and industrial markets. Our product portfolio focuses
on two specific solutions : motor control ICs which are part of a windscreen wiper motor solution and
ASICs for conventional light sources.

Dialog Semiconductor Plc Annual report and accounts 201616

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Our markets continued

“ Our customers
value our strong
focus on consumer
electronics markets.”

Udo Kratz
Senior Vice President and General Manager,
Mobile Systems Business Group

1.45 billion

Smartphones shipments in 2016

38%

Expected 2015–2019 CAGR Bluetooth® low
energy market growth

3 hours

lnternet usage time per adult in 2015,
almost tripled from 2011

Dialog leads the way in rapid charging with over
70% market share in 2016 and AC/DC adapter
IC solutions that support virtually all fast charge
protocols. Our AC/DC Rapid Charge™ chipsets
today offer efficiency as high as 90% and support
output power up to 45W. We introduced our
gallium nitride (“GaN”) technology in 2016,
enabling customers to reduce the size of power
supplies by up to 50% and 94% efficiency for
ultra-high power density going forward.

The introduction of USB-C™ connectors as an
upgrade to USB-B type connectors has increased
basic charging current from 1.5amps to 3amps,
however in the race to charge faster, phone
manufacturers are looking at upwards of 5amps
to minimise charging times.

The Chinese market is one of the key smartphone
markets. China vendors, including Huawei,
OPPO and BBK continued to show strength.
The introduction of “Rapid Charging” to these
platforms is viewed as a key driver of this growth.

The number of smart connected devices
continues to increase. In 2020, we expect to
have 4.5 billion smartphones and smart vehicles,
ten “appcessories” per person and 50 billion
wireless connections. Smartphones and tablets
are the central mobile gateways and all major
mobile platforms, iOS, Android and Windows
10, have adopted Bluetooth® low energy as
a core connectivity technology. We anticipate
Bluetooth® low energy will also have a key
role in connecting IoT nodes into the cloud.
The Bluetooth® low energy market is expected
to grow 38% CAGR in the period 2015–2019.

Dialog’s R&D investment in highly-integrated
power management and charging products
allows our Mobile Systems business to be well
positioned for mid to high-end mobile devices,
enabling our customers to produce lighter
and thinner smart devices with higher power
efficiency and longer battery life. The top five
smartphone vendors as of the end of September
2016 were Samsung, Apple, Huawei, OPPO
and vivo1.

Increasing processing capabilities in mobile
devices coupled with more powerful
telecommunications networks like 4G being
rolled out across the world are enabling
consumers to increase the intensity of use of
their mobile devices and the volume of data
processed. 4G smartphones are expected to
surpass the one billion mark in shipments for
20162 as emerging markets play catch up.
In parallel, internet usage time per adult almost
tripled in the period 2011–2015 to almost three
hours per day3. This increase in data processing
has an energy cost. In this context, the need
to increase the power efficiency of portable
devices will continue to be at the core of
consumer electronics.

Portable devices continue to ship with larger
batteries to support ever-more powerful
processors and large screens. These high-
performance devices require additional power
to charge them and even more to charge them
quickly. Rapid charging continues to be the
fastest growing segment in the highest volume
power market – smartphones – with a 2015–2019
CAGR estimated at 68%4.

Consumers want rapid charging capability
along with very small travel adapters and power
supplies. To do so, our customers need to pack
more power into smaller adapter cases without
incurring thermal issues, along with very low
standby power to meet stringent government
regulations. Addressing these market dynamics
requires “high power density” AC/DC solutions
with fewer and smaller components and very
high efficiency. On 3 November 2016 in Munich,
Huawei announced the Mate 9 product family,
with one of its main features being “SuperCharge”
Technology : A full day’s charge in 20mins,5
highlighting the importance of accelerated
charging technology in the smartphone market.

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“ Rapid charging
continues to be the
highest growing
segment in the highest
volume power market
– smartphones.”

Davin Lee
Senior Vice President and General Manager,
Power Conversion Business Group

Our key customers
Our customers want our focused innovation,
technical expertise, high integration and fast
product development and support. Given the
speed of technological change in our markets,
our focus is to develop and retain long-term
relationships with all our major customers,
adopting a true partnership approach.

Customers with a significant contribution
to revenue include Apple, Samsung, Xiaomi,
Panasonic and Bosch.

These top five customers represented 92%
of Dialog revenue in 2016. We recognise there
is a risk associated with this level of customer
concentration (see details on page 53 of the
Risk section) and the revenue derived from
our largest customer is shown on page 138,
note 32.c). We are delighted to have such a
strong relationship and during 2016 we have
broadened and deepened our interactions
based upon our innovative products,
excellent programme execution and product
delivery. The diversification of our business
is a key strategic objective. In 2016, we have
welcomed new customers across multiple
business segments.

A key fast-growing market for wireless headsets is
Unified Communication (“UC”); New generation
headsets supporting Hi-Fi audio music listening
with low-latency microphone features. Dialog is a
leading supplier into wired and wireless headsets
in the UC market. The 1.9GHz wireless link is
enabling high-density wireless networks in
the enterprise environment without the risk
of interference with the overcrowded 2.4GHz
frequency space. Our products excel in audio
performance, integrated power management
and interfacing to various UC devices.

A new fast-growing market is for digital consumer
headsets targeting the smartphone aftermarket.
New smartphones have been introduced in
the market in 2016 without a 3.5mm audio
jack. This trend change will create new demand
for aftermarket headset and headphone
products with a digital interface, wireless or via
USB type C™. In 2016, Dialog Semiconductor
launched SmartBeat™, a new audio chip-set
aiming at this market.

With improving performance and lowered
costs, solid-state lighting (“SSL”) is becoming
the preferred technology for new residential
and commercial installations. Additionally,
rising consumer awareness and global
energy regulations, combined with improved
performance and lower cost continue to drive
the adoption of residential SSL retrofit bulbs.

Dialog addresses the SSL market with a broad
range of high performance, low bill of materials
(“BOM”) cost LED driver ICs for a wide range
of residential and commercial applications.
Our solutions include strong intellectual property
for dimmable SSL applications, as well as smart
lighting driver and Bluetooth® low energy
modules and sensing technologies to enable
wireless lighting and home automation control
all from a smartphone or tablet.

1 Source: IDC Worldwide Mobile Phone Tracker,
26 October 2016 https://www.idc.com/getdoc.

jsp?containerId=prUS41882816
2 Source: IDC 29 November 2016, https://www.idc.com/

getdoc.jsp?containerId=prUS41962716

3 Source: Smart Insights http://www.smartinsights.com/

internet-marketing-statistics/insights-from-kpcb-us-and-
global-internet-trends-2015-report/

4 Source: IHS, IDC, Dialog 2016
5 Source: Huawei press release

http://www.businesswire.com/news/home/
20161103005831/en/Huawei-Introduces-HUAWEI-Mate-9

Dialog Semiconductor Plc Annual report and accounts 201618

Our strategy

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Setting out a clear plan for future growth

Our ambition is to power the smart connected world, enhancing the
usability, effectiveness and sustainability of consumer electronic products.

We made great progress in 2016 and continue to power ahead with
initiatives in each of the four pillars of our strategy which aim to generate
sustainable long-term value for our customers, our shareholders,
our employees and other stakeholders.

Our 2016 strategic framework aims to give a comprehensive view
of our business and the links between our strategy, risks, and the
progress made during the year.

Strategic priority

Why is it important

How we measure our progress

Extend our
product portfolio

We aim to continuously extend our
product portfolio of highly integrated
mixed signal, lower power products.
This helps us to diversify, open up new
addressable markets and stay ahead
of the competition.

New products introduced and sold in 2016 with
revenue greater than US$200,000.

Achieve a broader
and deeper
customer base

Deliver continuous
innovation

Establish regional
engagements

The quality of our products has
attracted the leading brands in each
of our markets. We want to maintain
and grow those strong relationships
while further diversifying our customer
base by launching new products and
opening up new addressable markets.

Innovation is at the core of our
business. Our top talent and
technology, paired with an innovative
product development philosophy
and sustained R&D investment,
enables Dialog to deliver high value
to our customers.

A core strategic objective is to
establish regional engagements
using highly integrated analog and
power management technologies.
In particular, we are building
innovative partnerships with leading
companies in Greater China.

New customers welcomed to Dialog with
revenue greater than US$200,000. Additionally,
we started working with various new distributors
and deepened our existing customer base with
new ASIC and ASSP products.

US$241m

Expensed in R&D programmes during 2016,
representing an 8% increase over 2015.

In 2016, we developed new products in close
collaboration with three of our partners.

During 2016, we established a new strategic
partnership in Greater China.

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Our KPIs
Our key performance indicators seek to
ensure performance is aligned to strategy
and shareholders’ interests. Additionally, the
Company works with a wide range of metrics
covering different aspects of our business
activities. Listed on this page is an example
of metrics to gauge progress towards our
strategic objectives.

Read about Managing risk and uncertainty on Page 52

Key progress in 2016

Forward focus

Risks

e New Bluetooth® low energy IC, DA14681,

e Continue to deliver next-generation

offering high performance, with low power
consumption, small footprint and low
system cost.

e Launched the DA14195, an open audio
platform IC for consumer headsets.
e Introduction of a new high-voltage

companion charger IC for smartphones.

Rapid Charge™ adapter solutions for the
smartphone, tablet and portables markets.
e Expand our low latency wireless audio activity
towards microphones and headset brands.

e Our Bluetooth® low energy IC provides

connectivity for Misfit’s latest fitness tracker,
Misfit Shine 2™ and Pokémon™ GO Plus.

e Expanded globally our distribution

agreement with Avnet, a leading global
technology distributor.
e Launched an OpenThread
development platform.

e Continue to invest in the Bluetooth®
low energy platform and increase
market footprint.

e Diversify our product offering with

the expansion of the high-efficiency
charger portfolio.

e Increase our content in power adapters
replacing energy-wasting passive
components with active digital solutions.

e Human Capital.
e IT systems.
e Dependency on mobile and

consumer electronics.
e Environmental regulations.
e Third-party suppliers.
e Quality assurance.

e Dependency on key customers.
e Dependency on mobile and

consumer electronics.

e Entered the Gallium Nitride (“GaN”) market

with the first integrated device targeting fast
charging power adapters.

e Expanded our addressable market with

PMICs for computing systems, DSLR cameras,
auto-infotainment and TVs and set-top boxes.

e Use our GaN expertise to deliver even higher
power density, GaN power stage solutions.
e Invest in novel power management for the
Internet of My Things, Smart Home and
wearable applications.

e Focus on wearables and smarthome

Bluetooth® low energy market segments.

e Human capital.
e Funding and liquidity.
e Dependency on mobile and

consumer electronics.

e IP protection.

e Established a new strategic engagement

with a company in Greater China.
e Our Qualcomm® Quick Charge™ 3.0

chipset extended our leadership in the
mobile adapter rapid charge segment
in Greater China.

e Worked with Renesas in the automotive

infotainment segment.

e Continue to deepen our collaboration with
strategic partners in Greater China with
a wider range of technologies.

e Human capital.
e Dependency on key customers.
e Dependency on mobile and

consumer electronics.

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A new product line of Charger ICs

Charging ahead

We are charging ahead with a new product line, meeting
stringent consumer requirements and opening up new
addressable markets for our business.

During the last seven years, mobile processor
performance has increased ten times. Additionally,
consumers are using their smartphones for over three
hours each day. To support this intensity of usage, batteries
are getting larger and more powerful. To charge these
batteries safely and quickly, Dialog launched a new
product line of ultra-efficient high-voltage Charger ICs.

This new product line of Charger ICs will expand in 2017
with two new ICs:

e An ultra-efficient high-voltage charger; a smaller and

cost-effective solution.

e A single IC solution 50% more efficient than comparable
two chip solutions. A Current Doubler with industry
leading efficiency, enabling twice the voltage with
a standard USB-C cable.

Strategic priorities

Value

Business segment

Ideas

Broader and deeper
customer base

The Power of Ideas

Mobile Systems

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Bluetooth® low energy is everywhere

Always connected

Technologies such as Bluetooth® low energy, have found
a place in our daily lives. Our SmartBond™ range of
products, enables a power-efficient way to transmit data
from a myriad of peripherals to your phone and tablet.

e At home, it enables your remote TV control, allows
you to turn on the lights from your tablet or to find
the always missing car keys with a proximity tag.
e In your car, it helps for example monitoring the

tyre pressure.

e When you play sports, it transmits data from your

wearable device so you can track your daily activity
or improve your tennis or golf skills.

e At work, it enables your wireless keyboard or

mouse and makes sure that the coffee machine
is regularly maintained.

e During the weekend, it allows kids to find that extremely
rare Pokémon, or guide you through the museum by
connecting your smartphone to beacons.

Strategic priorities

Value

Business segment

Ideas

Many

Innovation and Broader and
deeper customer base

The Power of Ideas and Many

Connectivity

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Expanding our market leadership
in fast charge
Always ahead

Our rapid charge solutions meet the lower stand-by power
and higher operating efficiency mandated by governments
and international energy bodies. Rapid charge is one of
the fastest growing consumer segments, fuelled by the
adoption of these technologies in smartphones.

Faster processors and larger screens demand larger
batteries for full day use and larger batteries need
higher-power adapters to charge in an acceptable time.
Rapid charge technologies overcome USB connector
limitations and enable larger mobile devices to charge
much faster.

We seek to be ahead of our competitors with the broadest
rapid charge portfolio. Our Power Conversion business
segment markets solutions compatible with the latest
fast charging protocols without compromising on safety,
quality or price.

Dialog Rapid Charge™ ICs contribute to the expansion
of our customer footprint in Greater China and enable a
close collaboration with the leading OEMs in the largest
consumer electronics market on the planet.

Strategic priorities

Value

Business segment

Agility

Focus on China Market and Broader
and deeper customer base

The Power of Agility

Power Conversion

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Innovation in charging technology
for consumer electronics: GaN ICs
Always innovating

Gallium nitride (“GaN”) is a semiconductor
material more efficient than silicon.

Until today, GaN semiconductors were only
used in a very limited number of industries.
Dialog is pioneering the introduction of
GaN power management semiconductors
in consumer electronics.

The new GaN ICs can reduce in half power
losses, producing more energy-efficient solutions
with a smaller form factor and at lower costs.

SmartGaN™ is new wall-to-battery platform,
focused on reducing the size of adapters while
increasing power efficiency and speed of
charging. Our vision is a single ubiquitous wall
adapter for notebooks, tablets and smartphones.

Strategic priorities

Value

Business segment

Agility

Difference

Innovation and Extending
our product portfolio

The Power of Agility and Difference

Power Conversion

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Entering the wireless charging market

Always charging

In November 2016, we made a US$10
million strategic investment in Energous,
a wireless charging company. Energous’
WattUp® technology can be thought of as
wireless charging 2.0, and delivers a wireless
charging experience that is much closer to
what consumers desire by charging devices
close up and at a distance.

By sending energy safely through the air using
radio frequencies, WattUp® is able to deliver
intelligent, scalable power in a similar way
to a Wi-Fi router.

The partnership combines Energous’ uncoupled
wireless charging technology and Dialog’s
power saving technologies to drive market
expansion. Energous’ WattUp® technology uses
Dialog’s SmartBond™ Bluetooth® low energy
solution as the out-of-band communications
channel between the wireless transmitter
and receiver. Dialog’s power management
technology is then used to distribute power from
the WattUp® receiver IC to the rest of the device,
while Dialog’s AC/DC Rapid Charge™ power
conversion technology efficiently delivers power
to the wireless transmitter.

Strategic priorities

Value

Agility

Many

Extending our
product portfolio

The power of Agility and Many

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Segmental review

Mobile Systems
Adding value to our customers

Consumers demand longer battery life and more efficient
mobile applications. Our power management, charging and
audio ICs help our customers bring differentiated products
in a highly competitive market.

Our markets
e System and battery management ICs for
large-screen smartphones and tablets
(5”–11” category).

e High efficiency battery chargers for
smartphones, tablets, Ultrabooks™,
convertible tablets and ultraslims.
e Audio CODECs for mobile computing

and accessories.

e High voltage power management for
Ultrabooks™, convertible tablets and
ultraslims. Multi-touch sensors supporting
the broader computing market.

e Automotive-grade PMICs for in-vehicle

infotainment, electronic instrument cluster,
and driver-assisted displays.

e Low-power and highly integrated power
management for smart wearable devices.
e Low quiescent, low-cost power management

for Smart Home and other embedded
IoT applications.

Our products
Dialog replaces discrete power management
components with highly integrated, single-chip
solutions that reduce energy usage, provide
design simplicity at a lower cost and improve
the overall power density of mobile products.

Our Power Management Integrated Circuits
(“PMICs”) are fully configurable. This allows them
to be factory-tailored to meet the exact voltage
and current needs of every component on a
circuit board.

This flexibility is attractive to both platform
vendors and customers. Platform vendors can
validate one PMIC and use it in multiple platform
variants, and end customers who wish to
differentiate against other platform customers
can modify some peripheral functions.

Our leadership position in PMICs allows us
to quickly address developing market trends.
This year we have identified the importance
of battery charging in the mobile segment.
The DA9155, a high-voltage companion charger,
is the first of a portfolio of products that Dialog
will be releasing into the market to address this
growing space.

Key facts

Revenue (US$m)

77%

of total Company
revenue in 2016

2016
2015
2014
2013

923
1,114
943
745

US$241.5m

Underlying operating profit

Full reconciliation of non-IFRS on Page 152

US$151.8m

Expensed in R&D

Highlights
e Established a new strategic partnership

in Greater China.

e Expanded our range of ASSP products
with next generation Charger ICs.
e Expanded into adjacent markets with

our power management ICs.

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“ Efficient and high-quality

power management
and charging technologies
are increasingly important
to our customers and
consumers.”

Udo Kratz
Senior Vice President and General Manager,
Mobile Systems Business Group

Always-on sensing combined with increased
context awareness in a wide range of smart
devices has the effect of exponentially increasing
the number of use cases that customers wish
to support.

2016 progress
e Successful mass production release of the
DA9155 companion charger product.
e Established a partnership in Greater China

Key drivers
e Battery charge time reduction.
e Increasing power density to address

tightening thermal budgets.

Strategies to manage leakage and quiescent
current are now evolving in parallel with new
topologies to deliver higher power density
to support the next level of “full power”
benchmark performance.

Accommodating such diverse requirements
while maintaining battery life is one reason why
customers continue to turn to Dialog to support
their next power challenge. With such powerful
market dynamics at play in high-volume
segments, the stage is set for the next wave
of innovation in smart power management –
Dialog is well positioned to deliver.

with an engagement for an LTE smartphone
platform in 2017.

e Designed new custom application specific
(“ASICs”) PMICs with increasing complexity
and value for next generation mobile devices.

e Strong adoption of third generation
sub-PMIC solution in multiple China
smartphone customers.

e Ramping up mass production of Audio codec
product for leading computing platform.

e Continued investment in Automotive

qualified PMIC solutions for Automotive
Advanced Infotainment systems.

e Industry increase in “always-on” applications

requiring ultra-low power solutions to extend
battery life.

e Broader adoption and reliance upon platform

reference designs for lower customer
development cost and faster time to market.
e Expansion of high-performance processors

into Automotive Infotainment systems driving
adoption of integrated power solutions.

Forward focus areas for 2017

Extend product
portfolio

e Diversify our product offering with the expansion

of the high-efficiency charger portfolio.
e Automotive PMIC portfolio expansion.

Charging ahead with our next-generation Charger ICs

Deliver continuous
innovation

In line with our strategic goals, we expanded our product portfolio of
ASSPs with next generation Charger ICs and PMICs. Our next generation
of Charger ICs help our customers solve the challenge of larger and
more powerful batteries, and faster charging times. Consumers can
charge their smartphones and tablets faster and safely.

e Deepen our collaboration with strategic partners

Establish regional
partnerships

in Greater China.

e Leverage Dialog internal synergies to provide
signal chain solutions to our customers.
e Invest in novel power management for the
Internet of My Things, Smart Home and
wearable applications.

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Connectivity
Building a low power IoT

We are seeing the beginning of a smart-connected world.
As more devices get connected, our low power connectivity
technologies and audio ICs enable our customers a faster
go-to-market, vital in fast moving consumer markets.

Our markets
e Single chip transceivers for DECT-based

cordless telephones, wireless microphones,
headsets and gaming consoles.

e SmartBond™ single chip wireless ICs, certified
to the Bluetooth® low energy standard, for
enabling IoT node connectivity to the cloud.
e SmartPulse™ short-range wireless ICs, based
on the ultra-low energy DECT standard,
for Smart Home applications.

e 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.

118
117
92
92

e SmartBeat™ provides a platform for robust,

low-power wireless audio over USB,
Bluetooth® and DECT. This platform offers a
highly integrated solution for high quality and
fixed low-latency wireless audio applications
supporting sample frequencies up to 48kHz.

Our products
Dialog’s SmartBond™ family is the simplest
route to delivering power-friendly and flexible
Bluetooth® low energy connected products to
the market. SmartBond™ DA14580 is still the
market-leading low power, high integration
Bluetooth® low energy SoC, covering a broad
range of applications. Based on this world-
leading product we extended our portfolio
with optimised solutions targeting dedicated
applications: DA14581 for wireless charging,
DA14582 with an integrated voice codec and
DA14583 which has on-board flash memory.

In 2016, we introduced the second single-chip
solution for wearables and home automation:
DA14681. Customers can now create next-
generation Bluetooth® low energy wearables
and home automation applications without
compromising on functionality, battery lifetime
or system size.

With a solid partner ecosystem, an increasing
portfolio of reference designs and a daily
growing online SmartBond™ engineering
community, Dialog has a strong base for
further growth.

Key facts

Revenue (US$m)

10%

of total Company
revenue in 2016

2016
2015
2014
2013

US$5.6m

Underlying operating profit

Full reconciliation of non-IFRS on Page 152

US$29.5m

Expensed in R&D

Highlights
e Strong revenue growth in Bluetooth®

low energy.

e Expanded our SmartBond™ line

of products.

e Continued to build a solid

partner ecosystem.

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“ Our second generation
of Bluetooth® low energy
products, SmartBond™,
simplifies the creation of
IoT devices and enables
a faster go-to-market.”

Sean McGrath
Senior Vice President and General Manager,
Connectivity, Automotive & Industrial Business Group

In 2016, Dialog introduced the next generation
of SmartBeat™ products aiming at new trend of
connecting digital headsets with smartphones
instead of the analog 3.5mm audio jack. The new
SmartBeat™ chip-set DA14195 audio processor
and DA7217 ultra low power codec is aimed
at Bluetooth® and USB type-C™ digital audio
connections with smartphones.

By enabling voice and data to run over a single
network, VoIP technology can enable businesses
to increase bandwidth efficiencies, reduce costs
and migrate away from traditional copper wire-
switched telephone systems. Dialog works with
the leading global VoIP phone manufacturers
with our energy-efficient Green VoIP solution to
address the large enterprise, small to medium
business and hotel markets.

2016 progress:
e Strong revenue growth in Bluetooth®

low energy.

e Introduced second Bluetooth® low energy
product line adding flexibility & integration
and enabling new applications.
e Strengthened market position in the

wearable segment with key design wins
at multiple customers.

e Enabled smart home development platforms

for major ecosystems: Apple HomeKit
and Thread.

e Launched SmartBeat™ Audio IC platform

for active headphones.

Key drivers
e Rapid market expansion of Bluetooth® low
energy fuelled by connectivity needs of the
Internet of Things.

e New market trend for digital headsets for

smartphone aftermarket using the Bluetooth®
and USB type-C™ audio interface.
e Focusing on the fast-growing Unified

Communication products segment with
1.9GHz DECT audio and USB-audio headsets.

e Increasing trend to use the proven DECT
standard in new applications such as low
latency audio.

e Maturity of DECT handset market.

Forward focus areas for 2017

e Continue to invest in the Bluetooth® low energy

platform and increase market footprint.

e Leverage distribution and Rep. network to expand

our BLE business to a larger customer base.

Achieve a broader
and deeper
customer base

e Focus on wearables and smart home Bluetooth®

low energy market segments.

Deliver continuous
innovation

e Expand our low latency wireless audio activity
towards microphones and headset brands.

Expanding the SmartBond™ product line
In 2016, we introduced the second Bluetooth® low energy single-chip
solution for wearables and home automation. Our new product helps
our customers to reduce the number of components and cost, while
enabling consumers to enjoy longer battery life, thinner and lighter
applications. Xiaomi, one of the leading OEMs in Greater China, placed
our technology at the core of their latest fitness tracker, the Mi Band 2.

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Power Conversion
Enabling faster charging
of portable devices

PrimAccurate™ digital control technology is at the heart of
our success. Our AC/DC converters and solid state lighting
LED ICs support energy-efficient solutions and help our
customers meet ever increasing government standards
and energy regulations.

Key facts

Revenue (US$m)

10%

of total Company
revenue in 2016

2016
2015
2014
2013

117
85
80
27

US$6.1m

Underlying operating profit

Full reconciliation of non-IFRS on Page 152

US$22.5m

Expensed in R&D

Highlights
e We sustained our strong position in the
fast charging smartphone market.
e Strong year-on-year revenue growth

in Rapid Charge™ in 2016.

e Introduced our first gallium nitride

(“GaN”) IC.

Our markets
e AC/DC controller solutions – digital

intelligence for smaller, fast-charging, low
standby power adapters and power supplies.

e LED drivers for solid-state lighting – digital

intelligence for stunning dimming
performance, seamless dimmer compatibility
and high quality of light in residential,
commercial and smart lighting applications.
e LED drivers for display backlighting – digital
control for better LED TV picture quality,
simpler design and lower BOM cost.

Our products
AC/DC Power Conversion:

Consumer demand for feature-rich, large-
screen mobile devices continues to expand.
These devices require larger batteries, which
in turn need high power adapters to charge
them and even more to charge them faster.
These market dynamics continue to drive rapid
charging as the fastest growing segment in the
highest volume market – smartphones, with
a 2015–2019 CAGR estimated at 68%*.

In addition to smartphones, virtually every
product that plugs into the wall needs AC/DC
power conversion to change high voltage
alternating current (“AC”) from the wall to the
lower voltage, direct current (“DC”) required
by most electronic products.

All of Dialog’s AC/DC power conversion products
use our unique PrimAccurate™ primary-side
digital control technology to enable accurate
control of voltage and current. PrimAccurate™
technology allows our customers to reduce
their BOM cost by eliminating the optoisolator,
secondary-side regulator and many discrete
parts required with conventional AC/DC
converter approaches. This technology also
enables the high efficiency needed for high

IHS, IDC, Dialog 2016

power density power supplies and travel
adapters, with improved reliability – all in a very
small form-factor.

In 2016, we sustained our leadership position in
fast charging with 70% market share and AC/DC
Rapid Charge™ adapter IC solutions that support
virtually every fast charge protocol, including
the new USB Power Delivery specification,
Qualcomm® Quick Charge™ technology,
MediaTek Pump Express™ Plus, Samsung
Adaptive Fast Charging (“AFC”), Huawei Fast
Charger Protocol (“FCP”), Huawei Smart Charge
Protocol (“SCP”) for Direct Charging, and other
proprietary OEM protocols.

The continued demand for higher power mobile
device adapters and electronic product power
supplies drives the need for higher power
density AC/DC solutions that enable OEMs
to pack more power into smaller adapter and
power supply cases without incurring thermal
issues. These solutions also need to operate
at very low standby power to meet stringent
government regulations directed at reducing
power consumption and global warming.

Our existing AC/DC high power density
Rapid Charge™ chipsets and AC/DC converter
products deliver efficiency as high as 90% and
support output power up to 45W, using fewer
and smaller components to minimise the overall
adapter and power supply size.

In 2016, we announced our first 650V gallium
nitride (“GaN”) half-bridge power IC, the DA8801,
to further reduce the size of power supplies by
up to 50%, with 94% efficiency for ultra-high
power density. GaN switches achieve these
benefits by maintaining higher efficiency levels
at high switching speeds. The high switching
rates enable the use of smaller components for
reduced size, while the high efficiency generates
less heat to keep power supplies ultra-small and
case temperatures at or below required levels.

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“ Mobile device rapid charging

market shows no signs of
slowing down. We serve a wide
customer base with a majority
70% share of the smartphone
fast charging market in 2016.”

Davin Lee
Senior Vice President and General Manager
of the Power Conversion Business Group

LED Solid-State Lighting (“SSL”):

Dialog offers a broad range of SSL LED driver
ICs, embedding our exclusive technologies to
enable high-performance dimming, seamless
dimmer compatibility and high quality of light,
all with a low bill of materials (“BOM”) cost.
We support both dimmable and non-dimmable
bulbs across a wide range of residential and
commercial applications.

In 2016, we continued to see strong market
adoption of our iW368x dimmable SSL LED driver
with their exceptional dimmer compatibility
and dimmer performance in retrofit bulbs.
We also introduced our LED driver with
integrated FET (iW3858) for high performance,
with the lowest BOM cost. We introduced
our Dual-Dim™ SSL LED driver (iW3690) that
supports TRIAC and digital dimming smart
lighting applications, including wireless lighting
using our SmartBond™ Bluetooth® low energy
system-on-chip.

We expanded our reach in the commercial LED
lighting market in 2016 with our easy-to-use,
low BOM cost interface IC (“iW337”) that enables
3-in-1 dimming for 0-10V analog, 0-10V PWM
and resistive dimming. The iW337 interface IC

pairs with our iW3631 0-10V dimmable SSL LED
driver for commercial lighting applications up
to 120W.

2016 progress
e Maintained our dominant position in the rapid

charging market with 70% market share.
e Delivered solutions in volume for virtually all
fast charge protocols, including the new USB
Power Delivery specification, Qualcomm®
Quick Charge™ technology, MediaTek Pump
Express™ Plus, Samsung Adaptive Fast
Charging (AFC), Huawei Fast Charger Protocol
(FCP), Huawei Smart Charge Protocol (SCP)
for Direct Charging, and other proprietary
OEM protocols.

e Announced our first gallium nitride (GaN) half-
bridge power IC to reduce the size of power
supplies by up to 50%, with 94% efficiency for
ultra-high power density.

e Delivered our Dual-Dim™ iW3690 SSL LED

driver supporting TRIAC and digital dimming
smart lighting applications, including
wireless lighting using our Bluetooth®
low energy solution.

Key drivers
e Smartphones continue to ship with larger
batteries to support ever-more powerful
processors and large screen sizes, requiring
high power adapters to charge them.

e Consumers want faster-charging

smartphones, necessitating higher
power adapters.

e Consumers expect these higher power

adapters to remain small; driving the need
for higher power density.

e An expanding array of new rapid charging
protocols, including Direct Charging, USB
Power Delivery (“USB-PD”).

e Regulation is phasing out inefficient

incandescent and compact fluorescent
lamp (“CFL”) bulbs.

e Emerging smart lighting market fuelled

by wireless technologies and IoT.

Forward focus areas for 2017

e Leverage distribution and representatives network

to further expand customer base in China.

Achieve a broader
and deeper
customer base

Bringing GaN ICs to consumer markets
Our new GaN IC helps our customers to develop smaller and more
efficient travel adapters for notebooks, tablets and smartphones.

Deliver continuous
innovation

e Continue to deliver next-generation Rapid Charge™
adapter solutions for the smartphone, tablet and
portables markets.

e Use our GaN expertise to deliver even higher power

density, GaN power stage solutions.

e Address LED driver market for retrofit SSL and
commercial & professional LED lighting.

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Automotive & Industrial
Supporting our loyal customers

Dialog is an automotive-certified company addressing the mid
to high-end European segment through customer specific parts.

Our markets
e Custom motor control ICs for windscreen

wipers and companion processor integrated
power management for automotive
infotainment systems.

e Electronic ballasts for fluorescent or
high-intensity industrial lighting and
energy-efficient controllers for LED
lighting solutions.

Our products
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
and Japanese cars.

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.

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 controllers for 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.

2016 progress
e Successful ramp-up in new windscreen

wiper products.

Key drivers
e Increasing market for reverse wipers and

LED lighting solutions.

Key facts

Revenue (US$m)

of total Company
revenue in 2016

2016
2015
2014
2013

30
34
41
37

US$10.2m

Underlying operating profit

Full reconciliation of non-IFRS on Page 152

US$1.2m

Expensed in R&D

Highlights
e Continued to support our customers to

remain competitive.

e We played in this market with customer

specific programmes.

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“ In 2016, we continued to
support our customers to
remain competitive.”

Sean McGrath
Senior Vice President and General Manager,
Connectivity, Automotive & Industrial Business Group

Helping our customers to
remain competitive
Our products capitalise on the mixed signal
expertise we have built over many years.
Our goal is to help our customers to remain
competitive and to play in this market through
specific customer programmes.

Forward focus areas for 2017

Achieve a broader
and deeper
customer base

e Supporting our customers to remain competitive.
e Remain engaged in this market through specific
customer programmes but with no additional
R&D investment.

e Follow this market with appropriate investments.

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Key performance indicators (“KPIs”)

The Board uses a range of indicators to assess performance, to ensure performance
is aligned to the strategy, and to ensure continued alignment with shareholder interests.
The key performance indicators are set out below and include certain underlying
(non-IFRS) measures. Underlying measures of profitability are non-IFRS measures because
they exclude amounts that are included in, or include amounts that are excluded from, the
most directly comparable measure calculated and presented in accordance with IFRS or
are calculated using financial measures that are not calculated in accordance with IFRS.
We do not regard non-IFRS measures as a substitute for, or superior to, the equivalent IFRS
measures. Non-IFRS measures presented by Dialog may not be directly comparable with
similarly-titled measures used by other companies.

See full explanations and reconciliations in the section entitled “Financial performance measures” on Page 152

Revenue performance

Performance indicator

Definition and relevance

2016 performance

-12% IFRS
-12% Underlying

Gross margin

Actual and prior year’s full year revenue
measured in our reporting currency, US dollars.
Monitoring this revenue trend provides a
measure of business growth. Revenue is
used in order to provide a useful reflection
of business performance.

Full year revenue in 2016 was 12% below 2015.
This decline was the result of lower volumes in
our Mobile Systems and Automotive & Industrial
products, partially offset by strong growth in
Bluetooth® low energy and AC/DC fast charge
converters. The Average Selling Price of our
high-volume power management products
remained broadly in line with 2015.

Performance indicator

Definition and relevance

2016 performance

45.7% IFRS
46.3% Underlying

Actual and prior year’s gross margin.
Gross margin is gross profit expressed as a
percentage of revenue and shows the value
of the Group’s products. Monitoring this trend
provides a measure of our ability to obtain profit
margin from our products and manage our
manufacturing costs over a period of time.

Gross margin in 2016 (both IFRS and underlying)
was 40bps below 2015. This decrease was mostly
driven by the lower revenue. The resilience
of gross margin in 2016 was the result of the
flexibility of our high-touch fabless business
model combined with rigorous cost control
and the lower value of inventory write-offs.

Operating expenses as a percentage of revenue

Performance indicator

Definition and relevance

2016 performance

31.3% IFRS
27.9% Underlying

Actual and prior year’s operating expenses
(“OpEx”) expressed as a percentage of
revenue. 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.
OpEx % provides a useful reflection of the
focus and efficiency of our operating structure.
OpEx includes Selling & Marketing expenses,
General & Administrative expenses and Research
& Development expenses.

OpEx % in 2016 was 420bps above 2015, 460bps
on an underlying basis. The increase was the
result of the lower revenue and the strategic
commitment to innovation and investment
in our Research & Development (“R&D”) effort
(2016: 20.2%, underlying 19.0%). It also reflects
our commitment to invest and improve the
efficiency of our Sales, General & Administrative
(“SG&A”) infrastructure and align it with the
revenue base. It is important to note that our
R&D effort is not directly linked to the revenue
of the same period. It represents an investment
in future revenue streams.

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Operating profit movement

Performance indicator

Definition and relevance

2016 performance

+19% IFRS
-30% Underlying

Operating margin

Year-on-year movement of operating profit.
Monitoring this trend provides a measure of the
year-on-year movement in the economic value
generated by our operating business.

Operating profit in 2016 was 19.3% above
2015. This increase was mostly the result
of US$137 million Atmel termination fees.
Underlying operating profit was 30.4% below
2015, reflecting the impact from the revenue
decline, combined with the commitment to
continuous R&D effort and the alignment of
our SG&A infrastructure with the revenue base.

Performance indicator

Definition and relevance

2016 performance

25.9% IFRS
18.5% Underlying

Diluted EPS (US$)

Actual and prior year’s operating margin.
Monitoring this trend provides a measure
of our ability to increase the profitability of
our operating activity over a period of time.
Underlying operating margin provides a useful
link to our ability to generate cash as we are
a low capital intensity business.

Operating margin in 2016 was 670bps above
2015, including the impact from the Atmel
termination fee. On an underlying basis, it was
490bps below 2015. This decrease is the result
of the revenue decline combined with the
commitment to continuous R&D effort and the
alignment of our SG&A infrastructure with the
revenue base.

Performance indicator

Definition and relevance

2016 performance

3.25 IFRS
2.09 Underlying

Employee turnover

Actual and prior year’s diluted EPS.
Monitoring this trend provides a useful
measure of our ability to generate earnings
and the inherent value of our business for
our shareholders over a period of time.
Underlying diluted EPS provides a useful
reflection of the inherent value of the business.

Diluted EPS was 42% up over 2015 to US$3.25
in line with the movement in net income.
Underlying diluted EPS was down 31% in line
with the movement in operating profit.

Performance indicator

Definition and relevance

2016 performance

7.9%

Number of leavers in the last 12 months divided
by the average headcount during that period
expressed as a percentage. Monitoring our ability
to recruit and retain experienced engineering
professionals is vital given the strong competition
for skills in the sector, ageing population and our
business growth ambitions.

In 2016, employee turnover was 7.9%, slightly
above 2015 (2015: 6.9%). Our ability to recruit
and retain engineering professionals remained
high. Dialog has an improved performance
management system to ensure we are able
to reward our best employees through
appropriate mechanisms.

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Financial review

In support of organic growth opportunities, we are investing in the
development of innovative and differentiated products, as well as expanding
our global distribution network and the R&D infrastructure in North America,
Europe, and Asia. Dialog is a cash generative business with a strong balance
sheet. During 2016, the Company returned US$60 million of cash to our
shareholders through our share buyback programme.

“ Our focused R&D
approach supports future
revenue streams and
long-term value creation
for our shareholders.”

Wissam Jabre
Chief Financial Officer, Senior Vice President Finance

Summary of the Group’s results

Year ended 31 December
US$ millions unless stated otherwise
Revenue3
Gross profit
Gross margin %3
R&D % of revenue
SG&A % of revenue
EBITDA1, 2
EBITDA margin %1, 2
Operating profit3
Operating margin %3
Profit before tax
Net income
Basic EPS (US$)
Diluted EPS (US$)3
Cash flow from
operating activities

IFRS basis

Underlying basis1

2016
1,197.6
546.7
45.7%
20.2%
11.1%
n/a
n/a
309.8
25.9%
305.2
258.1
$3.43
$3.25

Change
2015
-12%
1,355.3
-12%
624.8
46.1%
-40bps
16.5% +370bps
+50bps
10.6%
n/a
n/a
n/a
n/a
+19%
259.7
19.2% +670bps
+20%
254.8
+46%
177.3
+42%
$2.42
+42%
$2.29

2016
1,197.6
554.9
46.3%
19.0%
8.9%
269.7
22.5%
221.0
18.5%
217.6
165.4
$2.20
$2.09

Change
2015
-12%
1,355.3
-12%
632.3
46.7%
-40bps
15.6% +340bps
7.7% +120bps
357.8
-25%
26.4% -390bps
-30%
317.7
23.4% -490bps
-31%
317.6
-31%
238.4
-32%
$3.25
-31%
$3.02

248.8

317.7

-22%

n/a

1 Non-IFRS measures (see explanations and reconciliations to the nearest equivalent IFRS measures in the section entitled

“Financial performance measures” on pages 155 to 158.

2 Prior year underlying EBITDA and EBITDA margin have been recalculated to no longer exclude a loss of US$1.7 million

on the disposal of fixed assets (see page 157).

3 Key performance indicators.

Basis of preparation
Accounting policies

The Group’s financial statements have been
prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted
by the EU and those parts of the Companies Act
2006 that are applicable to companies reporting
under IFRS. The Group’s financial statements also
comply with IFRS as issued by the International
Accounting Standards Board.

The Group’s significant accounting policies
were unchanged compared with 2015.
Recent accounting pronouncements that
have not yet been adopted by the Group
are outlined in note 1 to the consolidated
financial statements.

Critical accounting judgements
and estimates

An explanation of the critical accounting
judgements made in preparing the
consolidated financial statements and key
sources of estimation uncertainty that may
affect the carrying amount of the Group’s
assets and liabilities within the next financial
year is presented in note 2 to the consolidated
financial statements.

Non-IFRS measures

We assess the performance of the Group’s
businesses using a variety of measures. Certain of
these measures are non-IFRS measures because
they exclude amounts that are included in, or
include amounts that are excluded from, the
most directly comparable measure calculated
and presented in accordance with IFRS or are
calculated using financial measures that are not
calculated in accordance with IFRS. All underlying
measures of profitability are non-IFRS measures.

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We report non-IFRS measures because they
provide useful additional information about the
financial performance of the Group’s businesses.
We do not regard these non-IFRS measures as a
substitute for, or superior to, the equivalent IFRS
measures. Non-IFRS measures used by Dialog
may not be directly comparable with similarly-
titled measures used by other companies.

Strategic investments
Investment in Energous Corporation

In November 2016, Dialog entered into a
strategic alliance with Energous whereby we
agreed to become the exclusive component
supplier of its WattUp® integrated circuits.
At the same time as entering into the strategic
alliance, Dialog paid US$10.0 million in cash
on subscription for 763,552 common shares in
Energous and was granted warrants to purchase
up to 763,552 common shares in Energous that
are exercisable in full or in part on a cashless
basis at any time between May 2017 and
November 2019.

At the end of 2016, Dialog held approximately
3.8% of Energous’s issued common shares.

Investment in Dyna Image Corporation

In June 2015, we acquired a 45.7% shareholding
in Dyna Image and were granted a call option
over the shares that we do not own that expires
in June 2018. Due to the existence of the call
option, Dyna Image is accounted for as a
subsidiary and therefore its results subsequent
to our initial investment are included in the
Group’s results.

In January 2017, we participated in a new
issue of shares by Dyna Image. We invested
US$2.0 million, thereby increasing our
shareholding in the business from 45.7% to
48.5%. We will account for the increase in our
shareholding as a transfer within equity during
the first quarter of 2017.

Aborted merger with Atmel
In January 2016, Atmel Corporation, Inc.
terminated the merger agreement that
existed with Dialog. Under the terms of the
agreement, Atmel paid us a termination fee of
US$137.3 million, which we recognised as other
operating income in the first quarter of 2016.

During 2016, we incurred related transaction
costs of US$3.5 million (2015: US$17.6 million)
and commitment fees of US$1.9 million (2015:
US$1.2 million) in relation to the US$2.1 billion
borrowing facility that was arranged to finance
the transaction before the cancellation of the
facility in January 2016.

Results by operating segment

Results of operations
Analysis by operating segment

Mobile Systems segment revenue was
US$923.0 million in 2016 compared with
US$1,114.5 million in 2015, a decrease of
17%. Revenue declined principally due to
reduced demand for our PMICs resulting from
softer demand for high-end smartphones.
Mobile Systems represented 77.1% of the
Group’s revenue in 2016 (2015: 82.2%).

Mobile Systems’ operating profit declined by
30% to US$239.9 million (2015: $341.9 million).
Operating profit declined in response to the
reduction in revenue and also reflected the
increase in our R&D activities compared with
2015. Operating margin declined to 26.0%
(2015: 30.7%), principally reflecting the lower
contribution to fixed costs.

Mobile Systems’ underlying operating profit
was US$241.5 million in 2016 compared with
US$343.7 million in 2015. Underlying operating
margin was also lower at 26.2% in 2016
(2015: 30.8%).

Mobile Systems’ underlying operating profit
excludes payroll taxes arising on share-based
compensation of its employees, which amounted
to US$1.6 million in 2016 (2015: US$1.8 million).

Year ended 31 December
US$ millions
Mobile Systems
Automotive & Industrial
Connectivity
Power Conversion
Total segments
Corporate activities
Total Group

Revenue

Operating profit/(loss)

2016
923.0
30.0
118.3
116.8
1,188.1
9.5
1,197.6

2015
1,114.5
34.4
117.0
84.6
1,350.5
4.8
1,355.3

Change
-17%
-13%
+1%
+38%
-12%
+98%
-12%

2016
239.9
10.1
5.3
(7.5)
247.8
62.0
309.8

2015
341.9
9.3
8.4
(20.7)
338.9
(79.2)
259.7

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Automotive & Industrial segment revenue
was US$30.0 million in 2016 compared with
US$34.4 million in 2015, a decrease of 13%.
Revenue declined primarily because of reduced
demand for traditional industrial lighting and
certain automotive applications. Automotive
& Industrial represented 2.5% of the Group’s
revenue (2015: 2.5%).

Automotive & Industrial’s operating profit
increased by 9% to US$10.1 million (2015:
$9.3 million) and its operating margin increased
to 33.7% (2015: 27.0%) reflecting tight control
over costs and more selective investment in
R&D projects.

Automotive & Industrial’s underlying
operating profit was US$10.2 million in
2016 compared with US$9.5 million in 2015.
Underlying operating margin was also higher
at 34.0% in 2016 (2015: 27.6%).

Automotive & Industrial’s underlying operating
profit excludes payroll taxes arising on
share-based compensation of its employees,
which amounted to US$0.1 million in 2016
(2015: US$0.2 million).

Connectivity segment revenue was
US$118.3 million in 2016 compared with
US$117.0 million in 2015, an increase of 1%.
Strong growth in Bluetooth® low energy
more than offset the expected continuing
decline in the legacy (DECT) business.
Connectivity represented 9.9% of the Group’s
revenue (2015: 8.6%).

Connectivity’s operating profit declined by 37%
to US$5.3 million in 2016 (2015: US$8.4 million),
with the reduction due largely to higher
expenditure on R&D projects.

Connectivity’s underlying operating profit
was US$5.6 million in 2016 compared with
US$9.3 million in 2015. Underlying operating
margin was also lower at 4.7% in 2016 compared
with 8.0% in 2015.

Connectivity’s underlying operating profit
excludes payroll taxes arising on share-
based compensation of its employees,
which amounted to US$0.3 million in 2016
(2015: US$0.3 million) and, in 2015, additional
amortisation of US$0.8 million on the fair
value uplift of intangible assets acquired
with SiTel BV in 2011.

Power Conversion segment revenue increased
by 38 % to US$116.8 million in 2016 compared
with US$84.6 million in 2015. During 2016,
we successfully rolled out our Rapid Charge™
solutions with several Asian OEMs, the effect
of which significantly exceeded the decline in
the legacy (AC/DC) business. Power Conversion
represented 9.8% of the Group’s revenue
(2015: 6.2%).

Power Conversion incurred an operating loss of
US$7.5 million in 2016 but this was a significant
improvement compared with its operating loss
of US$20.7 million in 2015. Power Conversion’s
operating result improved significantly as the
effect on profitability of higher sales came to
outweigh the higher expenses arising from our
increased investment in R&D and manufacturing
support activities in the second half of 2015.
Operating margin improved to (6.5)% in 2016
compared with (24.4)% in 2015.

Power Conversion delivered an underlying
operating profit of US$6.1 million in 2016
compared with an underlying operating loss
of US$6.6 million in 2015. Underlying operating
margin also turned round to 5.2% in 2016
(2015: (7.8)%).

Power Conversion’s underlying operating
result excludes payroll taxes arising on
share-based compensation of its employees,
which amounted to US$0.2 million (2015:
US$0.3 million), additional amortisation
of US$13.4 million (2015: US$13.5 million)
on the fair value uplift of intangible assets
acquired with iWatt, Inc. in 2013 and, in 2015,
further costs of integrating that business
of US$0.3 million.

Corporate activities include emerging market
businesses (principally Dyna Image and those
involved in the development of low cost PMICs
for the Chinese consumer markets). Corporate’s
revenue of US$9.5 million (2015: US$4.8 million)
was attributable to Dyna Image, in which we
invested in June 2015.

Corporate activities also include the costs of
operating central corporate functions, and the
Group’s share-based compensation expense and
certain other unallocated costs.

Corporate activities showed an operating profit
of US$62.0 million in 2016 compared with an
operating loss of US$79.2 million in 2015.

Corporate activities included the Atmel
termination fee of US$137.3 million, Atmel
related transaction costs of US$3.5 million
(2015: US$17.6 million) and, in 2015, the
expense of US$3.4 million recognised on the
settlement of the iWatt contingent consideration.
Excluding these items, Corporate activities
incurred an operating loss of US$71.8 million
in 2016 compared with US$58.2 million in 2015.

Corporate’s operating loss was higher principally
due to an increase in the Group’s share-based
compensation expense (which is not allocated
to operating segments), the scaling up of our
business support functions and advisory fees.

Corporate’s underlying operating result
additionally excludes the Group’s share-based
compensation expense of US$28.2 million (2015:
US$19.2 million), payroll taxes arising on share-
based compensation of Corporate employees of
US$0.1million (2015: US$0.1 million) and, in 2016,
additional amortisation of US$1.1 million on the
fair value uplift of intangible assets acquired with
Dyna Image.

Corporate’s underlying operating loss was
US$42.4 million compared with US$38.3 million
in 2015, an increase of 11%.

Analysis of the Group’s results

Revenue was US$1,197.6 million in 2016
compared with US$1,355.3 million in 2015,
a decrease of 12%. Revenue declined principally
due to reduced demand for our PMICs in Mobile
Systems though this was partially offset by
strong revenue growth in Power Conversion.
Revenue was largely unaffected by price
movements with the average selling price of our
main products remaining broadly unchanged at
US$3.15 in 2016 compared with US$3.13 in 2015.

Dialog’s revenue, particularly in its Mobile
Systems segment, is dependent on the life cycle
of its customers’ products and the seasonal
nature of the spending pattern in the consumer
markets in which they operate. As a result,
Dialog’s business may fluctuate seasonally
with lower revenue in the first half of the year,
since many of its larger consumer-focused
customers tend to have stronger sales later in
the year as they prepare for the major holiday
selling seasons.

Cost of sales was US$650.9 million in 2016
compared with US$730.5 million in 2015,
a decrease of 11% that principally reflected
lower sales volumes.

Gross profit was US$546.7 million in 2016
compared with US$624.8 million in 2015,
a decrease of 12%.

Gross margin declined by 40 basis points to
45.7% in 2016 (2015: 46.1%). Gross margin held
up reasonably well because improved margins
on our more complex products partially offset
the lower contribution to fixed costs due to
reduced volumes. Reflecting these factors,
underlying gross profit was 12% lower at
US$554.9 million in 2016 (2015: US$632.3 million)
and the underlying gross margin declined by
40 basis points to 46.3% (2015: 46.7%).

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Selling and marketing expenses were
broadly unchanged at US$62.3 million (2015:
US$62.1 million). We continued to invest in our
sales and marketing efforts in our Connectivity
and Power Conversion segments, but
maintained tight control over our overall costs.

Underlying selling and marketing expenses were
also broadly unchanged at US$51.4 million in
2016 compared with US$52.1 million in 2015, but
increased as a percentage of the Group’s revenue
from 3.8% in 2015 to 4.3% in 2016.

Underlying selling and marketing expenses
exclude share-based compensation
expenses and related payroll costs totalling
US$3.4 million (2015: US$2.4 million) and
additional amortisation of US$7.5 million (2015:
US$7.6 million) on the fair value uplift of acquired
intangible assets.

General and administrative expenses were
lower at US$70.9 million in 2016 compared with
US$80.9 million in 2015.

General and administrative expenses
included Atmel related transaction costs of
US$3.5 million (2015: US$17.6 million) and, in
2015, the expense of US$3.4 million recognised
on the settlement of the iWatt contingent
consideration. Excluding these items, general
and administrative expenses were higher
at US$67.4 million in 2016 compared with
US$59.9 million in 2015, reflecting an increase
in the share-based compensation expense and
higher corporate costs.

Underlying general and administrative expenses
additionally exclude share-based compensation
and related payroll costs totalling US$12.3 million
(2015: US$8.1 million).

Underlying general and administrative expenses
were US$55.1 million in 2016 compared with
US$51.8 million in 2015, an increase of 6%.
Underlying general and administrative expenses
increased as a percentage of the Group’s revenue
from 3.8% in 2015 to 4.6% in 2016.

R&D expenses were US$241.3 million in
2016 compared with US$223.2 million in
2015, an increase of 8%. R&D expenditure was
US$264.2 million in 2016 (2015: US$254.1million),
of which US$15.8 million (2015: US$24.8 million)
was capitalised, and we recognised R&D
expenditure credits of US$7.1 million (2015:
US$6.1million).

Dialog has an extensive R&D engineering
team focused on mixed signal semiconductor
power saving technologies. Dialog believes
that its R&D activities are critical to support its
strategy of growth and product diversification.
We continued to hire engineers during 2016 and
our R&D activities focused on application specific
PMICs for mobile devices and standard products
for Bluetooth®, AC/DC chargers, LED Solid State
Lighting and mobile devices.

Capitalised development costs were lower than
in 2015 due to a reduction in the number of
products under development that had satisfied
the required technical and commercial feasibility
conditions at a stage in the development process
beyond which significant further development
costs were still to be incurred.

Underlying R&D expenses were US$227.8 million
in 2016 compared with US$211.9 million in 2015,
an increase of 7%. Underlying R&D expenses
increased as a percentage of the Group’s revenue
from 15.6% in 2015 to 19.0% in 2016.

Underlying R&D expenses exclude share-based
compensation expenses and related payroll costs
totalling US$13.6 million (2015: US$10.4 million)
and, in 2015, additional amortisation of
US$0.8 million on the fair value uplift of acquired
intangible assets.

Other operating income was US$137.7 million
in 2016 compared with US$1.2 million in 2015.
In 2016, other operating income included the
Atmel termination fee of US$137.3 million.

Operating profit was US$309.8 million in
2016 compared with $259.7 million in 2015.
Excluding the Atmel termination fee and
related transaction costs, operating profit
was US$176.0 million in 2016 compared with
US$277.3 million in 2015, with the decline
principally due to lower gross profit and higher
R&D expenses.

Underlying operating profit was correspondingly
lower at US$221.0 million in 2016 compared with
US$317.7 million in 2015 and the underlying
operating margin was 18.5% in 2016 compared
with 23.4% in 2015.

Interest income increased to US$3.7 million
(2015: US$1.2 million), reflecting an increase in
market interest rates and higher cash balances.

Interest expense was US$3.4 million in 2016
compared with US$6.4 million in 2015.

During 2016, we incurred commitment fees
of US$1.9 million (2015: US$1.2 million) in
relation to the Atmel borrowing facility and, in
2015, we recognised interest of US$3.5 million
in relation to the US$201 million Convertible
Bonds before their conversion into shares in
April 2015. Excluding these items, we incurred
interest of US$1.5 million in 2016 compared with
US$1.7 million in 2015, principally in relation to
amounts drawn under our receivables financing
facilities, hire purchase arrangements and
finance leases.

Other finance income (expense) showed a
net expense of US$4.8 million in 2016 compared
with net income of US$0.3 million in 2015.

We recognise within other finance income
(expense) foreign currency translation gains and
losses that arise on monetary assets and liabilities
that are denominated in currencies other than
the functional currencies of the entities by which
they are held (principally on the translation
of Euro and pound sterling denominated
amounts into US dollars). We recognised a net
currency translation loss of US$6.0 million in
2016 compared with a net gain of US$0.4 million
in 2015.

We also recognise within other finance income
(expense) fair value gains and losses on
derivative instruments that we hold in relation
to our strategic investments in Energous and
Dyna Image.

We consider that the grant of the Energous
warrants was linked to the negotiation of the
strategic alliance with Energous. On the grant
date, we therefore recognised the warrants
at their fair value of US$4.7 million and an
equivalent deferred credit within non-current
liabilities. We will amortise the deferred credit to
profit or loss in relation to the royalties that may
be payable by Dialog for the use of Energous’s
Intellectual Property over the initial seven-year
term of the strategic alliance. By the end of 2016,
the fair value of the Energous warrants had
increased to US$6.6 million and we recognised
the resulting gain of US$1.9 million as other
finance income.

During 2016, we recognised a loss of
US$0.7 million (2015: loss of US$0.1 million)
on the remeasurement at fair value of our call
option to acquire the non-controlling interests
in Dyna Image.

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Income tax expense was US$47.1 million
(2015: US$77.6 million) on profit before tax
of US$305.2 million (2015: US$254.8 million),
an effective tax rate for the year of 15.4%
(2015: 30.4%). The low effective tax rate for
2016 reflects the tax treatment of the Atmel
termination fee of US$137.3 million. We have
obtained tax advice that the termination fee
should not be taxable in the UK. We have
therefore concluded that no tax liability should
arise and have not recognised a tax expense
in relation to the termination fee.

Our effective tax rate is sensitive to the
geographic mix of the Group’s profits, reflecting
a combination of different tax rates in different
countries, and to foreign exchange movements
which give rise to deferred tax movements
where functional and tax currencies are different.
A large proportion of Dialog’s R&D activities
are undertaken in the UK and we are therefore
able to benefit from the UK tax regime for
technology companies.

Our underlying income tax expense was
US$52.2 million (2015: US$79.3 million) on
underlying profit before tax of US$217.6 million
(2015: US$317.6 million), an underlying effective
tax rate for the year of 24.0% (2015: 25.0%).
The reduction in our underlying effective tax rate
is as a result of the ongoing exercise to align the
ownership of the Group’s Intellectual Property
with the underlying value contributions of
group companies. These arrangements are the
subject of an application for a Bilateral Advance
Pricing Agreement. Our income tax expense on
the profit for the year reflects our expectation
of the likely final agreement.

We believe the gradual decrease in our
underlying effective tax rate is sustainable
and will continue in the years to come.

Net income was US$258.1 million (2015:
US$177.3million), of which a loss of
US$2.8 million (2015: US$1.5 million) was
attributable to the non-controlling interest
in Dyna Image. Underlying net income
was US$165.4 million compared with
US$238.4 million in 2015, a decrease of 31%.

Basic earnings per share were US$3.43 (2015:
US$2.42) based on the weighted average of
76.0 million shares (2015: 73.8 million shares)
that were in issue during the year excluding
1.3 million shares (2015: 1.7 million shares)
held by employee benefit trusts and, in 2016,
0.5 million of our own shares held in treasury.
Underlying basic earnings per share were
US$2.20 (2015: US$3.25), a decrease of 32%
that principally reflected our lower sales
volumes in 2016.

Diluted earnings per share were US$3.25
(2015: US$2.29). Diluted earnings per share
additionally reflect the weighted average
of 4.4 million (2015: 3.5 million) dilutive
employee share options and awards and,
in 2015, 2.4 million shares in relation to the
US$ 201 million Convertible Bonds that
were converted into shares in April 2015.
Underlying diluted earnings per share were
US$2.09 (2015: US$3.02).

Cash flows
Cash and cash equivalents increased by
US$130.4 million during 2016 (2015: increased
by US$242.5 million).

Cash flow from operating activities was
US$248.8 million in 2016 compared with
US$317.7 million in 2015.

Cash generated from operations before changes
in working capital was US$402.8 million in 2016.
Excluding the receipt of the Atmel termination
fee of US$137.3 million, cash flow from operating
activities before changes in working capital
was US$265.5 million in 2016 compared with
US$345.2 million in 2015.

Net working capital increased by
US$17.1 million (2015: decreased by
US$17.4 million). Excluding Atmel transaction
costs amounting to US$16.7 million that were
included in payables at the end of 2015, net
working capital increased by US$0.4 million
(2015: decreased by US$0.7 million).

As a fabless business, Dialog commits to
purchase inventory from its suppliers in advance
in order to satisfy expected demand for its
products. Demand was significantly lower than
we had expected in the fourth quarter of 2015.
As a result, by the end of 2015, we were carrying
relatively high inventories and correspondingly
higher trade and other payables. Inventory levels
were reduced during 2016, releasing cash of
US$21.6 million. At the end of 2016, inventories
represented 48 days cost of sales in the fourth
quarter of 2016 (end of 2015: 56 days cost
of sales).

Summary cash flow statement

Year ended 31 December
US$ millions
Cash generated from operations
Interest paid, net
Income taxes paid
Cash flows from operating activities
Purchase of property, plant and equipment
Purchase of intangible assets
Capitalised development expenditure
Investment in Dyna Image, net of acquired cash
Purchase of investment in Energous
Purchase of own shares into treasury
Sale/(purchase) of Dialog shares by employee benefit trusts, net
Other cash flows, net
Net cash inflow during the year
Currency translation differences
Increase in cash and cash equivalents

2016
385.7
(0.1)
(136.8)
248.8
(25.8)
(11.8)
(15.8)
(0.6)
(10.0)
(61.5)
8.0
(1.0)
130.3
0.1
130.4

2015
362.5
(2.5)
(42.3)
317.7
(33.0)
(11.7)
(24.8)
(2.6)
–
–
(2.4)
0.3
243.5
(1.0)
242.5

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Trade and other payables were lower at the
end of 2016 compared with the end of 2015
absorbing cash of US$44.2 million, principally as a
consequence of lower materials purchases in the
fourth quarter in 2016 compared with 2015 and
the settlement of the Atmel transaction costs.
Excluding the Atmel transaction costs, trade and
other payables absorbed cash of US$27.5 million
during 2016.

Trade and other receivables were US$8.1 million
higher at the end of 2016 compared with the
end of 2015. Our reduced use of our receivables
financing facilities more than offset the decline
in trade receivables due to our lower fourth
quarter sales in 2016 compared with 2015.
Gross receivables sold under the facilities
amounted to US$105.0 million at the end of
2016 compared with US$155.7 million at the
end of 2015. At the end of 2016, trade and other
receivables represented 20 days sales in the
fourth quarter of 2016 (end of 2015: 16 days sales).

Changes in other assets and liabilities had
the effect of releasing cash of US$13.9 million
during 2016.

Interest paid was US$3.4 million (2015:
US$3.6 million), including the payment of
commitment fees in relation to the Atmel
borrowing facility of US$1.9 million (2015:
US$1.2 million). Interest received was
US$3.3 million (2015: US$1.1 million).

Income taxes paid were US$94.4 million higher
at US$136.8 million in 2016 compared with
US$42.4 million in 2015. Tax payments comprise
payments on account in respect of current year
taxable profits and also adjusting payments in
respect of earlier years. The increase in income
taxes paid largely reflected the increase in our
taxable profits in earlier years.

Cash flow used in investing activities
was US$63.8 million in 2016 compared with
US$71.7 million in 2015.

Purchases of property, plant and equipment
amounted to US$25.8 million (2015:
US$33.0 million) and principally comprised
tooling (masks), laboratory equipment, probe
cards, load boards and other advanced test
equipment to support our R&D activities.

Purchases of intangible assets amounted to
US$11.8 million (2015: US$11.7 million) and
principally comprised spending on patent
applications, purchased software and licences
and software development for internal
business applications.

Payments related to capitalised development
expenditure amounted to US$15.8 million in
2016 compared with US$24.8 million in 2015,
the decrease reflecting the lower number of
products under development whose costs
qualified for capitalisation.

In June 2015, we paid initial consideration
equivalent to US$12.9 million to acquire a
45.7% shareholding in Dyna Image, which
net of cash held by Dyna Image at the time of
our investment, resulted in a net cash outflow
of US$2.6 million. In June 2016, we paid the
equivalent of US$0.6 million to settle the deferred
element of the consideration. We continue to
hold a call option over the shares in Dyna Image
that we do not already own that expires in
June 2018.

During 2015, we paid US$3.4 million in
settlement of the contingent consideration
payable on the purchase of iWatt (this was
reflected in cash generated from operations).

In November 2016, we purchased our
shareholding in Energous for US$10.0 million
in cash.

Cash flow used in financing activities
was US$54.7 million in 2016 compared with
US$2.4 million in 2015, with the substantial
increase being due to purchases made under
the Company’s share buyback programme
during 2016.

We purchased 1,805,750 of the Company’s
shares under the share buyback programme at
a total cost of US$61.5 million (including related
transaction costs of US$1.1 million). We also
made cash payments of US$1.2 million on the
settlement of currency forwards and swaps that
were used to hedge the currency translation
exposure on the Euro-denominated share
buyback obligation.

During 2016, employee benefit trusts purchased
Dialog shares at a cost of US$3.1 million (2015:
US$14.0 million) and received proceeds of
US$11.1 million (2015: US$11.6 million) on
the exercise of share options awarded under
employee share schemes.

Liquidity and capital resources
Financial risk management

Dialog is exposed to financial risks including
counterparty credit risk, liquidity risk and market
risks, which include foreign exchange risk
and interest rate risk. Disclosures about these
risks and the ways in which we manage them
are presented in note 33 to the consolidated
financial statements.

Dialog has a centralised treasury function that is
responsible for ensuring that adequate funding
is available to meet the Group’s requirements
as they arise and for maintaining an efficient
capital structure, together with managing the
Group’s counterparty risk foreign currency and
interest rate exposures. All treasury operations are
conducted in accordance with strict policies and
guidelines that are approved by the Board.

We use forward currency contracts to manage
currency risks and we hold certain equity options
and warrants for strategic reasons. We do not
hold derivative financial instruments for
speculative purposes.

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Financial review continued

Derivative financial instruments are measured
at fair value that is determined based on market
forward exchange rates at the balance sheet
date. At the end of 2016, currency derivatives
held by the Group were represented by a
liability of US$12.5 million (end of 2015: liability
of US$4.6 million). All currency derivatives
held to hedge forecast cash flows were
designated as hedging instruments in cash
flow hedge relationships. During 2016, a loss
of US$13.3 million (2015: loss of US$19.0 million)
was recognised in other comprehensive income
representing the change during the year in the
fair value of derivatives in effective hedging
relationships and a cumulative fair value loss
of US$8.4 million (2015: loss of US$32.0 million)
was transferred from equity to profit or loss
on the occurrence of the hedged cash flows.

After taking into account hedging, during 2016
we recognised a net currency translation loss
of US$0.6 million in profit or loss in relation
to liabilities to purchase shares under the first
and second tranches of the Company’s share
buyback programme.

Share buyback programme

At the Company’s AGM on 28 April 2016, the
Directors were granted the authority to purchase
up to 7,786,595 ordinary shares in the capital
of the Company (representing approximately
10% of the issued ordinary share capital of the
Company as at 30 March 2016). Such authority
shall (unless previously renewed, varied or
revoked) expire on the day before the next
AGM of the Company or on 30 June 2017,
whichever is the earlier.

Purchases made under the authority are off-
market from the perspective of the Company
and are effected by way of contingent forward
share purchase contracts entered into with
Barclays, HSBC or Merrill Lynch acting as brokers
who will purchase interests in the Company’s
ordinary shares (“CIs”) on the Frankfurt
Stock Exchange.

On 9 May 2016, the Company announced the
first tranche of the share buyback programme
under which it committed to purchase shares
with a minimum cost of €37.5 million and a
maximum cost of €50 million. Final settlement
and conclusion of the first tranche took place
on 28 September 2016. We purchased a total
of 1,332,158 shares under the first tranche at
a cost of €37.5 million (US$42.0 million).

On 8 November 2016, the Company announced
the second tranche of the programme under
which it committed to purchase shares with a
minimum cost of €56.25 million and a maximum
cost of €75 million. On 30 December 2016, we
completed the first intermediate settlement
under the second tranche purchasing 473,592
shares at an initial cost of €17.45 million
(US$18.4 million).

At the end of 2016, we held 1,805,750 shares
purchased under the first and second tranches
in treasury at a total cost of US$61.5 million
(including related transaction costs of
US$1.1 million). We also recognised a debit
to equity amounting to US$63.1 million,
which comprised the remaining obligation
to purchase shares under the second tranche
of €57.55 million (US$62.8 million) and related
transaction costs of US$0.3 million.

A further intermediate settlement of the second
tranche took place on 9 February 2017 and
final settlement and conclusion of the tranche
took place on 17 February 2017. In these further
settlements, we purchased 977,456 shares at
a cost of €38.8 million (US$41.4 million) and
incurred transaction costs of US$0.2 million.

In total, the Company purchased 2,783,206
shares representing 3.57% of the Company’s
issued share capital at an average cost of
€33.68 per share under the first two tranches.
We will seek renewal of the share buyback
authority at the Company’s AGM on 4 May 2017.

Capital management

The Group’s capital is represented by its total
equity (shareholders’ equity plus non-controlling
interests). At the end of 2016, the Group’s total
equity was US$1,194.9 million (end of 2015:
US$1,024.9 million).

We seek to maintain a capital structure that
supports the ongoing activities of our business
and its strategic objectives in order to deliver
long-term returns to shareholders. We allocate
capital to support organic and inorganic growth,
investing to support research and development
and our product pipeline.

We will fund our growth strategy using a mix
of equity and debt after giving consideration
to prevailing market conditions.

Cash and cash equivalents

Cash is managed in line with Treasury policy
to ensure there is no significant concentration
of credit risk in any one financial institution.
Credit risk is measured using counterparty credit
ratings. As a minimum, a counterparty must have
a long-term public rating of at least “single A”.
Counterparty limits are based on a rating matrix
and closely monitored. Credit risk is further
limited by investing only in liquid instruments.

At the end of 2016, cash and cash equivalents
amounted to US$697.2 million (end of 2015:
US$566.8 million), which principally comprised
cash available under receivables financing
facilities and short-term deposits with a maturity
of three months or less.

Borrowing facilities

Dialog is a cash-generative business and
cash and cash equivalents held by the Group
have increased substantially in recent years.
Accordingly, we voluntarily cancelled the Group’s
revolving credit facility in June 2015 and, since
that time, the Group has had no committed
borrowing facilities.

Receivables financing facilities

We utilise non-recourse receivables financing
facilities provided by two financial institutions.
We reviewed these facilities during 2016.
In March 2016, the aggregate amount of the
facilities was increased from US$112 million to
US$187 million. In November 2016, we reduced
the number of facilities from three to two but
the aggregate amount of the facilities was
further increased to US$240 million. The principal
facility is for US$220 million and matures on
30 April 2018.

At the end of 2016, cash and cash equivalents
included US$88.9 million (end of 2015:
US$131.8 million) in relation to receivables sold
under these facilities. We are confident that the
receivables financing facilities together with our
significant cash balances and cash generation
will be more than sufficient to satisfy the Group’s
working capital requirements in the near to
medium term.

Currency hedging activities

Dialog uses forward currency contracts and
currency swaps to manage the Group’s exposure
to currency risk on highly probable forecast
cash flows denominated in foreign currencies;
principally employment costs, rents and other
contractual payments. We also use derivatives to
hedge the currency translation exposure on the
Euro-denominated liabilities to purchase shares
that are recognised by the Company in relation
to its share buyback programme.

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Balance sheet
Summary balance sheet

As at 31 December
US$ millions
Assets
Cash and cash equivalents
Other current assets
Total current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax assets
Other non-current assets
Total non-current assets
Total assets
Liabilities and equity
Current liabilities
Deferred tax liabilities
Other non-current liabilities
Total liabilities
Shareholders’ equity
Non-controlling interests
Total liabilities and equity

2016

2015

697.2
237.1
934.3
251.2
125.6
69.7
27.4
22.3
496.2
1,430.5

224.1
2.0
9.5
235.6
1,189.8
5.1
1,430.5

566.8
230.7
797.5
251.1
138.6
68.4
28.5
3.8
490.4
1,287.9

253.7
1.6
7.7
263.0
1,017.1
7.8
1,287.9

Goodwill

At the end of 2016, the carrying amount of
goodwill was US$251.2 million (end of 2015:
US$251.1 million), with the slight increase during
the year being due to changes in currency
exchange rates.

Goodwill impairment tests carried out during
2016 showed that the recoverable amount of
each cash-generating unit to which goodwill
is allocated was comfortably in excess of its
carrying amount and therefore no impairment
was recognised.

Other intangible assets

At the end of 2016, the carrying amount of other
intangible assets was US$125.6 million (end of
2015: US$138.6 million). During 2016, additions
amounted to US$24.0 million, comprising
capitalised product development costs of
US$15.8 million and purchased software, licences
and patents totalling US$8.2 million. During 2016,
the amortisation expense was US$35.9 million
(2015: US$31.1 million).

Property, plant and equipment

Since Dialog operates a fabless business model,
it does not have any manufacturing facilities but
it does occupy R&D facilities and administrative
offices. At the end of 2016, Dialog operated in
31 locations worldwide covering a total of
42,500 square metres. Dialog’s facilities are all held
under operating leases. Management believes
that Dialog’s facilities are adequate for its
current requirements.

Property, plant and equipment principally
comprises test equipment, office equipment
and leasehold improvements. At the end of
2016, the carrying amount of property, plant
and equipment was US$69.7 million (end of
2015: US$68.4 million). Additions during the year
amounted to US$30.0 million and the carrying
amount of assets disposed of was US$0.8 million.
During 2016, the depreciation expense was
US$27.9 million (2015: US$24.2 million).

With the exception of assets held under
finance leases, which are secured by a lessor’s
charge over the leased assets, the Group’s
property, plant and equipment is not subject
to any encumbrances.

Other non-current assets

Other non-current assets increased by
US$18.5 million to US$22.3 million (end of 2015:
US$3.8 million), primarily due to the addition of
our strategic investment in Energous shares and
warrants during 2016.

Income tax assets and liabilities

Due largely to the amount and timing of
tax payments to the relevant tax authorities,
the Group had net current tax receivables of
US$35.4 million (end of 2015: net current tax
payables of US$62.0 million).

At the end of 2016, the Group had net deferred
tax assets of US$25.4 million (end of 2015:
US$26.9 million), comprising deferred tax assets
of US$27.4 million (end of 2015: US$28.5 million)
and deferred tax liabilities of US$2.0 million
(end of 2015: US$1.6 million).

Going concern

For the reasons set out on page 62, the Directors
continue to adopt the going concern basis
in preparing the Group’s and the Company’s
financial statements. We outline on pages 52
to 56 the principal risks and uncertainties that
the Directors believe could adversely affect the
Group’s results, cash flows and financial position.

Consequences of Brexit
On 23 June 2016, the UK voted in a referendum
to leave the EU. As this result was largely
unexpected, it initially caused turmoil in the
financial markets. Uncertainty about the terms
of the UK’s exit has given rise to concern about
the impact on the UK economy, in particular with
regard to the continuing access of UK businesses
to markets in the EU and the attractiveness of the
UK to overseas investors.

In January 2017, the UK’s Prime Minister
confirmed the UK Government’s intention to
commence formal Brexit negotiations with
the other EU Member States by the end of
March 2017 and set out the UK Government’s
objectives for the negotiations ahead in a
12-point “Plan for Britain”.

In the short term, we do not expect Brexit will
have a significant adverse impact on Dialog
because only a small amount of our revenue is
derived from customers in the UK. Should the
weakness of the pound sterling and the Euro
against the US dollar be sustained, there may
be a positive impact on our earnings due to
the more favourable translation into US dollars
of pound sterling and Euro-denominated
operating expenses.

Our operations are spread across the world
and we will continue to balance projects and
workload among them. Approximately two-
thirds of our workforce is based in the EU and
our teams are typically comprised of several
nationalities. We will therefore monitor very
closely any proposed changes to the current
regulations in respect of the rights of EU and
other nationals to work in the UK and any likely
consequential changes to the rights of UK
nationals to work in the EU. In the meantime, we
will operate on a business as usual basis within
the existing regulations and our continuing focus
will be on growing our business.

Wissam Jabre
Chief Financial Officer,
Senior Vice President Finance

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Corporate responsibility and sustainability

Our key sustainability business
areas are our people, our products
and a resilient supply chain

This section provides high-level analysis of our most material business sustainability issues, details on how we manage them and selected data on how
we have performed. Further detail is available in our 2016 Sustainability Report and on our website. The results of the materiality process are set out in the
matrix published in our 2016 sustainability report. This includes our most material issues, as well as a range of additional relevant issues that we are also
proactively managing. In addition to the interim review carried out during 2016, we have given further clarity on the linkage between our key sustainability
issues and our key business areas. For that purpose, our core sustainability issues, listed below, have been mapped to one of the key business areas.
During 2016, Corruption and Bribery was replaced by Employee Development as one of our core sustainability issues. All our other core sustainability
issues remained unchanged.

www.dialog-semiconductor.com/sustainability

Our sustainability vision and applicable standards

Vision

To embed sustainable and responsible
practices into the way we act internally
and engage externally

Applicable external standards
e United Nations Global Compact.
e ISO14001 environmental management system standard.
e ISO9001 quality management system standard.
e ISO50001 energy management system standard.
e Global Reporting Initiative and G4 Sustainability Reporting Guidelines.

IssueIssue

Change from 2015

Mapping to business issue

e Economic performance and impact

e Advancement of technology

e Intellectual property

e Compliance with customer standards

e Governance

e Product impacts

e Recruitment Professionals

e Labour rights and human rights (value chain)

e Employee development

e Health and safety (value chain)

e Conflict minerals

e Transparency (value chain)

Full materiality matrix can be found in the Sustainability Report

People

Products

Other

Products

Other

Products

People

Supply Chain

People

Supply Chain

New in core

No change

Re-prioritisation
of core issues

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Our people
Materiality

The nature of our business, which relies on
the ongoing advancement of cutting-edge
semiconductor technology, means we are highly
reliant on our ability to recruit, retain and develop
high-quality electronic engineering professionals,
as well as leading management talent. This is
particularly the case given:
e Strong, ongoing competition for skills within

the sector.

e An ageing electronics

engineering demographic.

e Our commercial growth ambition.

In this context, we are focused on maintaining
a sustainable skills pipeline – ranging from
the identification, development (and ultimate
recruitment) of high-potential undergraduates
through to the attraction of experienced experts.
We take a holistic view towards both recruitment
and retention that looks beyond the provision
of highly competitive financial rewards. We also
aim to deliver the kind of lifestyle, working
environment, development opportunities
and inclusive culture that encourages people
to choose to develop high-quality, long-term
careers with us.

How we manage our people

We manage our people through:
e The application of national-level Human
Resource Policies, tailored to reflect local
legal requirements, business priorities and
labour markets.

e The application of our corporate Code of
Conduct, which sets out our minimum,
business-wide requirements in relation to
labour and human rights, health and safety
and related issues.

e Ongoing talent planning and

gap identification.

e Proactive engagement at university level

to identify and recruit new talent.

e Ongoing identification and engagement
of high-value professionals and leaders.

Responsibility for our performance sits with the
Senior Vice President Human Resources who
is supported in this role by dedicated regional
Human Resource teams.

Relevant performance indicators in relation
to our people can be found on page 12.

“ Dialog focus is on power
management and power-
efficient technologies. These
technologies aim to improve the
energy efficiency of consumer
electronic devices and reduce
power consumption.”

Our products
Materiality

Our products are based around a range of
power-efficient IC solutions, and we aim to have
a positive impact on the wider environment
through the development and marketing of
energy-saving technology.

Positive product impacts

The technology that we design, develop and
market supports the wider provision (by our
business partners) of advanced, affordable
technology to consumers in a range of global
mass-markets, including:
e Personal, portable handheld devices.
e LED solid-state lighting.
e IoT applications.

In this context, our products offer a range of
advantages to end-users (and, by extension,
our customers who are selling to them).

These include:
e Mobile power management: Greater power
efficiency, resulting in longer battery life
and increased mobility. For example, typical
usage tests suggest our Power Management
Integrated Circuits decrease the power
consumption of smartphones, tablets
and Ultrabooks™ by up to 30%.

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Corporate responsibility and sustainability continued

e Power conversion: Our high efficiency AC/
DC power converters and LED drivers help
maximise power conversion efficiency using
digital technology and fewer components.
This includes converters that use little or
no power while on standby – a particularly
important aspect when you consider that
standby demand consumes more than
100 billion kilowatt-hours of electricity
annually in the United States alone (enough
to power more than nine million American
households). Furthermore, our solid-state
lighting (“SSL”) LED drivers support very
high efficiency, long-lifespan SSL bulbs. It is
estimated that the increased use of energy-
efficient LED lighting of all kinds in the
United States alone will save 300 terawatt
hours by 2030 – equivalent to approximately
210 million tonnes of greenhouse
gas emissions.

e Connectivity: Our Bluetooth® low energy,

SmartBond™ System-On-Chip helps increase
the battery life of relevant wireless products
by up to 100% – reducing overall power
usage and enhancing the mobility of
connected products.

Minimisation of negative product impacts

The nature of our integrated circuits means that
their actual and potential negative impacts are
relatively limited. Nonetheless, we design our
products in a way that is intended to minimise
any negative impacts they might have over
their lifecycle. This includes efforts to reduce the
size of our integrated circuits (thus reducing the
amount of input materials required, as well as
the amount of packaging used to protect and
ship them). In addition, and as described above,
we aim to make our integrated circuits as energy
efficient as possible – while also enhancing the
energy efficiency of the larger products they are
incorporated into.

Given the important role our integrated circuits
play in managing the power supply of more
than a billion consumer end-products, we place
significant emphasis on ensuring they do not
pose any health and safety risks to end-users.

A resilient supply chain
Materiality

Given the nature of our business model and
our commercial relationships, value chain
management is a particularly important issue for
Dialog. This not only includes operational aspects
(including the avoidance and mitigation of
supply chain disruption and supply constraints),
but also sustainability aspects such as:
e The impact of our business partners on

human rights and labour rights.

e Health and safety performance amongst

our suppliers.

e The environmental impacts of both our

suppliers and the contents of our products.

This reflects:
e Evolving stakeholder expectations, which

place ever-growing emphasis on the need for
companies to identify, and use their legitimate
influence to proactively manage, their indirect
sustainability impacts.

e Dialog’s duty to help protect its own

customers from reputational, contractual
or commercial harm.

How we manage our value chain

We manage our value chain through:
e A policy of only dealing with fabrication
partners who are accredited to or are
compliant with the ISO14001 (environment)
and ISO9001 (quality) management standards.

e Screening of all new fabrication partners

against our Self-Audit Checklist (which covers
labour and human rights, health and safety,
the environment and business ethics), as
well as pre-qualification audits prior to the
integration of new fabrication partners into
our supply chain.

e Annual auditing (by joint Dialog and

third-party auditing teams) of all existing
fabrication partners against our Supplier Audit
Checklist and Corporate Social Responsibility
Checklist. In addition to requirements relating
to ISO14001, OHSAS18001 and ISO9001,
auditing covers a range of broader corporate
social responsibility issues, including those
drawn from the SA8000 social accountability
standard. In 2016, we carried out 25 supplier
audits on this basis.

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Responsibility in this respect sits with the Senior Vice President Global Manufacturing Operations.
He is supported in this role on a day-to-day basis by the Environmental Manager.

Proportion of major fabrication partners screened/audited for sustainability performance
by issue type (new fabrication partners screened1/existing fabrication partners audited2)

Health and safety (%)
Environment (%)
Labour rights (incl. human rights) (%)
Society (%)

Type and number of “major” negative audit findings3

Health and safety
Environment
Labour practices (incl. human rights)
Society

2014
100/100
100/100
100/100
100/100

2014
0
0
2
0

2015
100/100
100/100
100/100
100/100

2016
100/100
100/100
100/100
100/100

2015
0
0
0
0

2016
0
14
0
0

1 Screening activity is aimed at improving the performance of our fabrication partners where necessary, rather than their

exclusion from our supply chain.
Includes both documentary auditing and on-site auditing. Approximately 85% of our fabrication partners were subjected
to on-site auditing in 2016.
I.e., audit findings of sufficient seriousness that Dialog requires immediate correction on the part of the supplier.

3
4 Potential safety hazard identified for the control of chemicals.

Energy and carbon emissions
We are working across our offices to significantly
reduce CO2 emissions and minimise the carbon
footprint of our business. This year, we have offset
100% of emissions from all air travel and the use
of rental cars from our two main design centres
Nabern and Swindon. We work with Climate
Care to offset CO2 emissions through various
renewable energy projects in China and the
LifeStraw Carbon for Water Project.

Scope 1
Scope 2
Scope 3 (travel only)

2016
Total
86.2
1,739.2
4,685.2

2016 per
employee
0.05
0.98
2.65

Scope 1: Direct emissions from self-generation.

Scope 2: Indirect emissions from the
consumption of purchased electricity, heat
or steam.

Scope 1 and 2 emissions from our two largest
design centres – Nabern and Swindon.

Scope 3: Other indirect emissions including
those related to transport. Includes all air travel
and car hire from design centres in Nabern
and Swindon.

Environmental responsibility
Materiality

We operate responsible practices within our
own business and promote them across our
supply chain.

Our products themselves are based around a
range of green IC solutions, and we aim to have
a positive impact on the wider environment
through the development and marketing of
energy saving technology. We make an ongoing
effort to minimise our:
e Energy consumption and carbon emissions.
e Pollution and waste.
e Use of natural resources.

Management approach
Responsibility for environmental performance
sits with our Senior Vice President Global
Manufacturing Operations. We further
govern our environmental responsibility
through the application of the Dialog Code
of Conduct, which addresses our emissions to
air and water, resource use, management of
hazardous substances and waste management.
Furthermore, we are certified to the ISO14001
environmental management standard, and our
Company Quality and Management Manual
support our efforts to achieve continuous
improvement. In 2016, we implemented a
new energy management system in Germany,
achieving ISO50001 certification.

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Managing risk and uncertainty

This section sets out a description of the principal risks and
uncertainties that could have a material adverse effect on
the achievement of Dialog’s three-year mid-range strategy.
Any of these risks could adversely impact the Company’s
financial situation or reputation and therefore its ability
to execute on one or more of the four strategic pillars.

The role of the Risk Management Office is to
improve the identification of risk, assessment
of probability and impact, and assignment
of owners to manage mitigation activities.
The Management Team along with the Board
has overall responsibility and oversight of the
Risk Management Office. The Risk Management
Office is led by the Chief Financial Officer, meets
quarterly and includes members of the executive
leadership team.

The Risk Management Office and the
Management Team gather information from the
business, as well as internal and external auditors.
The Risk Management Office has accountability
for reporting the key risks that the Company
faces, and reporting the status of any mitigating
actions or controls to the Executive Team and the
Audit Committee.

Key risks are formally identified and recorded
in a risk register that is reviewed by the
Executive Team and the Audit Committee.
The risk register is used to plan the internal audit
activity and assess any potential impact to the
Company’s strategy.

Principal risks
The Group is affected by a number of risk factors,
some of which, including macroeconomic
and industry-specific cyclical risks, are outside
Dialog’s control.

The Company recognises four categories of risks:
Strategic, Operational, Financial, and Legal and
Compliance. To manage these, we made further
progress in 2016 introducing new products,
expanding our customer base, working closely
with our partners and suppliers and introducing
new employee initiatives such as the “Spirit of
Dialog”. Additionally, the Company has taken
a number of steps in 2016 to strengthen the
system of internal controls, procedures and
resources. Improvements have been made to
the internal controls over financial reporting by
embedding the COSO framework of internal
control; update of key policies and authorities;
review of employee access to finance systems;
implementation of new procedures; and a new
accounting consolidation tool.

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Strategic risks
Dialog management is focused on executing on its four strategic pillars in order to mitigate the dependencies on key markets and customers.

Risk

Actions

Progress in 2016

Dependency on mobile and consumer
electronics
Dialog’s product portfolio is heavily focused
upon the mobile and consumer electronics
marketplace. The end device manufacturers
demand from their suppliers the best quality
product at the lowest price, high degrees of
innovation and fast time to market. There is a
high level of competition in terms of product
offering or price that could persuade a customer
of Dialog to switch suppliers.

Dependency on key customers
Dialog relies on a relatively small number of
customers, within the wireless communication
sector, for a substantial proportion of its
revenue. The loss of our major customer would
have a material effect on short-term revenue
and profitability. The revenue derived from
our largest customer is shown on page 138,
note 32c).

Human capital
In order to successfully execute its current and
future business commitments, Dialog needs
to continue to build its organisational capability
in two key areas:
e Continuous innovation in product

development, manufacturing and packaging
technologies; and

e Leadership skills in an expanding and
increasingly complex global operation.

In an increasingly competitive market, a key
success factor will come from our ability to recruit
and retain high-quality people. There is a risk that
competitors may actively target our key people.

Dialog invests in R&D to anticipate and respond
to new market trends. The Company rapidly
implements new designs to meet customer
needs and to keep abreast of technological trends.

Dialog is seeking to reduce the risk of its revenues,
profitability and growth being affected by a
slowdown in those key customers and the
wireless communications sector (within mobile
and consumer electronics market) by winning
customers in other sectors and broadening its
product offering to existing and new customers.

Dialog seeks to create a positive working
environment that results in low levels of
staff turnover.

Dialog has developed an effective recruitment
process to attract and retain high-calibre staff,
while succession planning for senior management
positions ensures continuity of leadership.

Dialog has dedicated human resource managers
to drive further development of its personnel
and benchmark its employment terms to match
industry top performers.

Dialog has a decentralised approach to research
& development with teams in 15 countries. In a
highly competitive talent market we believe this
flexible approach is advantageous, allowing us
to recruit talent where it resides and as a defence
mechanism to stop large scale “poaching” by
competitors.

Regular reviews of remuneration practice and
employee value propositions to ensure we are able
to attract and retain key people. Our “all-employee”
profit share plans are an important part of this.

Dialog has designed and launched a Management
and Leadership curriculum available to all new
and experienced people managers globally.

Continued development of Quick charge AC/DC
converters to meet evolving protocols. Release
of new PMIC for the multi cell computing market.
In addition to SmartBondTM Dialog developed
Bluetooth® related products for wearables and
Smart Home applications.

Dialog invested US$241 million or 20% of revenue
in R&D in 2016 across a range of highly targeted
areas. This is an increase of 8% over 2015.

While continuing to provide world-class products
and services to its existing key customers.
Dialog continues with its Greater China strategy.
In addition to new design wins at Huawei, Meizu,
Xiaomi, Dialog has won business at Samsung, HTC,
and LeTV. Dialog has made significant progress
with its highly differentiated AC/DC quick
charging products, reporting an estimated
70% market share.

In 2016, the number of engineers increased by
approximately 10%.

Approximately 75% of our total 2016 hires were
for engineering-related functions.

Emerging talent programmes continued
successfully in 2016, with 35 graduates and 51
interns entering the business – the majority within
engineering functions.

Staff turnover was 7.9% (2015: 6.9%). In order to
minimise staff turnover Dialog has an improved
performance management system to ensure that
we are able to reward our best employees through
appropriate mechanisms.

The Company also has a global learning and
development strategy and runs an active university
partnership programme to attract the brightest
and best university graduates to the electronics
industry and our Company.

In 2016, Dialog continued to embed the “Spirit of
Dialog” which documents the principles that have
contributed to our success. The “Spirit of Dialog”
is now embedded in Recruitment, Performance
Management, Promotions and Development.

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Managing risk and uncertainty continued

Operational risks
Dialog recognises that time to market is a critical factor for the success of its customers. The efficiency of its internal operation is a relevant factor to its
performance. We run programmes to drive continuous improvement through all facets of the value chain from design to order fulfilment. Dialog also tests
and evaluates the quality of the supporting business functions.

Risk

Actions

Progress in 2016

Third-party suppliers
Dialog runs a “high-touch” fabless business
model and so outsources the capital intensive
production of silicon wafers, packaging and
testing of integrated circuits to leading third-party
suppliers, mainly in Asia.

The manufacturing of products runs over multiple
stages with multiple suppliers. The failure of any
of these third-party vendors to deliver products
or otherwise perform as required could damage
relationships with our customers, decreasing our
revenue and limiting our growth.

Supplier delivery performance can be adversely
affected by multiple issues. For example, if
increased demand for these suppliers’ products
exceeds their production capacity.

Information technology and security
Dialog is heavily dependent upon the quality,
resilience and security of its information systems,
which support the Engineering, Manufacturing
and Enterprise aspects of the business.

Risks relating to cyber security continue to grow,
with consequent risks to assets, intellectual
property and individuals.

Quality assurance
Given the timetables for some key product
introductions, Dialog must ensure tight control
over the new product introduction process and
in particular quality assurance in high-volume
product ramps.

Dialog needs to avoid releasing faulty products
which may cause delays in the assembly line of
our customers.

Dialog has forged close partnerships with all
our suppliers, which help the planning and
management of capacity. Dialog’s suppliers are
mainly highly respected large-scale operations.
Dialog strives to source its large volume
components via a dual sourcing strategy where
applicable and is supported by its customers
to mitigate the risk of disruption to supply.

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. The geographical
spread also helps with disaster recovery planning.

Dialog’s Mobile Systems, Automotive and
Connectivity businesses achieved an “On Time
Delivery” performance of 98% in 2016 vs 97% in
2015. This measures performance against delivery
dates confirmed by Dialog at date of order.

In 2016, Dialog carried out 25 vendor audits.
These audits cover a wide range of topics including
compliance and product quality (ISO9000 and
ISO14000) reviews.

Dialog conducts regular business reviews with its
suppliers to manage supplier performance and
future capabilities.

For Engineering and Manufacturing, the
systems support:
e Product design activities using third-party tools
and support contracts. These tools require an
infrastructure that is resilient and secure; and

Engineering tools are being consolidated into
regional data centres connected by a resilient
network to allow increased agility, reliability and
scale with plans drawn up and agreed in 2016 for
delivery starting in 2017.

e The semiconductor supply chain, which
requires scaled, reliable and secured
information systems, given the multiple
processes and locations involved in the
supply chain.

For Enterprise the systems support Sales,
Purchasing, Planning, Finance, HR and Legal using
in premise and software as a service (“SaaS”) ERP
technologies.

We seek to protect our current business through
the use of monitoring tools and controls on
access to information systems. E-mail and website
monitoring systems are constantly reviewed
and updated to ensure their effectiveness
in combating the cyber security threat.

To support Supply Chain activities, additional
analytics capabilities were added in 2016 to
allow improved diagnosis of manufacturing
performance and the back-up and restore
processes were updated to increase fault tolerance.

Across Engineering, Manufacturing and Enterprise
systems, investments continue to be made that
improve the efficiency and scalability of the B2B
interactions with customers and suppliers for
competitive advantage.

Dialog’s IT systems are managed on a global basis to
ensure a unified approach, with IT operations being
distributed between Europe, Asia and the USA.

In addition, Dialog is continuously strengthening
its internal monitoring and controls; applying
best practice to ensure a robust and secure IT
environment. This included improvements to
IT system security and end-user access controls.

Dialog operates a “high-touch” fabless model, with
engineers working together with our foundry
partners to optimise the manufacturing process.

In 2016, Dialog made significant investments
in internal capabilities (test development, failure
analysis, etc.).

Dialog places a high importance on
quality assurance, product validation prior
to mass production, in line controls and
monitoring of yields with real-time feed
from offshore manufacturing.

Dialog continues to evolve its internal processes
and procedures to ensure new requirements
are assessed and appropriate resources applied
to satisfy these requirements.

Dialog worked with key suppliers to achieve the
highest industry standard yields based upon
typical defect density limitation. To support this
Dialog has, in total, approximately 30 engineers
located at key vendors.

Yield performance on key products is monitored
monthly during internal operational reviews.

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Financial risks
Given the Company’s sector and business model, Dialog tends to be highly cash generative, operating across the globe. This exposes the Group to several
financial risks including fluctuations in interest and foreign exchange rates and credit risk relating to counterparties the Company transacts with. It also
needs to ensure access to liquidity at all times to meet its financial obligations, including investment in future growth. Through strong stewardship and
financial discipline we are able to mitigate the impact of these risks on the financial performance of the Group.

Risk

Actions

Progress in 2016

Foreign currency
The majority of Dialog’s revenue and expenses are
denominated in US dollars. Some exposure exists
to non-USD denominated operating expenditure,
primarily Euro and pound sterling, meaning
exchange rate volatility could have an adverse
impact on our financial statements. Please refer
to note 33 on pages 139 to 143.

Counterparty
Dialog is exposed to the potential default of
banks, suppliers and customers. In particular,
although Dialog seeks to invest only in credit
worthy financial institutions, its cash and cash
equivalents are in a limited number of financial
institutions, and if their credit worthiness were
to change, this could have an adverse effect
on Dialog’s business and financial condition.

Funding and liquidity
The risk of being unable to continue to meet
the financial obligations/requirements of
our operations.

Transactional currency exposures are managed
using forward currency contracts, hedging
no further than 12 months out on a layered
approach. These are designated as cash flow
hedges and at the year-end approximately
US$178.3 million equivalent were outstanding.

We have reviewed and updated key policies,
procedures and authorities.

Details of our derivatives held to hedge forecast
foreign currency cash outflows are included in
note 33 to the consolidated financial statements.

The Company uses non-recourse receivables
financing to manage any risks with
selected customers.

When executing financial transactions, Dialog
only deals with reputable financial institutions
in accordance with Board approved policy.

No institutional default on financial transactions.

We have reviewed and updated key policies,
procedures and authorities.

Given the business is highly cash generative
the Group finances its operations from surplus
cash, raising debt when necessary. The policy
is to maintain a sufficient level of liquidity
appropriate to meet short-term liabilities
and longer-term strategy.

Cash flow from operating activities in 2016 was
US$249 million.

As at 31 December 2016, Dialog had
US$697 million of cash and cash equivalents
and no debt. This represents a 23% increase
from 31 December 2015 (US$567 million).

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Managing risk and uncertainty continued

Legal and compliance risks
As Dialog has an increasing global presence, it continues to update and enhance its policies, processes and procedures to ensure compliance with
international and local requirements. Dialog recognises the importance of behaving as a good corporate citizen across the globe. In addition, the
Company seeks to utilise the legal protection offered across the globe to protect our assets, specifically our intellectual property rights.

Risk

Actions

Progress in 2016

Compliance with laws and regulations
Dialog is subject to national and regional laws and
regulations in such diverse areas as product safety,
product claims, patents, copyright, trademarks,
competition, employee health and safety, the
environment, corporate governance, listing and
disclosure, employment and taxes.

Failure to comply with laws and regulations could
expose Dialog to civil and/or criminal actions
leading to damages, fines and criminal sanctions
against us and/or our employees with possible
consequences for our corporate reputation.
Changes to laws and regulations could have a
material impact on our cost of doing business.
Tax, in particular, is a complex area where laws and
their interpretation are changing regularly, leading
to the risk of unexpected tax exposures.

IP protection
As a highly innovative company Dialog has IP
that is attractive to others. Dialog must ensure
that this IP is sufficiently protected both legally
(via patents) or physically (via security processes).

Dialog monitors laws and legal and regulatory
changes across the countries in which it operates
and continues to update its policies, processes
and compliance programmes.

Dialog revised and improved its Code of Business
Conduct, which is applicable to all employees,
and enhanced its compliance training, key policies
and processes.

We have also taken a number of steps to
strengthen our system of internal controls,
procedures and resources which reinforce
compliance with various legal regimes.

We seek to protect our current business and our
IP from being copied or used by others through
appropriate use of patents, copyrights and
trademarks on a global basis.

Dialog holds in excess of 700 patent families.
In order to strengthen its governance processes,
the Patent Committee was established in 2014.

Dialog has continued to make investments to
improve the tools used to protect its IP. There is
an increased use of data leakage protection tools
to monitor, restrict and alert if attempts are made
to move IP outside of the Company.

Engineering projects are segregated and access
controlled via a tracked approval process.

Strategic report approved on 23 February 2017.

Jalal Bagherli
Chief Executive Officer

Wissam Jabre
Chief Financial Officer, Senior Vice President Finance

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Introduction to governance

Dear shareholder,
We are pleased to present
our 2016 corporate
governance report and,
in particular, to highlight
our progress in continuing
to strengthen our Board.
We have set out below a
number of changes and
considerations in the 2016
year which demonstrate
the Board’s commitment to
maintain high-standards of
corporate governance and
oversight at Dialog.

Board refreshment
While there has been considerable Board
refreshment and renewal at Dialog over the
past number of years, this process continued
in 2016 with the appointment of two new
Directors to the Board. Mary Chan and I bring
strong industry experience to the Board and
we look forward to working with them in
continuing to build Dialog as a vibrant and
innovative mixed signal business.

The appointment of Mary enhances the diversity
of industry and background to the Board.
Dialog continues to recognise the value of
diversity as a tool to enrich its discussions and
decision-making process.

Our Board continues to include an appropriate
balance of longer serving and more recently
appointed Directors, with diverse backgrounds
and experience. This serves to bring fresh
thinking to the Board yet preserves the
knowledge, experience and understanding
of the evolution of the Dialog business within
the Board as a whole, all of which provides the
platform for fruitful discussion at Board level.

Following consideration of the position,
together with the role and contribution of
the Senior Independent Director, and the fact
that Rich Beyer is a Chairman who was wholly
independent on appointment in 2013, the
Board does not believe there is a necessity to
appoint a new SID at this time. Rich is available
to our major shareholders as are all of the
Directors, particularly the Chairs of each of the
Board committees. Furthermore, any concerns
regarding the performance of the Chairman may
be addressed to and will be managed by the
Chair of the Nomination Committee. As such, the
Board believes that its composition continues to
ensure a proper division between management
and non-executive oversight; nonetheless, we
will review the potential for a new SID on an
ongoing basis.

Committee composition
Both Mary Chan and I have been appointed to
the Nomination and Remuneration Committees,
and I was appointed Chair of the Nomination
Committee in December, replacing Russ Shaw.

Audit Committee expertise
We noted changes to the UK Corporate
Governance Code during the year which
highlighted the importance of sector expertise
– as well as financial expertise – on an Audit
Committee. We affirm, and have noted within
this report, that we have an Audit Committee
with strong experience in, and understanding
of, our business sector.

Non-executive Director positions
During the course of 2016, a number of
governance bodies and proxy advisers put
forward updated guidelines on the number of
additional executive or non-executive positions
that a Director should hold. We have not set
hard guidelines at Dialog but recognise the
importance of ensuring Directors have sufficient
time to discharge their obligations to Dialog and
believe each of the Directors has demonstrated
exceptional commitment to their roles for the
past fiscal year, as exemplified by their meeting
attendance on page 65.

Senior Independent Director (“SID”)
Our former Senior Independent Director,
John McMonigall, retired from the Board in
2015. Following his retirement, and as set
out in last year’s Annual report, the Board, as
a whole, carefully considered the role and
responsibilities of a Senior Independent Director.

Remuneration and reform
The Director’s remuneration report, together with
an introductory letter from our Remuneration
Committee Chairman, Mike Cannon, is set out
on page 70. As set out in the letter, and report,
Dialog received shareholder approval of a
remuneration policy at our 2016 AGM. As no

changes are proposed we are not required to,
and do not propose to, put forward a vote on the
Directors’ remuneration policy at the 2017 AGM.

In addition, the Remuneration Committee is
cognisant of the recent consultation paper
issued by the UK Department for Business,
Energy and Industrial Strategy (“BEIS”) on
corporate governance reform. This paper,
which included a focus on remuneration
practices, raises some interesting topics.
The Nomination and Remuneration
Committees will review the questions raised
within the Paper and ensure the Board as a
whole is appraised of impending changes
to governance practice – or legislation – as
they relate to Dialog. In addition, we have
reviewed and will keep the Board apprised of
the “Principles of Remuneration” issued by the
Investment Association in October 2016 and
any relevant considerations for Dialog.

Culture
A key topic for debate during the course of 2016
– among companies, regulators, investors and
governance bodies – has been corporate culture.
Recognising its importance, the Board and senior
management team has committed to placing
greater emphasis on articulating, internally and
externally, our culture and values which are
embodied in the “Spirit of Dialog”. We recognise
it is our responsibility, as a Board, to ensure our
culture and values are shared and understood
throughout Dialog; and, among our suppliers,
partners and customers.

Finally, as we have outlined before, as a Board,
we recognise the importance of constructive
dialogue between the Board and Dialog’s
investors, and we remain open to all feedback
from shareholders. In addition to ongoing
meetings and consultation conducted
throughout the year, all Directors are available at
the Company’s AGM 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.

Nick Jeffery
Chairman, Nomination Committee

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Leadership – Board of Directors

The Board of Dialog currently comprises ten Directors.
This includes one Executive Director, and nine 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 expertise
to drive the continuing development of Dialog,
advance the Company’s commercial objectives
and strategy, thus putting the Company in a strong
position to maximise shareholder value. The Board
also combines a number of longer serving Directors
with more recently appointed Directors. This serves
to bring fresh thinking to the Board yet preserves
the knowledge, experience and understanding
of the evolution of the Dialog business within the
Board as a whole.

Director biographies are set out below and further
details on the composition of the Board, and the
Board’s committees, are detailed on pages 64
and 67.

Committee membership

A – Audit Committee
N – Nomination Committee
R – Remuneration Committee

Board experience

– Technology
– Telecommunications
– Finance
– Governance

* Denotes Chair of the committee

1. Rich Beyer
Chairman
Joined: February 2013. 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 Micron Technology Inc.
and previously served on the Boards of Analog
Devices, 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 Board of Micron Technology Inc.

Committee Membership:

Board Experience:

2. Dr Jalal Bagherli
Executive Director (Chief Executive Officer)
Joined: September 2005

Jalal was previously Vice President and 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 in 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 has been a
non-executive Director of Lime Microsystems Ltd
since 2005 and was the Chairman of the Global
Semiconductor Association Europe from 2011
to 2013.

Committee Membership:

Board Experience:

3. Chris Burke
Independent non-executive Director
Joined: July 2006

Chris has a career of 30 years in telecommunications
and technology. Post his degree in Computer
Science in 1982, he spent 15 years at Nortel
Research and Development. He was then Chief
Technology Officer at 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.

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External Appointments: Chris serves on the
private company boards of Fly Victor, One Access,
MusicQubed, Premium Credit and Navmii.

Committee Membership: Nomination,
Remuneration

Board Experience:

4. Alan Campbell
Independent non-executive Director
Joined: April 2015.

Alan brings over 30 years of relevant business
and financial expertise to Dialog Semiconductor,
having extensive experience as a Chief Financial
Officer in the semiconductor industry. He began
his career in 1979 with Motorola and has spent over
12 years in Europe and 20 years in the USA. In 2004,
he guided Freescale through its separation from
Motorola and successfully executed an initial public
offering (“IPO”) that listed the company on the
New York Stock Exchange (“NYSE”). In 2006, he was
instrumental in the execution of a Leverage Buy-Out
(“LBO”) in one of the largest technology financial
transactions at that time. In 2011, he successfully led
the company back to the public market to be listed
on the NYSE.

External Appointments: Alan currently serves on
the Board and is Chair of the Audit Committee of
ON Semiconductor.

Committee Membership: Audit (Chair)*

Board Experience:

5. Mike Cannon
Independent non-executive Director
Joined: February 2013

Mike’s career in the high-tech industry spans
30 years, including over ten 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 CEO of Solectron Corporation, an electronic
manufacturing services company, which he joined
as CEO in 2003. From 1996 until 2003, Mike was
CEO of Maxtor Corporation. 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.

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 & Governances and Audit Committees
at Lam Research.

Committee Membership: Remuneration (Chair)*,
Nomination

Board Experience:

6. Mary Chan
Independent non-executive Director
Joined: December 2016

Mary’s career has spanned executive leadership
roles at some of the world’s most successful
international firms, including AT&T, Alcatel Lucent,
Dell Inc. and General Motors Corporation (“GM”).
At Dell, between 2009 and 2012, Ms Chan led
the company’s Enterprise Mobility Solutions
and Services business in the USA. Prior to this,
at Alcatel-Lucent, Ms Chan served as Executive
Vice President of the company’s US 4G LTE
Wireless Networks business. Most recently at
GM, Ms Chan served between 2012 and 2015 as
President, Global Connected Consumers & OnStar
Service USA. She holds both Bachelor and Master
of Science degrees in Electrical Engineering from
Columbia University.

External Appointments: Ms Chan currently serves
as an Independent Director on the Boards of the
SBA Communications Corporation, Microelectronics
Technology Inc., and WiTricity Corporation.
In addition, Ms Chan is also currently the Managing
Partner at VectoIQ. Previously, she has served on the
Boards of the Mobile Marketing Association and
CTIA – The Wireless Association.

Committee Membership: Nomination,
Remuneration

Board Experience:

7. Aidan Hughes
Independent non-executive Director
Joined: October 2004

Aidan 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 a 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.

External Appointments: Aidan is a non-executive
Director and Chair of Audit Committee for Ceres
Power Holdings PLC. He is also an investor and
adviser to a number of international private
technology companies.

Committee Membership: Audit

Board Experience:

8. Nick Jeffery
Independent non-executive Director
Joined: July 2016

Nick has a career of over 20 years in the
telecommunications industry. He has held a
position on the Vodafone Executive Committee
since 2013 and from 1 September 2016 became
CEO of Vodafone UK Limited. He has undertaken
numerous roles within Vodafone including
CEO of the Group’s acquired Cable and Wireless
Worldwide operations from 2012 to 2013, and CEO
of Vodafone Group Enterprise from 2013 to 2016.
Having begun his career at Cable & Wireless plc

(Mercury Communications) in 1991, he then
founded and led Microfone Limited in 2001,
whilst serving as Head of Worldwide Sales and
Europe Managing Director at Ciena Inc. from 2002
until 2004.

External Appointments: CEO, Vodafone UK

Committee Membership: Nomination (Chair)*,
Remuneration

Board Experience:

9. Eamonn O’Hare
Independent non-executive Director
Joined: May 2014.

Eamonn has spent over two decades as CFO of
some of the world’s fastest-growing consumer
and technology businesses. From 2009 to 2013, he
was CFO and main board member of Virgin Media
Inc. and led its successful sale to Liberty Global
Inc. in 2013. From 2005 to 2009, he served as CFO
of the UK operations at Tesco plc. Before joining
Tesco, he was CFO and Board Director at Energis
Communications and led the successful turnaround
of this high profile UK telecoms company. Prior to
this Eamonn spent ten years at PepsiCo Inc. in a
series of senior executive roles in Europe, Asia and
the Middle East. Eamonn spent the early part of his
career in the aerospace industry with companies
that included Rolls-Royce PLC and BAE Systems PLC.

External Appointments: Eamonn is the Chairman
and CEO of Zegona Communications Plc and a
Director of Tele2 AG.

Committee Membership: Audit

Board Experience:

10. Russ Shaw
Independent non-executive Director
Joined: July 2006

Russ has over 20 years’ senior marketing and brand
management experience in the technology,
telecoms and financial services sectors. Russ most
recently served as Vice President & General Manager
for Skype, with responsibilities for its Mobile Division
as well as Europe, the 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 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: Russ is currently
a non-executive Director for Unwire A.p.S.
and L1 Technology Fund.

Committee Membership: Nomination,
Remuneration

Board Experience:

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Leadership – Management team

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
in 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 was the Chairman
of Global Semiconductor Association Europe from
2011 to 2013. He has a BSc (Hons) in Electronics
Engineering from Essex University, and holds a
PhD in Electronics from Kent University, UK.

2. Vivek Bhan
Senior Vice President, Engineering
Vivek joined Dialog in November 2013 and is
responsible for the overall engineering and
technology direction, including design and product
development across the various business groups
within Dialog. 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 a MS
in Electrical Engineering and MBA from Arizona
State 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 & 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.

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5. Wissam Jabre
Chief Financial Officer, Senior Vice
President Finance
Wissam joined Dialog in 2016 after serving as
Corporate Vice President of Finance at Advanced
Micro Devices (AMD) since 2014. Between 2003
and 2014, he held various executive positions
at Freescale Semiconductor, including Vice
President and Chief Procurement Officer, Vice
President Global, Pricing, Chief Financial Officer
of the Networking & Multimedia Solutions Group.
Wissam began his career at Schlumberger, gaining
international experience in the Middle East, Europe
and North America, before joining Motorola.
He holds a Bachelor of Electrical Engineering degree
from the American University of Beirut and an
MBA from Columbia Business School, New York.
Wissam is a CFA © charterholder.

8. Sean McGrath
Senior Vice President and General Manager,
Connectivity, Automotive & 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.

11. Colin Sturt
Senior Vice President, General Counsel
Colin Sturt joined Dialog Semiconductor in October
2015 as Senior Vice President, General Counsel.
Prior to joining Dialog, Colin held the position
of Vice President of Corporate Development,
General Counsel and Corporate Secretary at Micrel,
Incorporated. He was previously a corporate
attorney with Davis Polk & Wardwell LLP. Earlier in his
career, Colin served in manufacturing management
and operational and organisational improvement
roles with National Semiconductor Corporation.
He holds a Law degree from the Columbia
University Law School and a Bachelor’s and two
Master’s degrees from Brigham Young University.

6. Udo Kratz
Senior Vice President and General Manager,
Mobile Systems Business Group
Udo joined Dialog in May 2006. 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.

9. Martin Powell
Senior Vice President, Human Resources
Martin joined Dialog 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 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 and continental Europe as well as the UK.

12. Mark Tyndall
Senior Vice President, Corporate Development
& Strategy and General Manager Emerging
Products 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.

7. Davin Lee
Senior Vice President and General Manager,
Power Conversion Business Group
Davin joined Dialog in July 2014. He was previously
CEO of Scintera Networks. Prior to that, Davin was
the Vice-President and General Manager of the
Consumer Business Unit at Intersil Corporation.
Prior to that, Davin was Vice-President of Marketing
at Xicor. He previously held senior positions within
Altera and National Semiconductor. Davin holds
a BSEE from The University of Texas at Austin and
an MBA from Kellogg School of Management at
Northwestern University.

10. Tom Sandoval
Senior Vice President, Worldwide Sales
Tom joined Dialog in September 2015 and is
responsible for the worldwide sales organisation.
He has over 25 years of experience in the
semiconductor industry and has held executive
management positions in sales, marketing and
engineering. Prior to joining Dialog, Tom served
as Vice President of Sales for the Americas at
Xilinx. He previously served as CEO of Calypto
Design Systems. Tom holds a BS degree in
Electrical Engineering from the University
of Southern California.

Name
Dr Jalal Bagherli
Andrew Austin
Vivek Bhan
Christophe Chene
Mohamed Djadoudi
Wissam Jabre
Udo Kratz
Davin Lee
Sean McGrath
Martin Powell
Tom Sandoval
Colin Sturt
Mark Tyndall

Role Tenure with
Chief Executive Officer
Senior Vice President, Corporate Projects (retired May 2016)
Senior Vice President, Engineering
Senior Vice President, Asia
Senior Vice President, Global Manufacturing Operations & Quality
Chief Financial Officer, Senior Vice President, Finance
Senior Vice President and General Manager, Mobile Systems Business Group
Senior Vice President and General Manager, Power Conversion Business Group
Senior Vice President and General Manager, Connectivity, Automotive & Industrial Business Group
Senior Vice President, Human Resources
Senior Vice President, Worldwide Sales
Senior Vice President, General Counsel
Senior Vice President, Corporate Development & Strategy and General Manager Emerging Products Business Group

Tenure with Dialog (years)
11
7
3
5
9
0
10
3
4
6
1
1
8

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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
2016. 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 develops and distributes
highly integrated, mixed signal 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. The Company is
registered in the UK and the registered number
is 3505161. A full list of Company subsidiaries
outside of the UK is detailed in Dialog’s related
undertakings set out on page 164.

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 18 and 19.
Information on treasury policies and objectives
is included in note 33 to the consolidated
financial statements.

Subsequent events
The second intermediate settlement of
the second tranche of the share buyback
programme took place on 9 February 2017.
The final settlement of the second tranche
took place on 17 February 2017. In these two
settlements, the Company purchased 977,456
shares at a cost of €38.5 million.

In January 2017, the Company participated
in a new issue of shares by its subsidiary, Dyna
Image Corporation, investing the equivalent
of US$ 2.0 million. As a result, our shareholding
in the business increased from 45.7% to 48.5%.

Future developments
The Company’s stated objective is to power
the smart connected world by becoming the
leading global supplier of highly integrated,
power management, AC/DC, solid state

lighting and low energy short-range wireless
connectivity. The key aspects of the Group’s
strategy are set out in the Strategic report on
pages 18 and 19.

Research and development R&D
The Company 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 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 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’s 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. Further details on the
Company’s commitment to sustainable and
environmentally friendly business practices are
set out on pages 48 to 51.

Going concern
The Directors have formed a judgement at
the time of approving the financial statements
that there is a reasonable expectation that the
Company has adequate resources to continue
for the foreseeable future. The Company held
US$697 million of cash and cash equivalents at
the end of 2016 (2015: US$567 million) and had
no committed borrowing facilities. The Company
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 and share repurchases
The Company has historically been committed
to reinvesting all profits into laying the
framework for future growth. Accordingly,
since its initial public offering in 1999, Dialog
has not paid any cash dividend. Directors do
not recommend the payment of a dividend
for 2016 (2015: nil). At the 2017 Annual General
Meeting, the Board will be asking shareholders
for an authority to follow up the share buyback
programme commenced in 2016. It should be
emphasised that, even if this authority is granted,
no decision has yet been made to implement
such a programme and implementation will

only occur if the Board considers this in the best
interests of the Company depending on the
prevailing circumstances.

Purchase of own shares
by Employee Benefit Trust
The Company operates an Employee Benefit
Trust, which purchases and sells 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 2016,
the Trust held 574,600 shares, which represented
0.8% of the total called-up share capital, at a
nominal value of £57,460.

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 25
to the consolidated financial statements.

Substantial shareholdings
Details of substantial shareholdings are on pages
67 and 68.

Directors
The Directors, together with their biographies,
are listed on pages 58 and 59.

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 Annual report on remuneration
on pages 71 to 79 of this report. No Director
had a material interest during the year
ended 31 December 2016 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.

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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 4 May 2017 at 9am
at Tower Bridge House, St Katharine’s Way,
London E1W 1AA.

Corporate governance
The Company’s Corporate governance
statement is set out on pages 64 to 69 of
this report. We also publish, on our website,
our own corporate governance principles which
have regard to the UK Corporate Governance
Code and other best practice corporate
governance policies.

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 the 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 list of the principal
risks and their management is set out on
pages 52 to 56.

Financial instruments
The Group’s financial risk management and
policies, and exposure to risks, are set out on
pages 52 to 56 of this report and on note 33
of the consolidated financial statements.

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 2016, Dialog operated from 30 locations in
15 countries with a highly diverse workforce,
incorporating employees from 65 nationalities.

Dialog takes equality and equal opportunity for
all employees very seriously. We believe diversity
among an employee base is an important
attribute to a well-functioning business.

Diversity spans a range of factors including
diversity in terms of geographic origin,
background, gender, race, faith, education,
experience, viewpoint, interests and technical
and interpersonal skills. We also ensure that
we offer equal opportunities in all aspects of
employment and advancement regardless of age,
disability, gender, marital status, nationality, race,
religious or political beliefs or sexual orientation.

Where existing employees become disabled,
it is the Group’s policy to provide continuing
employment wherever practicable in the same
or alternative position and to provide appropriate
training to achieve this aim.

Gender diversity is of particular importance.
Women comprise 14.9% of the overall workforce
and further details are set out on page 12 of this
report. Although this is in line with the industry
average, the Company is supporting various
initiatives in the areas of STEM education 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.
We offer equal opportunities in all aspects
of employment and advancement regardless
of any disability.

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 58 and 59 of this report. Each of
the Directors affirms that:
e So far as they are aware, there is no relevant
audit information of which the Company’s
auditors are unaware; and

e They have taken all the steps that they

ought to have taken as a Director in order
to make themselves aware of any relevant
audit information and to establish that
the Company’s auditors are aware of
that information.

This confirmation is given and should be
interpreted in accordance with the provisions
of s418 of the Companies Act 2006.

Capital structure
As at 31 December 2016, 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 25 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:
e Certain restrictions may from time to time
be imposed by laws and regulations (for
example, insider trading laws); and

e Directors and senior management 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 25 to the consolidated
financial statements.

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.

The agreement between the Company and its
Directors for compensation for loss of office is
given in the Director’s remuneration policy report
on pages 82 and 83 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 4 May 2017 at 9am.

By order of the Board

Dr Jalal Bagherli
Director

23 February 2017

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Corporate governance statement

The Board of Dialog Semiconductor is committed to maintaining high corporate
governance standards to protect the interests of all stakeholders.

The Board of Dialog Semiconductor is
committed to maintaining high corporate
governance standards to protect the interests
of all stakeholders.

These standards reflect a range of guidelines
which apply to the Company given its status
as a UK incorporated, Frankfurt Stock Exchange
listed company. The Company has published on
its website its Corporate Governance principles
which have regard to the UK Corporate
Governance Code and other best practice
corporate governance policies. These have been
updated as of December 2016 and are reviewed
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 Corporate Governance 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 (“CEO”), who is
accountable to the Board. The CEO executes this
authority through an executive management
team outlined on pages 60 and 61 of this report.
In addition, a number of responsibilities of the
Board are delegated to 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 CEO, 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, CEO, other
Directors and the Board 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 to the Board in February 2013 and
as Chairman in July 2013. Upon appointment,
he was determined by the Board to be
independent. The Chairman is responsible for
the effective working of the Board and oversight
of management while the 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 ten Directors
who are listed below. During 2016, Nick Jeffery
and Mary Chan were appointed to the Board
as independent non-executive Directors.
Details on their recruitment are set out below.

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 Dialog
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.
The Board also combines a number of longer
serving Directors with Directors who have joined
the Board more recently. This combination
provides the Board with a fresh perspective while
ensuring there is continuity and experience from
Directors who have served during a period of
rapid growth and development for the business.
In addition, the geographic background of the
Board is diverse and includes Directors who
have worked in North America, Europe and Asia.
Director biographies are set out on pages 58
and 59.

Director
Rich Beyer
Dr Jalal Bagherli
Chris Burke
Alan Campbell
Mike Cannon
Mary Chan
Aidan Hughes
Nick Jeffery
Eamonn O’Hare
Russ Shaw

Status
Current
Current
Current
Current
Current
Current
Current
Current
Current
Current

Independent/non Independent
Independent (Chairman)
Non-independent (Executive)
Independent
Independent
Independent
Independent
Independent
Independent
Independent
Independent

* Note: Concurrent tenure means tenure on the Board concurrently with the Company’s CEO.

Tenure (years)
3
11
10
1
3
0
12
0
2
10

Concurrent
tenure*
(years)
3
N/A
10
1
3
0
11
0
2
10

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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 58
and 59.

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. The standard
terms of the letter of appointment of non-
executive Directors are available, on request, at
the Annual General Meeting of shareholders.
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, Nick Jeffery and Mary Chan, were
appointed to the Board in 2016. The Nomination
Committee engaged in a process to appoint
new Directors who would bring specific industry
experience to the Board replacing a number
of experienced Directors who have retired
in recent years. Candidates were identified
through a variety of methods. The Nomination
Committee engaged in a process (supported
by an external search and recruitment agent)
to identify potential candidates. The recruitment
agent, Russell Reynolds 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.

Following a thorough process, candidates met
with Committee members and the Chairman
prior to appointment. Nick Jeffery and Mary
Chan were appointed to the Board on the
strength of the industry experience and skills
they can bring to the Board of Directors as a
whole for the benefit of all Dialog shareholders.

Board size
At the end of 2016, the Board comprised of
ten Directors. A maximum of ten Directors is
allowable under Dialog’s Articles of Association.
The ten members of the Dialog Board include
one Executive Director and nine independent,
non-executive Directors (including the
Chairman). The Nomination Committee has
reviewed the size and performance of the Board
during the year. The Committee considered
that the Board functions 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,
Alan Campbell, Mike Cannon, Mary Chan, Aidan
Hughes, Eamonn O’Hare, Nick Jeffery, and Russ
Shaw are independent. 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.

Excluding the Chairman, the Board currently
comprises eight independent non-executive
Directors 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.

As part of its annual review in 2016, the Board
specifically considered the independence of
Chris Burke, Aidan Hughes, and Russ Shaw given
their tenure on the Board. Each of these Directors
has served concurrent tenure with the CEO
of ten years or more.

The Board’s unanimous view is that
independence and objectivity, of each of
Mr Burke, Mr Hughes and Mr Shaw as evidenced
by their continuing valuable contribution at Board
meetings, has, in no way, been compromised by
their length of tenure on the Board. The Board
also believes that their industry experience and
contribution to the continuing development
of Dialog has been of significant benefit to the
Board as a whole. In addition, given the level
of refreshment at Board level in recent years –
with six new Directors, including the Chairman,
having been appointed since 2013 – there is
significant benefit to Dialog in having the tenure
and expertise of each of these three Directors
on the Board.

While the Board is satisfied that each of Mr Burke,
Mr Hughes and Mr Shaw is wholly independent,
in line with the best-practice principles, as they
have been on the Board for in excess of nine
years, they are subject to annual re-election
by shareholders. This offers shareholders the
opportunity to express their view in the form
of their vote at each and every AGM and to
express their support (or any concern) in a
transparent way.

At the time of the appointment of Alan
Campbell, the Board considered the prior
working relationship between Rich Beyer and
Mr Campbell while both served at Freescale.
Rich Beyer joined Freescale in March 2008 and
held the position of Chairman and CEO through
to June 2012. During this period, Alan held the
position of Chief Financial Officer of Freescale
reporting to Rich. The Board noted the three-year
cooling off period between this prior working
relationship and Alan’s appointment to the
Dialog Board. Having carefully considered all the
factors, the Board concluded that Alan Campbell
is wholly independent.

2016 Board Committees

Director
Number of meetings in 2016
Meetings attended
Dr Jalal Bagherli
Richard Beyer
Chris Burke
Alan Campbell
Michael Cannon
Mary Chan
Aidan Hughes
Nick Jeffery
Eamonn O’Hare
Russ Shaw

Board
5

Audit
5

Remuneration
5

Nomination
5

5
5
4
5
5
1
5
3
5
5

Alan Campbell, Chairman of the Audit Committee, Nick Jeffery, Chairman of the Nomination Committee and Mike Cannon,
Chairman of the Remuneration Committee, are also available to shareholders should they have specific concerns or issues relevant
to their respective committees.

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Financial
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Additional
information

Corporate governance statement continued

Senior Independent Director
John McMonigall stepped down from the
Board as Senior Independent Director (“SID”)
during 2015. Having carefully considered the
position and role of the SID, and the fact that
Rich Beyer is a Chairman who was wholly
independent on appointment, the Board does
not believe there is a necessity to appoint a
new SID at this time. Comparable to the role
of a SID at other companies, Rich Beyer is
available to shareholders who have concerns
for which contact through the normal channel
of CEO has failed to resolve or is inappropriate.
Furthermore, any concerns regarding the
performance of the Chairman may be addressed
to and will be managed by the Chair of the
Nomination Committee.

Audit Committee financial
and sector expertise
Dialog’s Audit Committee is comprised of a
number of Directors who have recent and relevant
financial experience. In line with best practice, the
Board has affirmed that members of the Audit
Committee also have significant expertise in
Dialog’s business sector. Alan Campbell, Chairman
of the Audit Committee, has long-standing
experience as a CFO in the semiconductor
industry. Eamonn O’Hare also has two decades’
experience as CFO at some of the world’s fastest-
growing consumer and technology businesses.
Aidan Hughes has experience as a senior
accountant and Finance Director at a number
of public and private companies, many of which
are in the technology sector. Biographies are set
out on pages 58 and 59.

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.

Tim Anderson of Reynolds Porter Chamberlain
LLP is the Company Secretary and has served
in this role for over 16 years.

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
committees each year varies by Committee.
There were five Board meetings in 2016.
The attendance at Board and Committee
meetings by the Directors who held office in
2016 is set out on page 65. The Board places

considerable importance on attendance at both
scheduled Board and Committee meetings.
During the year, no Director attended less than
75% of scheduled Board or Board Committee
meetings to which they were entitled to attend.
At scheduled Board meetings, the Board also
meets without the Executive Director present.

In addition, the non-executive Directors meet
annually to review the performance of the
Chairman. This process, which commenced
in 2015, is an annual process and occurred in
March 2016.

The 2017 review will be held during the course
of the calendar year.

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 2016, Board meetings were held
in Germany and California.

In line with the commitment to develop
Board members and ensure they represent
shareholders in the most effective way, each
Director has taken part in a range of training
exercises in recent years. In 2016, the Board
received training by General Sir Richard Shirreff
on geopolitical risk issues while in previous years
training has covered topics such as investor
activism or business ethics.

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.
In line with this policy, an internal review was
conducted in December 2016. It is conducted
anonymously and is managed by the Company
Secretary. The findings of the 2016 review
were presented to the Board in February 2017
for consideration and the implementation
of related recommendations.

In 2014, consistent with corporate governance
best practice, the Board engaged an independent
third party to conduct an evaluation.
The evaluation was conducted by Equity
Communications Ltd, a company which has
no other connection with Dialog.

The findings of the evaluation were presented
to the Board in February 2015. The Board will
consider a further third-party Board evaluation
process in 2017.

The non-executive Directors also meet to review
the performance of the Chairman and this
review took place in March 2016.

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. As such,
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 58 and 59.

The Board has not established a hard guideline
on the number of other executive or non-
executive positions that a Director should hold
but recognises the guidelines set out by a
number of proxy advisers and other influential
governance bodies.

Directors’ fees
The annual fee for non-executive Directors
in 2016 was £145,000. The annual fee for the
Chairman was £200,000. The Chair of the Audit
Committee, the Nomination Committee and the
Remuneration Committee received an additional
fee of £16,000, £5,000 and £12,000 respectively
for their role on that Committee.

The other Committee members receive an
additional fee for serving on those Committees
as set out on page 67. Details of the activities of
these Committees during 2016 are set out on
pages 68 and 69.

Directors’ fees were paid in cash and shares. Non-
executive Directors are not eligible to participate
in the Company’s bonus or share award schemes.

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.

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Additional
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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 Director’s remuneration
is inclusive of any Director’s fee. Further details
are set out in the Directors’ remuneration
report which begins on page 70.

Committee members

Audit Committee
Alan Campbell (Chair)
Aidan Hughes
Eamonn O’Hare
100% independent (3 of 3)

Nomination Committee
Nick Jeffery (Chair)
Chris Burke
Russ Shaw
Mike Cannon
Mary Chan
100% independent (5 of 5)

Remuneration Committee
Mike Cannon (Chair)
Chris Burke
Nick Jeffery
Mary Chan
Russ Shaw
100% independent (5 of 5)

Share ownership and dealing
Details of Directors’ shareholdings are set out on
pages 74 and 75. 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 Article 7 of Regulation
(EU) No. 596/2014 of the European Parliament
and the Council of 16 April 2014 (“MAR”).
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 three 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 Article 19
of MAR.

Loans to Directors or
senior executives

The Company will not provide or guarantee
any loans to Directors or senior executives.

Board Committees
The Board has established a number of
Committees to assist in the execution of its
responsibilities. During 2016, these were: Audit
Committee, Nomination Committee and
Remuneration Committee. Ad hoc committees
are formed from time to time to deal with
specific matters.

The composition of the Board Committees,
as at 23 February 2017, is set out on this page.
Attendance at meetings held in 2016 is set out
in the table on page 65.

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 Committee
attends the Annual General Meeting and is
available to answer shareholder questions.
The reports of each of the Board Committees
are set out on pages 68 and 69.

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 IFRS as
adopted by the EU.

The Company maintains an investor relations
section on its website: 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.

In November 2016, Dialog hosted a day
of presentations and product displays, for
institutional investors and analysts. The event
was attended by many of Dialog’s senior
management team.

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.

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 Frankfurt Stock Exchange.
Under S.15a of the German Securities Trading Act
(Wertpapierhandelsgesetz) 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 2016 were:

5.12% – Deutsche Asset Management
Investment GmbH
5.05% – FMR LLC
3.01% – Norges Bank

The free-float includes the following shares held
on behalf of discretionary clients as per the share
register on 31 December 2016:

The Bank of New York Mellon SA/NV 10,044,332
7,709,976
Chase Nominees Ltd.
5,660,911
Citigroup Global Markets
4,922,712
State Street Bank & Trust Corp.
3,784,253
BNP Paribas Securities Services
3,647,564
Nortrust Nominees Limited

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Corporate governance statement continued

As of 9 February 2017, the Company was aware
of the following holdings:

The Bank of New York Mellon SA/NV 10,279,251
7,827,243
Chase Nominees Ltd.
5,527,467
Citigroup Global Markets
4,694,548
State Street Bank & Trust Corp.
4,287,414
BNP Paribas Securities Services
3,614,082
Nortrust Nominees Limited

Dialog’s free-float is 76,485,605 or 99.2% of the
outstanding shares. The free-float is calculated by
excluding the 574,600 shares held in the Dialog
Semiconductor Plc Employee Benefit Trust.

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 52 to 56.

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 2016 and up to the date of the
approval of the 2016 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.

Dialog Board Committees
As set out in the Corporate Governance
report, the Board has established a number
of committees to assist in the execution of
its responsibilities. During 2016, these were:
Audit Committee, Nomination Committee
and Remuneration Committee. Reports on the
activity of these committees during 2016 are
set out on the following pages.

Audit Committee
The Board of Directors has established an Audit
Committee and has delegated authority to the
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.

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.

During 2016, the Audit Committee comprised
only independent non-executive Directors.
Members at the end of 2016 were Alan Campbell
(Chairman), Aidan Hughes and Eamonn O’Hare.

As set out on page 66, the Board has determined
that Alan Campbell, Eamonn O’Hare and
Aidan Hughes all have recent and relevant
financial experience. Further, each of the three
members of the Committee have relevant
sector experience.

The Audit Committee meets a minimum of four
times a year. In 2016, the Committee met five
times. Attendance at meetings held is set out in
the table on page 65. The Committee also meets
privately with the internal and external auditors
and separately with the executive management.

The internal audit function is appropriately
resourced with the required skills and experience,
and is supported by specialist resources where
required. The Director of Internal Audit is
accountable to the Audit Committee and meets
independently with the Committee Chairman
regularly during the year. The Committee
approves the internal audit plan and receives
a report on internal audit activity at each
meeting, and monitors the status of findings
or improvement actions.

The Audit Committee’s main responsibilities
include to:
e 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;

e Review and advise the Board on

the effectiveness of the Company’s
internal controls;

e Make recommendations on the appointment

and remuneration of external auditors
and to monitor their performance and
independence; and

e 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.

Activity in 2016
The Audit Committee discharged its obligations
during the year as follows:
e Reviewed the 2015 (issued in March 2016)
and 2016 (issued in February 2017) full year
results announcement.

e Reviewed the Annual report and financial
statements – including the report of the
external auditor – for the year ended
31 December 2015 (issued in April 2016)
and for the year ended 31 December 2016
(to be issued in April 2017).

e Reviewed the quarterly financial statements
issued in May, July and November 2016.
e Reviewed the external audit plan presented
by the external auditor in advance of the
audit for the year ended 31 December 2016.
e Reviewed the risk register for updates to key

risks and status.

e Approved the annual internal audit plan and
received and reviewed internal audit reports
including the annual assessment and review
of internal controls.

The Company believes that an effective and
robust system of internal control is essential
to achieving reliable business performance.
The system of internal control is supported by a
strong commitment by the management team,
ongoing monitoring by the Audit Committee
and a dedicated internal control function.
Improvements have been made to the internal
control over financial reporting by embedding
the COSO framework of internal control and
investing in skilled resources to improve financial
processes including:
e Development and implementation of policies

and procedures;

e Implementation of new accounting

consolidation tool;

e Improved IT system and end-user access

controls; and

e Training a cross section of employees.

The Committee is pleased with the progress
achieved in 2016 and will continue to monitor
the ongoing work in these areas in 2017.

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Additional
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External Auditor – Role
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.

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:
e May be required to audit his/her own work;
e Would participate in activities that would
normally be undertaken by management;

e Is remunerated through a “success fee”

structure; and

e 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 and that such work does not conflict with
EU regulations.

Details of the amounts paid to the external
auditor during the year for audit and other
services are set out on in note 6. In line with EU
regulations, the Audit Committee will ensure that
non-audit fees paid to the Company’s auditor will
be capped at a maximum of 70% of the average
audit fees paid in the last three consecutive
financial years.

Nomination Committee
The Board of Directors has established a
Nomination Committee to review Board
structure, size and composition and make
recommendations to the Board, and to identify
and nominate Board candidates for approval
by the Board. The Committee is responsible
for succession planning for Directors and
ensuring there are appropriate succession plans
in place for all key executive positions within
the Company to minimise “key-man” risk.

The full terms of reference of the Committee
are available on our website under the
Corporate Governance section of the Investor
Relations section.

At the end of 2016, the Nomination Committee
comprised Nick Jeffery (Chair), Russ Shaw,
Chris Burke, Mary Chan, 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 and recruitment
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. Attendance at scheduled
meetings is set out on page 65.

Activity in 2016
The key activities of the Nomination Committee
during the year were to:
e Review the composition of the Board
to ensure the Directors have the skills
and expertise to effectively oversee the
implementation of the Group’s stated strategy;

e Identify and recruit two new Directors to

the Board: Nick Jeffery and Mary Chan were
recruited during the course of 2016; and
e Review succession arrangements for all key

executive positions.

Remuneration Committee
The Board of Directors has established a
Remuneration Committee to determine the
salaries and incentive compensation of the
officers of the Company and its subsidiaries, and
provide recommendations for other employees
and consultants as appropriate.

At the end of 2016, the Remuneration
Committee comprised Mike Cannon (Chair),
Chris Burke, Russ Shaw, Nick Jeffery, and
Mary Chan. The Committee comprised
only independent non-executive Directors.
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 independent advisers New Bridge Street
and Radford (both part of Aon plc). New Bridge
Street is a signatory to the Remuneration
Consultants Group Code of Conduct and any
advice was provided in accordance with this
code. New Bridge Street and Radford provided
no other services to Dialog during 2016 and
have no other connection with the Company
other than as adviser on issues relating to
remuneration. Remuneration advice was also
provided in 2014 by New Bridge Street.

In 2016, the Committee met formally on five
occasions. In addition, the Committee Chairman
held a number of meetings with advisers.
Attendance at scheduled meetings is set out
on page 65.

The full terms of reference of the Committee
are available on our website under the
Corporate governance section of the Investor
Relations section.

A detailed report on the work of the
Remuneration Committee during 2016, is set
out on pages 78 and 79.

Tim Anderson
Company Secretary

23 February 2017

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Directors’ remuneration report

However, as referred to in the Chairman’s
Statement, 2016 was a year of transition for
Dialog with weaker volume demand for our
mobile systems products and a year-on-year
revenue decline. This is reflected in the
assessment of the Executive Director’s annual
bonus and long-term incentive performance.

Bonus performance outcomes against the
targets that were set are detailed in the Annual
report on remuneration.

Annual Bonus
As a result of the performance in 2016, an annual
bonus award of 34.62% of maximum has been
achieved by the CEO, compared with 79.25%
for 2015.

Long-term Incentive
The long-term Executive Incentive Plan (“EIP”)
for the period 2014–16 is expected to achieve a
vesting level of 61.49%, driven by performance
relative to the three metrics, which are share
price, revenue and EBIT.

Base Salary
The Committee reviewed the CEO’s base salary
in the first half of 2016 with reference to his
performance, the scale of the Group, and the
positioning of his package compared to Dialog’s
peer group. As a result, the Committee awarded
the CEO a base salary increase of 5% which is
within the range of base salary increases for
other high-performing employees. His resulting
base salary is £462,749 (US$569,204) which
remains below the market median for Dialog’s
peer group.

Looking ahead
At the 2016 AGM, Dialog shareholders
approved a number of changes to the Directors’
remuneration policy which have been
implemented during the year.

We are not proposing to make any changes
to our Directors’ remuneration policy in 2017.
Our Directors’ remuneration policy approved
at the 2016 AGM will continue to apply in 2017,
and there will be no material changes to the
operation of our annual bonus and long-term
incentive. Our Directors’ remuneration policy
remains aligned with the long-term success
of the Company.

If you have any feedback on our remuneration
arrangements, please pass those comments
for my attention to our Company Secretary,
Tim Anderson at RPC, Tower Bridge House,
St Katharine’s Way, London E1W 1AA.

We have been pleased to receive a positive
response from shareholders to our remuneration
approach. We hope you find the contents
of this report informative. The Committee
would welcome your support for our 2016
Remuneration report and this statement in
the advisory shareholder vote at our AGM on
4 May 2017.

Finally, I would like to thank my fellow Committee
members as well as the internal and external
teams who supported us with their contributions
over the past year.

Mike Cannon
Chairman, Remuneration Committee

17 February 2017

Annual statement from Mike
Cannon, Chairman of the
Remuneration Committee

Dear shareholder,
I am pleased to present the Directors’
remuneration report for 2016 which has been
prepared by the Remuneration Committee and
approved by the Board.

The report is in two parts: the Annual report on
remuneration which sets out the details of and
basis for remuneration during 2016, and the
Directors’ remuneration policy which describes
the policy for the remuneration of Executive and
non-executive Directors.

I am pleased to welcome Nick Jeffery
and Mary Chan as new members of the
Remuneration Committee.

Context of the Committee’s decisions
Dialog is an international semiconductor
company whose operations and competitors are
largely based in the US. As a result, remuneration
in Dialog’s sector is heavily influenced by US
practice and this is reflected in some aspects
of Dialog’s Remuneration Policy. Dialog’s
Remuneration Policy has been designed so
that the majority of remuneration is delivered
through performance-based, long-term variable
remuneration with significant emphasis on
equity. Variable remuneration is delivered
through an annual bonus and long-term
incentive, and performance measures are
chosen to incentivise and reward the successful
achievement of our strategic objectives.

Performance and remuneration
for 2016
Dialog has delivered very strong TSR of
2,224% over the last 12 years since the CEO
was appointed. During 2016, the Company
continued to develop products, customer
relationships and strong operating capability,
providing a sound base for performance in the
coming year.

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Annual report on remuneration

Audited information1

Incumbent
Dr Jalal Bagherli
Dr Jalal Bagherli

Total
salary
US$2
555,652
637,514

Year
2016
2015

Benefits
US$
15,492
19,885

Pension
US$9
82,331
95,627

Total
fixed pay
US$3
653,475
753,026

Annual
Long-term
bonus
Incentive
US$4
US$5
394,117
3,335,896
1,035,103 4,122,600

Total
Total
excluding
Total
variable pay
LTI
US$8
US$6
US$7
3,730,013
4,383,488
1,047,592
5,157,703 1,788,129 5,910,729

Notes:
1 Exchange rates used are: 2015: GBP 1 = USD 1.481831; EUR 1 = USD 1.089301; 2016: GBP 1 = USD 1.23005; EUR 1 = USD 1.05600
2 Base salary earned during the financial year. The base salary is shown in USD in this table, but set and paid in GBP. The CEO’s 2016 GBP base salary increase was 5%.
3 The sum of basic salary, benefits and pension.
4 Annual bonus cash element and deferred share element awarded in relation to the financial year ended 31 December.
5

Long-term Incentive reflects the gain on options and EIP awards which vested for the performance year. For the 2015 performance year, 114,373 EIP options vested and were valued at a price
of €35.25 (average share price over last three months in 2015) in the 2015 Annual report. The figure has been updated based on the actual market close price at vesting of €33.08 and €33.51 for
awards vesting on 16 and 18 February 2016 respectively. For the 2016 performance year, 85,540 EIP options will vest. Value is based on a price of €37.05 (average share price over last three months
in 2016).

6 The sum of annual bonus (cash and deferred share element) and long-term incentives.
7 The sum of basic salary, benefits, pension and annual bonus (cash and deferred share element).
8 The sum of basic salary, benefits, pension, annual bonus (cash and deferred share element) and long-term incentives which vested during the year.
9 From 2015 the CEO receives a pension allowance of 15% of base salary.

Incumbent
Chris Burke
Chris Burke
Aidan Hughes
Aidan Hughes
John McMonigall3
John McMonigall3
Russ Shaw
Russ Shaw
Peter Weber3
Peter Weber3
Richard Beyer
Richard Beyer
Michael Cannon
Michael Cannon
Eamonn O’Hare
Eamonn O’Hare
Alan Campbell
Alan Campbell4
Nick Jeffery5
Nick Jeffery5
Mary Chan6
Mary Chan6

Year
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015

Fees7
US$
143,608
118,546
143,301
118,117
–
39,516
151,296
133,365
–
39,515
190,658
163,001
153,449
129,043
143,301
112,614
179,853
84,587
94,406
–
14,863
–

Taxable
Benefits
US$
2,050
8,885
7,623
16,468
–
1,568
2,539
5,857
569
9,142
5,529
17,011
5,075
17,222
3,157
9,285
5,019
8,147
1,701
–
1,322
–

Incentives
(Annual)
US$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

Incentives
(Long-term)
US$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

Other
remuneration
US$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

Shares
Vested2
US$
–
87,198
–
98,086
–
87,198
–
98,086
–
87,198
–
–
–
–
–
–
–
–
–
–
–
–

Total
US$
145,659
214,630
150,924
232,671
–
128,282
153,835
237,308
569
135,855
196,187
180,012
158,524
146,265
146,458
121,899
184,872
92,734
96,107
–
16,185
–

Notes:
1 Exchange rates used are: 2015: GBP 1 = USD 1.481831; EUR 1 = USD 1.089301; 2016: GBP 1 = USD 1.23005; EUR 1 = USD 1.05600.
2

Shares vested shows the value of the number of shares vested in 2015 at the closing share price on the day of vesting. There were no performance conditions attached to the vesting.
From 2016, there are no further share options vesting for the non-executive Directors.

3 Peter Weber and John McMonigall retired from the Board on 30 April 2015.
4 Alan Campbell joined the Board on 30 April 2015.
5 Nick Jeffery joined the Board on 1 July 2016.
6 Mary Chan joined the Board on 1 December 2016.
7 Fees include fees paid in cash and shares.

Dialog Semiconductor Plc Annual report and accounts 201672

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Annual report on remuneration continued

Executive Director
Fixed remuneration

Base salary
The Remuneration Committee reviewed the CEO’s base salary in July 2016 with reference to his performance, the scale of the Group, and the positioning
of his package compared to Dialog’s peer group. The CEO was awarded a 5% increase in annual base salary with effect from 1 July 2016. His salary from
1 July 2016 is £462,749 (US$569,204), which remains below the market median for Dialog’s peer group.

Other benefits
The CEO received a cash allowance in lieu of a company car (US$12,547), medical insurance for himself and his spouse and Group life and income
protection insurance. The total value of taxable benefits provided was US$15,492 equivalent to 2.7% of his current salary.

Pension
The CEO receives a pension allowance of 15% of base salary which is in line with policy. In 2016, the Company made pension allowance payments
of £66,933 (US$82,331) to the CEO.

Variable compensation
For 2016, the CEO was eligible for an annual bonus of 100% of base salary for achieving target performance, with up to 200% of base salary for maximum
performance. The portion of any bonus awarded above target is deferred into shares which vest after three years.

Performance measures used were:
e Financial goals (60%) comprising revenue (20%), gross margin (20%), EBIT (20%);
e Customer-related measures (15%); and
e Personal goals (25%).

The FY2016 bonus was determined at 34.62% of maximum, reflecting performance as set out in the table below. Performance targets under these
measures are considered by the Board to be commercially sensitive and will, where possible, be disclosed in a future Annual report when they are
considered no longer to be commercially sensitive.

Performance measures FY2016

Measure
Revenue
Gross Margin
EBIT
Customer
Personal

Outcome
$1.1976bn
46.3%
18.5%
Commercially sensitive
See below

Below Threshold

(cid:57)

Between Threshold
and Target
(cid:57)
(cid:57)

(cid:57)

On Target

Above Target

(cid:57)

Note: Revenue is defined as Total Dialog 2016 Underlying Revenue. EBIT is defined as Total Dialog 2016 Underlying EBIT.

The Customer targets and outcomes are considered by the Board to be commercially sensitive. The overall outcome for the personal targets was 50%
of maximum. This reflects performance as set out in the table below:

Personal Performance Measure
Greater China Focus
Succession Planning & Leadership Depth The CEO drove the succession planning program for key roles at the next two management levels.
M&A Activity

Outcome
The CEO executed successfully on key milestones relating to the Greater China Focus.

A judgement of the quality of M&A opportunities identified and the thoroughness of due diligence work.

Accordingly, the Committee determined that a bonus equivalent to 69.24% of base salary should be paid for the performance in the 2016 financial year.

The Remuneration Committee also considered the disclosure of the performance targets relating to the 2015 annual bonus. Having reviewed the targets,
the Committee decided that the targets continued to be commercially sensitive and will be disclosed in a future Annual Report on Remuneration.

Long-term incentive plans
In 2011, the Group established an equity settled Executive Incentive Plan ("EIP") replacing the previous LTIP under which no further grants could be made
from 31 May 2011. The EIP was then replaced by the new Long-Term Incentive Plan, as no further grants could be made under EIP from 5 May 2015.
The first new LTIP Awards were granted on 1 May 2015, after approval of the plan at the 2015 AGM.

Awards granted under the 2014 EIP are capable of vesting in 2017 subject to the satisfaction of Revenue, EBIT and Share Price performance measures.
Following the completion of the final performance period in 2016, the Committee has assessed performance against the performance targets set over
the performance period and has determined that 61.49% of the share options awarded will vest to participants.

Dialog Semiconductor Plc Annual report and accounts 201673

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This vesting percentage was calculated as follows:

Disclosure of objectives relating to the 2014 EIP award – vesting in 2017

Measure
Revenue
EBIT
Share Price
Total

Maximum capable
of vesting
(% of award)
37.50%
37.50%
25.00%
100.00%

Actual vesting
outcome
(% of award)
19.82%
25.00%
16.67%
61.49%

The Chief Executive was awarded a total of 139,110 EIP share options in 2014, of which 98,957 EIP share options were awarded as performance shares and
40,153 share options were awarded as part of a matching award (invested shares) under the deferred bonus agreement.

As a result of the actual vesting outcome, 85,540 of the total 139,110 EIP share options awarded to the Chief Executive in 2014 (i.e. 61.49%) will vest in 2017.
This final vesting outcome reflects Dialog’s performance over the three-year performance period.

As the share price at the date of vesting for the 85,540 share options was not known at the date of publication, they have been valued for the purpose of
the single figure using Dialog’s average share price over October, November and December 2016 of Euro 37.05. This results in a value of US$3,335,896 as
shown in the LTI column of the 2016 single figure table. This figure will be updated next year when the actual share price at the date of vesting is known.

Share awards made during the year

As noted in the policy section, shares awarded are structured as nominal priced options, hence the reference to options throughout. Deferred share and
LTIP awards were made in line with the policy in force during 2016.

Awarded during the year
LTIP – performance shares
Dr Jalal Bagherli
Deferred shares
Dr Jalal Bagherli

30 day average
share price
at date of
grant in £

Granted
number

Value
of award

Date of award

% of award
that will vest
at threshold

Performance period

03/03/2016

182,648

£21.90

£3,999,999

03/03/2016

11,772

£21.90

£257,807

25%
n/a
No performance conditions

01/01/2016–31/12/2018

03/03/2016–03/03/2019

Note: The value is calculated as the number of shares, multiplied by the average closing Dialog Semiconductor share price over the 30 business days up to and including 3 March 2016 (€28.33).
The Sterling equivalent share price was £21.90, resulting in a maximum LTIP award value of £3,999,999 which equates to a target LTIP award of £1,999,995.
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.

In 2016, the CEO was awarded LTIP shares (in the form of nominal price options) which had a value of £3,999,999 at the date of grant as set out in the above
table. Receipt of these shares is subject to achievement of performance conditions as outlined below.

Long-Term Incentive Plan (LTIP – Performance Shares) Performance metrics:
e Dialog TSR performance over the three-year performance period relative to the constituents of the S&P 1500 Select Semiconductor index (one-third).
e Dialog Revenue in each year of the three-year performance period (one-third).
e Dialog EBIT in each year of the three-year performance period (one-third).

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 assessed on actual Dialog performance against targets set at the beginning of each year.

Relative Total Shareholder Return is measured at the third anniversary date of the award over the three-year performance period.

Shares accrued during the performance period are released to Executive Directors as soon as practicable after the third anniversary of the award.

Of his 2015 annual bonus (paid in 2016), the amount over 100% achievement (£257,807) was deferred into shares, as set out in the above table.
The Deferred Shares for the annual bonus have no further performance conditions and vest after three years.

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 ten years.

Dialog Semiconductor Plc Annual report and accounts 2016
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Annual report on remuneration continued

Non-executive Directors’ fees
Non-executive Directors' fees were restructured in 2016 and brought in line with market levels and to increase alignment with shareholders by paying
60% of the fees in shares which are not subject to a performance condition or vesting period. Non-executive Directors are expected to build towards
a shareholding in the Company equal to 100% of the pre-tax equity portion of the annual base fee.

In 2016, the Chairman’s fee was £200,000 (paid part in cash and part in shares). Fees for non-executive Directors were £145,000 (paid part in cash
and part in shares). Additional fees (in cash only) were paid for Board Committees as per the table below.

In thousands
Chairman fee
Base fee
Committee Chair fee

Audit
Remuneration
Nominations

Committee membership fee

Audit
Remuneration
Nomination

Directors’ interests in shares

2016

Cash
£80
£58

£16
£12
£5

£8
£6
£2.5

Shares
£120
£87

–
–
–

The CEO is expected to establish and hold a shareholding of at least 300% of salary. The CEO currently complies with this requirement.

Number at
31 December 2016
Dr Jalal Bagherli
Chris Burke
Aidan Hughes
John McMonigall
Russ Shaw
Peter Weber
Richard Beyer
Michael Cannon
Eamonn O’Hare
Alan Campbell
Nick Jeffery
Mary Chan

Share Awards with
Performance Conditions

Share Awards without
Performance Conditions

10 pence
ordinary
shares
321,484
777
25,968
25,000
5,013
–
1,863
1,378
5,368
1,341
764
135

Performance
shares
(EIP & LTIP)
510,634
–
–
–
–
–
–
–
–
–
–
–

EIP – invested
shares
95,240
–
–
–
–
–
–
–
–
–
–
–

Deferred
shares
124,449
–
–
–
–
–
–
–
–
–
–
–

Share
options
(unvested)
–
–
–
–
–
–
–
–
–
–
–
–

Share options
(vested &
unexercised)
–
–
–
–
–
–
–
–
–
–
–
–

Options
exercised
in year
52,808
–
–
–
–
–
–
–
–
–
–
–

Total
1,104,615
777
25,968
25,000
5,013
–
1,863
1,378
5,368
1,341
764
135

Final
vesting
date

Share plan

Grant date

Full Name
Lapse date
Jalal Bagherli Dialog share unapproved – 7yr 13/05/2009 13/05/2013 13/05/2016
13/05/2009 13/05/2013 13/05/2016
Jalal Bagherli Dialog share approved – 7yr
04/02/2010 04/02/2011 04/02/2015
Jalal Bagherli Long-term incentive plan
18/02/2011 18/02/2011 18/02/20171
Jalal Bagherli Long-term incentive plan
16/02/2012 16/02/2015 16/02/2018
Jalal Bagherli Executive incentive plan
16/02/2013 16/02/2016 16/02/2019
Jalal Bagherli Executive incentive plan
18/02/2013 18/02/2016 18/02/2020
Jalal Bagherli Deferred bonus plan
18/02/2013 18/02/2016 18/02/2019
Jalal Bagherli Executive incentive plan
16/02/2014 16/02/2017 16/02/2020
Jalal Bagherli Executive incentive plan
18/02/2014 18/02/2017 18/02/2021
Jalal Bagherli Deferred bonus plan
18/02/2014 18/02/2017 18/02/2021
Jalal Bagherli Executive incentive plan
12/02/2015 12/02/2018 12/02/2022
Jalal Bagherli Deferred bonus plan
12/02/2015 12/02/2018 12/02/2022
Jalal Bagherli Executive incentive plan
01/05/2015 01/03/2018 01/03/2025
Jalal Bagherli LTIP nominal cost option
03/03/2016 03/03/2019 03/03/2023
Jalal Bagherli Deferred bonus plan
03/03/2016 01/03/2019 01/03/2026
Jalal Bagherli LTIP nominal cost option

Exercise
price (EUR)
1.52
1.52
0.11
0.12
0.12
0.12
0.01
0.12
0.12
0.01
0.12
0.01
0.12
0.15
0.01
0.15

Holding at
Granted
31 Dec 2015
–
–
–
–
–
–
–
100,000
–
65,332
–
92,985
–
42,611
–
40,395
–
98,957
–
40,153
–
40,153
–
29,913
–
29,913
–
97,329
–
11,772
– 182,648

Exercised
–
–
–
52,808
–
–
–
–
–
–
–
–
–
–
–
–

Lapsed
–
–
–
47,192
–
13,250
–
5,757
13,367
–
5,424
–
4,040
–
–
–

Holding at
31 Dec 2016
–
–
–
–
65,332
79,735
42,611
34,638
85,590
40,153
34,729
29,913
25,873
97,329
11,772
182,648

Note:
1 The exercise period for this grant was extended by the Board of Directors.

Dialog Semiconductor Plc Annual report and accounts 201675

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Financial
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Additional
information

Share plan
Full Name
NED 06 share option
Aidan Hughes
NED 06 share option
Aidan Hughes
NED 06 share option
Aidan Hughes
NED 06 share option
Aidan Hughes
NED 11 share option
Aidan Hughes
Aidan Hughes
NED 11 share option
Christopher Burke NED 06 share option
Christopher Burke NED 06 share option
Christopher Burke NED 06 share option
Christopher Burke NED 06 share option
Christopher Burke NED 11 share option
Christopher Burke NED 11 share option
NED 06 share option
John McMonigall
NED 06 share option
John McMonigall
NED 06 share option
John McMonigall
NED 06 share option
John McMonigall
NED 11 share option
John McMonigall
NED 11 share option
John McMonigall
NED 06 share option
Peter Weber
NED 06 share option
Peter Weber
NED 06 share option
Peter Weber
NED 06 share option
Peter Weber
NED 11 share option
Peter Weber
NED 11 share option
Peter Weber
NED 06 share option
Russ Shaw
NED 06 share option
Russ Shaw
NED 06 share option
Russ Shaw
NED 06 share option
Russ Shaw
NED 11 share option
Russ Shaw
NED 11 share option
Russ Shaw

Final
vesting
date

Grant date

Lapse date
19/06/2006 19/06/2010 19/06/2013
10/05/2007 10/05/2008 10/05/2014
30/04/2008 30/04/2009 30/04/2015
22/04/2009 22/04/2010 22/04/2016
21/07/2011 21/04/2014 01/05/2018
18/07/2012 21/04/2015 01/05/2019
12/07/2006 12/07/2010 12/07/2013
10/05/2007 10/05/2008 10/05/2014
30/04/2008 30/04/2009 30/04/2015
22/04/2009 22/04/2010 22/04/2016
21/07/2011 21/04/2014 01/05/2018
18/07/2012 21/04/2015 01/05/2019
19/06/2006 19/06/2010 19/06/2013
10/05/2007 10/05/2008 10/05/2014
30/04/2008 30/04/2009 30/04/2015
22/04/2009 22/04/2010 22/04/2016
21/07/2011 21/04/2014 01/05/2018
18/07/2012 21/04/2015 01/05/2019
19/06/2006 19/06/2010 19/06/2013
10/05/2007 10/05/2008 10/05/2014
30/04/2008 30/04/2009 30/04/2015
22/04/2009 22/04/2010 22/04/2016
21/07/2011 21/04/2014 01/05/2018
18/07/2012 21/04/2015 01/05/2019
12/07/2006 12/07/2010 12/07/2013
10/05/2007 10/05/2008 10/05/2014
30/04/2008 30/04/2009 30/04/2015
22/04/2009 22/04/2010 22/04/2016
21/07/2011 21/04/2014 01/05/2018
18/07/2012 21/04/2015 01/05/2019

Exercise
price (EUR)
1.27
1.80
1.35
1.17
0.15
0.15
1.40
1.80
1.35
1.17
0.15
0.15
1.27
1.80
1.35
1.17
0.15
0.15
1.27
1.80
1.35
1.17
0.15
0.15
1.40
1.80
1.35
1.17
0.15
0.15

Holding at
31 Dec 2015
–
–
–
–
2,293
2,081
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,293
2,081

Granted
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

Exercised
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

Lapsed
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

Holding at
31 Dec 2016
–
–
–
–
2,293
2,081
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,293
2,081

Dialog Semiconductor Plc Annual report and accounts 201676

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Corporate
governance

Financial
statements

Additional
information

Annual report on remuneration continued

Unaudited information

Annual change in CEO pay versus employee pay

The table below compares the average change in base salary, benefits (excluding pension) and bonus awards for the CEO and for an average UK employee
over the period 2015 to 2016. The salary increase shown for the CEO is above the average increase for UK employees but in line with salary increases for
high performers, which ranged from 0% to 10%. The CEO’s resulting salary remains below the market median for Dialog’s peer group.

Measure
Base salary
Taxable benefits
Annual bonus
Total1

Percentage change from
2015 to 2016

CEO
5.0
-6.1
-27.3
-11.1

Average UK
employee
3.5
4.0
-46.8
-2.7

1 Represents the sum of base salary, taxable benefits and bonus.

At the time of preparation for this report, annual bonuses for the Group had yet to be finalised and the numbers presented reflect expected payouts.

The relevant employee comparator group includes all UK-based Dialog employees and were selected for comparison since they are located in the same
market as the CEO.

Relative importance of spend on pay

As no distributions were made to shareholders, the chart below shows the amounts spent in 2015 and 2016 by Dialog on research and development
and the Group’s accumulated retained earnings at the relevant year end in comparison to spend on employee pay.

2015

2016

224

223

230

241

632

100

200

300

400

500

600

700

800

900

Pay Spend for Group

R&D Expenses

Accumulated retained earnings

(US$m)

863

Note: The above chart shows that Dialog’s retained earnings exceeded the spend on research and development, and both of these exceed the remuneration spend for the Group.
The retained earnings for 2015 have been updated in line with changes in the retained earnings measures in the financial reporting.

Dialog Semiconductor Plc Annual report and accounts 201677

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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.

Total Shareholder Return (US$)

6,000

5,000

4,000

3,000

2,000

1,000

31 Dec 08

31 Dec 09

31 Dec 10

31 Dec 11

31 Dec 12

31 Dec 13

31 Dec 14

31 Dec 15

31 Dec 16

Dialog Semiconductor

German TecDAX Index

Philadelphia Semiconductor Index

This graph shows the value, by 31 December 2016, of US$100 invested in Dialog Semiconductor Plc on 31 December 2008 compared with the value of US$100 invested in the German TecDAX Index
on the same date. Also plotted is the price index for the Philadelphia Semiconductor Sector Index (rebased to 100). Data has been averaged over 30 days at the end of each financial year.

Source: Datastream (Thomson Reuters).

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
Total remuneration including unrealised
gains on options (single figure basis)1
Annual bonus (% of maximum)2
Long-term variable pay (% of maximum)

31 Dec 2009

31 Dec 2010

31 Dec 2011

31 Dec 2012

31 Dec 2013

31 Dec 2014

31 Dec 2015

31 Dec 2016

1,028,853
N/A
95%

4,809,398
N/A
100%

30,426,678
N/A
100%

2,167,224
100%
100%

2,046,555
91.94%
100%

4,521,143
89.12%
78%

5,910,729
79.25%
81.3%

4,383,488
34.62%
61.49%

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 No maximum bonus was defined prior to 2012.

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Annual report on remuneration continued

Operation of policy in the following year
Executive Director

In 2017, the remuneration policy for the CEO will be implemented along broadly similar lines to 2016. Remuneration will continue to be comprised
of base salary, benefits, pension, annual bonus and a LTIP award. The annual bonus will be based on similar metrics to last year, namely, financial goals
(80%), and commercial & organisational goals (20%).

The LTIP award granted to the Chief Executive in 2017 will have a target value of £2 million in accordance with the approved policy and, as in 2016,
will vest after three years subject to the satisfaction of three performance metrics:
e Dialog TSR performance over the three-year performance period relative to the constituents of the S&P 1500 Select Semiconductor index.
e Dialog Revenue in each year of the three-year performance period.
e Dialog EBIT in each year of the three-year performance period.

Non-executive Directors

Non-executive Director fees were restructured in 2016 and brought in line with market levels and to increase alignment with shareholders by paying 60%
of the fees in shares (subject to a holding requirement but not a performance condition). The cash element of the fees reduced and the total fee level,
which is comprised of a cash and equity component, increased. The fee levels and the portion paid in cash and shares are set out in the following table:

In thousands
Chairman fee
Base fee
Committee Chair fee

Audit
Remuneration
Nominations

Committee membership fee

Audit
Remuneration
Nominations

Governance
Remuneration Committee

2017

2016

Cash
£80
£58

£16
£12
£5

£8
£6
£2.5

Shares
£120
£87

–
–
–

Cash
£80
£58

£16
£12
£5

£8
£6
£2.5

Shares
£120
£87

–
–
–

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 its subsidiaries; and provide recommendations for other employees and consultants as appropriate.

The Committee comprises independent, non-executive Directors. The members are currently Michael Cannon (Chair), Chris Burke, Mary Chan, Russ Shaw,
and Nick Jeffery. There were changes to the membership of the Committee during the year as Nick Jeffery was appointed to the committee on 21 July 2016
and Mary Chan on 12 December 2016. The Committee’s members have no financial interest in the Company other than as shareholders and through the
remuneration paid to them by the Company.

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
independent advice free from management as it deems appropriate.

During the year, the Committee sought and received general advice relating to remuneration from New Bridge Street and Radford (both part of Aon plc).
The Committee is satisfied that the advice received from New Bridge Street and Radford is objective and independent and is not subject to any material
conflict of interest.

New Bridge Street and Radford 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. Fees paid to New Bridge Street and Radford during the year in respect of advice totalled £127,593.

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.

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Responsibilities

The Remuneration Committee’s main responsibilities are to:
e Determine the salaries and incentive compensation of the Company’s CEO and executive management;
e Provide recommendations for other employees and consultants as appropriate; and
e Administer the Company’s compensation, stock and benefits plan.

The key activities of the Committee during the year were to:
e Review, plan and approve CEO and executive management remuneration;
e Review and address Annual General Meeting outcomes;
e Consider market trends;
e Review the long-term incentive and the structure of the CEO’s remuneration package; and
e Review service contracts and separation arrangements for executive Directors.

Shareholder voting results from 2016 AGM

The table below summarises the number of votes for and against the Directors’ remuneration policy and Annual report on remuneration at the 2016 AGM.
We also include the number of abstentions (referred to as votes withheld).

Resolution
Approval of Directors’ remuneration policy
Approval of Directors’ remuneration report
(excluding the Directors’ remuneration policy)

Votes for1

Votes against1

No. of shares
21,977,434

%
82.60

No. of shares
4,628,456

%
17.40

Votes
withheld2
2,112,499

Total
votes cast
26,605,890

% of voting
capital instructed3
34.17

24,736,694

93.04

1,850,579

6.96

2,131,116

26,587,273

34.15

1 Votes “For” and “Against” are expressed as a percentage of votes received.
2 A “Vote withheld” is not a vote in law and is not counted in the calculation of the votes “For” or “Against” a resolution.

3 Total number of shares in issue at 9:00 am BST (10:00 am CEST) on 26 April 2016 was 77,865,955 shares.

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Directors’ remuneration policy report

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.

The Committee believes that a simple approach is most effective and the elements of executive remuneration are fixed pay (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, 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:
e The history and growth profile of the Company;
e The Company’s UK incorporation and associated corporate governance expectations;
e The Company’s international focus, operations and talent market;
e The general external environment and the market context for executive pay; and
e The pay and employment practices of Dialog employees generally.

Directors’ remuneration policy table
The table below summarises Dialog’s remuneration policy for Executive Directors and, where indicated, for non-executive Directors. The policy took formal
effect from the 2016 AGM.

Base salary
Purpose and link to strategy

Maximum opportunity

Operation

Performance framework
Changes in policy since 2016

Executive Directors
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 the percentage increases awarded 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 normally taking effect in July. A number of factors are considered
including, but not limited to, market pay levels among international industry peers of comparable size, and base
salary increases for other Dialog employees.
n/a
No change

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Retirement benefits
Purpose and link to strategy
Maximum opportunity
Operation

Performance framework
Changes in policy since 2016

Other benefits
Purpose and link to strategy

Maximum opportunity

Operation

Performance framework
Changes in policy since 2016

Annual bonus plan
Purpose and link to strategy

Maximum opportunity

Operation

Performance framework

Changes since 2016

Executive Directors
Provide market competitive retirement benefits which help foster loyalty and retention.
Employer contribution of 15% of base salary.
Executive Directors are provided with a defined contribution to pension or equivalent cash allowance
arrangement.
n/a
No change

Executive Directors
Provide market competitive benefits at an appropriate cost which help foster loyalty and retention.
Relocation benefits may also be provided based on business need, individual circumstances and location
of employment.
There is no maximum for benefits, but they represent a small percentage of remuneration.
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 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.
Any reasonable business related expenses (including tax thereon) can be reimbursed if determined to be
a taxable benefit. Executive Directors are eligible for other benefits and all-employee share plans which are
introduced for the wider workforce on broadly similar terms.
n/a
No change

Executive Directors
Motivate Executive Directors to achieve stretching financial and commercial objectives consistent with and
supportive of Dialog’s growth plans.
Create a tangible link between annual performance and individual pay opportunity.
Annual opportunity of up to 200% of base salary.
The Committee retains discretion to adjust the overall bonus outcome to take account of performance outside
the normal bounds. This discretion cannot be used to raise the bonus outcome above 200% of base salary.
The portion of any award up to 100% of base salary is paid in cash, and the portion of any award above 100%
of base salary is awarded in deferred shares.
Deferred shares normally vest after three years, and are subject to the plan rules in the event of termination
or change in control. Dividend equivalents may be paid on any shares which vest.
The Committee may vary the performance measures and mix used to adapt to changing Company
circumstances. Financial measures will be a significant portion of the total scorecard.
Performance metrics include:
e Financial goals (which determine a significant portion of bonus every year);
e Commercial goals; and
e Organisational and employee-related goals.
For financial metrics, performance is set in line with the stretch annual budget.
No change

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Long-Term Incentive Plan (“LTIP”)
Purpose and link to strategy

Maximum opportunity

Operation

Performance framework

Changes since 2016

Termination arrangements
Purpose and link to strategy

Maximum opportunity

Executive Directors
Motivate Executive Directors to deliver sustainable long-term shareholder value through long-term profitability
and share price growth.
The maximum face value of an annual award is £4 million at the date of grant. This is equivalent to a target
award of £2 million.
Annual award of performance shares (which may also be in the form of nominal/nil-cost options). Performance
is measured over three years, based on performance metrics selected by the Remuneration Committee to
support the Company’s business strategy.
Vesting is dependent on continued employment with the Company at the time of vesting. Dividend
equivalents may be paid on any shares which vest. Certain “leaver” provisions apply and are described
in the section headed “Termination arrangements” below.
The Committee has the discretion in certain circumstances to settle an award in cash. In practice this will
only be used in exceptional circumstances for Executive Directors.
Performance metrics include suitable Company financial performance metrics and at least one-third on
a relative TSR condition measured versus a comparator group. The Committee reviews and selects appropriate
measures and their weightings in advance of each award.
25% of the maximum award vests for threshold performance, 50% of the maximum award vests for
target performance and 100% of the maximum award vests for maximum performance as defined by the
Remuneration Committee under the plan.
For the relative TSR condition, Dialog Semiconductor TSR is measured over the three-year performance period
and compared to the companies in the comparator group. If Dialog TSR is at the median of the comparator
group then 25% of the maximum award vests. If Dialog TSR is at the 60th percentile of the comparator group
then 50% of the maximum award will vest. If Dialog TSR is at or above the 75th percentile of the comparator
group then 100% of the maximum award will vest. For performance in between these levels, vesting is
determined on a straight-line basis.
If Dialog TSR is negative over the three-year performance period, then the maximum number of shares which
can vest subject to the relative TSR condition will be capped at 50% of the maximum award, even if relative
TSR is above 60th percentile.
For the Company financial performance component, targets are normally set annually over the three-year
performance period.
No change

Executive Directors
To limit the Company’s liability for payments in cases of termination, and to provide a fair and equitable
settlement in line with market practice where appropriate.
To limit the Company’s liability for payments in cases of termination, and to provide a fair and equitable
settlement in line with market practice where appropriate.
Notice periods from the Company do not exceed 12 months.
Termination not in connection with a change in control
In the case of the current Chief Executive the notice period is 12 months.
The maximum termination payment due in the case of termination of employment by the Company without
“cause” or termination by the Executive for a pre-defined good reason (see definition below) is:
e 1x base salary.
e 12 months’ continuation of pension and fringe benefits.
e Annual bonus pro-rated for the period worked only and subject to the normal performance test at year end.
Termination in connection with a change in control
In the case of the current Chief Executive the notice period from the employee or the Company is 12 months.
The maximum payment due in the case of termination of employment by the Company without “cause” or
termination by the Executive for a pre-defined good reason in connection with a change in control event is:
e 1x base salary.
e 12 months’ continuation of pension and fringe benefits.
e Annual bonus time pro-rated for the period worked, and subject to performance.

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Additional points:
The above termination payments (both in connection with and not in connection with a change-in-control)
would be reduced by the amount of any other contractual payments made to the Executive. Such payments
could include a payment in lieu of notice, garden leave payment, and/or a payment in lieu of holiday accrual.
Any 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. An Executive can also be placed
on garden leave.
A pre-defined “good reason” includes: material salary reduction (other than across-the-board reductions of up
to 15%) or any reduction on change of control; company required relocation by 50 miles; or material diminution
in duties, responsibilities or authority (but a change in reporting line alone does not constitute a good reason).
In addition to the above termination payments, the Committee may pay reasonable outplacement and legal
fees where considered appropriate and may pay any statutory entitlements or settle any compromise claims
in connection with a termination of employment, where considered in the best interests of the Company.
Termination provisions for the EIP and LTIP are as follows:
Termination not in connection with a change in control
If an Executive Director is not employed by the Company at the time of vesting, the award will lapse, except
in certain circumstances as determined by the Board including death, disability, retirement and any other
circumstance as decided by the Board. 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 vesting level will be reduced in accordance with time proration. In the case that
employment is terminated by the Company without cause or termination by the executive for a pre-defined
good reason detailed above, then the outstanding awards will vest subject to time proration and performance
against targets.
Termination in connection with a change in control
In the event of a change in control of the Company, any award will be rolled over into an award in the new
entity but with the Company having discretion for time pro-rated vesting, subject to performance, with
the balance rolled over. Performance-based awards, after application of performance test, will roll over into
time-based awards. Any awards rolled over will ordinarily vest at the nominal vesting date. However, in the
case that employment is terminated by the Company without cause, or termination by the executive for a
pre-defined good reason detailed above in connection with a change in control, then outstanding awards
will vest immediately without time proration.
No change

Non-executive Directors
Supports recruitment and retention of a non-executive Director with the experience and skills that will make
a major contribution to the Dialog Board.
Aggregate fees are subject to the limit set out in the Articles of Association or any such higher amount as
determined by ordinary resolution.
Fees are normally reviewed annually. Fees may be paid in a combination of cash and shares subject to any
requirements of the Articles of Association of the Company or shareholder resolution. Non-executive Directors’
fees are not eligible for any incentive awards or share options.
The Chairman’s fee is determined by the Executive Directors with input from the Remuneration Committee.
Other non-executive Directors may be reviewed annually by the Chairman and Executive Directors.
Non-executive Directors may also receive tax advice.
In addition to the fees referred to above, non-executive Directors are also reimbursed for the costs of travel
relating to the performance of their duties, and these costs may be grossed-up if treated as a taxable benefit
in the applicable jurisdiction.
Fee reviews take account of individual performance and contribution, company size, growth and complexity,
level of experience and market profile and time committed.
No change

Changes in policy since 2016

Fees
Purpose and link to strategy

Maximum opportunity

Operation

Performance framework

Changes in policy since 2016

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Directors’ remuneration policy continued

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 taking account of 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:
e As far as possible, the remuneration of new Directors will be set in accordance with the existing Directors’ remuneration policy described in this report;
e 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;
e 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;

e The remuneration package will take account of internal relativities and appropriate international market comparisons;
e 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; and

e The Remuneration Committee will in all cases be guided by reasonable market practice and will take appropriate advice where necessary.

The table below outlines policy in respect of recruitment where it differs from that outlined above. Policy in respect of other components of pay
is unchanged in recruitment situations from that outlined above. Note that only the references to fees apply to non-executive Directors.

Pay component
Annual base salary or fee

Approach in application to recruitment situations
The following factors will be taken into account when determining appropriate base salary/fee:
e The candidate’s existing salary/fee, location of employment, skills and experience and expected contribution

Other benefits

Long-term incentive

to the new role;

e The previous incumbent’s salary/fee for the same role;
e The current salaries/fees of other Dialog Directors;
e Current relevant market pay data for the role; and
e 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 a 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 LTIP 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, LTIP target awards in addition to normal policy levels will
be limited to 100% of a target executive’s Dialog salary.

Compensation for forfeited remuneration The Committee may choose to compensate for forfeited remuneration when recruiting an external candidate

by providing replacement awards.
Where a replacement award is deemed to be necessary, the structure and level will be carefully designed in
accordance with the recruitment principles above. Such awards would be designed to take account of the
vesting period and where applicable, the performance conditions of the awards they replace. They may include
“clawback” provisions. An explanation of the basis of any “buy-out” will be provided as soon as practicably
possible after appointment.
Notice periods offered to new Executive Directors will not normally exceed 12 months. However, if it is
necessary to offer an executive Director a longer notice period at recruitment, then the length of the notice
period will reduce on a rolling basis until it is no greater than 12 months.
No change

Service contracts

Changes in policy since 2016

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Clawback and malus policy
Under the rules of the deferred bonus plan, the LTIP and the previous EIP, the Remuneration Committee is entitled to cancel or clawback some or all of
a participant’s awards 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.

Shareholding requirement
The Committee will set a shareholding requirement for Executive Directors. The requirement for the current CEO was increased from 200% to 300% of base
salary with effect from 2015. The Committee reviews the level of shareholding requirement from time to time and has authority to amend it as necessary.

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) vested in 2015. No further options
have been awarded since 2012 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.

Remuneration policy for Executive Directors compared to that for other employees
The Company’s remuneration policy for Executive Directors is similar to that for all other Dialog employees. Differences in policy are outlined below:
e 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.

e LTIP – Participation in the LTIP is limited to employees in senior roles and executives, which currently comprise around 70 Dialog employees. This number

may increase over time as the business grows.

e Notice periods – Other UK employees’ contracts of employment include three-month notice periods.

Indicative remuneration levels resulting from policy
The charts below represent for the 2017 year the pay mix between the different elements of remuneration for the CEO, assuming threshold, target and
maximum performance. Amounts are shown in GBP (000s).

Minimum

Target

Maximum

670

X,XXX

569

2,000

1,138

4,000

1,000

2,000

3,000

4,000

5,000

6,000

Fixed Pay

Annual Bonus

LTIP

The scenarios shown above are based on the following assumptions:
e Minimum performance: fixed pay only (base salary, benefits and pension);
e Target performance: fixed pay, annual bonus of half maximum opportunity (100% of salary) and 50% of the maximum value of the LTIP award

vesting; and

e Maximum performance: fixed pay, maximum annual bonus of 200% of salary and 100% of the maximum value of the LTIP award vesting.

We have assumed that the grant in 2017 under the LTIP will have a target value of £2 million. This could range up to £4 million for achievement
of the maximum performance targets. This is in line with the target and maximum value permitted under the policy.

Stakeholder views
Shareholder proxy advisory groups are engaged when the Company is considering material changes to policy, including approval of any new share plans.

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 SVP Blog and the annual Voice of Dialog employee survey.

Mike Cannon
Chairman, Remuneration Committee

23 February 2017

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Statement of Directors’ responsibilities

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.

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:
e Select suitable accounting policies and then

apply them consistently;

e Present information, including accounting

policies, in a manner that provides
relevant, reliable, comparable and
understandable information;

e 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;

e State whether they have been prepared

in accordance with IFRS as adopted by the
EU; and

e 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.

Responsibility statement

The Directors confirm, to the best of their
knowledge, that:
e The financial statements, prepared in

accordance with IFRS as adopted by the
European Union and IFRS as issued by the
IASB, give a true and fair view of the assets,
liabilities, financial position and profit or loss of
the Company and the undertakings included
in the consolidation taken as a whole; and
e 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 undertakings included in
the consolidation taken as a whole, together
with a description of the principal risks and
uncertainties that they face; and

e The Annual report and financial statements,
taken as a whole, are fair, balanced and
understandable and provide the information
necessary for shareholders to assess the
Company’s position, performance, business
model and strategy.

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

23 February 2017

Dialog Semiconductor Plc Annual report and accounts 201687

Strategic
report

Corporate
governance

Financial
Financial
statements
statements

Additional
information

e 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

e The Strategic Report and the Directors’ Report
have been prepared in accordance with
applicable legal requirements.

In the light of the knowledge and understanding
of the Company and its environment obtained
in the course of the audit, we have not identified
any material misstatements in the Strategic
Report and the Directors’ Report.

Matters on which we are required
to report by exception
We have nothing to report in respect of the
following matters where the Companies
Act 2006 requires us to report to you if,
in our opinion:
e 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
e 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

e Certain disclosures of Directors’ remuneration

specified by law are not made; or

e We have not received all the information
and explanations we require for our audit.

Alexander Butterworth ACA
(Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor

Reading, UK
23 February 2017

Independent Auditor’s report

to the members of Dialog Semiconductor Plc

We have audited the financial statements
of Dialog Semiconductor Plc for the year
ended 31 December 2016 which comprise
the Consolidated Statement of Income, the
Consolidated Statement of Comprehensive
Income, the Consolidated and Parent Company
Balance Sheets, the Consolidated Statement
of Cash Flows, the Consolidated and Parent
Company Statements of Changes in Equity
and the related notes 1 to 35. The financial
reporting framework that has been applied
in the preparation of the Group Financial
Statements is applicable law and International
Financial Reporting Standards (IFRSs) as
adopted by the European Union. The financial
reporting framework that has been applied
in the preparation of the parent company
financial statements, is applicable law and
United Kingdom Accounting Standards
(United Kingdom Generally Accepted
Accounting Practice), including FRS 101
“Reduced Disclosure Framework”.

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 auditor
As explained more fully in the Directors’
Responsibilities Statement, 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 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:
e 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
2016 and of the Group’s profit for the year
then ended;

e The Group financial statements have been
properly prepared in accordance with IFRSs
as adopted by the European Union;
e The parent company financial statements

have been properly prepared in accordance
with United Kingdom Generally Accepted
Accounting Practice; and

e 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.

Separate opinion in relation to IFRSs
as issued by the IASB
As explained in note 1 to the Group financial
statements, the Group in addition to complying
with its legal obligation to apply IFRSs as adopted
by the European Union, has also applied IFRSs as
issued by the International Accounting Standards
Board (IASB).

In our opinion the Group financial statements
comply with IFRSs as issued by the IASB.

Opinion on other matters prescribed
by the Companies Act 2006
In our opinion, based on the work undertaken
in the course of the audit:
e The part of the Directors’ Remuneration
Report to be audited has been properly
prepared in accordance with the Companies
Act 2006;

Dialog Semiconductor Plc Annual report and accounts 201688

Strategic
report

Corporate
governance

Financial
statements

Additional
information

Consolidated statement of income

Year ended 31 December

Revenue

Cost of sales

Gross profit

Selling and marketing expenses

General and administrative expenses

Research and development expenses

Other operating income

Operating profit

Interest income

Interest expense

Other finance (expense)/income

Profit before income taxes

Income tax expense

Net income

Attributable to:

– Shareholders in the Company

– Non-controlling interests

Net income

Earnings per share (in US$)

Basic

Diluted

Weighted average number of shares (in thousands)

Basic

Diluted

Notes

4, 32

2016
US$000

1,197,611

(650,896)

546,715

(62,331)

(70,940)

2015
US$000

1,355,312

(730,508)

624,804

(62,157)

(80,878)

2014
US$000

1,156,105

(641,296)

514,809

(60,070)

(59,445)

(241,345)

(223,182)

(213,808)

137,708

309,807

3,665

(3,447)

(4,819)

305,206

(47,090)

258,116

260,940

(2,824)

258,116

1,159

259,746

1,215

(6,411)

289

254,839

(77,580)

177,259

178,766

(1,507)

177,259

2016

2015

3.43

3.25

76,047

80,398

2.42

2.29

73,763

79,660

4,416

185,902

419

(14,829)

(2,171)

169,321

(31,242)

138,079

–

138,079

2014

2.05

1.93

67,329

76,882

Dialog Semiconductor Plc Annual report and accounts 2016

Strategic
report

Corporate
governance

Financial
statements

Additional
information

Consolidated statement of comprehensive income

Year ended 31 December

Net income

Other comprehensive income
Items that may be reclassified to profit or loss in subsequent periods

Currency translation differences on foreign operations

Income tax relating to currency translation differences on foreign operations

Fair value gain on available-for-sale investments

Cash flow hedges:

2016
US$000

258,116

227

(47)

2,866

2015
US$000

177,259

(1,884)

(10)

–

2014
US$000

138,079

(1,032)

(265)

–

– Fair value loss recognised on effective hedges in the year

(13,264)

(18,960)

(23,614)

– Fair value loss transferred to profit or loss

Income tax relating to cash flow hedges

Other comprehensive (loss)/income for the year

Total comprehensive income for the year

Attributable to:

– Shareholders in the Company

– Non-controlling interests

Total comprehensive income for the year

8,382

765

(1,071)

257,045

259,769

(2,724)

257,045

31,980

(3,694)

7,432

184,691

186,619

(1,928)

184,691

3,820

5,445

(15,646)

122,433

–

122,433

Dialog Semiconductor Plc Annual report and accounts 2016

Strategic
report

Corporate
governance

Financial
statements

Additional
information

Consolidated balance sheet

As at 31 December

Assets

Cash and cash equivalents

Trade and other receivables

Current financial assets

Inventories

Income tax receivables

Other current assets

Total current assets

Goodwill

Other intangible assets

Property, plant and equipment

Non-current financial assets

Income tax receivables

Deferred tax assets

Total non-current assets

Total assets

Liabilities and equity

Trade and other payables

Other current financial liabilities

Provisions

Income taxes payable

Other current liabilities

Total current liabilities

Provisions

Deferred tax liabilities

Other non-current liabilities

Total non-current liabilities

Ordinary shares

Share premium account*

Retained earnings*

Other reserves*

Dialog shares held by employee benefit trusts

Equity attributable to shareholders in the Company

Non-controlling interests

Total equity

Total liabilities and equity

* Comparative amounts reclassified – see note 25.

Notes

2016
US$000

2015
US$000

697,167

80,773

–

105,303

35,878

15,211

934,332

251,208

125,619

69,668

22,332

–

27,379

496,206

566,809

72,668

2,086

134,930

129

20,856

797,478

251,062

138,604

68,444

3,758

28,454

490,373

1,430,538

1,287,851

89,645

77,978

1,477

528

54,444

224,072

3,370

1,970

6,220

11,560

14,402

403,687

862,914

(70,566)

(20,608)

131,553

8,245

1,861

62,181

49,884

253,724

2,725

1,598

4,919

9,242

14,402

403,687

631,548

(7,923)

(24,630)

1,189,829

1,017,084

5,077

1,194,906

1,430,538

7,801

1,024,885

1,287,851

These financial statements were approved by the Board of Directors on 23 February 2017 and were signed on its behalf by:

Dr Jalal Bagherli
Director

Dialog Semiconductor Plc Annual report and accounts 2016

Strategic
report

Corporate
governance

Financial
statements

Additional
information

Consolidated statement of cash flows

Year ended 31 December

Cash flows from operating activities

Net income

Non-cash items within net income:

– Depreciation of property, plant and equipment

– Amortisation of intangible assets

– Write-down of inventories

– Share-based compensation expense

– Other non-cash items

Interest (income)/expense, net

Income tax expense

Cash generated from operations before changes in working capital

Changes in working capital:

– Trade and other receivables

– 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 intangible assets

Payments for capitalised development costs

Purchase of businesses, net of acquired cash

(Purchase)/sale of other investments

Change in other long term assets

Cash flow used for investing activities

Cash flows from financing activities

Repayment of borrowings

Share issue costs

Purchase of Dialog shares by employee benefit trusts

Sale of Dialog shares by employee benefit trusts

Purchase of own shares into treasury

Currency hedges on share buyback obligation

Cash flow used for financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Currency translation differences

Notes

2016
US$000

2015
US$000

2014
US$000

258,116

177,259

138,079

27,219

35,954

4,375

28,167

2,118

(218)

47,090

402,821

(8,105)

21,609

(301)

(44,206)

260

13,601

385,679

(3,434)

3,314

(136,799)

248,760

(25,774)

(11,790)

(15,802)

(647)

(10,000)

227

24,010

31,120

9,047

19,215

1,751

5,196

77,580

345,178

29,737

(42,624)

(354)

34,448

122

(3,975)

362,532

(3,602)

1,107

(42,374)

317,663

(32,955)

(11,678)

(24,778)

(2,636)

278

(63,786)

(71,701)

–

(3,127)

11,083

(61,472)

(1,186)

(54,702)

130,272

566,809

–

(14,032)

11,589

–

(2,443)

243,519

324,280

(990)

566,809

22,144

33,431

9,828

21,173

407

14,410

31,242

270,714

26,764

8,570

(376)

(7,494)

816

9,657

308,651

(4,680)

396

(33,909)

270,458

(23,842)

(12,058)

(6,670)

–

(474)

(43,010)

(105,000)

(39)

(6,172)

22,114

–

(89,097)

138,351

186,025

(96)

324,280

Cash and cash equivalents at the end of the year

697,167

Dialog Semiconductor Plc Annual report and accounts 2016

Strategic
report

Corporate
governance

Financial
statements

Additional
information

Consolidated statement of changes in equity

Year ended 31 December

Ordinary
shares
US$000

Share
premium
account*
US$000

Retained
earnings*
US$000

Other
reserves*
(note 25)
US$000

Dialog shares
held by
employee
benefit trusts
US$000

Equity
attributable to
shareholders
in the
Company
US$000

Non-
controlling
interests
US$000

As at 1 January 2014 – reclassified

12,852

198,364

211,227

36,449

(2,242)

456,650

Net income

Other comprehensive income/(loss)

Total comprehensive income/(loss)

Other changes in equity:

–

138,079

–

(15,646)

138,079

(15,646)

–

138,079

(15,646)

122,433

– Shares issued to employee benefit trusts

501

9,741

– Purchase of shares by employee benefit trusts

– Sale of shares by employee benefit trusts

– Share-based compensation, net of tax

–

18,487

28,690

–

(10,281)

(6,172)

3,627

–

(39)

(6,172)

22,114

28,690

As at 31 December 2014

13,353

208,105

396,483

20,803

(15,068)

623,676

–

Total
US$000

456,650

138,079

(15,646)

122,433

(39)

(6,172)

22,114

28,690

623,676

Net income

Other comprehensive income/(loss)

Total comprehensive income/(loss)

Other changes in equity:

– Conversion of Convertible Bonds

Issue of shares

Transfer of equity component

– Non-controlling interests in business acquired

(note 4)

– Purchase of shares by employee benefit trusts

– Sale of shares by employee benefit trusts

– Share-based compensation, net of tax

–

178,766

–

178,766

–

7,853

1,049

182,089

–

13,493

23,086

(36,579)

–

7,119

26,094

–

178,766

(1,507)

177,259

7,853

(421)

7,432

186,619

(1,928)

184,691

183,138

–

(14,032)

4,470

–

11,589

26,094

–

183,138

–

9,729

–

(14,032)

11,589

26,094

As at 31 December 2015

14,402

403,687

631,548

(7,923)

(24,630)

1,017,084

7,801

1,024,885

Net income

Other comprehensive income/(loss)

Total comprehensive income/(loss)

Other changes in equity:

– Purchase of own shares into treasury

– Share buyback obligation

– Purchase of shares by employee benefit trusts

– Sale of shares by employee benefit trusts

– Share-based compensation, net of tax

–

260,940

–

260,940

–

(1,171)

(1,643)

(61,472)

(63,077)

–

3,934

31,212

–

(3,127)

7,149

–

260,940

(2,824)

258,116

(1,171)

100

(1,071)

259,769

(2,724)

257,045

(63,115)

(63,077)

(3,127)

11,083

31,212

–

(63,115)

(63,077)

(3,127)

11,083

31,212

As at 31 December 2016

14,402

403,687

862,914

(70,566)

(20,608) 1,189,829

5,077 1,194,906

* Comparative amounts reclassified – see note 25.

Dialog Semiconductor Plc Annual report and accounts 2016

Strategic
report

Corporate
governance

Financial
statements

Additional
information

Notes to the consolidated financial statements

For the year ended 31 December 2016

1. Background
Description of business

Dialog Semiconductor Plc (“the Company”) is a public limited company that is incorporated in England and Wales and domiciled in the United Kingdom. The
Company’s ordinary shares are listed on the Frankfurt Stock Exchange.

Dialog creates and markets highly integrated, mixed signal integrated circuits, optimised for personal, portable, hand-held devices, low energy short-range
wireless, LED solid-state lighting and automotive applications. Dialog has four operating segments: Mobile Systems; Automotive & Industrial; Connectivity; and
Power Conversion. Segment information is presented in note 32.

Registered office

The Company’s registered office is at Tower Bridge House, St Katharine’s Way, London E1W 1AA, United Kingdom.

Statement of compliance
The consolidated financial statements of the Company and its subsidiaries (together, “Dialog” or the “Group”) set out on pages 88 to 144 have been prepared in
accordance with International Financial Reporting Standards (“IFRS”) as adopted for use in the European Union and those parts of the Companies Act 2006 that
are applicable to companies reporting under IFRS and therefore comply with Article 4 of the IAS Regulation. The consolidated financial statements also comply
with IFRS as issued by the International Accounting Standards Board.

Basis of preparation

The consolidated financial statements have been prepared on a going concern basis and in accordance with the historical cost convention, except that
certain investments and derivative financial instruments are stated at their fair value. 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. Information about assets and liabilities that are
measured at fair value is presented in note 30.

The Group’s significant accounting policies are set out in note 2.

Presentation currency
The consolidated financial statements are presented in US dollars (US$), which is the functional currency of the Company. All amounts are rounded to the
nearest thousand US dollars (US$000), except where otherwise stated.

Approval of the consolidated financial statements
The consolidated financial statements for the year ended 31 December 2016 were authorised for issue in accordance with a resolution of the Directors
on 23 February 2017.

Company financial statements

Separate financial statements for the Company are set out on pages 145 to 151.

Accounting standards adopted during the year
At the beginning of 2016, Dialog adopted the following relevant accounting pronouncements, none of which had any impact on the Group’s results
or financial position:

e Disclosure Initiative (Amendments to IAS 1)
e Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)
e Annual Improvements to IFRSs 2012–2014 cycle
Accounting standards issued but not adopted as at 31 December 2016
We outline below those new or amended accounting pronouncements issued by the IASB that are relevant to Dialog but we had not yet adopted
as at 31 December 2016.

Revenue Recognition
IFRS 15 Revenue from Contracts with Customers provides a single, principles based five-step model to be applied to all contracts with customers. The five steps
in the model are as follows: identify the contract with the customer; identify the performance obligations in the contract; determine the transaction price;
allocate the transaction price to the performance obligations in the contract; and recognise revenue when (or as) the entity satisfies a performance
obligation. IFRS 15 is effective for annual periods beginning on or after 1 January 2018.

Dialog Semiconductor Plc Annual report and accounts 201694

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governance

Financial
statements

Additional
information

Notes to the consolidated financial statements continued

For the year ended 31 December 2016

1. Background continued
We have completed our preliminary assessment of the likely impact of IFRS 15. We expect that, in most cases, the recognition and measurement of the
Group’s revenue will be unaffected. Under our existing revenue recognition policy, however, some sales to distributors and related cost of sales are not
recognised until the onward sale of the products by the distributor to end customers. Under IFRS 15, we believe that we will be required to recognise such
revenue when the products are physically transferred to the distributors, net of estimated returns or allowances. As at 31 December 2016, revenue deferred
on sales to distributors amounted to US$26,121 before returns and allowances.

We intend to apply IFRS 15 using the modified retrospective approach, whereby prior periods will not be restated and the cumulative effect of applying
the standard to uncompleted contracts will be recognised as an adjustment to the opening balance of equity on 1 January 2018.

Leases

In January 2016, the IASB issued IFRS 16 Leases, which will change the way that lessees will recognise, measure, present and disclose leases. IFRS 16 provides
a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying
asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from
its predecessor, IAS 17 Leases. IFRS 16 is effective for annual periods beginning on or after 1 January 2019.

We expect that a significant proportion of those of the Group’s leases that are currently classified as operating leases will be recognised on the balance sheet
in accordance with IFRS 16, but we have yet to evaluate its impact on the Group’s results and financial position.

Financial instruments

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Classification and Measurement. Changes made by IFRS 9 that are relevant to Dialog
include the introduction of a new model for classification and measurement of financial assets and financial liabilities, a single, forward-looking ‘expected
loss’ model for measuring impairment of financial assets (including trade receivables) and a new approach to hedge accounting that is more closely aligned
with an entity’s risk management activities. IFRS 9 is effective for annual periods beginning on or after 1 January 2018.

We expect the most significant changes for Dialog will be in relation to establishing allowances for doubtful debts and accounting for equity investments.
We will be required to recognise an allowance for doubtful debts when we recognise revenue on sales to our customers, rather than only when there is
objective evidence that we will be unable to collect the amounts due. With regard to equity investments, there will no longer be any exemption from
carrying them at fair value and, in the event that such investments are sold, fair value gains and losses that are recognised in equity will no longer be
reclassified to profit or loss. We do not expect that the new hedge accounting rules will affect our ability to apply hedge accounting in relation to our foreign
currency hedging activities.

Other pronouncements

Amendments to IFRS 2
In June 2016, the IASB published amendments to IFRS 2 Share-based Payments, which, among other things, clarified the classification of share-based
payment transactions with net settlement features for withholding tax obligations. The amendments are effective for annual periods beginning on or after
1 January 2018. We do not expect the amendments to affect the Group’s results or financial position.

Amendments to IAS 7
In January 2016, the IASB published amendments to IAS 7 Statement of Cash Flows that are intended to improve information provided to users of financial
statements about an entity’s financing activities. In particular, the amendments require that specific changes in liabilities arising from financial activities are
disclosed and suggest that this requirement may be fulfilled by way of a reconciliation of the opening and closing balances of liabilities arising from
financing activities. The amendments are effective for annual periods beginning on or after 1 January 2017 and will affect only the disclosures in the
Group’s financial statements.

2. Significant accounting policies
Basis of consolidation

The consolidated financial statements incorporate the results, cash flows and assets and liabilities of the Company and its subsidiaries and sponsored
employee benefit trusts.

A subsidiary is an entity that is controlled, either directly or indirectly, by the Company.

Control exists when the Company is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those
returns through its power to direct the relevant activities of the entity. Generally, such power will exist where the Company holds a majority of the voting
rights of an entity. When the Company holds less than a majority of the voting rights of an entity, it considers all relevant facts and circumstances in
assessing whether or not its voting rights are sufficient to give it power to direct the activities that significantly affect its returns from the entity, including:
the size of the Company’s holding of voting rights relative to the size and dispersion of the holdings of other vote holders; potential voting rights held by
the Company, other vote holders or other parties; and rights arising from other contractual arrangements.

Dialog Semiconductor Plc Annual report and accounts 201695

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Corporate
governance

Financial
statements

Additional
information

2. Significant accounting policies continued
Details of the Company’s subsidiaries as at 31 December 2016 are set out on page 164.

Consolidation of a subsidiary commences when the Company obtains control over the subsidiary and ceases at such time as control over the subsidiary is
lost. Transactions and balances between members of the Group, and any unrealised profits or losses on such transactions, are eliminated on consolidation.

Non-controlling interests represent the equity in a subsidiary that is not attributable, directly or indirectly, to the Company. Where the equity in a
subsidiary is not wholly-owned by the Company, the subsidiary’s profit or loss and each component of its other comprehensive income are attributed
to the Company and to the non-controlling interests in proportion to their ownership interests, even if this results in the non-controlling interests having
a deficit balance.

Changes in the Company’s ownership interest in a subsidiary that do not result in a loss of control are accounted for within equity.

Business combinations

A business combination is a transaction or other event in which the Company obtains control over a business.

Business combinations are accounted for using the acquisition method.

Goodwill acquired in a business combination is recognised as an intangible asset and represents the excess of the aggregate of the consideration
transferred, including contingent consideration, and the amount of any non-controlling interests in the acquired business over the net total of the
identifiable assets and liabilities of the acquired business at the acquisition date. Any shortfall, negative goodwill, is recognised immediately as a gain
in profit or loss.

Consideration transferred represents the sum of the fair values at the acquisition date of the assets given, liabilities incurred or assumed and equity
instruments issued by the Group in exchange for control over the acquired business.

Acquisition-related costs are charged to profit or loss in the period in which they are incurred.

Identifiable assets and liabilities of the acquired business are measured at their fair value at the acquisition date, except for certain items that are measured
in accordance with the relevant Group accounting policy, such as replacement equity-settled share-based compensation awards and deferred tax assets
and liabilities.

Non-controlling interests that entitle their holders to a proportionate share of the net assets of the acquired business in the event of a liquidation
are measured either at fair value or at the non-controlling interest’s proportionate share of the identifiable assets and liabilities of the business.
Other non-controlling interests are measured at fair value.

Contingent consideration is subsequently measured at fair value unless it is classified as equity. Changes in the fair value of contingent consideration that
result from events after the acquisition date are recognised in profit or loss. Contingent consideration that is classified as equity is not remeasured and its
subsequent settlement is accounted for within equity.

Foreign currency translation

Each entity within the Group has a functional currency, which is normally the currency in which the entity primarily generates and expends cash.
The functional currency of the Company and its principal subsidiaries is the US dollar.

At entity level, a foreign currency is a currency other than the entity’s functional currency. Sales, purchases and other transactions denominated in foreign
currencies are translated into the entity’s functional currency at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated at the exchange rate ruling at the balance sheet date. Currency translation differences arising at entity
level are recognised in profit or loss.

The Group’s presentation currency is the US dollar. Foreign operations are therefore those of the Company’s subsidiaries whose functional currency is not
the US dollar.

On consolidation, the results of foreign operations are translated into US dollars at the average exchange rate for the period and their assets and liabilities
are translated into US dollars at the exchange rate ruling at the balance sheet date.

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For the year ended 31 December 2016

2. Significant accounting policies continued
The significant currency exchange rates used on consolidation were as follows:

Currency

Pound Sterling

Japanese Yen

Euro

Exchange rate as at

Annual average exchange rate

31 December 2016
US$1 =

31 December 2015
US$1 =

31 December 2014
US$1 =

0.81

116.97

0.95

0.67

120.40

0.92

0.64

119.29

0.82

2016
US$1 =

0.74

108.58

0.90

2015
US$1 =

0.65

121.10

0.90

2014
US$1 =

0.61

107.75

0.75

Currency translation differences arising on consolidation are recognised in other comprehensive income and taken to the currency translation reserve. In
the event that a foreign operation is sold, the related cumulative currency translation difference recognised in other comprehensive income is reclassified
from equity to profit or loss and is included in calculating the gain or loss on disposal of the foreign operation.

Revenue recognition

Dialog generates revenue principally through the sale of its products, such as ASICs and ASSPs. Relatively small amounts of revenue are generated from
royalties for the use of Intellectual Property assets and from research and development contracts.

Revenue is measured at the fair value of the consideration received or receivable, excluding sales taxes and after making allowance for discounts, rebates
and returns.

Sales of products are mostly made direct to end customers but there are some sales to distributors. Direct sales to end customers are mostly made
on a consignment basis to the customer’s premises or to a third-party distribution hub, but there are also significant sales to fulfil purchase orders.

Revenue from the sale of products is recognised when the significant risks and rewards of ownership have been transferred to the customer, the amount
of revenue can be measured reliably and it is probable that payment will be received. Generally, these conditions are satisfied when products are
physically transferred to the customer but some sales to distributors and related cost of sales are not recognised until the onward sale of the products
by the distributor to end customers.

Revenue from royalties is recognised on an accruals basis in accordance with the terms of the relevant licensing agreements.

Revenue from research and development contracts is recognised using the percentage of completion method with the stage of completion determined
as the proportion that costs incurred for work performed to date bear to the estimated total contract costs and disclosed as other operating income. If it is
probable that the contract will be loss-making, the expected loss is recognised immediately as an expense in profit or loss.

Research and development expenditure

All research expenditure is expensed as it is incurred.

Development expenditure is also expensed as it is incurred until such time as it can be demonstrated that the product is both technically feasible and
commercially viable and that management intends to complete the development of the product and sell it to customers. Development expenditure
incurred after that time and before the developed product is available to be put into full production is capitalised.

Generally, development expenditure is expensed until relatively late in the development process when prototypes are available for quality and other tests.

Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the
grants will be received.

A grant that is receivable as compensation for expenses incurred is recognised in profit or loss in the period in which it becomes receivable and is
deducted from the related expense. A grant whose primary condition is that the Group should purchase, construct or otherwise acquire a non-current
asset is recognised as deferred revenue and transferred to profit or loss on a straight-line basis over the useful life of the related asset.

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Goodwill

Goodwill acquired in a business combination is carried at cost as established at the acquisition date, less impairment losses, if any.

Internally generated goodwill is not recognised as an asset.

Other intangible assets

Other intangible assets comprise identifiable intangibles acquired in business combinations (principally customer-related assets and core and developed
technology), licences, computer software, patents and product development costs.

Other intangible assets held by the Group have finite useful lives and are therefore carried at cost less accumulated amortisation and impairment losses,
if any. Cost comprises the purchase price of the asset (including non-refundable purchase taxes) and any costs directly attributable to preparing the asset
for its intended use, or, in the case of assets acquired in business combinations, is the fair value at the acquisition date.

Other intangible assets are amortised on a straight-line basis so as to charge their cost to profit or loss over their estimated useful lives as follows:

Customer-related assets
Software, licences and other
Patents
Product development assets

Useful life

1.5 to 8.5 years
3 to 10 years
10 years
1 to 9.5 years

Patents are typically granted for a period of 20 years but they are amortised over the period during which the Group expects to benefit from them, which
is typically 10 years.

Estimated useful lives are regularly reviewed and the effect of any changes in estimate accounted for on a prospective basis.

Property, plant and equipment

Property, plant and equipment is carried at cost less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price of the
asset (including non-refundable purchase taxes) and any costs directly attributable to bringing the asset to the location and condition necessary to enable
its intended use, or, in the case of assets acquired in business combinations, its fair value at the acquisition date. Leasehold improvements include the
estimated cost of any obligation to restore the leased property to its original condition at the end of the lease.

Costs of replacing a significant part of an asset are included in the cost of the asset but routine repairs and maintenance costs are recognised in profit or
loss when they are incurred.

Items of property, plant and equipment are depreciated on a straight-line basis so as to charge their cost, less their estimated residual value, if any, to profit
or loss over their estimated useful lives as follows:

Test equipment
Leasehold improvements
Office and other equipment
Office furniture and fittings

Useful life

3 to 7 years
Shorter of useful life or lease term
3 to 5 years
5 to 15 years

Estimated residual values and useful lives are regularly reviewed and the effect of any changes in estimate accounted for on a prospective basis.

Assets that are under construction and not ready for their intended use are not depreciated.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

2. Significant accounting policies continued
Impairment of tangible and intangible assets

Goodwill, other intangible assets and property, plant and equipment are tested for impairment whenever events or circumstances indicate that their
carrying amounts may not be recoverable. Additionally, goodwill and intangible assets still under development are subject to an annual impairment test.

An asset is impaired to the extent that its carrying amount exceeds its recoverable amount. An asset’s recoverable amount represents the higher of the
asset’s value in use and its fair value less costs to sell. An asset’s value in use represents the present value of the future cash flows expected to be derived
from the asset in its current use and condition. Fair value less cost to sell is the amount expected to be obtainable from the sale of the asset in an arm’s
length transaction between knowledgeable, willing parties, less the costs of disposal.

Where it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount is determined for the cash-generating unit
(“CGU”) to which the asset belongs. An asset’s CGU is the smallest group of assets that includes the asset and generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. Goodwill does not generate cash flows independently of other assets and
is, therefore, tested for impairment at the level of the CGU or group of CGUs that are expected to benefit from the synergies of the related
business combination.

Value in use is based on estimates of pre-tax cash flows in the periods covered by budgets and/or plans that have been approved by the Board. Such cash
flow estimates are discounted at a pre-tax discount rate that reflects the risks specific to the asset or the CGU of group of CGUs to which the asset belongs.

Impairment losses are recognised in profit or loss.

Impairment losses recognised in previous periods for assets other than goodwill are reversed if there has been a change in the estimates used to
determine the asset’s recoverable amount, but only to the extent that the carrying amount of the asset does not exceed its carrying amount had
no impairment been recognised in previous periods. Impairment losses in respect of goodwill are not reversed.

Financial instruments

(a) Trade and other receivables
Trade receivables represent the invoiced amount of sales of goods to customers for which payment has not been received, less an allowance for doubtful
accounts where there is objective evidence that the Group may not be able to collect the amounts due. Such evidence may include the period
outstanding, the payment history and financial condition of the customer, general economic conditions and other information. When a trade receivable
is determined to be uncollectable it is written off, firstly against any allowance made and then directly to profit or loss. Subsequent recoveries are credited
to profit or loss.

Trade receivables sold under the Group’s receivables financing facilities are derecognised from the balance sheet because the financial institutions
concerned assume the credit risk associated with them. Retentions held by the financial institutions are recognised as other receivables.

Long-term receivables are discounted where the effect is material.

(b) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits available on demand and other short-term highly liquid investments with a maturity
on acquisition of three months or less.

Interest income on cash and cash equivalents is accrued on a time basis.

(c) Available-for-sale investments
Available-for-sale investments are initially measured at fair value plus transaction costs, if any. Such investments are subsequently measured at fair value
and gains and losses are recognised in other comprehensive income, except for impairment losses arising from the significant or prolonged decline in fair
value which are recognised in profit or loss.

Equity investments whose fair value cannot be reliably measured are measured at cost less any identified impairment losses.

(d) Trade and other payables
Trade payables represent the amount of invoices received from suppliers for purchases of goods and services for which payment has not been made.
Long-term payables are discounted where the effect is material.

(e) Bank and other loans
Bank and other loans are initially measured at fair value plus transaction costs, if any. Such loans are subsequently measured at amortised cost using the
effective interest method.

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(f) Derivative financial instruments
The Group uses derivative financial instruments to reduce its exposure to currency exchange rate movements and holds equity options and warrants
in relation to certain of its strategic investments. The Group does not hold or issue derivatives for speculative purposes.

All derivative financial instruments held by the Group are recognised as assets and liabilities measured at fair value. Unless a derivative is in a designated
and effective cash flow hedging relationship, all fair value gains and losses are recognised in profit or loss. Where the fair value of a derivative on initial
recognition differs from the transaction price, if any, the difference is recognised immediately in profit or loss only if the fair value is evidenced by a quoted
price in an active market or is based on a valuation technique that uses only data from observable markets.

(g) Convertible bonds
At the time of issue, the proceeds from convertible bonds are split into a liability component and an equity component. The liability component
is subsequently measured at amortised cost using the effective interest method.

(h) Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount presented in the balance sheet where there is a currently enforceable legal right
to offset the recognised amounts and management intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Inventories

Inventories comprise raw materials, work in progress and finished goods.

Inventories are stated at the lower of cost and net realisable value, with due allowance for any excess, defective or obsolete items.

Cost is determined using the first-in, first-out (“FIFO”) method. Cost of finished goods and work in progress includes materials, direct labour, other direct
costs and related production overheads. Net realisable value is the estimated selling price, less estimated costs of completion and estimated selling,
marketing and distribution costs.

Leases

Leases that confer rights and obligations similar to those that attach to owned assets are classified as finance leases. All other leases are classified
as operating leases.

Assets held under finance leases are recognised as assets within property, plant and equipment, initially measured at the fair value of the leased asset or,
if lower, the present value of the minimum lease payments, and a corresponding liability is recognised. Subsequently, the assets are depreciated over the
shorter of the expected useful life of the asset or the term of the lease. At inception of the lease, the lease payments are apportioned between a capital
element and an interest element so as to achieve a constant periodic rate of interest on the outstanding liability. Subsequently, the interest element is
recognised as an expense in profit or loss while the capital element is applied to reduce the outstanding liability.

Operating lease payments, net of any incentives receivable, are recognised in profit or loss on a straight-line basis over the term of the lease.

Hedge accounting

The Group uses forward currency contracts to hedge its exposure to exchange rate movements on forecast operating expenses denominated in foreign
currencies, principally the Euro and the pound sterling. Where possible, these contracts are designated as hedging instruments in cash flow hedge
relationships. Changes in the fair value of such hedging instruments are recognised in other comprehensive income to the extent that the hedges are
effective. Ineffective portions are recognised in profit or loss immediately. Cumulative fair value gains and losses recognised in other comprehensive
income are reclassified from equity to profit or loss when the forecast cash flow occurs.

Hedge accounting is discontinued if the Group revokes the hedge relationship, when the hedging instrument expires or is sold, terminated or exercised,
or when it no longer qualifies for hedge accounting. If the hedging instrument expires or is sold, terminated or exercised, or if the hedge relationship no
longer meets the conditions for hedge accounting, the cumulative fair value gain or loss remains in equity until the forecast cash flow occurs. If the
hedged forecast cash flow is no longer expected to occur, the cumulative fair value gain or loss is reclassified from equity to profit or loss immediately.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

2. Significant accounting policies continued
Income taxes

Current tax is the amount of tax payable or recoverable in respect of the taxable profit or loss for the period. Taxable profit differs from accounting profit
because it excludes income or expenses that are recognised in the period for accounting purposes but are either not taxable or not deductible for tax
purposes or are taxable or deductible in earlier or subsequent periods. Current tax is calculated using tax rates and laws that have been enacted or
substantively enacted at the balance sheet date.

Deferred tax is tax expected to be payable or recoverable on temporary differences between the carrying amount of an asset or liability in the financial
statements and its tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available in
the future against which they can be utilised.

Deferred tax assets and liabilities are not recognised in respect of temporary differences arising from the initial recognition of goodwill or from the initial
recognition of other assets or liabilities in a transaction other than a business combination that affects neither accounting profit nor taxable profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, except where the Group is able
to control the reversal of the temporary difference and it is probable that it will not reverse in the foreseeable future.

Deferred tax assets and liabilities are measured using the tax rates that are expected to apply when the asset is realised or the liability is settled, based
on tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

Where there is uncertainty concerning the tax treatment of an item or group of items, the amount of current and deferred tax recognised is based
on management’s expectation of the likely outcome of the examination of the uncertain tax treatment by the relevant tax authorities. Uncertain tax
treatments are reviewed regularly and current and deferred tax amounts are adjusted to reflect changes in facts and circumstances, such as the expiry
of limitation periods for assessing tax, administrative guidance given by the tax authorities and court decisions.

Current tax assets and liabilities are offset when there is a legally enforceable right to set off the amounts and management intends to settle on a net basis.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets
and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.

Current tax and deferred tax is recognised in profit or loss unless it relates to an item that is recognised in the same or a different period outside profit
or loss, in which case the related tax is also recognised outside profit or loss, either in other comprehensive income or directly in equity.

Provisions

Provisions for product warranty claims are established based on historical trends of warranty costs as a percentage of sales.

Dilapidation provisions are established for the cost of restoring leasehold property to its original condition at the end of the lease. Provisions are also
established for surplus leasehold property or otherwise onerous property leases.

Provisions are discounted where the effect is material.

Defined contribution pension plans

Contributions to defined contribution and state-funded pension plans are recognised in profit or loss in the period to which the contributions relate.

Share-based compensation

As described in note 29, the Company operates share-based compensation plans under which it grants options and other awards over its ordinary shares
to employees of its subsidiaries. Awards granted under the existing plans are classified as equity-settled awards. The Group recognises a compensation
expense that is based on the fair value of the awards measured at the grant date using the Black-Scholes option pricing formula or a Monte Carlo
valuation model. Fair value is not subsequently remeasured unless relevant conditions attaching to the awards are modified.

Fair value reflects any market performance conditions and all non-vesting conditions. Adjustments are made to the compensation expense to reflect
actual and expected forfeitures due to failure to satisfy service conditions or non-market performance conditions.

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Generally, the resulting compensation expense is recognised in profit or loss on a straight-line basis over the vesting period and a corresponding credit
is recognised in equity. In the event of the cancellation of an option or an award by the Company or by the participating employee, the compensation
expense that would have been recognised over the remainder of the vesting period is recognised immediately in profit or loss.

Payroll taxes are payable in the UK and in certain other jurisdictions on the exercise or vesting of awards. Provision is made for such taxes based on the
intrinsic value of the relevant awards at the balance sheet date so as to accrue for the taxes payable over the vesting period of the awards.

Shares held by employee benefit trusts

The Group provides finance to two trusts to purchase the Company’s ordinary shares in order to meet its obligations under its share-based compensation
plans. When the trusts purchase such shares, the cost of the shares is debited to equity and subsequent sales or transfers of the shares by the trusts are
accounted for within equity.

Treasury shares

Treasury shares comprise the Company’s ordinary shares that have been purchased under the Company’s share buyback programme. Purchases made
under the programme are off market from the perspective of the Company and are effected by way of contingent forward share purchase contracts with
third party brokers. On inception of each tranche, a liability is recognised for the maximum cost of the shares to be purchased under the tranche and there
is a corresponding debit to retained earnings. On intermediate and final settlement of purchases with the broker, the cost of the shares purchased is
credited to retained earnings and debited to treasury shares within equity. On final settlement, any remaining balance of the liability is credited back
to retained earnings.

Subsequent sales, transfers or cancellations of treasury shares by the Company will be accounted for within equity.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements requires management to make judgements and estimates that affect the reported amount of assets and liabilities
at the date of the financial statements and the reported amount of income and expenses during the reporting period.

Critical judgements in applying accounting policies
Critical judgements are the judgements, apart from those involving estimations, that management has made that have had the most significant effect
on amounts included in the consolidated financial statements.

Business combinations
When the Company makes an investment in a business, management must make judgements as to whether the Company has obtained control over
the business and the investment should therefore be accounted for as a business combination.

Accounting for business combinations requires management to make judgements with regard to the purchase price allocation, in particular with regard
to the identification and measurement of intangible assets.

When the amount of goodwill acquired in the business combination has been determined, management must exercise judgement to allocate
the goodwill for the purpose of future impairment testing to those CGUs or groups of CGUs that it expects will benefit from the synergies of the
business combination.

Consolidation of Dyna Image
Dialog has a 45.7% ownership interest in Dyna Image with equivalent shareholder voting rights and has a call option over the shares in Dyna Image
that it does not already own.

Dyna Image is accounted for as a subsidiary even though the Company has neither a majority ownership interest nor a majority of the shareholder voting
rights because management considers that the terms of the call option are such as to give the Company the power to direct the activities of Dyna Image
that will significantly affect its returns.

Revenue recognition
Application of the Group’s revenue recognition policy requires management to make judgements as to when the significant risks and rewards of
ownership of products have been transferred to the customer, whether the amount of revenue can be measured reliably and whether it is probable that
payment will be received. Particular judgement is required as to when the significant risks and rewards of ownership are transferred to distributors who
may benefit from sales price allowances and return rights.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

2. Significant accounting policies continued
Product development costs
Product development costs are capitalised from the time when the technical feasibility and commercial viability of the product can be demonstrated.
Management is therefore required to make judgements about the technical feasibility of the product based on engineering studies and the commercial
viability of the product based on expectations concerning the marketability of the product, the product’s useful life and the extent of future demand
from customers.

Income taxes
Uncertain tax treatments
Uncertainty may exist concerning the tax treatment of a specific item or group of items because of, for example, uncertainty as to the meaning of tax law
or to the applicability of tax law to a particular transaction or circumstance, the determination of appropriate arm’s length pricing in accordance with
OECD transfer pricing principles, including in relation to our application for a Bilateral Advance Pricing Agreement, or because the amount of current
and deferred tax depends on the results of an ongoing or future examination of previously filed tax returns by the tax authorities.

Where such an uncertainty exists, management is required to exercise its judgement in forming its expectation as to the likely outcome of the
examination of the uncertain tax treatment by the relevant tax authorities. Due to the complexity of tax laws and their interpretation, the amount
ultimately agreed with the tax authorities may differ materially from the amount of current and deferred tax recognised in the consolidated financial
statements. Accordingly, the resolution of uncertain tax treatments in future periods may give rise to material adjustments to the amounts of current and
deferred tax recognised in the consolidated financial statements. Such adjustments may have a material consequential impact on the Group’s income tax
expense in future periods.

Recoverability of deferred tax assets
Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available
in the future against which they can be utilised. Management is required to exercise its judgement in assessing the recoverability of deferred tax assets,
in particular regarding the availability of future taxable profits in the same jurisdictions against which deferred tax assets relating to losses may be utilised.

Key sources of estimation uncertainty

Key sources of estimation uncertainty are those that have a significant risk of resulting in a material adjustment to the carrying amount of assets and
liabilities within the next financial year.

Impairment of tangible and intangible assets
Impairment tests require management to determine the value in use or fair value less costs to sell of an asset or of the CGU or group of CGUs to which
the asset belongs.

Impairment tests conducted during 2016 were based on value in use. Expected future cash flows in the first three years were forecast based on the
Group’s medium range financial plan. Cash flows beyond the third year were estimated by applying a perpetuity growth factor to the forecast cash flow
in the third year. Discount rates applied to the cash flow projections were determined using a capital asset pricing model and reflected current market
interest rates, relevant equity and size risk premiums and the risks specific to the assets concerned.

Impairment losses may be recognised in the next financial year if actual cash flows in 2017 differ significantly from management’s estimates and/or there
is a significant reduction in forecast cash flows beyond 2017, or if market conditions were to cause a significant increase in the applicable discount rates.

As at 31 December 2016, the carrying amount of goodwill was US$251,208 (2015: US$251,062). Disclosures about the sensitivity of the carrying amount
of goodwill to changes in the key assumptions are presented in note 15.

Other intangible assets with a carrying amount of US$125,619 as at 31 December 2016 (2015: US$138,604) and property, plant and equipment with
a carrying amount of US$69,668 as at 31 December 2016 (2015: US$68,444) would be subject to impairment tests if there were any indicators that they
had become impaired during the next financial year.

Share-based compensation
Awards granted under the Group’s existing share-based compensation plans are classified as equity-settled awards. The Group recognises a compensation
expense that is based on the fair value of the awards measured at the grant date using the Black-Scholes option pricing formula or a Monte Carlo
valuation model. Whilst the fair value is not subsequently remeasured unless relevant conditions attaching to the awards are modified, adjustments are
made to the resulting compensation expense to reflect management’s assumptions about future forfeitures due to failure to satisfy service conditions
or non-market performance conditions. Actual forfeitures may differ from management’s estimates.

Further information about share-based compensation plans is presented in note 29.

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3. Business combination
Year ended 31 December 2016

Aborted merger with Atmel
In January 2016, Atmel Corporation Inc. (“Atmel”) terminated the merger agreement that existed with Dialog. Under the terms of the agreement,
Atmel paid us a termination fee of US$137,300. We recognised the termination fee as other operating income during 2016.

Also during 2016, we incurred residual transaction costs of US$3,485 (recognised within general and administrative expenses) and commitment fees of
US$1,913 on the borrowing facility that was arranged to finance the transaction prior to the cancellation of the facility in January 2016 (recognised within
interest expense).

Dyna Image Corporation
In June 2016, Dialog paid the deferred consideration of US$680 that was due in relation to its investment in Dyna Image Corporation (“Dyna”).

Year ended 31 December 2015

Aborted merger with Atmel
During 2015, we incurred transaction costs of US$17,604 in relation to the proposed acquisition of Atmel (recognised within general and administrative
expenses) and commitment fees of US$1,153 on the borrowing facility that was arranged to finance the transaction (recognised within interest expense).

Dyna Image Corporation
On 4 June 2015, Dialog purchased a 45.7% shareholding in Dyna for US$13,601 in cash, of which US$12,921 was paid on completion and US$680 was
deferred for 12 months. Prior to the acquisition, Dyna was a majority-owned subsidiary of the Lite-On group of companies. Dialog purchased existing
shares in Dyna from Lite-On and also subscribed for new shares.

Lite-On retained a shareholding in Dyna and the remaining shares are owned by the ShunSin Technology group of companies and directors and
employees of Dyna. When it acquired its shareholding, Dialog was granted a call option to acquire the outstanding shares in Dyna that it does not already
own in one or more tranches at any time during the three years following the closing date. Dialog considers that the call option gives it the power to
direct the relevant activities of Dyna and therefore accounted for its investment as a business combination. At the acquisition date, the fair value of the
call option was estimated to be US$992.

Dyna specialises in the design and manufacture of optical, inertia and environmental sensors for consumer electronics applications and its sensor
technology is complementary to Dialog’s power management, audio and Bluetooth® expertise in smartphone, IoT and smart lighting applications.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

3. Business combination continued
Assets acquired and liabilities assumed

Dialog allocated the purchase consideration to the identifiable assets and liabilities of Dyna and goodwill as follows:

Assets acquired

Cash and cash equivalents

Trade and other receivables

Inventories

Other current assets

Other intangible assets

Property, plant and equipment

Investments

Deferred tax assets

Total assets acquired

Liabilities assumed

Trade and other payables

Other current liabilities

Deferred tax liabilities

Total liabilities

Net identifiable assets acquired

Non-controlling interests

Goodwill arising on acquisition

Consideration

Purchase consideration was satisfied by:

Cash paid on completion

Deferred cash payment

Call option over non-controlling interests

Consideration

US$000

10,285

1,836

2,212

592

5,600

2,154

859

23,544

6,205

648

1,000

7,853

15,691

(9,729)

6,647

12,609

12,921

680

(992)

12,609

Identifiable intangible assets acquired comprised developed technology. Deferred tax assets recognised mainly represented tax loss carryforwards.

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Non-controlling interests in Dyna comprise Common Stock and Convertible Preferred Shares. Dialog measured the non-controlling interests in the
Common Stock at their proportionate share of the net identifiable assets acquired. Since the Convertible Preferred Shares are not entitled to a
proportionate share of Dyna’s net assets in the event of liquidation, the non-controlling interests in the Convertible Preferred Shares were measured
at their fair value at the acquisition date that was based on the price at which Dialog purchased and subscribed for shares in Dyna.

Goodwill recognised on the acquisition of Dyna is attributable to the future strategic growth opportunities arising from the acquisition and the expected
synergies with Dialog’s existing business in each of its Mobile Systems, Connectivity and Power Conversion segments. None of the goodwill was
deductible for tax purposes.

During 2015, Dyna contributed US$4,798 to the Group’s revenue and a loss before tax of US$3,240. If Dyna had been acquired on 1 January 2015,
the Group’s revenue would have been US$2,334 higher at US$1,357,646 and its profit before tax would have been US$1,685 lower at US$253,154.

During 2015, costs of US$51 relating to the acquisition of Dyna were included in general and administrative expenses.

Contingent consideration relating to iWatt. Inc
On 9 April 2014, the previous owners of iWatt Inc. commenced litigation against Dialog in the Court of Chancery in Delaware seeking damages for alleged
breaches of the purchase agreement as it relates to the earn-out payments. During the second quarter of 2015, a settlement agreement was reached
pursuant to which Dialog paid US$3,375 to the previous owners of iWatt Inc. in full and final settlement of the claim without admission of faults,
wrong doing or liability by Dialog. Payment of this amount was made in May 2015 and it was included within general and administrative expenses.

Year ended 31 December 2014

Contingent consideration relating to iWatt. Inc
On 16 July 2013, Dialog acquired 100% of the voting rights of iWatt Inc. The purchase consideration included a contingent consideration of up to
US$35 million which was payable dependent on the achievement of revenue targets within two earn out periods. Up to US$17 million was payable
dependent on revenue in the six months ended 31 December 2013 and up to a further US$18 million was payable dependent on revenue in the nine
months ended 30 September 2014.

Dialog initially recognised a provision of US$5,188 in relation to the fair value of the contingent consideration as at the acquisition date. Subsequently,
Dialog considered that the revenue target for neither earn out period was achieved and therefore released US$3,249 of the provision for contingent
consideration during 2013 and the remaining US$1,939 during 2014.

Aborted merger with AMS AG
During 2014, we incurred transaction costs amounting to US$1,268 in connection with the aborted merger with AMS AG (recognised within general
and administrative expenses).

4. Operating profit
a) Revenue

Revenue may be analysed as follows:

Sale of goods

Royalties

Total

2016
US$000

2015
US$000

2014
US$000

1,196,528

1,353,936

1,155,124

1,083

1,376

981

1,197,611

1,355,312

1,156,105

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

4. Operating profit continued
b) Operating expenses

Operating profit is stated after charging/(crediting):

Cost of inventories included in cost of sales

Write-down of inventories

Research and development costs expensed as incurred

Government incentives (deducted from research and development expenses)

Depreciation of property, plant and equipment

Loss on disposal of fixed assets

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

Impairment of intangible assets

Operating lease rentals

Aborted merger costs (note 3)

Settlement of iWatt contingent consideration (note 3)

c) Other operating income

Other operating income comprised:

Income from research and development contracts

Atmel termination fee (note 3)

Release of iWatt contingent consideration (note 3)

Income from insurance benefits and compensation

Total

2016
US$000

592,527

4,375

248,434

(7,089)

27,868

1,569

35,949

19,363

7,779

2,018

6,789

–

9,797

3,485

–

2016
US$000

408

137,300

–

2015
US$000

664,355

9,047

229,258

(6,076)

24,010

1,751

31,120

13,734

7,847

1,500

8,039

–

9,177

17,604

3,375

2015
US$000

1,159

–

137,708

1,159

2014
US$000

580,485

9,828

214,904

(1,096)

22,144

407

33,431

12,792

8,289

1,291

11,059

2,478

7,130

1,268

–

2014
US$000

1,546

–

1,939

931

4,416

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5. Employee information
Employment costs were as follows:

Wages and salaries

Social and security costs

Share-based compensation

Pension costs from defined contribution plans

Total

2016
US$000

167,090

24,932

28,167

10,154

2015
US$000

174,359

21,336

19,215

9,505

230,343

224,415

2014
US$000

161,405

18,522

21,173

9,325

210,425

Pension costs from defined contribution plans include costs for the state funded pension plan in Germany of US$3,400 (2015: US$3,104; 2014: US$3,256).

Compensation of key management personnel is set out in note 34.

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

Administration

Information technology

Total

6. Auditor’s remuneration
Fees payable to the Company’s auditors were as follows:

Audit and audit-related services

Audit of the parent company and consolidated financial statements

Audit of the Company’s subsidiaries

Other audit-related services

Other services

Tax advisory services

Services related to corporate finance transactions

Total

2016

1,130

176

235

167

2015

964

175

218

147

2014

832

157

199

131

1,753

1,546

1,360

2016
US$000

2015
US$000

2014
US$000

Deloitte

Ernst & Young

280

320

244

–

844

360

390

1,043

555

2,396

543

187

2,480

3,335

During 2015, the Group also incurred fees amounting to US$1,498 payable to the Company’s previous auditors, Ernst & Young LLP.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

7. Finance income/(expense)
a) Interest income

Interest on cash deposits

Other interest income

Total

b) Interest expense

Interest on receivables financing facilities

Interest on finance leases and hire purchase contracts

Commitment fees (note 3)

Interest on Convertible Bonds (note 24)

Interest on bank borrowings

Unwinding of discount on provisions (note 21)

Other interest expense

Total

c) Other finance (expense)/income

Currency translation (loss)/gain, net

Fair value gain on Energous warrants (note 18)

Fair value loss on Dyna call option (note 18)

Total

2016
US$000

3,657

3,665

2016
US$000

(850)

(560)

(1,913)

–

(110)

(14)

(3,447)

2016
US$000

(6,017)

1,929

(731)

(4,819)

2015
US$000

779

436

1,215

2015
US$000

(815)

(885)

(1,153)

(3,482)

–

(39)

(37)

2014
US$000

379

419

2014
US$000

(589)

(1,060)

–

(10,279)

(2,814)

(54)

(33)

(6,411)

(14,829)

2015
US$000

408

–

(119)

289

2014
US$000

(2,171)

–

(2,171)

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8. Income taxes
Income tax recognised in profit or loss

The components of the Group’s income tax expense for the year were as follows:

Current tax

United Kingdom

Foreign

Deferred tax

United Kingdom

Foreign

Income tax expense

Current tax

Current income tax charge

Adjustments in respect of prior years

Deferred tax

Origination and reversal of temporary differences

Recognition of previously unrecognised deferred tax assets

Movement in deferred tax liabilities following intra-group reorganisation

Adjustments in respect of prior years

Income tax expense

2016
US$000

2015
US$000

2014
US$000

(10,171)

(36,127)

(549)

(243)

(47,090)

–

(78,094)

(57,565)

(10,976)

11,490

(77,580)

2,558

23,765

(31,242)

2016
US$000

2015
US$000

2014
US$000

(46,993)

695

(77,862)

(232)

(3,922)

(10,014)

–

808

2,322

8,105

1,292

1,131

(57,559)

(6)

(6,895)

11,009

17,759

4,450

(47,090)

(77,580)

(31,242)

In 2014, we recognised a non-cash deferred tax credit of US$17,759 resulting from an intra-group reorganisation of certain Intellectual Property that was
acquired with iWatt, Inc., which reduced the amount of the related deferred tax liabilities. We recognised further deferred tax credits of US$1,292 in 2015
and US$808 in 2016 that related to the ongoing impact of the reorganisation on the deferred tax liabilities.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

8. Income taxes continued
Factors affecting the income tax expense for the year

The Group’s income tax expense differed from the amount that would have resulted from applying the standard rate of corporation tax in the UK to the
Group’s profit before income taxes for the reasons shown in the following table:

Profit before income tax

Income tax expense at UK corporation tax rate of 20.0% (2015: 20.25%; 2014: 21.5%)

Effect of different foreign tax rates

Non-taxable income :

– Atmel termination fee

– Other non-taxable income

Non-deductible expenses:

– Atmel transaction costs

– Non-deductible portion of share-based compensation

– Other non-deductible expenses

Tax benefit from share-based compensation

Tax benefit from Intellectual Property and research and development incentives

Benefit from previously unrecognised deferred tax assets

Additional tax losses for which no deferred tax asset is recognised

Movement in deferred tax liabilities following intra-group reorganisation

Taxable gain on intra-group reorganisation

Differences arising from different functional and tax currencies

Adjustments in respect of prior years

Other items

Income tax expense

2016
US$000

305,206

(61,041)

(15,434)

27,460

240

(697)

(7,614)

(3,068)

4,871

8,728

–

(1,321)

808

–

(2,976)

3,020

(66)

2015
US$000

254,839

(51,605)

(18,131)

–

(3,798)

(5,008)

(1,591)

2,509

4,342

8,105

(2,828)

1,292

–

(12,089)

899

323

2014
US$000

169,321

(36,404)

(12,901)

–

(5,120)

(553)

4,267

–

11,009

(6,495)

17,759

(2,445)

(5,426)

4,444

623

(47,090)

(77,580)

(31,242)

The Group’s income tax expense for 2016 was US$47,090 (2015: US$77,580; 2014: US$31,242), an effective tax rate for the year of 15.4% (2015: 30.4%;
2014: 18.5%).

Our effective tax rate is sensitive to the geographic mix of profits and reflects a combination of different tax rates in different countries, in particular
higher tax rates in Germany and the US. Our effective tax rate can also be affected by foreign exchange rate movements which give rise to deferred tax
movements where an entity’s functional currency differs from the currency in which it is required to calculate and pay income taxes. The effect on our
2016 tax rate was lower than in 2015 and 2014 due to smaller US dollar to Euro exchange rate movements in 2016.

Our effective tax rate is reduced because a large proportion of Dialog’s research and development activities are undertaken in the UK and we are therefore
able to benefit from the UK tax regime for technology companies.

Our low effective tax rate for 2016 reflects the tax treatment of the Atmel termination fee of US$137,300. We have obtained tax advice that the termination
fee should not be taxable in the UK. We have therefore concluded that no tax liability should arise and have not recognised a tax expense in relation to the
termination fee. Our effective tax rate for 2014 was low principally as a consequence of the significant deferred tax credit resulting from the intra-group
reorganisation of certain Intellectual Property acquired with iWatt, Inc.

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8. Income taxes continued
Factors affecting the income tax expense in future years

Factors that may affect the Group’s future tax expense include foreign exchange rate movements, changes in tax legislation and tax rates and the
resolution of open issues with tax authorities, including the conclusion of our application for a Bilateral Advance Pricing Agreement relating to the
alignment of ownership of the Group’s Intellectual Property with the underlying value contributions of group companies.

The Group maintains provisions for potential tax liabilities where uncertainty exists concerning the amount of current or deferred tax recognised.
In particular, current and deferred tax amounts recognised as at 31 December 2016 reflect our expectation of the likely final agreement of the Bilateral
Advice Pricing Agreement. Due to the complexity of tax laws and their interpretation, the amounts ultimately agreed with tax authorities in respect
of these uncertainties may differ materially from the amounts provided and may therefore affect the Group’s income tax expense in future periods.

International tax reform remains a key focus of attention, including the OECD’s Base Erosion & Profit Shifting project and the EU’s action plan for fair and
efficient corporate taxation. We continually monitor developments and assess the potential impact for Dialog of such initiatives. We have concluded
that current or announced future tax law changes as a result of such initiatives give rise to no changes to the principal risks for Dialog.

Income tax recognised outside profit or loss

Income tax recognised in other comprehensive income was as follows:

Items that may be reclassified to profit or loss

Currency translation differences on foreign operations:

– Deferred tax expense

Cash flow hedges:

– Current tax credit

– Deferred tax (expense)/credit

Income tax credited/(charged) to other comprehensive income

Income tax recognised directly in equity was as follows:

Share-based compensation:

– Current tax credit

– Deferred tax credit

Total tax credited directly to equity

2016
US$000

2015
US$000

2014
US$000

(47)

(10)

(265)

1,890

(1,125)

718

2016
US$000

2,544

522

3,066

–

(3,694)

(3,704)

2015
US$000

–

6,878

–

5,445

5,180

2014
US$000

–

7,517

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

8. Income taxes continued
Deferred tax

Analysis of movement in the net deferred tax balance during the year:

As at 1 January 2015

Exchange movements

Recognised in income

Recognised in other comprehensive income

Recognised in equity

Acquisitions and disposals

As at 31 December 2015

Exchange movements

Recognised in income

Recognised in other comprehensive income

Recognised in equity

As at 31 December 2016

US$000

23,316

(77)

514

(3,704)

6,878

(71)

26,856

(5)

(792)

(1,172)

522

25,409

Deferred income tax assets and liabilities, before offset of balances within countries, are as follows:

Temporary differences relating to intangible assets

Temporary differences relating to share based compensation

Temporary differences relating to licence royalties

Other temporary differences

Deferred taxes in relation to tax credits

Net operating loss carryforwards

Recognised net deferred tax assets/(liabilities)

Amount (charged)/credited

to profit or loss

Net recognised deferred tax

asset/(liability)

2016
US$000

2,058

382

3,325

(4,096)

1,587

(4,048)

(792)

2015
US$000

5,219

(7,679)

3,325

10,051

594

(10,996)

514

As at 31 December
2016
US$000

As at 31 December
2015
US$000

(3,518)

12,263

(3,325)

(6,699)

5,381

21,307

25,409

(5,721)

11,359

(6,650)

(899)

3,794

24,973

26,856

Deferred tax assets and liabilities are analysed in the consolidated balance sheet, after offset of balances within countries, as follows:

Deferred tax assets

Deferred tax liabilities

Recognised net deferred tax assets/(liabilities)

As at 31 December
2016
US$000

As at 31 December
2015
US$000

27,379

(1,970)

25,409

28,454

(1,598)

26,856

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8. Income taxes continued
Tax loss carryforwards, temporary differences and net deferred tax assets are summarised as follows:

Germany

Netherlands

Other

Total

Tax loss
carryforwards
US$000

As at 31 December 2016
Temporary
differences
US$000

Net deferred tax
assets/(liabilities)
US$000

As at 31 December 2015

Tax loss
carryforwards
US$000

Temporary
differences
US$000

Net deferred tax
assets/(liabilities)
US$000

–

61,416

15,597

51,893

10,354

139,260

(6,930)

38,716

(1,229)

(13,598)

3,043

20,002

(1,967)

7,289

3,592

20,426

(3,931)

25,409

–

75,100

25,820

51,081

15,837

167,838

(5,675)

40,611

(10,518)

(16,700)

342

8,060

(1,597)

8,286

3,826

14,195

2,146

26,856

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$85,505 (2015: US$83,020). In addition, no deferred tax asset is recognised in respect of federal and state tax credits of US$7,667 (2015: US$5,957).

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.

No deferred tax assets were recognised for tax loss carryforwards and temporary differences in respect of which there is expected to be insufficient future
taxable profit and therefore utilisation is not probable.

The tax loss carryforwards in the US will expire between 2018 and 2035, in the Netherlands between 2019 and 2023 and in Taiwan between 2023
and 2026. Other tax loss carryforwards have no expiration date.

No deferred tax has been recognised in respect of undistributed earnings of subsidiaries because no liability is expected to arise on distribution under
applicable tax legislation or because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that
such differences will not reverse in the foreseeable future.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

9. 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/(loss) 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.

Profit attributable to shareholders in the Company and the weighted average number of ordinary shares for calculating basic and diluted earnings
per share were calculated as follows:

Profit attributable to shareholders in the Company

For calculating basic earnings per share

Add back:

– Interest expense on convertible bonds (net of tax)

For calculating diluted earnings per share

Weighted average number of ordinary shares

Shares in issue

Deduct:

– Shares held in treasury

– Shares held by employee benefit trusts

For calculating basic earnings per share

Add:

– Dilutive share options and awards

– Dilutive effect of the Convertible Bonds

For calculating diluted earnings per share

Basic EPS

Diluted EPS

2016
US$000

2015
US$000

2014
US$000

260,940

178,766

138,079

–

260,940

Number

3,483

182,249

Number

10,279

148,358

Number

77,865,955

75,515,745

68,068,930

(523,135)

–

(1,296,216)

(1,753,204)

(739,976)

76,046,604

73,762,541

67,328,954

4,351,328

–

3,537,414

2,360,078

2,745,904

6,806,893

80,397,932

79,660,033

76,881,751

a/c

b/d

US$

3.43

3.25

US$

2.42

2.29

US$

2.05

1.93

During 2016, the average number of anti-dilutive share options outstanding was 423,760 (2015: 632,893; 2014: 950,340).

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10. Cash and cash equivalents

Cash at bank

Cash held by employee benefit trusts

Cash available from receivables financing facilities

Short-term deposits

Total

As at 31 December
2016
US$000

As at 31 December
2015
US$000

5,131

15,160

88,876

588,000

697,167

34,400

10,047

91,362

431,000

566,809

Short-term deposits are made for varying periods of up to three months.

As at 31 December 2016, short-term deposits included US$nil (2015: US$40,412) drawn from amounts available from receivables financing facilities.

11. Trade and other receivables

Trade accounts receivable

Retentions under receivables financing facilities

Total

As at 31 December
2016
US$000

As at 31 December
2015
US$000

64,685

16,088

80,773

48,692

23,976

72,668

Trade accounts receivable are generally on 30 to 60 day credit terms. Trade accounts receivable are regularly reviewed for collectability and an allowance
is established for doubtful accounts against which receivables are written-off when they are no longer considered to be collectible. Trade accounts
receivable may be analysed as follows:

Amounts neither past due nor impaired

Amounts past due but not impaired:

– Less than 30 days past due

– 30 to 59 days past due

– 60 to 89 days past due

– More than 90 days past due

Amounts impaired:

– Amounts that are impaired

– Allowance for doubtful accounts

Total

As at 31 December
2016
US$000

As at 31 December
2015
US$000

63,949

47,894

575

161

–

736

118

(118)

64,685

431

356

798

(73)

48,692

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

11. Trade and other receivables continued
Movements on the allowance for doubtful accounts were as follows:

At the beginning of the year

Allowances charged to profit or loss

Utilised for write-offs

Releases credited to profit or loss

At the end of the year

12. Other current financial assets
Other current financial assets comprise:

Deposits for hedging contracts

2016
US$000

2015
US$000

–

118

(22)

(14)

As at 31 December
2016
US$000

As at 31 December
2015
US$000

–

2,086

Collateral was required to be placed in relation to certain currency forwards and swaps entered into with a counterparty with which we no longer
conduct such transactions.

13. Inventories
Inventories were as follows:

Raw materials

Work-in-process

Finished goods

Total

14. Other current assets
Other current assets were as follows:

Prepaid expenses

Other tax receivables

Other assets

Total

As at 31 December
2016
US$000

As at 31 December
2015
US$000

12,334

29,337

63,632

105,303

23,651

43,545

67,734
67,734

134,930

As at 31 December
2016
US$000

As at 31 December
2015
US$000

8,123

1,982

5,106

15,211

7,812

6,720

6,324

20,856

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15. Goodwill
Movements on goodwill during the years ended 31 December 2016 and 2015 were as follows:

At the beginning of the year

Investment in Dyna Image (note 3)

Effect of movements in foreign currency

At the end of the year

2016
US$000

251,062

–

146

2015
US$000

244,878

6,647

(463)

251,208

251,062

Dialog’s operating segments comprise its cash-generating units (CGUs) for the purpose of allocating goodwill. Goodwill was allocated as follows:

Mobile Systems

Connectivity

Power Conversion

Total

As at 31 December
2016
US$000

As at 31 December
2015
US$000

108,113

91,997

51,098

251,208

108,092

91,909

51,061

251,062

Impairment tests carried out during the year

Goodwill is tested for impairment annually and whenever there is an indication that it may be impaired. Goodwill is tested for impairment at the level of
the operating segments to which it is allocated. Goodwill is impaired if the carrying amount of the operating segment to which it is allocated exceeds its
recoverable amount. In conducting impairment tests of goodwill during 2016, we measured the recoverable amount of each operating segment to which
goodwill is allocated on a value in use basis. Value in use represents the present value of the future cash flows that we estimate will be generated by the
assets allocated to each operating segment in their current use and condition.

Expected future cash flows in the first three years were forecast based on the Group’s medium range financial plan. Cash flows beyond the third year were
estimated by applying a perpetuity growth factor to the forecast cash flow in the third year.

We consider that the key assumptions used in determining value in use are the expected compound annual growth of revenue during the forecast
period, the perpetuity growth rate and the discount rate.

Expected future revenue of each operating segment is based on external forecasts of the future volume of the end markets for the operating segment’s
products adjusted to reflect factors specific to the operating segment such as its customer base and available distribution channels, the possibility of new
entrants to the market and future technological developments. Cash flows during the forecast period also reflect the cost of materials and other direct
costs, research and development expenditure and selling, general and administrative expenses. We estimated the cost of materials and other direct
and indirect costs based on current prices and market expectations of future price changes.

We applied a perpetuity growth rate of 2% per annum in estimating the future cash flows of each operating segment in both 2016 and 2015, which
we consider to be the long-term growth rate in the demand for the products of each operating segment in its end markets.

Discount rates applied to the cash flow projections were determined using a capital asset pricing model and reflected current market interest rates,
relevant equity and size risk premiums and the risks specific to the operating segment concerned. Pre-tax discount rates used were as follows: Mobile
Systems 12.9% (2015: 11.9%); Connectivity 14.3% (2015: 11.6%); and Power Conversion 11.2% (2015: 11.4%).

We did not recognise any goodwill impairment during 2016 and the recoverable amount of each operating segment to which goodwill is allocated
was comfortably in excess of its carrying amount.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

16. Other intangible assets
Movements on other intangible assets for the years ended 31 December 2016 and 2015 were as follows:

Acquired customer-
related intangible
assets
US$000

Purchased software,
licences and other
US$000

Patents
US$000

Product
development assets
US$000

Cost

As at 1 January 2015

Effect of movements in foreign currency

Additions

Acquisitions through business combinations

Disposals

As at 31 December 2015

Effect of movements in foreign currency

Additions

Reclassifications

Disposals

As at 31 December 2016

Amortisation and impairment losses

As at 1 January 2015

Effect of movements in foreign currency

Amortisation charge for the year

Disposals

As at 31 December 2015

Effect of movements in foreign currency

Amortisation charge for the year

Disposals

As at 31 December 2016

Net book value

As at 31 December 2015

As at 31 December 2016

Hire purchase contracts

77,075

–

77,075

–

77,075

(26,004)

–

(7,296)

–

(33,300)

–

(7,296)

–

64,999

137

4,076

–

(215)

68,997

5,411

(5)

(1,726)

72,679

(40,324)

(105)

(8,437)

169

(48,697)

(8,673)

662

10,417

141

4,257

–

(1)

14,814

–

2,755

(64)

93,150

(213)

24,498

5,600

(233)

122,802

122

15,802

–

17,510

138,726

Total
US$000

245,641

32,831

5,600

(449)

283,688

124

23,968

–

(1,790)

305,990

(5,059)

(11)

(1,421)

–

(6,491)

–

(42,749)

(114,136)

(57)

(13,969)

179

(173)

(31,123)

348

(56,596)

(145,084)

(11)

(9)

(1,509)

(18,471)

(35,949)

–

671

(40,596)

(56,706)

(7,991)

(75,078)

(180,371)

43,775

36,479

20,300

15,973

8,323

9,519

66,206

63,648

138,604

125,619

The carrying value of intangible assets held under hire purchase contracts at 31 December 2016 was US$5,967 (2015: US$10,703). Additions during
the year were US$ nil (2015: US$712). As at 31 December 2016, future minimum payments under those hire purchase contracts were US$5,100
(2015: US$9,504). The present value of the net minimum lease payments was US$1,173 (2015: US$221).

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17. Property, plant and equipment
Movements on property, plant and equipment for the years ended 31 December 2016 and 2015 were as follows:

Cost

As at 1 January 2015

Effect of movements in foreign currency

Additions

Acquisitions through business combinations

Reclassifications

Disposals

As at 31 December 2015

Effect of movements in foreign currency

Additions

Reclassifications

Disposals

As at 31 December 2016

Depreciation and impairment losses

As at 1 January 2015

Effect of movements in foreign currency

Depreciation charge for the year

Reclassifications

Disposals

As at 31 December 2015

Effect of movements in foreign currency

Depreciation charge for the year

Disposals

As at 31 December 2016

Net book value

As at 31 December 2015

As at 31 December 2016

Finance leases

Test equipment
US$000

Leasehold
improvements
US$000

Office and other
equipment
US$000

Construction in
progress
US$000

124,390

(77)

12,297

1,600

127

(206)

138,131

(10)

13,152

1,096

(2,370)

15,512

2,503

–

942

(267)

18,741

(37)

2,044

1,276

(123)

149,999

21,901

(97,636)

(10,978)

178

(108,385)

(12,927)

2,366

(5,924)

(37)

(2,624)

–

207

(8,378)

(3,333)

53,810

15,443

319

(2,493)

67,162

(175)

11,089

2,866

(1,503)

79,439

(32,473)

(230)

(10,552)

(21)

1,340

(41,936)

109

(11,608)

990

(118,918)

(11,612)

(52,445)

1,584

2,487

539

(1,388)

(115)

3,109

3,685

(5,238)

(259)

1,304

–

Total
US$000

195,296

32,730

2,154

–

(3,081)

227,143

(215)

29,970

–

(4,255)

252,643

(136,033)

(237)

(24,154)

–

1,725

(158,699)

164

(27,868)

3,428

(182,975)

29,746

31,081

10,363

10,289

25,226

26,994

3,109

1,304

68,444

69,668

The carrying value of property, plant and equipment held under finance leases at 31 December 2016 was US$4,186 (2015: US$256). Additions during
the year were US$4,288 (2015: US$ nil). As at 31 December 2016, future minimum lease payments under those finance lease contracts were US$1,173
(2015: US$225).

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

18. Non-current financial assets
Non-current financial assets were as follows:

Available-for-sale investments:

– Shares in Energous Corporation

– Shares in Arctic Sand Technologies, Inc.

Derivative financial instruments:

– Warrants over shares in Energous Corporation

– Call option over shares in Dyna Image Corporation

Rental and other deposits

Total

Energous Corporation (”Energous”)

As at 31 December
2016
US$000

As at 31 December
2015
US$000

12,866

1,446

6,624

142

1,254

22,332

–

1,446

–

873

1,439

3,758

WattUp ,
(cid:138)
(cid:138)

Energous is the developer of WattUp , a revolutionary wire-free charging technology that provides over-the-air power at a distance. In November 2016,
Dialog entered into a strategic alliance with Energous whereby it agreed to become the exclusive component supplier of the WattUp(cid:138) integrated circuits.
At the same time as entering into the strategic alliance, the Company paid US$10,000 in cash on subscription for 763,552 common shares in Energous and
was granted warrants to purchase up to 763,552 common shares in Energous that are exercisable in full or in part on a cashless basis at any time between
May 2017 and November 2019.

We have classified the shares held by the Company in Energous as available-for-sale. We consider that the subscription price paid for the shares
represented their fair value at the date of issue. As at 31 December 2016, the fair value of the shares held by the Company had increased to US$12,866 and
the resulting gain of US$2,866 was recognised in other comprehensive income. As at 31 December 2016, the Company held approximately 3.8% of
Energous’s issued common shares.

We consider that the grant of the warrants was linked to the negotiation of the strategic alliance. On the grant date, we therefore recognised the warrants
at their fair value of US$4,695 and an equivalent deferred credit within non-current liabilities. We will amortise the deferred credit to profit or loss in
relation to the royalties that may be payable by Dialog for the use of Energous’s Intellectual Property over the initial seven-year term of the strategic
alliance. As at 31 December 2016, the fair value of the warrants had increased to US$6,624 and the resulting gain of US$1,929 was recognised in profit or
loss (as other finance income).

Arctic Sand Technologies, Inc. (”Arctic Sand”)

During 2012, Dialog participated in the initial funding round of Arctic Sand, an MIT spin-off commercialising an innovative new approach to power
conversion for multiple markets, including smartphones, tablets, UltrabooksTM and data centres. As at 31 December 2016, we held approximately 3.5% of
the issued equity shares in Arctic Sand. We have classified the shares in Arctic Sand as available-for-sale but we carry them at cost because we are unable
to measure reliably the fair value of the shares.

Call option over shares in Dyna Image Corporation (”Dyna”)

As described in note 3, the Company has a call option over the shares in Dyna that it does not already own. During 2016, the fair value of the call option
decreased from US$873 to US$142. Accordingly, a fair value loss of US$731 was recognised in profit or loss during 2016 (2015: loss of US$119).

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19. Trade and other payables
Trade and other payables were as follows:

Trade accounts payable

Other payables

Total

As at 31 December
2016
US$000

As at 31 December
2015
US$000

79,242

10,403

89,645

114,075

17,478

131,553

Trade accounts payable are non-interest bearing and are normally settled on 30-60-day terms. Other payables are non-interest bearing and have a term of
less than three months.

20. Other current financial liabilities
Other current financial liabilities were as follows:

Hire purchase agreements and finance lease obligations

Currency forwards and swaps

Share buyback obligation

Total

21. Provisions
Movements on provisions were as follows:

As at 31 December
2016
US$000

As at 31 December
2015
US$000

4,409

12,496

61,073

77,978

3,677

4,568

–

8,245

Total
US$000

3,784

(111)

2,611

(1,464)

(273)

4,586

(141)

2,937

(2,193)

(452)

110

4,847

As at 1 January 2015

Currency translation differences

Additions charged to profit or loss

Utilised

Releases credited to profit or loss

Unwinding of discount

As at 31 December 2015

Currency translation differences

Additions charged to profit or loss

Utilised

Releases credited to profit or loss

Unwinding of discount

As at 31 December 2016

Product warranties
US$000

Leasehold property
US$000

Legal claims
US$000

Contractual
severance
US$000

Other provisions
US$000

1,483

–

1,545

(1,226)

(257)

–

1,545

–

1,104

(1,545)

–

1,104

1,345

(38)

919

(132)

(16)

2,117

(131)

1,302

(622)

(158)

110

2,618

283

(29)

–

254

–

(254)

–

610

(43)

147

(106)

–

608

(10)

181

(26)

–

753

(1)

–

350

–

(40)

–

372

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

21. Provisions continued
Provisions are presented in the Group’s balance sheet as follows:

Current liabilities

Non-current liabilities

Total

Product warranties

As at 31 December
2016
US$000

As at 31 December
2015
US$000

1,477

3,370

4,847

1,861

2,725

4,586

The Group provides contractual product warranties under which it guarantees the performance of its products. Product warranty provisions are based on
historical warranty data and are expected to be utilised within one year of the balance sheet date.

Leasehold property

Leasehold property provisions include dilapidation provisions for the costs of restoring leasehold properties to their original condition at the end of the
lease and provisions for onerous leases. Leasehold property provisions will be utilised over the remaining terms of the relevant leases, which expire up to
six years from the balance sheet date.

Contractual severance

Provision is made for contractual severance payments that are payable to employees in certain countries in Asia when they leave the
Group’s employment.

22. Other current liabilities
Other current liabilities were as follows:

Obligations for personnel and social expenses

Advances received in relation to research and development contracts

Other liabilities

Total

As at 31 December
2016
US$000

As at 31 December
2015
US$000

23,575

2,701

28,168

54,444

30,188

2,701

16,995

49,884

Obligations for personnel and social expenses have an average term of three months (2015: three months). Other payables are non-interest bearing and
are normally settled on 30-day terms.

23. Other non-current liabilities
Other non-current liabilities were as follows:

Liabilities relating to hire purchase and finance lease obligations

Deferred royalty credits

Total

As at 31 December
2016
US$000

As at 31 December
2015
US$000

1,525

4,695

6,220

4,919

–

4,919

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24. Convertible bonds
During 2012, the Company issued at par US$201 million 1% Convertible Bonds 2017 (“the Bonds”) that were convertible into the Company’s
ordinary shares.

On 16 March 2015, Dialog announced that it would exercise its option to redeem all of the outstanding Bonds on 5 May 2015. By 28 April 2015, all holders
of the Bonds had exercised their conversion rights in respect of all outstanding Bonds. At the time of conversion, the carrying amount of the Bonds was
US$183,138. Conversion of the Bonds resulted in the issue of 6,797,025 ordinary shares with a nominal value of US$1,049 and an increase in the share
premium account of US$182,089.

25. Share capital and reserves
a) Ordinary shares

As at 31 December 2016, 2015 and 2014, the authorised share capital of the Company comprised 104,311,860 ordinary shares with a nominal value
of £0.10 per share.

The number of allotted and fully paid ordinary shares was as follows:

As at 1 January 2014

Shares issued to employee benefit trusts

As at 31 December 2014

Conversion of Convertible Bonds

As at 31 December 2015 and 2016

Number of shares

Nominal value
US$000

68,068,930

3,000,000

71,068,930

6,797,025

77,865,955

12,852

501

13,353

1,049

14,402

Ordinary shareholders have no entitlement to share in the profits of the Company except for dividends that may be declared and in the event of the
Company’s liquidation.

Ordinary shareholders have the right to attend, and vote at, general meetings of the Company or to appoint a proxy to attend and vote at such meetings
on their behalf. Ordinary shareholders have one vote for every share held.

b) Share premium account

The share premium account represents the difference between the nominal value of shares issued and the fair value of the consideration received.
The share premium account is not distributable but may be used for certain purposes specified by United Kingdom law, including to write off expenses
on any issue of shares and to pay up fully paid bonus shares.

In preparing these financial statements, the Directors have presented the share premium account separately within reserves in order to present more
clearly the Company’s undistributable reserves. In previous years, the share premium account was subsumed within additional paid-in capital, which
also included gains recognised on the sale or transfer of shares held by employee benefit trusts and the equity component of the US$201 million 1%
Convertible Bonds 2017 (“the Bonds”) that were issued by the Company during 2012 and converted by the bondholders during 2015. As shown in
the following table, comparative information has therefore been reclassified as follows:

e to transfer from additional paid-in capital to the share premium account the cumulative premium (net of issue costs) recognised on the issue of shares

prior to 1 January 2014 of US$198,364, the premium of US$9,741 on shares issued to employee benefit trusts during 2014 and the premium of
US$182,809 on shares issued on conversion of the Bonds during 2015;

e to transfer from additional paid-in capital to retained earnings the cumulative gain of US$11,346 recognised on the sale or transfer of shares by
employee benefit trusts prior to 1 January 2014 and the gain on such sales or transfers of US$18,487 during 2014 and US$7,119 during 2015;
e to transfer from additional-paid in capital to a separate reserve the equity component of the Bonds amounting to US$36,579 that was recognised

on the issue of the Bonds; and

e on conversion of the Bonds during 2015, to transfer from the separate reserve to retained earnings an amount of US$23,086 representing the

cumulative interest expense recognised in relation to the Bonds and to transfer the balance of the equity component amounting to US$13,493
to the share premium account.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

25. Share capital and reserves continued

Additional paid-in
capital
US$000

Share premium
account
US$000

Retained earnings
US$000

Equity component of
Convertible Bonds
US$000

As at 1 January 2014 – as previously stated

246,289

–

199,881

Reclassifications:

– Premium on the issue of shares (net of issue costs)

– Gain on sale of shares by employee benefit trusts

– Equity component of Convertible Bonds

As at 1 January 2014 – reclassified

Movements – as previously stated

Reclassifications:

– Shares issued to employee benefit trusts (net of issue costs)

– Gain on sale of shares by employee benefit trusts

As at 31 December 2014 – reclassified

Movements – as previously stated

Reclassifications:

– Conversion of Convertible Bonds

Issue of shares

Transfer of equity component

– Gain on sale of shares by employee benefit trusts

As at 31 December 2015 – reclassified

(198,364)

(11,346)

(36,579)

–

28,228

(9,741)

(18,487)

198,364

–

198,364

–

9,741

–

208,105

189,208

–

(182,089)

–

(7,119)

–

182,089

13,493

–

403,687

–

11,346

–

211,227

166,769

–

18,487

396,483

204,860

–

23,086

7,119

631,548

–

36,579

–

36,579

–

(36,579)

–

c) Other reserves

Currency translation reserve
The currency translation reserve represents the cumulative gains and losses recognised on the translation into US dollars of the Group’s net investments
in foreign operations.

Available-for-sale reserve
The available-for-sale reserve represents the unrealised fair value gains less fair value losses that are not considered to represent an impairment recognised
on the revaluation of available-for-sale investments since initial recognition.

Cash flow hedge reserve
The cash flow hedge reserve represents the cumulative gains and losses on effective cash flow hedging instruments that will be recycled to profit or loss
on the occurrence of the hedged cash flows.

Treasury shares
Treasury shares are shares purchased under the Company’s share buyback programme. Details of purchases made under the programme during 2016
are set out in note 26.

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25. Share capital and reserves continued
Movements on other reserves were as follows:

As at 1 January 2014

Other comprehensive income/(loss):

Currency
translation
reserve
US$000

(1,710)

Available-for-sale
securities
US$000

Hedging reserve
US$000

Treasury shares
US$000

Equity
component of
Convertible
Bonds
US$000

–

1,580

–

36,579

– Currency translation differences on foreign operations

(1,032)

– Fair value loss recognised on effective hedges

– Fair value loss transferred to profit or loss

– Income tax (expense)/credit

As at 31 December 2014

Other comprehensive income/(loss):

–

(265)

(3,007)

– Currency translation differences on foreign operations

(1,463)

– Fair value loss recognised on effective hedges

– Fair value loss transferred to profit or loss

– Income tax expense

Other changes in equity:

– Conversion of Convertible Bonds

As at 31 December 2015

Other comprehensive income/(loss):

– Currency translation differences
on foreign operations

– Fair value loss recognised on effective hedges

– Fair value loss transferred to profit or loss

– Fair value gain on available-for-sale investments

– Income tax (expense)/credit

Other changes in equity:

– Purchase of own shares into treasury

As at 31 December 2016

d) Dialog shares held by employee benefit trusts

–

2,866

–

(23,614)

3,820

5,445

(12,769)

–

(18,960)

31,980

(3,694)

–

(3,443)

–

(13,264)

8,382

–

765

–

(61,472)

–

(10)

–

(4,480)

127

–

(47)

–

(4,400)

2,866

(7,560)

(61,472)

Total
US$000

36,449

(1,032)

(23,614)

3,820

5,180

20,803

(1,463)

(18,960)

31,980

(3,704)

(36,579)

(7,923)

127

(13,264)

8,382

2,866

718

(61,472)

(70,566)

–

36,579

–

(36,579)

–

The Company provides finance to two trusts to purchase its ordinary shares in order to meet its obligations under its share-based compensation plans.
As at 31 December 2016, the trusts held 574,600 shares (2015: 1,879,195 shares; 2014: 2,825,412 shares).

26. Share buyback programme
At the Company’s AGM on 28 April 2016, the Directors were granted the authority to purchase up to 7,786,595 ordinary shares in the capital of the
Company (representing approximately 10% of the issued ordinary share capital of the Company as at 30 March 2016). Such authority shall (unless
previously renewed, varied or revoked) expire on the day before the next AGM of the Company or on 30 June 2017, whichever is the earlier.

Purchases made under the authority are off-market from the perspective of the Company and are effected by way of contingent forward share purchase
contracts entered into with Barclays, HSBC or Merrill Lynch acting as brokers who will purchase interests in the Company’s ordinary shares (“Cis”) on the
Frankfurt Stock Exchange.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

26. Share buyback programme continued
Shares purchased under the first and second tranches
On 9 May 2016, the Company announced the first tranche of the share buyback programme under which it committed to purchase shares with a
minimum cost of €37.5 million and a maximum cost of €50 million. Final settlement and conclusion of the first tranche took place on 28 September 2016.
We purchased a total of 1,332,158 shares under the first tranche at a cost of €37.5 million (US$42,024).

On 8 November 2016, the Company announced details of the second tranche of the share buyback programme under which it committed to purchase
shares with a minimum cost of €56.25 million and a maximum cost of €75.0 million. On 30 December 2016, we completed the first intermediate
settlement under the second tranche purchasing 473,592 shares at an initial cost of €17.45 million (US$18,383).

As at 31 December 2016, we held 1,805,750 shares purchased under the first and second tranches in treasury at a total cost of US$61,472 (including
related transaction costs of US$1,063).

During 2016, we recognised a debit to retained earnings of US$1,643, which mirrored the gain recognised in profit or loss on the translation into US dollars
of the Euro-denominated liabilities that existed in relation to shares that were purchased during the year under the first and second tranches. We hedge
the currency translation exposure on outstanding liabilities to purchase shares using currency forwards and swaps. After taking into account hedging,
we recognised a net currency translation loss of US$593 in profit or loss in relation to liabilities to purchase shares under the first and second tranches.

Share buyback obligation

As at 31 December 2016, we recognised a debit to equity amounting to US$63,077, which comprised the maximum remaining obligation to purchase
shares under the second tranche of €57.55 million (US$62,759) and related transaction costs of US$318.

27. Non-controlling interests
All subsidiaries are wholly-owned except Dyna Image Corporation, for which information is presented below:

Name of subsidiary

Dyna Image Corporation

Summarised financial information before intra-group eliminations:

Place of
incorporation and
principal place of
business

Proportion of
ownership interests
and voting rights
held by non-
controlling interests

Loss allocated to
non-controlling
interests
US$000

Accumulated non-
controlling interests
US$000

Taipei, Taiwan

45.7%

(2,824)

5,077

Total current assets

Total non-current assets

Total current liabilities

Total equity

Equity attributable to:

– Shareholders in the Company

– Non-controlling interests

Total equity

As at 31 December
2016
US$000

As at 31 December
2015
US$000

8,816

5,884

(4,702)

9,998

4,921

5,077

9,998

9,609

7,237

(4,702)

12,144

4,343

7,801

12,144

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27. Non-controlling interests continued

Revenue

Expenses

Loss for the year

Loss attributable to owners of the Company

Loss attributable to the non-controlling interests

Loss for the year

Other comprehensive income/(loss) attributable to owners of the Company

Other comprehensive income/(loss) attributable to the non-controlling interests

Other comprehensive income/(loss) for the year

Total comprehensive loss attributable to owners of the Company

Total comprehensive loss attributable to the non-controlling interests

Total comprehensive loss for the year

Cash flow (used for) operating activities

Cash flow (used for) investing activities

Cash flow from financing activities

Cash flow (used for)/from operating, investing and financing activities

2016
US$000

9,409

(14,195)

(4,786)

(1,962)

(2,824)

(4,786)

100

169

(1,893)

(2,724)

(4,617)

(1,025)

(29)

–

(1,054)

2015
US$000

4,798

(7,352)

(2,554)

(1,047)

(1,507)

(2,554)

(292)

(421)

(713)

(1,339)

(1,928)

(3,267)

(5,740)

(1,043)

8,721

1,938

28. Pension schemes
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$6,754 (2015: US$6,401; 2014: US$6,069). As at 31 December 2016, contributions amounting to US$1,802 (2015: US$1,505;
2014: US$916) 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$3,400 (2015: US$3,104; 2014: US$3,256).

29. Share-based compensation
a) Stock option plans (SOP) and Employee Share plans (ESP)

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. As at 31 December 2016,
13,741,051 shares could be issued (2015: 13,741,051 shares). 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 ten years.

Unless otherwise determined by the Board, stock options granted to employees before 31 December 2013, were 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. After an amendment of the stock
option plan grants made on or after 31 October 2006 had a seven-year life and vest monthly over a period of one to 48 months. These stock options may
not be exercised until they have been held for one calendar year from the grant date.

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. In 2014 the first options were granted under
the ESP.

At the 2011 Annual General Meeting, Shareholders approved a change of the fee structure for non-executive Directors. Two-thirds of the total fees are
delivered in cash and one-third 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 €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 2015 and 2016.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

29. Share-based compensation continued
The fair value of all grants in the two-year period ended 31 December 2016 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. The expected volatility is based on the historical share price volatility
over the remaining life of Dialog Semiconductor Plc shares which is based on information provided by Bloomberg. The expected volatility is based on the
assumption that future trends can be concluded from the historical volatility. Therefore, the actual volatility may differ from these assumptions.

The following assumptions were used for stock option grants for the years ended 31 December 2016, 2015 and 2014:

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 €)

b) Executive Incentive Plan (“EIP”)

2016

41%

(0.3)%

3.0-6.0

30.95

34.96

0.10

34.86

2015

46%

0.1%

3.0-6.0

39.42

39.22

0.10

33.38

2014

36%

0.2%

2.0-5.0

20.83

18.40

0.10

18.31

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. Therefore, the EIP expired on 5 May 2015.

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 (one-third 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) 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.

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29. Share-based compensation continued
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.

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.

c) Long-Term Incentive Plan
The Group also operates the Dialog Long-Term Incentive Plan (“LTIP”) which was approved by shareholders at the Annual General Meeting on 30 April
2015. This new plan will replace the existing Executive Incentive Plan (“EIP”) which expired on 5 May 2015. All employees will be eligible to participate in
the LTIP but in practice awards will be targeted at the executive Director level and others in senior roles. The LTIP will operate over a ten year period from
the date of approval by Shareholders. Participants selected by the Remuneration Committee will be granted an LTIP Award either in the form of:

e a nil cost or nominal cost option;
e a conditional share award;
e a market price option; or
e a cash-settled award linked to the value of the Company´s share price (in the case of jurisdictions where it is not feasible to deliver shares to employees).

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

29. Share-based compensation continued
The first LTIP Awards were granted to employees in 2015 within six weeks following the AGM in April. Subsequently, it is intended that, other than
in exceptional circumstances, LTIP Awards will be granted to participants within six-week period following the date of publication of the results
of the Company.

Awards to executive Directors will vest subject to the achievement of challenging performance conditions, set at each grant by the Remuneration
Committee. Awards to other employees may be made with or without performance conditions. For 2015 awards, the proposed performance condition is
as follows: there are three different performance measures, relating to EBIT, Revenue Growth and relative Total Shareholder Return (the “TSR”). Each of
these three performance measures will determine one-third of the vesting.

Relative TSR

The TSR performance measure looks at the total amount returned to Shareholders, whether by way of share price growth or any dividends paid.
The Company´s TSR will be compared to the TSR of the constituents of the S&P Select Semiconductor Index. Dialog´s TSR is measured over a three-year
performance period and compared to the companies in the comparator group. The Committee may choose to use the average TSR of each company at
the start and end of the measurement period, with averaging over not more than three months. If Dialog´s TSR is below the median of the comparator
group then none of this TSR-related part of the award vests. If Dialog´s TSR is at the median of the comparator group then 25% of the maximum TSR-
related part of the award vests. If Dialog´s TSR is at the 60th percentile of the comparator group then 50% of the maximum TSR-related part of the award
will vest. If Dialog´s TSR is at or above the 75th percentile of the comparator group then 100% of the maximum TSR-related part of the award will vest.
Straight-line interpolation will apply between the 25%, 50% and 100% vesting points referred above. In addition, the level of vesting for the TSR-related
component of the award is capped: if the TSR is negative for the performance period, vesting is capped at 50% of the maximum award, irrespective of
whether the Company has outperformed the constituents of S&P Select Semiconductor Index against which it is benchmarked.

Financial metrics

The EBIT and revenue growth targets will be measured over a three-year period. Targets will be set and measured on an annual basis to ensure that they
remain challenging and relevant. These targets will 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);
and

Maximum (e.g. the level of performance which is acknowledged by the Remuneration Committee as exceptional).

Level of Corporate Performance

% of LTIP Award vesting, as a percentage of maximum

Threshold1)
Target1)
Maximum1)

1 Straight-line between points.

25%

50%

100%

At the end of the three-year performance period, the Remuneration Committee will determine the level of vesting based on the actual level
of performance achieved over the three years.

Overall performance assessment

The Remuneration Committee may apply a downward adjustment to the total level of vesting if it considers this to be necessary to take account of the
overall financial health or performance of the Company. The balance of any LTIP Award which does not vest in accordance with the above performance
conditions will lapse.

The vesting period for any awards to executive Directors will be three years. Any awards for other participants that are subject to performance conditions
will also have a three-year vesting period. Where awards below the Executive Directors are granted without performance conditions, the Remuneration
Committee will determine the appropriate vesting period at the time of grant.

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29. Share-based compensation continued
The following assumptions were used for the fair value calculations of the Group´s performance related plans described above (“EIP” and “LTIP”):

Average share price at grant date

Exercise price

Expected volatility

Risk-free interest rate

Assumed level of vesting regarding the performance conditions

Option lifetime

d) Development of plans

Grant in 2016

Grant in 2015

Grant in 2014

€33.41

€0.10

41%

(0.3)%

70%

6 Years

€39.17

€0.12

46%

0.1%

70%

€16.00

€0.12

36%

0.2%

70%

6 Years

Stock option plan activity (including stock options granted under the LTIP and the EIP) for the years ended 31 December 2016 and 2015 was as follows:

Outstanding at the beginning of the year

Granted

Exercised

Forfeited

Outstanding at the end of the year

Options exercisable at year end

2016

Weighted average
exercise price
€

4.53

0.10

6.34

0.64

2.90

8.12

Options

4,710,245

1,432,827

(1,304,595)

(368,500)

4,469,977

1,483,001

2015
Weighted average
exercise price
€

5.90

0.10

6.57

3.70

4.53

10.05

Options

5,148,024

1,008,344

(1,306,386)

(139,737)

4,710,245

1,660,213

The weighted average share price at the date of exercise of options was €31.92 and €39.42 in the years ended 31 December 2016 and 2015 respectively.

The following table summarises information on stock options outstanding (including stock options granted under the LTIP and the EIP)
as at 31 December 2016:

Range of Exercise Prices

€0.0 – 1.00

€1.00 – 8.00

€8.00 – 16.85

€0.0 – 16.85

Number exercisable
as at 31 December
2016

Options outstanding
Weighted average
remaining
contractual life
(in years)

Options exercisable

Weighted average
exercise price
€

Number exercisable
as at 31 December
2016

Weighted average
exercise price
€

3,556,032

–

913,945

4,469,977

4.63

n/a

2.28

4.15

0.1

n/a

13.8

2.90

617,435

n/a

865,566

1,483,001

0.13

n/a

13.83

8.12

e) Employee and non-executive Director benefit trusts

The Group established an employee benefit trust and a non-executive Director benefit trust (the “Trusts”). The Trusts purchase shares in the Group for
the benefit of employees and non-executive Directors under the Group’s share option schemes. As at 31 December 2016, the Trusts held 574,600 shares
(2015: 1,879,195).

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

30. Additional disclosures on financial instruments
Analysis by class and category

In the following tables, the carrying amounts of the financial assets and financial liabilities held by the Group as at 31 December 2016 and 2015
are analysed by class and category:

Financial assets

Cash and cash equivalents

Trade and other receivables

Investments:

– Energous shares

– Arctic Sand shares

Derivative financial instruments:

– Dyna Image call option

– Energous warrants

Rental and other deposits

Other financial assets

Total financial assets

Financial liabilities

Trade and other payables

Hire purchase and finance lease obligations

Derivative financial instruments:

– Currency forwards and swaps

Share buyback obligation

Other financial liabilities

Total financial liabilities

As at 31 December 2016

Loans and
receivables
US$000

Available-for-
sale
investments
US$000

At fair value
through profit
or loss
US$000

Held in
designated
hedging
relationships
US$000

Liabilities at
amortised
cost
US$000

Total carrying
amount
US$000

Fair value
US$000

697,167

80,773

–

1,254

779,194

12,866

1,446

–

14,312

–

142

6,624

–

6,766

–

697,167

80,773

12,866

1,446

n/a

142

6,624

1,254

142

6,624

1,254

22,332

800,272

(89,645)

(5,934)

(4,761)

(3,034)

(9,462)

–

(12,496)

–

(61,073)

(3,034)

(9,462)

(67,007)

(79,503)

(3,034)

(9,462)

(156,652)

(169,148)

Currency forwards and swaps that are not in designated hedging relationships are held to hedge the currency translation exposure on the
Euro-denominated share buyback liability (note 26).

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As at 31 December 2015

Loans and
receivables
US$000

Available-for-
sale
investments
US$000

At fair value
through profit
or loss
US$000

Held in
designated
hedging
relationships
US$000

Liabilities at
amortised cost
US$000

Total carrying
amount
US$000

Fair value
US$000

566,809

72,668

–

2,086

1,439

3,525

643,002

–

1,446

–

1,446

–

873

–

873

–

566,809

72,668

1,446

n/a

873

2,086

1,439

873

2,086

1,439

5,844

645,321

(131,553)

(8,596)

(7,688)

(4,568)

–

(4,568)

(8,596)

(13,164)

(4,568)

(140,149)

(144,717)

Financial assets
Cash and cash equivalents

Trade and other receivables

Investments:

– Arctic Sand shares

Derivative financial instruments:

– Dyna Image call option

Collateral deposits for hedging contracts

Rental and other deposits

Other financial assets

Total financial assets

Financial liabilities
Trade and other payables

Hire purchase and finance lease obligations

Derivative financial instruments:

– Currency forwards and swaps

Other financial liabilities

Total financial liabilities

Fair value measurement

a) Financial instruments carried at fair value

All financial instruments that are carried at fair value are revalued on a recurring basis. We have not designated any financial instruments at fair value
through profit or loss on initial recognition.

Details of our investment in Energous shares, the Energous warrants and the Dyna Image call option are set out in note 18. We measured the fair values
of these financial assets using the following methods and assumptions:

e Investment in Energous (listed on NASDAQ) – measured at the quoted bid price at the close of business on the balance sheet date.
e Energous warrants – measured using a Black Scholes valuation model based on the quoted bid price of Energous’s common shares and other inputs

such as implied share price volatility that is modelled based on historical price data for Energous’s common shares.

e Dyna Image call option – measured using a Monte Carlo valuation model in which the most significant inputs are management's estimates of the

future revenue and profitability of Dyna Image and share price volatility that is modelled based on historical price data for comparable listed securities.

Fair value of currency forwards and swaps represents the present value of the future contractual cash flows, which is estimated using observable spot
exchange rates and by applying a discount rate that is based on the yield curves of the respective currencies and reflects the credit risk of the counterparties.

In the following table, the financial instruments that are carried at fair value are categorised into one of three levels in a fair value hierarchy according
to the nature of the significant inputs to the valuation techniques that are used to determine their fair value as follows:

e Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities
e Level 2 – Inputs other than Level 1 that are observable either directly (as market prices) or indirectly (derived from market prices)
e Level 3 – Unobservable inputs, such as those derived from internal models or using other valuation methods

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For the year ended 31 December 2016

30. Additional disclosures on financial instruments continued

Level 1
US$000

As at 31 December 2016
Level 3
Level 2
US$000
US$000

As at 31 December 2015

Total
US$000

Level 2
US$000

Level 3
US$000

Total
US$000

Financial assets carried at fair value

Investments:

– Energous shares

Derivative financial instruments:

– Dyna Image call option

– Energous warrants

12,866

–

Total financial assets carried at fair value

12,866

–

12,866

142

6,624

6,766

142

6,624

19,632

–

873

–

873

–

873

Financial liabilities carried at fair value

Derivative financial instruments:

– Currency forwards and swaps

Total financial liabilities carried at fair value

–

(12,496)

–

(12,496)

(4,568)

–

(4,568)

During 2016, there were no transfers between Level 1 and Level 2.

In the following table, we present a reconciliation of the changes in the Level 3 fair values:

At the beginning of the year

Investment in business

Other finance income/(expense) recognised in profit or loss

At the end of the year

Energous
warrants
US$000

–

4,695

1,929

6,624

2016
Dyna Image
option
US$000

873

–

(731)

142

Total
US$000

873

4,695

1,198

6,766

2015
Dyna Image
option
US$000

–

992

(119)

873

We estimate that if the implied volatility incorporated in the valuation of the Energous warrants as at 31 December 2016 had been 10% higher, the fair
value of the warrants would have been US$669 higher at US$7,293 and if the implied volatility had been 10% lower, the fair value of the warrants would
have been US$709 lower at US$5,915. In each case, the effect of the increase/(decrease) in fair value would have been recognised in profit or loss as other
finance income/(expense).

We do not consider that adjustment of one or more of the unobservable inputs to reflect reasonably possible alternative assumptions would be likely
to cause a significant change in the fair value of the Dyna Image call option.

b) Financial instruments not carried at fair value

Hire purchase and finance lease obligations attract fixed interest rates that are implicit in the lease rentals. For disclosure purposes only, the fair value
of these obligations has been calculated as the present value of the future contractual cash flows using observable yield curves (Level 2).

Our investment in Arctic Sand is categorised as available-for-sale and would normally be carried at fair value. However, we are unable to measure its fair
value reliably because Arctic Sand is an unlisted entity in which we have only a small non-controlling interest. We therefore carry the investment at cost
and do not disclose any estimate of its fair value (Level 3).

Other financial assets and financial liabilities that are not carried at fair value are of short maturity and/or bear floating rate interest. We therefore consider
that their carrying amounts approximate to their fair values (Level 2).

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31. 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

Other
commitments and
software
commitments
2016
US$000

Operating leases
2016
US$000

Other
commitments and
software
commitments
2015
US$000

Operating leases
2015
US$000

13,013

8,206

7,592

7,077

5,484

13,051

54,423

11,282

2,608

–

13,969

10,432

9,982

7,395

6,561

6,075

17,994

58,439

10,224

4,665

339

–

15,310

Total payments for operating leases and software commitments, charged as an expense in the profit or loss, amounted to US$17,181 and US$15,434 for
the years ended 31 December 2016 and 2015 respectively. Of this amount US$7,384 and US$6,257 was for software commitments for the years ended
31 December 2016 and 2015 respectively.

Finance lease, hire purchase and software commitments

The Group has finance leases and hire purchase contracts for test and IT equipment. 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

Total minimum payments

Less: amounts representing finance charges

Present value of minimum payments

Capital commitments

Minimum payments

2016
US$000

4,573

1,700

–

6,273

(339)

5,934

2015
US$000

4,402

3,400

1,700

9,502

(906)

8,596

As at 31 December 2016, the Group has contractual commitments for the acquisition of property, plant and equipment of US$8,332 (2015: US$6,962)
and for the acquisition of intangible assets of US$922 (2015: US$1,325).

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Notes to the consolidated f inancial statements continued

For the year ended 31 December 2016

32. Segment and geographic information
a) Analysis by operating segment

Segment information is presented in the financial statements on basis consistent with the information presented to the Management Team (the “chief
operating decision maker”) for the purposes of allocating resources within the Group and assessing the performance of the Group's businesses. Members
of the Management Team are identified on pages 60 and 61.

The Group's reportable segments are determined based on the nature of the products that they provide to our customers and are as follows:
Mobile Systems; Automotive & Industrial; Connectivity; and Power Conversion.

e Mobile Systems provides power management and audio chips 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.

e Automotive & Industrial's products address the safety, management and control of electronic systems in cars and for industrial applications.
e Connectivity's products include short-range wireless, digital cordless, Bluetooth® and VoIP technology.
e Power Conversion's products include AC/DC converter solutions for smaller, fast charging power adaptors for portable devices as well as LED drivers

for solid-state lighting products.

No operating segments have been aggregated in determining our reportable segments. Each operating segment has a manager who is responsible
for its performance and is accountable to the Chief Executive Officer.

The Management Team uses operating profit as the principal measure of the profitability of each of the Group's operating segments. Operating profit
is, therefore, the measure of segment profit presented in the Group's segment disclosures. Whilst the Management Team also uses underlying operating
profit to measure segment profitability, this is used as a supplement to operating profit.

In addition to our reportable segments, we present information for Corporate activities. Corporate activities do not meet the definition of an operating
segment. Corporate activities include emerging market businesses (comprising Dyna Image and those developing low cost PMICs for the Chinese
consumer market), together with central corporate costs, the share-based compensation expense and certain other unallocated costs. In 2016, Corporate
activities also included the termination fee of US$137,300 that was paid to us by Atmel.

Revenue and operating profit by segments are as follows:

Mobile Systems

Automotive & Industrial

Connectivity

Power Conversion

Total segments

Corporate activities

Total Group

Interest income

Interest expense

Other finance (expense)/income

Profit before income taxes

2016
US$000

922,946

30,014

118,334

116,808

Revenue(1)
2015
US$000

1,114,495

34,367

117,014

84,636

2014
US$000

942,628

40,952

92,120

80,367

1,188,102

1,350,512

1,156,067

9,509

4,800

1,197,611

1,355,312

1,156,105

2016
US$000

239,859

10,126

5,342

(7,535)

247,792

62,015

309,807

3,665

(3,447)

(4,819)

Operating profit

2015
US$000

341,931

9,340

8,360

(20,675)

338,956

(79,210)

259,746

1,215

(6,411)

289

305,206

254,839

2014
US$000

244,180

11,232

(2,163)

(21,135)

232,114

(46,212)

185,902

419

(14,829)

(2,171)

169,321

1 Revenue is from sales to external customers (there were no inter-segment sales).

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32. Segment and geographic information continued
Other segment information is as follows:

Mobile
Systems
US$000

Automotive &
Industrial
US$000

Connectivity
US$000

Power
Conversion
US$000

Total
segments
US$000

Corporate
activities
US$000

Total
Group
US$000

Year ended 31 December 2016

Research and development expenses

Write-down of inventories

Fixed assets(1):

– Additions(2)

– Depreciation/amortisation

– Loss in disposal

Atmel termination fee (note 3)

Costs of aborted merger with Atmel (note 3)

151,842

2,236

1,154

29,497

165

238

33,915

36,695

305

–

192

702

–

7,137

6,892

–

Year ended 31 December 2015

Research and development expenses

Write-down of inventories

Fixed assets(1):

– Additions(2)

– Depreciation/amortisation

– Loss in disposal

Costs of aborted merger with Atmel (note 3)

Increase in iWatt contingent consideration (note 3)

Year ended 31 December 2014

Research and development expenses

Write-down of inventories

Fixed assets(1):

– Additions(2)

– Depreciation/amortisation

– Loss in disposal

Costs of aborted merger with AMS (note 3)

Decrease in iWatt contingent consideration (note 3)

140,066

7,192

2,488

202

25,747

394

50,938

31,010

955

–

446

719

–

7,585

6,467

–

141,246

5,932

2,392

260

25,703

212

30,681

29,959

163

–

167

889

–

3,737

7,337

–

22,527

1,652

4,647

17,294

145

–

23,282

1,309

5,875

15,754

262

–

22,476

3,386

4,239

17,064

196

–

205,020

36,325

241,345

4,291

4,375

45,891

61,583

450

8,047

2,234

1,119

53,938

63,817

1,569

–

137,300

3,485

191,583

9,097

64,844

53,950

1,217

–

191,817

9,790

38,824

55,249

359

–

31,599

(50)

8,403

1,327

534

17,604

3,375

21,991

2,231

333

1,268

(1,939)

223,182

9,047

73,247

55,277

1,751

17,604

3,375

213,808

9,828

41,055

55,582

407

1,268

(1,939)

1 Non-current assets excluding financial instruments and deferred tax assets.
2 Additions to fixed assets comprise the cost of items acquired separately and the fair value of items acquired in business combinations.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

32. Segment and geographic information continued
b) Geographic information

Revenue by shipment destination

United Kingdom

Other European countries

China

Hong Kong

Other Asian countries

Rest of the world

Total

Non-current assets(1) by location

United Kingdom

Germany

Netherlands

USA

Taiwan

Rest of the world

Total

2016
US$000

2015
US$000

2014
US$000

421

48,063

884,187

212,261

41,013

11,666

903

54,859

1,080,488

165,645

42,849

10,568

782

60,098

983,412

53,454

47,213

11,146

1,197,611

1,355,312

1,156,105

2016
US$000

96,890

44,992

49,982

257,181

13,196

6,586

468,827

As at 31 December

2015
US$000

99,992

46,518

46,907

257,425

3,979

7,098

2014
US$000

80,889

47,589

42,025

261,565

886

6,091

461,919

439,045

1 Non-current assets excluding financial instruments and deferred tax assets.

c) Information about major customers

During each of the years ended 31 December 2016, 2015 and 2014, there was one customer, Apple Inc., that accounted for more than 10% of the Group's
revenue. Revenue recognised from that customer, which was reported in the Mobile Systems segment, amounted to US$889,904 in 2016, US$1,077,701
in 2015 and US$909,901 in 2014.

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33. Financial risk management
Background

The Group's central treasury function is responsible for ensuring that adequate funding is available to meet the Group's requirements and for maintaining
an efficient capital structure, together with managing the Group's counterparty credit, foreign currency and interest rate exposures. All treasury operations
are conducted within strict policies and guidelines that are approved by the Board.

We use forward currency contracts to manage currency risk and we hold certain equity options and warrants for strategic reasons. We do not hold or issue
derivative financial instruments for speculative purposes.

Credit risk

Credit risk is the risk that a customer or a counterparty financial institution fails to meet its contractual obligations as they fall due causing the Group to
incur a financial loss. The Group is exposed to credit risk in relation to receivables from its customers and cash and cash equivalents and other financial
assets held with financial institutions.

Before accepting a new customer, we assess the potential customer's credit quality and establish a credit limit. Credit quality is assessed using data
maintained by reputable credit agencies, by checking references included in credit applications, and, where they are available, by reviewing the
customer's recent financial statements. Credit limits are subject to multiple levels of authorisation and are reviewed on a regular basis.

The Group depends on a relatively small number of customers for a substantial part of its revenue. As at 31 December 2016, trade accounts receivable
amounted to US$64,685 (2015: US$48,692) including receivables from our largest customer amounting to US$58,991 (2015: US$25,182).

We utilise non-recourse receivables financing facilities provided by two financial institutions. We reviewed these facilities during 2016. In March 2016, the
aggregate amount of the facilities was increased from US$112 million to US$187 million. In November 2016, we reduced the number of facilities from
three to two but the aggregate amount of the facilities was increased to US$240 million. The principal facility is for US$220 million and matures on
30 April 2018.

Receivables sold under these facilities are derecognised from the Group's balance sheet because the financial institutions concerned assume all credit risk
associated with them. When a receivable is sold, the Group is credited with the majority of the invoice amount with the balance credited on the earlier of
the date on which the customer pays the amount due or 120 days after the receivable becomes due for payment. As at 31 December 2016, cash and cash
equivalents included a benefit of US$88,876 (2015: US$131,774) in relation to receivables sold under these facilities and trade and other receivables
included US$16,088 (2015: US$23,976) retained by the financial institutions.

We transact with financial institutions subject to limits which are set based on a credit rating matrix in accordance with treasury policy. Cash is placed on
deposit only with counterparties whose median credit rating is not less than A- (Standard & Poor’s), A3 (Moody’s) or A- (Fitch). Credit risk is further limited
by investing only in liquid instruments.

Market risk

Market risk is the risk that the fair value of, or cash flows associated with, a financial instrument will fluctuate because of changes in market prices. Market
risk comprises three types of risk: currency risk (due to changes in currency exchange rates), interest rate risk (due to changes in market interest rates) and
other price risk.

a) Currency risk
The US dollar is the functional currency of the Company and its principal subsidiaries.

Currency risk arises on transactions that are denominated in a currency other than the functional currency of the entity that enters into them. Nearly all
of the Group’s sales and cost of materials are denominated in US dollars but certain operating expenses are denominated in currencies other than the
US dollar, in particular the Euro and the pound sterling. It is the Group’s policy to hedge a proportion of the currency risk associated with highly probable
forecast cash outflows on a rolling 12-month basis. As the timing of the forecast cash outflows draws nearer, the proportion of the currency risk that
is hedged increases within set parameters.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

33. Financial risk management continued
Forward currency contracts that are entered into for this purpose are designated as hedging instruments in cash flow hedge relationships. During 2016,
a loss of US$13,264 million (2015: loss of US$18,960; 2014: loss of US$23,614), was recognised in other comprehensive income representing the change in
the fair value of currency derivatives in effective hedging relationships and a cumulative loss of US$8,382 (2015: loss of US$31,980; 2014: loss of US$3,820)
was reclassified from equity to profit or loss on the occurrence of the hedged cash flows.

Currency derivatives held to hedge forecast cash outflows were as follows:

Maturity

0 – 3 months

4 – 6 months

7 – 9 months

10 – 12 months

Total

As at 31 December 2016
Net notional amount

Euro
000s

Pound Sterling
000s

Japanese Yen Chinese Renminbi
000s

000s

40,000

37,100

26,500

12,000

115,600

11,000

8,700

7,500

3,500

30,700

175,000

118,000

85,000

45,000

423,000

14,000

8,000

8,500

3,000

33,500

Weighted average exchange rate

US$ =

0.90

0.75

106.31

6.79

Maturity

0 – 3 months

4 – 6 months

7 – 9 months

10 – 12 months

Total

Weighted average exchange rate

US$ =

As at 31 December 2015
Net notional amount

Euro
000s

Pound Sterling
000s

Japanese Yen
000s

Chinese Renminbi
000s

38,000

28,000

20,500

15,000

101,500

0.89

11,500

9,000

7,500

6,000

34,000

0.66

200,000

150,000

110,000

105,000

565,000

120.80

–

Currency translation risk arises on financial assets and liabilities that are denominated in a currency other than the functional currency of the entity that
holds them. The Group’s policy allows for such exposures to be hedged using currency derivatives.

During 2016, we used forward currency contracts and currency swaps to hedge the Euro-denominated liabilities in relation to the first and second
tranches of the Company’s share buyback programme. At the end of 2016, we held outstanding contracts to purchase €57.55 million in relation to the
maximum remaining obligation under the second tranche at an average exchange rate of $1 = €0.90.

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33. Financial risk management continued
After taking into account currency hedging activities, the Group’s exposure to currency risk on financial assets and liabilities was as follows:

US dollar

Euro

Pound sterling

Taiwanese dollar

Other

Total

As at 31 December

2016
US$000

687,615

(63,540)

(6,090)

(660)

295

2015
US$000

506,609

(3,981)

(7,693)

2,914

2,752

617,620

500,601

If the US dollar was to depreciate/appreciate by 10% against each of the foreign currencies in which financial assets and financial liabilities were
denominated at the end of 2016, there would be an exchange gain/loss of US$5,750 recognised in arriving at the Group’s profit before tax.

Currency translation risk also arises on consolidation in relation to the translation into US dollars of net investments in foreign operations but the exposure
is not significant because the US dollar is the functional currency of the Company and each of its principal subsidiaries.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

33. Financial risk management continued
b) Interest risk

The interest rate profile of the Group's financial assets and liabilities was as follows:

Financial assets

Cash and cash equivalents

Trade and other receivables

Other financial assets

Financial liabilities

Trade and other payables

Other financial liabilities

Net total

Financial assets

Cash and cash equivalents

Trade and other receivables

Other financial assets

Financial liabilities

Trade and other payables

Other financial liabilities

Net total

Interest-bearing

As at 31 December 2016

Floating rate
000s

Fixed rate Non-interest bearing
000s

000s

Total
000s

608,291

–

608,291

–

(5,934)

88,876

80,773

22,332

(89,645)

(73,569)

28,767

Interest bearing

As at 31 December 2015

Floating rate
000s

Fixed rate
000s

Non-interest bearing
000s

475,448

–

475,448

–

(8,596)

91,361

72,668

5,844

(131,553)

(4,568)

33,752

697,167

80,773

22,332

(89,645)

(79,503)

631,124

Total
000s

566,809

72,668

5,844

(131,553)

(13,164)

500,604

The Group's principal exposure to interest rate risk is in relation to interest income on short-term cash deposits, which principally attract US dollar
interest rates.

When applied to the Group's floating interest rate exposures as at 31 December 2016, an increase of 50 basis points in market interest rates would
increase the Group's profit before tax by US$3,041 (2015: US$2,377) and a decrease of 50 basis points would reduce the Group’s profit before tax by
US$2,940 (2015: US$1,215).

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33. Financial risk management continued
c) Other price risk

In November 2016, the Company subscribed for common shares and was granted warrants to purchase common shares in Energous Corporation Inc.
(“Energous”). Energous’s common shares are listed on NASDAQ. At the end of 2016, the fair value of the shares held was US$12,866 and the fair value
of the warrants was US$6,624. Changes in the fair value of the shares are recognised in other comprehensive income and changes in the fair value of the
warrants are recognised in profit or loss.

Assuming all other factors remain constant, the effect of a 10% increase in Energous's share price as at 31 December 2016 would be to increase the
Group’s profit before tax by US$994 and to increase other comprehensive income by US$1,287 and the effect of a 10% decrease in the share price would
be to reduce the Group’s profit before tax by US$960 and to reduce other comprehensive income by US$1,287.

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with its financial liabilities.

We regularly monitor cash flows at both Group and entity level. Dialog generates strong cash flows and cash and cash equivalents held by the Group have
increased substantially in recent years. As at 31 December 2016, cash and cash equivalents amounted to US$697,176 (2015: US$566,809). Accordingly, we
voluntarily cancelled the Group's revolving credit facility in June 2015 and, since that time, the Group has had no committed borrowing facilities.

The maturity profile of the contractual undiscounted cash flows associated with the Group’s financial liabilities was as follows:

As at 31 December 2016

Within 3 months
US$000

3 to 12 months
US$000

1 to 5 years Within 3 months
US$000

US$000

As at 31 December 2015
3 to 12 months
US$000

Trade and other payables

Other financial liabilities

Total non-derivative liabilities

Currency derivatives

Total financial liabilities

Capital management

89,645

61,805

151,450

6,893

158,343

–

3,677

6,014

9,691

–

131,553

1,525

–

1,525

−

131,553

2,605

134,158

−

3,677

1,904

5,581

1 to 5 years
US$000

−

4,919

−

4,919

The Group's capital is represented by its total equity. As at 31 December 2016, the Group's total equity was US$1,194,906 (2015: US$1,024,885).

We seek to maintain a capital structure that supports the ongoing activities of our business and its strategic objectives in order to deliver long-term
returns to shareholders. We allocate capital to support organic and inorganic growth, investing to support research and development and our product
pipeline. We will fund our growth strategy using a mix of equity and debt after giving consideration to prevailing market conditions.

During 2016, we initiated a share buyback programme as part of our strategy to deliver shareholder returns. As at 31 December 2016, we had returned
€55 million (US$60,407) to shareholders under the first and second tranches of the programme. We had returned a further €38.8 million (US$41,385) by the
time the second tranche was completed in February 2017. We will consider the continuation of the share buyback programme in parallel with our regular
assessment of the Group's future growth opportunities and its strategic objectives.

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Notes to the consolidated financial statements continued

For the year ended 31 December 2016

34. Transactions with related parties
Key management personnel

For the purpose of these disclosures, the Group’s key management personnel comprise the Management Team (which includes the Company’s executive
Director) and the Company’s non-executive Directors.

Compensation of the Group’s key management personnel was as follows:

Short-term employee benefits

Post-employment benefits1

Share-based compensation

Total

1 The amounts include payments for defined contribution plans.

2016
US$000

7,278

224

10,751

18,253

2015
US$000

6,055

262

5,797

12,114

2014
US$000

5,679

203

7,942

13,824

Current members of the Company’s Board are identified on pages 58 and 59 and current members of the Management Team are identified on
pages 60 and 61.

Statutory information about Directors’ remuneration is presented in the Directors’ remuneration report on pages 70 to 79.

During 2016, the aggregate emoluments payable to Directors in respect of qualifying services to the Company amounted to US$2,262 (2015: US$2,726;
2014: US$2,917). Share options and awards granted to the Executive Director under long-term incentive plans that have vested or will vest based on the
Group’s and/or the Executive Director’s performance over a period ending during the year had an estimated value on vesting of US$3,336 (2015: US$4,123;
2014: US$2,710).

Other related party transactions
During the years ended 31 December 2016, 2015 and 2014, there were no other related party transactions that are required to be reported in these
consolidated financial statements.

35. Subsequent events
Share buyback programme

A further intermediate settlement of the second tranche of the Company’s share buyback programme took place on 9 February 2017 and final settlement
and conclusion of the tranche took place on 17 February 2017. In these further settlements, we purchased 977,456 shares at a cost of €38.8 million
(US$41,385) and incurred transaction costs amounting to US$207.

Information about the Company’s share buyback programme is presented in note 26.

Investment in Dyna Image Corporation

In January 2017, the Group participated in a new issue of shares by its subsidiary, Dyna Image Corporation. We invested the equivalent of US$2,000,
thereby increasing our shareholding in the business from 45.7% to 48.5%. We will account for the increase in our shareholding as a transfer within equity
during the first quarter of 2017.

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Company balance sheet

As at 31 December

Assets

Cash and cash equivalents

Amounts owed by group undertakings

Other current assets

Total current assets

Investments in subsidiaries

Other intangible assets

Non-current financial assets

Total non-current assets

Total assets

Liabilities and equity

Amounts owed by group undertakings

Trade and other payables

Other financial liabilities

Other payables

Total current liabilities

Non-current liabilities

Ordinary shares

Share premium account*

Retained earnings*

Other reserves

Dialog shares held by employee benefit trusts

Total equity

Total liabilities and equity

* Comparative amounts reclassified – see note 7.

Notes

2016
US$000

2015
US$000

604,052

243,664

700

848,416

632,125

456

19,490

652,071

1,500,487

625,668

1,209

73,568

122

700,567

4,695

14,402

403,687

456,350

(58,606)

(20,608)

795,225

1,500,487

55,100

268,674

1,172

324,946

527,657

562

–

528,219

853,165

23,548

19,071

425

378

43,422

–

14,402

403,687

416,284

–

(24,630)

809,743

853,165

These financial statements were approved by the Board of Directors on 23 February 2017 and were signed on its behalf by:

Dr Jalal Bagherli
Director

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Company statement of changes in equity

Year ended 31 December

As at 31 December 2014

Net income

Other comprehensive income

Total comprehensive income

Other changes in equity:

– Conversion of Convertible Bonds

Issue of shares

Transfer of equity component

– Purchase of shares by employee benefit trusts

– Sale of shares by employee benefit trusts

– Share-based compensation, net of tax

As at 31 December 2015

Net income

Other comprehensive income

Total comprehensive income

Other changes in equity:

– Purchase of own shares into treasury

– Share buyback obligation

– Purchase of shares by employee benefit trusts

– Sale of shares by employee benefit trusts

Retained
earnings*
US$000

259,621

126,441

–

126,441

Other reserves
(note 7)
US$000

Dialog shares
held by employee
benefit trusts
US$000

36,465

(15,068)

–

114

Ordinary shares
US$000

Share premium
account*
US$000

13,353

208,105

–

1,049

–

14,402

403,687

–

182,089

13,493

–

23,086

(36,579)

–

7,119

416,284

100,852

–

100,852

–

2,866

(1,643)

(61,472)

(63,077)

–

3,934

–

Total
US$000

502,476

126,441

114

126,555

183,138

–

(14,032)

11,589

809,743

100,852

2,866

103,718

(63,115)

(63,077)

(3,127)

11,083

–

(14,032)

4,470

–

(24,630)

–

(3,127)

7,149

As at 31 December 2016

14,402

403,687

456,350

(58,606)

(20,608)

795,225

* Comparative amounts reclassified – see note 7.

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Notes to the Company financial statements

For the year ended 31 December

1. Background
Description of business

Dialog Semiconductor Plc (“the Company”) is a public limited company that is incorporated and domiciled in the United Kingdom. The Company’s
ordinary shares are listed on the Frankfurt Stock Exchange.

The Company is the ultimate parent of a group of companies that creates and markets highly integrated, mixed signal integrated circuits, optimised for
personal, portable, hand-held devices, low energy short-range wireless, LED solid-state lighting and automotive applications.

Transition to FRS 101 Reduced Disclosure Framework
In previous years, the Company’s separate financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”)
as adopted for use in the European Union and those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS.

Since the Company is a qualifying entity under the UK accounting standard FRS 100 Application of Financial Reporting Requirements, the Directors decided
during 2016 to adopt the UK accounting standard FRS 101 Reduced Disclosure Framework. Following the adoption of FRS 101, the Company’s separate
financial statements continue to comply with the recognition and measurement requirements of IFRS as adopted for use in the European Union but they
exclude certain disclosures that would otherwise be required under that body of accounting standards.

Statement of compliance
The Company’s separate financial statements on pages 145 to 151 have been prepared in accordance with FRS 101 Reduced Disclosure Framework and
those parts of the Companies Act 2006 that are applicable to companies reporting under FRS 101.

Basis of preparation
The Company’s separate financial statements have been prepared on a going concern basis and in accordance with the historical cost convention,
except that certain investments and derivative financial instruments are stated at their fair value.

The Company’s significant accounting policies are set out in note 2.

Presentation currency
The Company’s separate financial statements are presented in US Dollars (US$), which is the Company’s functional currency. All amounts are rounded to
the nearest thousand dollars (US$000) except when otherwise stated.

Disclosure exemptions utilised under FRS 101

In preparing the Company’s separate financial statements, the Directors utilised the following exemptions from the disclosure requirements of IFRS
adopted for use in the European Union that are available to them under FRS 101:

e Paragraphs 45(b)(number and weighted average exercise prices of share options) and 46 to 52 (determination of fair value of options and awards

granted and financial effect of share-based compensation) of IFRS 2 Share- based Payment

e IFRS 7 Financial Instruments – Disclosures
e Paragraphs 91 to 99 (disclosure requirements) of IFRS 13 Fair Value Measurement
e Paragraph 38 of IAS 1 Presentation of Financial Statements with regard to comparative information requirements in respect of paragraph 79(a)(iv)

of IAS 1(reconciliation of the number of the Company’s shares outstanding at the beginning and end of the period)

e Paragraphs 10(d) (statement of cash flows), 16 (statement of compliance with IFRS), 38(A to D) (comparative information), 111 (statement of cash flows)

and 134 to 136 (disclosures about capital) of IAS 1 Presentation of Financial Statements

e IAS 7 Statement of Cash Flows
e Paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (discussion of IFRSs issued by the IASB but not yet adopted

by the Company)

e Paragraph 17 of IAS 24 Related Party Disclosures (compensation of key management personnel) and the further requirement in IAS 24 to disclose related

party transactions entered into with a subsidiary, provided the subsidiary is wholly-owned by the Company.

Approval of the financial statements

The Company’s separate financial statements for the year ended 31 December 2016 were authorised for issue in accordance with a resolution of the
Directors on 23 February 2017.

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Notes to the Company financial statements continued

For the year ended 31 December

2. Significant accounting policies
Investments in subsidiaries

A subsidiary is an entity that is controlled, either directly or indirectly, by the Company. Control exists when the Company is exposed, or has rights,
to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity
that significantly affect its returns.

Investments in subsidiaries represent interests in the Company’s subsidiaries that are directly owned by the Company and are stated at cost less provision
for impairment.

Foreign currency translation

Transactions denominated in foreign currencies are translated into US dollars at the exchange rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are translated at the exchange rate ruling at the balance sheet date. Currency translation differences are
recognised in profit or loss.

Financial instruments

(a) Amounts owed by/ to group undertakings
Amounts owed by/to group undertakings are initially measured at fair and are subsequently measured at amortised cost using the effective interest
method.

(d) Derivative financial instruments
The Company holds derivative financial instruments that are used to reduce the exposure of its subsidiaries to currency exchange rate movements.
The Company also holds equity options and warrants in relation to certain of its strategic investments. The Company does not hold or issue derivatives
for speculative purposes.

All derivative financial instruments held by the Company are measured at fair value. All fair value gains and losses are recognised in profit or loss.
Where the fair value of a derivative on initial recognition differs from the transaction price, if any, the difference is recognised immediately in profit or loss
only if the fair value is evidenced by a quoted price in an active market or is based on a valuation technique that uses only data from observable markets.

Income taxes

Deferred tax is recognised on temporary differences between the carrying amount of assets and liabilities in the financial statements and their tax base
used in the computation of taxable profit. Deferred tax assets are only recognised to the extent that it is probable that taxable profits will be available
against which they can be utilised.

Share-based compensation

The Company operates share-based compensation plans under which it grants options and other awards over its ordinary shares to employees of its
subsidiaries. Awards granted under the existing plans are classified as equity-settled awards.

The Company recognises a compensation expense that is based on the fair value of the awards measured at the grant date using the Black-Scholes option
pricing formula or a Monte Carlo valuation model. The Company recharges the compensation expense to those of its subsidiaries whose employees
participate in the plans.

Shares held by employee benefit trusts

The Company provides finance to two trusts to purchase the Company’s ordinary shares in order to meet its obligations under its share-based
compensation plans. When the trusts purchase such shares, the cost of the shares is debited to equity and subsequent sales or transfers of the shares
by the trusts are accounted for within equity.

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2. Significant accounting policies continued
Treasury shares

3. Income statement
As permitted by section 408 of the Companies Act 2006, the Company’s income statement has not been included in these financial statements. The
Company’s profit after tax was US$105,547 (2015: US$126,441).

During 2016, the Company had no employees (2015: none).

Directors’ remuneration is set out in the Directors’ remuneration report on pages 70 to 79.

Fees payable to the Company’s auditors, Deloitte LLP, are set out in Note 6 to the consolidated financial statements.

4. Investments in subsidiaries
Movements in the carrying amount of subsidiaries owned directly by the Company were as follows:

Balance at 1 January 2016

Additions

Impairment

As at 31 December 2016

US$000

527,657

110,545

(6,077)

632,125

Details of the Company’s subsidiaries as at 31 December 2016 are set out on page 164.

Each of the subsidiaries that are owned directly by the Company are wholly-owned, except for Dyna Image Corporation (“Dyna”), in which the Company
had a 45.7% shareholding throughout 2016.

Dyna is accounted for as a subsidiary because the Company has a call option over the shares in Dyna that it does not already own, which the Directors
consider give the Company the power to direct Dyna’s relevant activities until the option expires in June 2018.

In January 2017, the Company’s direct shareholding in Dyna decreased to 38.7% following an issue of new shares by Dyna in which it did not participate.

5. Non-current financial assets
In November 2016, Dialog entered into a strategic alliance with Energous Corporation (“Energous”) whereby it agreed to become the exclusive
component supplier of Energous’s WattUp(cid:138)(cid:3) integrated circuits. At the same time as entering into the strategic alliance, the Company paid US$10,000 in
cash on subscription for 763,552 common shares in Energous and was granted warrants to purchase up to 763,552 common shares in Energous that are
exercisable in full or in part on a cashless basis at any time between May 2017 and November 2019.

We have classified the shares in Energous held by the Company as available-for sale. We consider that the subscription price paid for the shares
represented their fair value at the date of issue. As at 31 December 2016, the fair value of the shares held by the Company had increased to US$12,866 and
the resulting gain of US$2,866 was recognised in other comprehensive income. As at 31 December 2016, the Company held approximately 3.8% of
Energous’s issued common shares.

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Notes to the Company financial statements continued

For the year ended 31 December

6. Deferred tax
No deferred tax assets were recognised for tax loss carryforwards and deductible temporary differences since there is expected to be insufficient taxable
profits and therefore utilisation is not probable.

7. Share capital and reserves
a) Share capital and share premium account

Details of the Company’s share capital and share premium account are set out in note 25 to the consolidated financial statements.

In preparing these financial statements, the Directors have presented the share premium account separately within reserves. In previous years, the share
premium account was subsumed within additional paid-in capital, which also included gains recognised on the sale or transfer of shares held by
employee benefit trusts and the equity component of the US$201 million 1% Convertible Bonds 2017 (“the Bonds”) that were issued by the Company
during 2012 and converted by the bondholders during 2015. As shown in the following table, comparative information has therefore been reclassified
as follows:

e to transfer from additional paid-in capital to the share premium account the cumulative premium (net of issue costs) recognised on the issue of shares

prior to 1 January 2015 of US$208,105 and the premium of US$182,809 on shares issued on conversion of the Bonds during 2015;

e to transfer from additional paid-in capital to retained earnings the cumulative gain of US$29,833 recognised on the sale or transfer of shares by

employee benefit trusts prior to 1 January 2015 and the gain of US$7,119 on such sales or transfers during 2015;

e to transfer from additional-paid in capital to a separate reserve the equity component of the Bonds amounting to US$36,579 that was recognised on

the issue of the Bonds; and

e on conversion of the Bonds during 2015, to transfer from the separate reserve to retained earnings an amount of US$23,086 representing the

cumulative interest expense recognised in relation to the Bonds and to transfer the balance of the equity component amounting to US$13,493 to the
share premium account.

Additional paid-in
capital
US$000

Share premium
account
US$000

Retained earnings
US$000

Equity component of
Convertible Bonds
US$000

As at 1 January 2015 – as previously stated

274,517

–

229,788

Reclassifications:

– Premium on the issue of shares (net of issue costs)

– Gain on sale of shares by employee benefit trusts

– Equity component of Convertible Bonds

As at 1 January 2015 – reclassified

Year ended 31 December 2015

Movements – as previously stated

Reclassifications:

– Conversion of Convertible Bonds

Issue of shares

Transfer of equity component

– Gain on sale of shares by employee benefit trusts

As at 31 December 2015 – reclassified

(208,105)

(29,833)

(36,579)

208,105

–

208,105

–

29,833

–

259,621

189,208

–

126,458

(182,089)

–

(7,119)

182,089

13,493

–

403,687

–

23,086

7,119

416,284

–

36,579

–

(36,579)

–

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7. Share capital and reserves continued
b) Other reserves

Movements on other reserves were as follows:

As at 1 January 2014

Other comprehensive income (loss):

– Fair value loss recognised on effective hedges

As at 31 December 2014

Other comprehensive income (loss):

– Fair value loss transferred to profit or loss

Other changes in equity:

– Conversion of Convertible Bonds

As at 31 December 2015

Other comprehensive income (loss):

– Fair value gain on available-for-sale investments

Other changes in equity:

– Purchase of own shares into treasury

As at 31 December 2016

Available-for-sale
securities
US$000

Hedging reserve
US$000

Treasury shares
US$000

Equity component of
Convertible Bonds
US$000

–

2,866

–

2,866

–

(114)

114

–

(61,472)

Total
US$000

36,579

(114)

36,465

36,579

–

36,579

–

114

(36,579)

–

2,866

(61,472)

(58,606)

Treasury shares are shares purchased under the Company’s share buyback programme. Details of purchases made under the programme during 2016 are
set out in note 26 to the consolidated financial statements.

As at 31 December 2016, we held 1,805,750 in shares in treasury at a total cost of US$61,472 (including related transaction costs of US$1,063). During 2016,
we recognised a debit to retained earnings of US$1,643, which mirrored the gain recognised in profit or loss on the translation into US dollars of the Euro-
denominated liabilities that existed in relation to shares that were purchased during the year under the first and second tranches of the share buyback
programme.

As at 31 December 2016, we recognised a debit to equity amounting to US$63,077, which comprised the maximum remaining obligation to purchase
shares under the second tranche of the share buyback programme of €57.55 million (US$62,759) and related transaction costs of US$318.

c) Dialog shares held by employee benefit trusts

The Company provides finance to two trusts to purchase its ordinary shares in order to meet its obligations under its share-based compensation plans.
As at 31 December 2016, the trusts held 574,600 ordinary shares (2015: 1,879,195 ordinary shares; 2014: 2,825,412 ordinary shares).

8. Share-based compensation
A description of the share-based compensation plans operated by the Company, together with information about share options exercised and outstanding
is presented in note 29 to the consolidated financial statements.

9. Guarantees
General guarantees have been issued by the Company under Article 403, Book 2 of the Dutch Civil Code in respect its Dutch subsidiaries,
Dialog Semiconductor B.V. and Dialog Semiconductor Finance B.V., in order that they do not have to file annual accounts in the Netherlands.

10. Subsequent event
Share buyback programme

A further intermediate settlement of the second tranche of the Company’s share buyback programme took place on 9 February 2017 and final settlement
and conclusion of the tranche took place on 17 February 2017. In these further settlements, we purchased a further 977,456 shares at a cost of €38.8 million
(US$41,385) and incurred transaction costs amounting to US$207.

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Financial performance measures

Use of non-IFRS measures
We use a range of measures to assess financial performance, to ensure performance is aligned to strategy and to ensure continued alignment with
shareholders’ interests. Certain of these measures are considered particularly important and are identified as ‘key performance indicators’ (KPIs). We have
identified the following financial measures as KPIs: revenue growth; gross margin, operating expenses as a percentage of revenue; operating profit growth;
operating profit margin; and diluted EPS. We monitor these KPIs on both an IFRS basis and an underlying basis.

Underlying measures of profitability are non-IFRS measures because they exclude amounts that are included in, or include amounts that are excluded from,
the most directly comparable measure calculated and presented in accordance with IFRS or are calculated using financial measures that are not calculated
in accordance with IFRS. We do not regard non-IFRS measures as a substitute for, or superior to, the equivalent IFRS measures. Underlying measures of
profitability presented by Dialog may not be directly comparable with similarly-titled measures used by other companies.

Underlying measures of profitability

We report underlying measures because we believe they provide both management and investors with useful additional information about the financial
performance of the Group’s businesses. Underlying measures of profitability represent the equivalent IFRS measures adjusted for specific items that we
consider hinder comparison of the financial performance of the Group’s businesses either from one period to another or with other similar businesses.

We exclude from our underlying results the following specific items of income and expense that are recognised in profit or loss in accordance with IFRS
and their related tax effects:

• Share-based compensation

We exclude the share-based compensation expense recognised in relation to options and awards granted under the Company’s share-based
compensation plans because the awards are equity-settled and therefore have no immediate effect on shareholders’ returns. We additionally exclude
the effect on profit or loss of changes in the accrual for payroll taxes payable on the exercise or vesting of options and awards made under the plans
because the accrual fluctuates with the Company’s share price and the effect on profit or loss is therefore not necessarily indicative of the Group’s
trading performance.

• Business combinations

We exclude from our underlying results those effects of applying the acquisition method of accounting under IFRS that we consider are not indicative
of the Group’s trading performance, including the accounting for transaction costs, deferred revenue and inventories of acquired businesses,
integration costs and contingent consideration. We also exclude from our underlying results transaction costs and termination fees relating to
business combinations that are not consummated. We excluded the following such items from our underlying results during the periods presented:

–
–

–

in 2016, the termination fee received in relation to the aborted merger with Atmel;

in 2016 and 2015, transaction costs relating to the aborted merger with Atmel and, in 2014, transaction costs relating to the aborted merger with
AMS;

in 2015 and 2014, the adjustments made to the contingent consideration payable on the acquisition of iWatt and the residual costs of integrating
that business.

We also exclude the amortisation of identifiable intangible assets that are recognised in business combinations and the additional depreciation arising
from the initial measurement at fair value of property, plant and equipment acquired in business combinations in order that the performance of those
businesses that we have acquired may be compared fairly with those businesses that we have developed on an organic basis.

• Effective interest on financial liabilities
We adjust the Group’s interest expense to exclude the non-cash element of the interest expense recognised in relation to the liability component of
the 1% Convertible Bonds 2017 prior to their early conversion during 2015 and a patent licensing agreement that is accounted for as a finance lease
within other intangible assets. We consider in each case that the cash interest payments are more indicative of the effect of these arrangements on
shareholders’ returns.

• Strategic derivative investments
We exclude the gains or losses recognised on the measurement at fair value through profit or loss of the warrants that we hold to purchase additional
shares in Energous and our call option over the non-controlling interests in Dyna Image. We hold these instruments for strategic reasons linked to our
commercial partnerships with these companies. Since we do not hold these instruments for trading purposes, we exclude fluctuations in their fair
values when assessing the Group’s trading performance.

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•

Intellectual property reorganisation

We exclude the deferred tax credit that was recognised during 2014 as a consequence of the intra-group reorganisation of certain intellectual property
following the acquisition of iWatt, because it was a discrete tax benefit that was not indicative of the Group’s trading performance.

We calculate the income tax effect of the above Items by considering the specific tax treatment of each item and by applying the relevant statutory tax
rate to those items that are taxable or deductible for tax purposes.

Underlying measures of profitability exclude items that can have a significant effect on the Group’s profit or loss. We compensate for these limitations by
monitoring separately the items that are excluded from the equivalent IFRS measures in calculating the underlying financial measures.

Reconciliation of underlying measures to equivalent IFRS measures
Reconciliations of the underlying measures of profitability used by Dialog to the equivalent IFRS measures for the years ended 31 December 2016, 2015
and 2014 are presented in the following tables:

Year ended 31 December 2016

US$’000

Revenue

Gross profit

SG&A expenses

R&D expenses

Other operating income

Operating profit

Net finance (income)/expense

Profit before income taxes

Income tax expense

Net income

Year ended 31 December 2015

US$’000

Revenue

Gross profit

SG&A expenses

R&D expenses

Other operating income

Operating profit

Net finance expense

Profit before income taxes

Income tax expense

Net income

IFRS basis

1,197,611

546,715

(133,271)

(241,345)

137,708

309,807

(4,601)

305,206

(47,090)

258,116

IFRS basis

1,355,312

624,804

(143,035)

(223,182)

1,159

259,746

(4,907)

254,839

(77,580)

177,259

Share-based
compensation
and related
payroll taxes

Accounting for
business
combinations

Aborted merger
with Atmel

Effective
interest

Strategic
derivative
investments

–

1,120

15,826

13,570

–

7,029

7,473

–

3,485

–

(137,300)

30,516

14,502

(133,815)

–

30,516

(4,686)

25,830

–

1,913

14,502

(131,902)

(351)

(383)

14,151

(132,285)

–

526

(105)

421

Underlying
basis

1,197,611

554,864

(106,487)

(227,775)

408

221,010

(3,361)

217,649

–

(1,199)

386

(52,229)

(813)

165,420

Share-based
compensation
and related payroll
taxes

Accounting for
business
combinations

Aborted merger
with Atmel

Integration costs Effective interest Underlying basis

–

940

10,287

10,418

–

6,600

11,061

824

–

21,645

18,485

–

21,645

(492)

21,153

–

18,485

(1,027)

17,458

–

17,604

–

17,604

1,153

18,757

–

18,757

–

176

–

176

–

176

–

176

–

3,724

(151)

3,573

1,355,312

632,344

(103,907)

(211,940)

1,159

317,656

(30)

317,626

(79,250)

238,376

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Year ended 31 December 2014

US$’000

Revenue

Gross profit

SG&A expenses

R&D expenses

Other operating income

Operating profit

Net finance expense

Profit before income taxes

Income tax expense

Net income

Share-based
compensation
and related
payroll taxes

Accounting for
business
combinations

Aborted
merger with
AMS AG

Integration
costs

Effective
interest

Intellectual
property
reorganisation

–

848

13,700

10,504

–

25,052

–

25,052

–

25,052

–

7,749

9,914

1,066

(1,939)

16,790

–

16,790

(1,783)

15,007

–

−

–

−

1,268

1,253

–

1,268

–

1,268

–

1,268

–

1,253

–

1,253

–

1,253

–

−

–

−

9,269

–

9,269

–

−

–

−

–

(17,759)

IFRS basis

1,156,105

514,809

(119,515)

(213,808)

4,416

185,902

(16,581)

169,321

(31,242)

138,079

Underlying
basis

1,156,105

523,406

(93,380)

(202,238)

2,477

230,265

(7,312)

222,953

(50,784)

172,169

Accounting for business combinations
We excluded from the underlying measures of the profitability the following specific items arising from business combinations accounting under IFRS:

US$'000 unless stated otherwise

Acquisition-related costs

Amortisation of acquired intangible assets

Additional depreciation of tangible assets

Change in the fair value of contingent consideration payable

Increase in profit before tax

Income tax credit

Increase in net income

2016

−

14,502

−

14,502

(351)

14,151

2015

15,024

−

3,375

18,485

(1,027)

17,458

2014

1,912

15,129

1,688

(1,939)

16,790

(1,783)

15,007

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Explanation of financial performance measures
Change in revenue
We monitor the change in revenue from one period to another and the trend in revenue over time because they are important measures of the growth in
our business. During the periods presented there were no differences between IFRS and underlying revenue. Revenue was as follows:

US$'000 unless stated otherwise

IFRS and underlying basis

Revenue in the period

Revenue in the comparative period

(Decrease)/increase in revenue

2016

2015

2014

1,197,611

1,355,312

(11.6)%

1,355,312

1,156,105

17.2%

1,156,105

901,380

28.3%

Gross margin
Gross margin is gross profit expressed as a percentage of revenue. We monitor gross margin because it provides a measure of the value that we add to our
products. Gross margin on an IFRS basis and on an underlying basis was as follows:

US$'000 unless stated otherwise

IFRS measures

Revenue

Gross profit

Gross margin

Underlying measures

Revenue

Gross profit

Gross margin

2016

2015

2014

1,197,611

1,355,312

1,156,105

546,715

45.7%

624,804

46.1%

514,809

44.5%

1,197,611

1,355,312

1,156,105

554,864

46.3%

632,344

46.7%

523,406

45.3%

Operating expenses as a percentage of revenue
We monitor operating expenses as a percentage of revenue because it provides a measure of our effort in innovation and the efficiency of our operating
structure. Operating expenses comprise selling, general and administrative (SG&A) expenses and research and development (R&D) expenses. Operating
expenses as a percentage of revenue on an IFRS basis and on an underlying basis was as follows:

US$'000 unless stated otherwise

IFRS measures

Revenue

Operating expenses

Operating expenses as a percentage of revenue

Underlying measures

Revenue

Operating expenses

Operating expenses as a percentage of revenue

2016

2015

2014

1,197,611

(374,616)

31.3%

1,197,611

(334,262)

27.9%

1,355,312

(366,217)

27.0%

1,355,312

(315,847)

23.3%

1,156,105

(333,323)

28.8%

1,156,105

(295,618)

25.6%

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Financial performance measures continued

Change in operating profit
We monitor the change in operating profit from one period to another and the trend in operating profit over time because they are important measures of
the performance of our operations. Operating profit growth on an IFRS basis and on an underlying basis was as follows:

US$'000 unless stated otherwise

IFRS measures

Operating profit in the period

Operating profit in the comparative period

Increase in operating profit

Underlying measures

Operating profit in the period

Operating profit in the comparative period

(Decrease)/increase in operating profit

2016

2015

2014

309,807

259,746

19.3%

221,010

317,656

(30.4)%

259,746

185,902

39.7%

317,656

230,265

38.0%

185,902

102,660

81.1%

230,265

139,595

65.0%

Operating profit margin
Operating profit margin is operating profit expressed as a percentage of revenue. We monitor operating profit margin because it provides a measure of the
overall profitability of our operations. Operating profit margin on an IFRS basis and on an underlying basis was as follows:

US$'000 unless stated otherwise

IFRS measures

Revenue

Operating profit

Operating profit margin

Underlying measures

Revenue

Operating profit

Operating profit margin

2016

2015

2014

1,197,611

1,355,312

1,156,105

309,807

25.9%

259,746

19.2%

185,902

16.1%

1,197,611

1,355,312

1,156,105

221,010

18.5%

317,656

23.4%

230,265

19.9%

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Underlying EBITDA and EBITDA margin
Underlying EBITDA is a non-IFRS measure that we define as underlying net income before net finance expense, income tax expense and depreciation and
amortisation expenses. Underlying EBITDA margin is a non-IFRS measure that represents underlying EBITDA expressed as a percentage of revenue. We
present underlying EBITDA and underlying EBITDA margin because these measures are useful to investors and other users of our financial information in
evaluating the sensitivity of our underlying trading performance to changes in variable operating expenses. Underlying EBITDA may be reconciled to
underlying net income as follows:

US$'000

Underlying measures

Net income1)

Net finance expense

Income tax expense

Depreciation expense

Amortisation expense

EBITDA

2016

20152)

20142)

165,420

238,376

172,169

3,361

52,229

27,219

21,452

79,250

24,010

16,096

7,312

50,784

20,456

18,302

269,681

357,762

269,023

1 Underlying net income is reconciled to net income determined in accordance with IFRS basis in the tables set out under the heading ‘Reconciliation of underlying measures to

equivalent IFRS measures’.

2 Recalculated to no longer exclude gains and losses on the disposal of fixed assets in order that underlying EBITDA and EBITDA margin presented by Dialog are more comparable with
similar measures presented by other companies. During 2015, we recognised a loss of US$1,751 on the disposal of fixed assets (2014: loss of US$407) that is now included in arriving at
underlying EBITDA.

Underlying EBITDA margin was as follows:

US$'000 unless stated otherwise

Underlying measures

Revenue

EBITDA

EBITDA margin

2016

2015

2014

1,197,611

1,355,312

1,156,105

269,681

22.5%

357,762

26.4%

269,430

23.3%

Earnings per share (EPS)
We monitor basic and diluted EPS on an IFRS basis and on an underlying basis. We believe that underlying EPS measures are useful to investors in assessing
the Group’s ability to generate earnings and provide a basis for assessing the value of the Company’s shares (for example, by way of price earnings
multiples). Earnings for calculating IFRS and underlying EPS measures were calculated as follows:

US$'000 unless stated otherwise

IFRS measures

Net income

Loss attributable to non-controlling interests

Earnings for calculating basic EPS

Effective interest on Convertible Bonds

Earnings for calculating diluted EPS

Underlying measures

Net income1)

Loss attributable to non-controlling interests

Earnings for calculating basic EPS

Interest payable on Convertible Bonds

Earnings for calculating diluted EPS

2016

2015

2014

258,116

(2,824)

260,940

–

260,940

165,420

(2,299)

167,719

–

167,719

177,259

(1,507)

178,766

3,483

182,249

238,377

(1,507)

239,884

503

240,387

138,079

–

138,079

10,279

148,358

172,169

–

172,169

2,010

174,179

1 Underlying net income is reconciled to net income determined in accordance with IFRS basis in the tables set out under the heading ‘Reconciliation of underlying measures to

equivalent IFRS measures’.

Dialog Semiconductor Plc Annual report and accounts 2016

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Financial performance measures continued

Underlying and diluted EPS measures are calculated using the weighted average number of shares that are used in calculating the equivalent measures
under IFRS as presented in note 9 to the consolidated financial statements.

Basic and diluted EPS on an IFRS basis and on an underlying basis were as follows:

US$

IFRS measures

Basic EPS

Diluted EPS

Underlying measures

Basic EPS

Diluted EPS

2016

3.43

3.25

2.20

2.09

2015

2.42

2.29

3.25

3.02

2014

2.05

1.93

2.56

2.27

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Additional
information
information

Glossary of Terms – Technical

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.

Appcessories A physical device and
counterpart application for a mobile device
typically controlled via Bluetooth®.

ASIC An Application Specific Integrated Circuit
is an integrated chip, custom-designed for a
specific application.

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.

Bluetooth® low energy Bluetooth® low energy
is a wireless personal area network technology
designed and marketed by the Bluetooth Special
Interest Group aimed at novel applications in
the healthcare, fitness, beacons, security, and
home entertainment industries.

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.

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.

Internet of Things (“IoT”) The Internet of
Things is an environment where everyday
items, such as smartphones, wearable health
meters, light bulbs, and lighting, security and
HVAC systems, are all connected via the Internet,
allowing them to send and receive data and be
controlled wirelessly.

Internet of My Things It refers to the consumer
segment of the Internet of Things.

LDO Low dropout voltage regulators are used
in battery operated systems, where the output
voltage is typically lower than the input voltage.

LED A Light Emitting Diode is a semiconductor
device that emits light when charged with
electricity, often used for LCD display backlights.

Liquid Crystal Display (“LCD”) A display
technology found in many portable electronics
products, including personal organisers, cellular
handsets and notebook computers.

LTE Long-Term Evolution is a standard for
wireless communication of high-speed data
for mobile phones and data terminals.

CAD Computer Aided Design usually refers to
a software tool used for designing electronics
hardware or software systems.

Mixed signal A combination of analog and
digital signals being generated, controlled or
modified on the same chip.

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”).

Digital Enhanced Cordless
Telecommunications (“DECT”) is a wireless
connectivity standard technology originated
in Europe for cordless telephony.

Fabless A company that designs and delivers
semiconductors by outsourcing the fabrication
(“manufacturing”) process.

OEM An Original Equipment Manufacturer that
builds products or components that are used
in products sold by another company.

Original Design Manufacturer (“ODM”)
An original design manufacturer designs and
produces products that are specified and then
rebranded by OEMs.

PMIC Power Management IC.

Power Density The maximum amount of
power that can be supplied from a given unit
of volume. For example, a high power density
power adapter can supply a large amount of
power in the same size case as a low power
density adapter.

Power Management The management of
the power requirements of various subsystems,
important in handheld and portable
electronics equipment.

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Glossary of Terms – Technical continued

SmarteXite™ Dialog’s brand name for its
intelligent LED lighting technology platform.

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.

Synchronous Rectifier An integrated circuit
that can replace diodes to improve efficiency
and power density in power conversion
applications, such as power supplies.

System-on-Chip An IC that integrates all
components of a computer or other electronic
system into a single chip. It may contain digital,
analog, mixed-signal, and often radio-frequency
functions – all on a single chip substrate.

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.

Voice Over IP Our energy-efficient multicore
VoIP processors interact with Bluetooth®, Wi-Fi
and DECT to enable headset and handset
connectivity while combining industry-leading
power consumption with the flexibility and
processing capacity to handle a wealth of
enterprise VoIP applications.

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.

PrimAccurate™ Dialog’s patented control
technology that uses digital algorithms on
the primary side of an isolated power supply
eliminating the need for a secondary side
regulator and optical feedback isolator to lower
the total BOM cost, reduce the overall solution
size and improve reliability.

Rapid Charge™ A Dialog product which
enables substantially faster battery charging of
portable devices via USB AC/DC power adapters.

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.

SmartBond™ Dialog’s SmartBond™ family is the
simplest route to delivering the most power-
friendly and flexible Bluetooth® Smart connected
products to the market. Highly integrated,
SmartBond™ delivers the smallest, most power
efficient Bluetooth® Smart solutions available –
and enables the lowest system costs.

Smart Lighting Dialog defines smart lighting
to encompass solid state lighting control ranging
from various modes of wired digital dimming
via the AC supply line, such as toggle-switch
dimming, as well as the emerging Ledotron®
(IEC 62756-1) digital dimming standard.
Smart lighting also includes wireless lighting
control via existing wireless standards such
as Bluetooth® Smart, ZigBee®, Z-Wave®, Wi-Fi,
and others.

SmartDefender™ Dialog’s advanced cycle-by-
cycle, hiccup mode technology that addresses
soft short circuits in adapter cables and
connectors helping to prevent excessive heat
build-up and damage.

SmartMirror™ A technology patented
by Dialog Semiconductor which simplifies
circuit design and provides very low current
consumption in Power Management circuits.

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.

SmartPulse™ A series of wireless sensors,
actuators and base station devices enables
the easy creation of wireless sensor networks
for the home automation, security, healthcare
and energy monitoring consumer markets.

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Glossary of Terms – Financial

Financial glossary
AGM Annual General Meeting of the
Company’s shareholders.

BaFin the Federal Financial Supervisory
Authority in Germany (Bundesanstalt
für Finanzdiensleistungsaufsicht).

Basis point or bp one hundredth of one
percentage point.

CAGR Compound Annual Growth Rate,
a method of assessing the average growth
of a value over time.

CEO Chief Executive Officer.

CFO Chief Financial Officer.

the Companies Act 2006 the Companies Act
2006 of England and Wales, as amended.

IFRS International Financial Reporting Standards,
comprising accounting standards issued by
the IASB.

KPIs Key Performance Indicators, a range of
indicators to assess performance, to ensure
performance is aligned to strategy, and to ensure
continued alignment with shareholder interests.

LTIP Long-term incentive plan.

NASDAQ the National Association of Securities
Dealers and Automated Quotations.

OECD Organisation for Economic Co-operation
and Development.

Other operating income consists of income
from customer-specific R&D contracts and
other income that is not classified as revenue,
less other operating expenses.

the Company Dialog Semiconductor Plc.

Pound Sterling (£) the currency of the UK.

COSO Committee of Sponsoring Organizations,
whose mission is to provide thought leadership
on risk management, internal control and
fraud deterrence to improve organisational
performance and governance.

Cost of sales consists of material costs, the
costs of outsourced production and assembly,
related personnel costs (including share-based
compensation), applicable overhead and
depreciation of test and other equipment.

Dialog used for convenience to refer to the
Company and its subsidiaries, unless the context
requires otherwise.

the DTRs the Disclosure & Transparency Rules
of the UKLA.

EBIT Earnings before interest and taxes
(also known as operating profit).

EBITDA Earnings before depreciation,
amortisation, interest and taxes.

the EU the European Union.

Euro (€) the common currency used in the
majority of member countries of the EU.

the Frankfurt Stock Exchange the largest
of the seven regional securities exchanges
in Germany.

Free-float The proportion of an issuer’s share
capital that is available for purchase in the public
equity markets by investors.

General and administrative expenses
consist primarily of personnel costs (including
share-based compensation) and costs for our
finance, human resources and other business
support functions.

the Group the Company and its subsidiaries.

the IASB the International Accounting
Standards Board.

Prime Standard a market segment of the
Frankfurt Stock Exchange that lists companies
which comply with international transparency
standards, including periodic reporting in
German and English, application of international
accounting standards, publication of a financial
calendar, staging of at least one analyst
conference a year and ad hoc disclosure
also in German and English.

R&D research and development.

R&D expenses consist principally of personnel
costs (including share-based compensation)
and other design and engineering-related costs
associated with the development of new ASICs
and ASSPs.

Selling and marketing expenses consist
primarily of personnel costs (including share-
based compensation), travel expenses, sales
commissions, advertising and other marketing
costs, together with amortisation expenses in
relation to identifiable intangible assets such as
customer relationships, key customers and order
backlog acquired in business combinations.

SG&A selling, general and administrative.

the TecDAX stock index that tracks the
performance of the 30 largest companies by
market capitalisation from the technology sector
that are listed on the Frankfurt Stock Exchange.

UK the United Kingdom of Great Britain and
Northern Ireland.

the UKLA the UK Listing Authority.

US the United States of America.

US dollar (US$) the currency of the US.

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information

Advisers and corporate information

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 2017 Results
Q2 2017 Results
Q3 2017 Results
Preliminary results for 2017

4 May 2017
9 May 2017
27 July 2017
2 November 2017
February 2018

Company Registrar
Link Market Services (Frankfurt) GmbH
Mergenthalerallee 15-21
65760 Eschborn
Germany

Advisers and corporate information

Public relations

FTI Consulting
200 Aldersgate
Aldersgate Street
London EC1A 4HD
UK

Legal adviser

FTI Consulting
Park Tower
Bockenheimer Anlage 44
60322 Frankfurt am Main
Germany

Reynolds Porter Chamberlain LLP Tower
Bridge House
St Katharine’s Way
London E1W 1AA
UK

Auditors
Deloitte LLP
3 Victoria Square
Victoria Street
St Albans
AL7 3TF

Principal bankers
HSBC Bank Plc
Thames Valley
Corporate Banking Centre
Apex Plaza
Reading
Berkshire RG1 1AX
UK

Designated sponsors
Kepler Cheuvreux
Oddo Seydler
Schillerstrasse 27-29 Taunusanlage 14
D-60313 Frankfurt
D-60325 Frankfurt
Germany
Germany

Shares
Information on the Company’s shares and
on significant shareholdings can be found
on page 67.

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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
United Kingdom
Phone: (+44) 1793 757700
Fax: (+44) 1793 757800
Email: dialog.swindon@diasemi.com

100 Longwater Avenue
Green Park
Reading RG2 6GP
United Kingdom
Phone: +44 1793 757700
Fax: +44 1189 450219
Email: info@diasemi.com

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
Suite 110
Santa Clara
California 95054
USA
Phone: (+1) 408 845 8500
Fax: (+1) 408 727 3205
Email: NA_sales_enquiries@diasemi.com

Dialog Semiconductor Inc.
675 Campbell Technology Parkway Suite 150
Campbell
California 95008
USA

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

China
Dialog Semiconductor Trading (Shanghai) Ltd
Room 503, Building 1, No. 1535
Hong Mei Road
200233 Shanghai
China
Phone: (+86) 21 5424 9058
Fax: (+86) 21 5424 9058#107

Dialog Semiconductor (Shenzhen) Ltd
Rooms 1009-1011
Chang Hong Science and Technology Building
South 12 Road, Southern District in
High-tech Park
Nanshan District
518057 Shenzhen
China
Phone: (+86) 755 2981 3669

Taiwan
Dialog Semiconductor GmbH
Taiwan Branch
7F, 392 Ruiguang Road
Neihu District
Taipei City 11493
Taiwan, R.O.C.
Phone: (+886) 281 786 222
Fax: (+886) 281 786 220
Email: dialog.taiwan@diasemi.com

Korea
Dialog Semiconductor (UK) Ltd
Korea Branch
6 FL, Deokmyeong Building, 625
Teheran-ro
Gangnam-gu
Seoul, 06173
Korea
Phone: (+82) 2 3469 8200
Fax: (+82) 2 3469 8291
Email: dialog.korea@diasemi.com

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Related undertakings

The Company’s subsidiaries as at 31 December 2016 were as follows:

Name
Avengers Acquisition Corporation

Dialog Argo Holdings L.L.C.1

Dialog Argo Holdings, Inc.

Dialog Integrated Circuits (Tianjin) Limited1
(formerly iWatt Integrated Circuits Technology
(Tianjin) Limited)
Dialog Semiconductor (Italy) S.R.L.
Dialog Semiconductor (Shenzhen) Limited1

Dialog Semiconductor (UK) Limited
Dialog Semiconductor Arastırma Gelistirme ve
Ticaret Anonim Sirketi
Dialog Semiconductor B.V.
Dialog Semiconductor Finance B.V.
Dialog Semiconductor Finance L.L.C.

Dialog Semiconductor GmbH
Dialog Semiconductor Hellas Societe Anonyme
of Integrated Circuits1
Dialog Semiconductor Holdings 1 Limited
Dialog Semiconductor Hong Kong Limited1
Dialog Semiconductor Inc.1

Dialog Semiconductor K.K.
Dialog Semiconductor Operations
Services Limited1
Dialog Semiconductor Plc
Dialog Semiconductor Trading (Shanghai)
Limited1
Dyna Image Corporation
IKOR Acquisition Corporation1

iWatt B.V.1
iWatt Cayman1
iWatt Coöperatief U.A.1
iWatt HK Limited1

iWatt L.L.C.1

iWatt MFG HK Limited1

Powerventure Semiconductor Limited

1 Held indirectly

Registered Address
Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle, DE 19801
Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle, DE 19801
Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle, DE 19801
Rooms 2701-2, No. 2 Building, TEDA Service Outsourcing Industrial Park,
No. 19 XinHuanxi West Road, TEDA, Tianjin, 300457

Via Gaetano D’Alesio No.2, 57126, Livorno
Room 1009-10, Chang Hong Science and Technology Building, South 12 Road,
Southern District in High-tech Zone, Nan Shan District, Shenzhen
Tower Bridge House, St Katharine’s Way, London E1W 1AA
Istanbul Technical University, Ayazaga Campus, ARI 6 Building, Maslak,
Istanbul, 34469
Het Zuiderkruis 53, 5215 MV’s-Hertogenbosch
Het Zuiderkruis 53, 5215 MV’s-Hertogenbosch
Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle, DE 19801
Neue Strasse 95, 73230 Kirchheim unter Teck-Nabern
Megaro Xenia, Achilleos 8 & Lambrou Katsoni, Kallithea, Athens, 17674

Tower Bridge House, St Katharine’s Way, London E1W 1AA
Level 54, Hopewell Centre, 183 Queen’s Road East
Corporation Trust Centre, 1209 Orange Street, Wilmington,
New Castle, DE 19801
Kamiyacho MT Building 16F, 4-3-20 Toranomon, Minato-ku, Tokyo, 105-0001
Tower Bridge House, St Katharine’s Way, London E1W 1AA

Tower Bridge House, St Katharine’s Way, London E1W 1AA
Room 503,505, Building 1, No. 1535, Hongmei Road,
Shanghai, 200233
8F., No.233-2, Baoqiao Rd., Xindian Dist., New Taipei City, 23145
Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle, DE 19801
Luna Arena, Herikerbergweg 238, 1101 CM Amsterdam
PO Box 309, Ugland House, Grand Cayman, KY1-1104
Luna Arena, Herikerbergweg 238, 1101 CM Amsterdam
Units 515-517, 5/F., Building 12W, No.12, Science Park West
Avenue, Phase Three, Hong Kong Science Park, Pak Shek Kok, N.T.
Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle, DE 19801
Rooms 2702-3, 27th Floor, Bank of East Asia Harbour View
Centre, 56 Gloucester Road, Wan Chai
Tower Bridge House, St Katharine’s Way, London E1W 1AA

Country
United States

United States

China

Italy
China

United Kingdom
Turkey

Netherlands
Netherlands
United States

Germany
Greece

United Kingdom
Hong Kong
United States

Japan
United Kingdom

United Kingdom
China

Taiwan
United States

Netherlands
Cayman Islands
Netherlands
Hong Kong

United States

Hong Kong

United Kingdom

All subsidiaries are wholly-owned except Dyna Image Corporation in which the Company has a 45.7% shareholding. The Company had no other related
undertakings as at 31 December 2016.

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Branches and representative offices

Name
Dialog Integrated Circuits (Tianjin)
Limited, Beijing Branch
Dialog Semiconductor (UK)
Limited, Korea Branch
Dialog Semiconductor GmbH
Austria Branch
Dialog Semiconductor GmbH
Singapore Branch
Dialog Semiconductor GmbH
Taiwan Branch
Dialog Semiconductor
Operations Services Limited
Korea Branch
Dialog Semiconductor
Operations Services Limited
Thailand Representative Office
Dialog Semiconductor
Operations Services Limited
Taiwan Branch
iWatt HK Limited Korea Branch
(liquidated 05/04/2016)
Powerventure Semiconductor
Limited, Taiwan Branch

Entity Type
Branch Office

Branch Office

Registered Address
Room 902-904, Zhong Guan Cun Crowne Plaza Office Building,
No. 106 ZhiChun Road, Haidian District, Beijing, 100086
6 FL, Deokmyeong Building 625, Teheran-ro,
Gangnam-gu, Seoul
Kärntner Strasse 518, 8054 Graz-Seiersberg

Country
China

Korea

Austria

Branch Office

51 Anson Road, #12-51 Anson Centre, Singapore 079904

Singapore

Branch Office

7F., No.392, Ruiguang Rd., Neihu Dist., Taipei City 114

Branch Office

6 FL, Deokmyeong Building 625, Teheran-ro,
Gangnam-gu, Seoul

Representative
Office

26th Floor, Sathorn City Tower, 175 South Sathorn Road,
Thungmahamek, Sathorn,10120 Bangkok

Branch Office

7F., No.392, Ruiguang Rd., Neihu Dist., Taipei City 114

Branch Office

7F., No. 1, Taiyuan 1st St., Zhubei City, Hsinchu County 302

Taiwan

Korea

Thailand

Taiwan

Korea

Taiwan

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Registered office
Dialog Semiconductor Plc
Tower Bridge House
St Katharine’s Way
London E1W 1AA
UK
www.dialog-semiconductor.com

Designed and produced by:
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Dialog Semiconductor Plc Annual report and accounts 2016