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Dialog Semiconductor Plc | Annual report and accounts 2014 Leading through innovation Annual report and accounts 2014 Contents Overview Corporate Governance 01 What we do 51 Introduction to governance 52 Leadership – Dialog Board of Directors Strategic report 54 Leadership – Management team 02 Group structure 56 Directors’ report 03 Chairman’s statement 59 Corporate Governance statement 04 Highlights 67 Directors’ remuneration report 06 Chief Executive’s review 68 Directors’ remuneration policy report 08 The Dialog business model 75 Annual report on remuneration 10 Our markets 85 Statement of Directors’ responsibilities 14 Strategic framework 85 Responsibility statement 16 Extending our product portfolio 18 Broader and deeper customer base Consolidated financial statements and notes 20 Continuous innovation 86 Independent Auditors’ report to the members 22 Strategic initiatives of Dialog Semiconductor Plc 24 Key performance indicators (KPI’s) 88 Consolidated statement of financial position 26 Financial review 89 Consolidated income statement 32 Segment review 90 Consolidated statement of – 32 Mobile systems comprehensive income – 34 Connectivity 91 Consolidated statement of cash flows – 36 Power conversion 92 Consolidated statement of changes in equity – 38 Automotive and Industrial 93 Notes to the consolidated financial statements 40 Our people 153 Company statement of financial position 42 Corporate responsibility 154 Company statement of changes in equity and sustainability 155 Company statement of cash flows 46 Managing risks and uncertainty 156 Notes to the Company financial statements Additional information 157 Appendix to the Financial review 160 Glossary of terms – Technical 162 Glossary of terms – Financial 163 Advisers and corporate information 164 Group directory Dialog Semiconductor Plc | Annual report and accounts 2014 Overview 01 What we do Dialog Semiconductor creates and markets highly integrated, mixed signal integrated circuits (ICs), optimised for personal, portable, hand-held devices, 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. 02 Strategic report Group structure Mobile systems • Power management • Audio • Display Revenue of group revenue US$943m 82% Automotive Connectivity & Industrial • Wireless audio • Motor control ICs • Bluetooth® Smart™ • Control ASICs Consumer • Voice over DECT applications • VoIP Revenue Personal Revenue Portable US$41m Connected US$92m of group revenue of group revenue 3% 8% Power conversion • AC/DC converters • Solid State Lighting LED drivers Revenue of group revenue US$80m 7% Dialog Semiconductor Plc | Annual report and accounts 2014 Strategic report 03 Chairman’s statement Dear Shareholder, I am very pleased to write to you following another successful year for Dialog Semiconductor. In 2014 the business continued to deliver strongly on our strategic and operational targets and we maintained our track record of out-performing the market and our peers. We continue to develop and deliver industry-leading products which make a difference to people’s lives on a daily basis. The Company’s year-on-year revenue long-term strategy that has guided the 2014 was my second year as Chairman growth in 2014 was an impressive 28%, Company for the past decade, and he has and I am personally excited to be part of surpassing, for the first time in our history, played a significant role in helping the CEO a growing and successful business. The US$1 billion in revenue. This represents build the strong management team that has Board, the Executive Team and all of Dialog’s a significant achievement and is a CAGR executed so well over the past years. Peter employees made significant progress in of 40% in revenue over the past five years. joined the board in 2006 and his deep 2014 and collectively, we are proud of the We also delivered increased profitability semiconductor experience and broad business we are building, the customers we and robust cash flow. This cash flow helps managerial expertise have enabled him are serving and the value we are creating us fund on going innovation and other to provide significant and sustained for our shareholders. We look forward to investment opportunities – setting the contributions to the Company during his another year of success in 2015 and thank foundations for future growth. tenure. Both have played a key role in you for your continued support. helping the Company create substantial Alongside this impressive financial value for shareholders. performance, the Dialog team, led by our CEO, Jalal Bagherli, made good progress I would also like to welcome Eamonn Richard Beyer on our diversification strategy in 2014, with O’Hare to the Board. Eamonn has a proven Chairman tangible results on each of the four strategic track record in the consumer and technology pillars, which are set out in this report. industries and has already made valued contributions to the Board since his In addition to growing and developing appointment in May 2014. our business, we also continue to enhance our disclosure and corporate governance practice. In this regard, we have built on the increased disclosure of last year’s Annual Report and we believe we have made further progress this year. I would like to record our appreciation to John McMonigall and Peter Weber who will retire as Directors at the 2015 AGM. John joined the Company in 1998, and he has been a pillar of wisdom and professionalism throughout his service on the Board. He has helped craft the Dialog Semiconductor Plc | Annual report and accounts 2014 04 Strategic report Highlights 2014 Performance highlights Dialog delivered an exceptional set of financial results in 2014, with strong revenue and earnings growth and robust cash generation. We brought exciting innovation into the market and sustained our investment in R&D to underpin future revenue growth. We made good progress on the four key pillars of our strategy and continued to build on the foundations for a more diversified business. We believe this will deliver superior returns for our Shareholders over the medium term. 2014 Financial highlights +28% +65% 45.3% US$2.56 IFRS Revenue growth EBIT growth* Gross margin* Basic EPS* (2013**: US$901m) (2013: US$139.6m) (2013: 40.5%) (2013: US$1.49) * Underlying ** Following a change in accounting policy the presentation of income from customer-specific research and development contracts has been adjusted retrospectively. For further information please refer to note 2 to the consolidated financial statements. Dialog is a growth business and has a track record of delivering profitable growth which, in turn, is the basis for value creation for our Shareholders. In 2014, Dialog has delivered against all of the key performance measures for the business. To provide a more accurate reflection of business performance, measurement is on an underlying basis, eliminating the impact from accounting adjustments including those arising from the acquisition of iWatt in July 2013. Full reconciliation of reported underlying performance is set out on a table included in the Financial Review on page 26. Our performance against each of these key financial metrics, together with a range of other performance measures, is set out in greater detail under our performance in 2014 on page 24. Dialog Semiconductor Plc | Annual report and accounts 2014 Strategic report 05 Strategic highlights Extending our product portfolio for portable platforms Development of AC/DC adapter interface IC for Qualcomm® Quick Charge 2.0 power supplies and the world’s first AC/DC rapid charge controllers compatible with MediaTek’s Pump Express™ and Pump Express™ Plus fast charge protocols. New low power audio CODEC with unsurpassed always-on power consumption to enable “voice trigger” activated applications. New Solid State Lighting LED driver platform developed in 2014 providing compatibility with more dimmers than ever before and significantly reducing the cost of LED bulbs. Broader and deeper customer base Xiaomi included our Bluetooth ultra-low-power SmartBond™ SoC (System on a Chip) in its new Mi Band fitness tracking wrist band. Further expansion into the Smart Home and Human Interface Device market with a design win that will feature SmartBond™ in a number of OEM wireless Remote Control Units for Smart TVs and set-top boxes from SMK Corporation. Lenovo and Meizu implemented the DA9210 power management IC in their latest smartphone models, the Vibe X2 and the MX4. LG adopted the configurable D2260 IC PMIC to