(1) R&D and SG&A as a percentage of revenue.
(2) Including other operating income.
(3) Q4 2014 IFRS net income has increased by $3.0m compared to the amount reported in 2014. The adjustment relates to the on-going effect on the tax expense giving rise to the non-cash deferred tax credit of $17.8m discussed in pages 29-30 of the 2014 Annual Report
Revenue in Q4 2015 was 9% down on the previous year following the anticipated softer demand in the smartphone market impacting the Mobile Systems segment. There were stronger performances across the other main business segments. Power Conversion was up 16% on the back of the ramp of our rapid charge solutions. Our Bluetooth(R) Smart products continued to perform well, resulting in revenue for our Connectivity segment up 9% from Q4 2014.
Q4 2015 Underlying gross margin was 70bps below Q4 2014. This was the result of the lower revenue performance and inventory write-offs amounting to $8.1 million. The total value of inventory write-offs in 2015 was $9.1 million, 8% below 2014.
In Q4 2015 underlying (*) net OPEX (comprising selling and marketing expenses, general and administrative expenses, research and development expenses and other operating income) as a percentage of revenue was 19.4%, 10bps below Q4 2014. For the full year, underlying net OPEX was 23.2% of revenue, 210bps below full year 2014.
Q4 2015 underlying (*) R&D expense stood at 12.7% of revenue, 70bps below Q4 2014. The reduction was mainly the result of $6.1 million of UK R&DExpenditure Credits and $7.7 million of capitalised R&D costs. Capitalised development costs were significantly higher this year than in 2014. This was due to an increase in the number of products under development that had satisfied both the technical and commercial feasibility criteria. For the year 2015, underlying (*) R&D was 15.6% of revenue, 190bps below the previous year as revenue growth accelerated faster than our investment in R&D. We will continue to invest in both existing product initiatives as well as new initiatives that have the potential to support profitable growth and accelerate the diversification of our business.
Underlying (*) SG&A in Q4 2015 stood at 6.8% of revenue, 60bps above Q4 2014 and 140bps below the previous quarter. During 2015 we continued to manage our SG&A costs effectively and kept the increase in underlying (*) SG&A costs below the increase in revenue. As a percentage of revenue, SG&Acosts represented 7.7% of revenue, down 40bps on the previous year.
In Q4 2015 we achieved IFRS and underlying (*) operating profit (EBIT) of $81.3 million and $105.1 million respectively, 23% and 11% under Q4 2014. Underlying (*) EBIT margin in the quarter was 26.5%. The Q4 2015 underlying (*) EBIT decrease of 11% from Q4 2014 was primarily due to the lower revenue in the quarter. During 2015 underlying (*) EBIT increased by 38% to $317.7 million, more than twice the rate of revenue growth in the same period. The 2015 underlying (*) EBIT margin grew 350bps over the prior year.
The Group's income tax expense for 2015 was $77.6 million (2014: $31.2 million), which resulted in an effective tax rate of 30.4% (2014: 18.5%). Excluding the $18.9 million pre-tax costs relating to the proposed acquisition of Atmel, the Group's effective tax rate for 2015 was 28.4% (2014: 29.0% excluding non-cash deferred tax credit of $17.8 million). This reduction was driven by the on-going exercise to align the ownership of the Group's Intellectual Property with its commercial structure. We believe the gradual decrease is sustainable and will continue in the years to come.
In Q4 2015, underlying (*) net income decreased 13% over Q4 2014. Underlying (*) diluted EPS in Q4 2015 was 17% lower than in the same quarter of 2014 resulting in a full year 2015 underlying diluted EPS year-on-year growth of 33%.
At the end of Q4 2015, our total inventory level was $135 million (or ~56 days), a decrease of $4 million over the prior quarter. This represents a 15 day sequential decrease in our days of inventory. During Q1 2016 we expect inventory value and inventory days to increase from Q4 2015 to service our current customer backlog.
As of 31 December 2015, we had cash and cash equivalents balance of $567 million (2014: $324 million). In the fourth quarter we generated $110 million of cash from operating activities, a decrease of 8% over the same quarter of 2014. The strong cash generation of the business has allowed the company to generate $192 million of free cash flow (***) during 2015.
Subsequent to the year end, on 20 January 2016 the Company received $137 million termination fees upon termination of the merger agreement with Atmel.
At the 2016 Annual General Meeting the Board will be asking shareholders for an authority to put in place a general framework for a share buy-back programme. 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's shareholders depending on the prevailing circumstances.
(*)Underlying adjustments $ million
