TIDMIQE
IQE plc
Accelerating growth in photonics helps deliver strong uplift in profit
and cash generation
Cardiff, UK. 13 September 2016: IQE plc (AIM: IQE, "IQE" or the "Group"),
the leading global supplier of advanced wafer products and wafer
services to the semiconductor industry, announces its unaudited half
year results for the six months to 30 June 2016.
GBP' MILLION (except EPS) 30 June 2016 30 June 2015 Change
REVENUE 63.0 53.2 +18%
ADJUSTED OPERATING PROFIT* 10.8 6.7 +61%
ADJUSTED PROFIT BEFORE TAX* 10.1 5.9 +71%
NET PROFIT 10.0 4.5 +122%
ADJUSTED FULLY DILUTED EPS* 1.46p 0.90p +62%
CASH GENERATED FROM OPERATIONS 12.4 4.5 +176%
LEVERAGE (NET DEBT + DEFERRED
CONSIDERATION) 35.4 49.0 -28%
FINANCIAL HIGHLIGHTS
-- Strong financial performance with double digit growth in revenues,
profits and cash generation
-- Revenues up 18% reflecting increasing revenues in all markets
-- Adjusted fully diluted EPS up 62% with the benefit of the Groups highly
geared business model
-- Increased profitability converted into 176% increase in cash generated
from operations
-- Balance sheet leverage reduced by 28% to GBP35.4m
-- Kopin deferred consideration balance of GBP10.7m settled in full in
January 2016
-- Remaining balance of deferred consideration will be settled in full by
the end of this month (September 16).
OPERATIONAL HIGHLIGHTS
-- Continuing diversification of revenues with non-wireless revenues
accounting for 31% of sales (H1 2015: 24%)
-- Accelerating photonics growth, with sales up 45% year on year
-- Wireless performing well with sales up 7%
-- Robust performance in Infrared and CMOS++ with sales up in both segments
-- License income of GBP3.5m from joint ventures, which continue to perform
well
-- Strong progress with new product qualifications underpin the pipeline for
continuing growth
-- Continuing to strengthen technology leadership and IP portfolio
Dr Drew Nelson, IQE Chief Executive, said:
"IQE's continued strong financial performance reflects the significant
progress made in diversifying revenues over the past few years, and its
growing portfolio of intellectual property. A healthy performance in
Wireless and IR has been supplemented by accelerated growth in photonics
which is up 45%. The photonics market is being driven by a diverse
range of applications, and is at an early stage in the growth cycle. We
expect our photonics business to continue to grow strongly for the
foreseeable future.
IQE has developed a broad portfolio of intellectual property for advance
semiconductor materials. In addition to the GBP3.5m of license income
generated in the first half, this IP portfolio is increasingly enabling
IQE to differentiate itself, and create a platform for continuing growth
across its current and emerging markets. IQE has a pipeline of new
products and customer qualifications which underpin its growth ambitions,
with programs expected to ramp through 2017 and 2018. This includes
new photonic applications, wireless base stations, advanced solar, and
power switching applications."
Note :
* the Directors believe that the adjusted measures provide a more useful
comparison of business trends and performance. Adjusted measures
exclude exceptional items, share based payments and non-cash acquisition
accounting charges. Reconciliation of the adjusted measures to the
statutory measures are included in note 5.
Contacts:
IQE plc +44 (0) 29 2083 9400
Drew Nelson
Phil Rasmussen
Chris Meadows
Canaccord Genuity + 44 (0) 20 7523 8000
Simon Bridges
Cameron Duncan
Peel Hunt +44 (0) 20 7418 8900
Richard Kauffer
Euan Brown
Capital Access Group +44 (0) 020 3763 3400
Simon Courtenay
Note to Editors
IQE is the leading global supplier of advanced semiconductor wafers with
products that cover a diverse range of applications, supported by an
innovative outsourced foundry services portfolio that allows the Group
to provide a 'one stop shop' for the wafer needs of the world's leading
semiconductor manufacturers.
IQE uses advanced crystal growth technology (epitaxy) to manufacture and
supply bespoke semiconductor wafers ('epiwafers') to the major chip
manufacturing companies, who then use these wafers to make the chips
which form the key components of virtually all high technology systems.
IQE is unique in being able to supply wafers using all of the leading
crystal growth technology platforms.
IQE's products are found in many leading-edge consumer, communication,
computing and industrial applications, including a complete range of
wafer products for the wireless industry, such as mobile handsets and
wireless infrastructure, Wi-Fi, base stations, GPS, and satellite
communications; and optical communications.
The Group also manufactures advanced optoelectronic and photonic
components such as semiconductor lasers, vertical cavity surface
emitting lasers (VCSELs) and optical sensors for a wide range of
applications including optical storage, thermal imaging, leading-edge
medical products, pico-projection, finger navigation ultra-high
brightness LEDs, and high efficiency concentrated photovoltaic (CPV)
solar cells.
The manufacturers of these chips are increasingly seeking to outsource
wafer production to specialist foundries such as IQE in order to reduce
overall wafer costs and accelerate time to market.
IQE also provides bespoke R&D services to deliver customised materials
for specific applications and offers specialist technical staff to
manufacture to specification either at its own facilities or on the
customer's own sites. The Group is also able to leverage its global
purchasing volumes to reduce the cost of raw materials. In this way,
IQE's outsourced services, provide compelling benefits in terms of
flexibility and predictability of cost, thereby significantly reducing
operating risk.
IQE operates a number of manufacturing and R&D facilities across Europe,
Asia and the USA. The Group also delivers its products and services
through regional sales offices located in major economic centres
worldwide.
INTERIM RESULTS 2016
1. INDUSTRY BACKGROUND
Integrated circuits or "chips" are the critical components which lie at
the heart of all electronic devices. These chips are primarily
fabricated using silicon. Silicon is an abundant semiconducting element
which has enabled the Silicon chip market to grow to over $350 billion
pa. However, as a material, silicon has fundamental limitations in its
properties.
There is a range of other semiconducting elements which have much more
advanced properties than silicon. Compound semiconductors refers to the
technology of combining these other semiconducting elements to create
materials which overcome the inherent performance limitations of
silicon. This enables chip companies to produce compound semiconductor
chips which achieve functionality that silicon chips just cannot match.
Indeed, the wireless communications revolution, fibre optic
communication (the internet), and LED lighting would not be possible
without compound semiconductors.
2. OVERVIEW OF IQE
IQE designs and fabricates compound semiconductor wafers. It generates
its revenues primarily from selling bespoke wafers to its customers, who
in turn fabricate these wafers into compound semiconductor chips such as
wireless communication chips, laser devices, or advanced sensors. IQE is
also now leveraging its powerful IP portfolio to generate revenues from
licensing activities.
IQE differentiates itself from its competitors through technology
leadership, economies of scale, and dual site manufacturing for security
of supply. This has enabled IQE to develop a strong leadership position,
where it is recognised globally as the market leader, with an estimated
55% share of the wireless market and an unparalleled breadth of
materials technologies.
IQE has developed a market facing organisational structure, based around
its 6 key markets: Wireless, Photonics, Infrared, Solar, Power, and
CMOS++.
3. RESULTS
The Group's results are reported after a number of one-off items and
non-cash accounting charges. In aggregate, these resulted in a net
charge of GBP0.2m in H1 2016 (H1 2015: GBP1.7m charge). These items
are fully detailed in note 5 in order to assist with an assessment of
the Group's underlying business performance. The following commentary on
the first half results is based on these adjusted profit measures.
First half revenues increased by 18% to GBP63.0m (H1 2015: GBP53.2m).
Wireless sales were up 7% to GBP43.2m (H1 2015: GBP40.5m). Photonics
continued to enjoy strong double digit growth, with sales up 45% to
GBP10.7m (H1 2015: GBP7.4m). License income from joint ventures was
GBP3.5m (H1 2015: GBPnil), as both of the Group's joint ventures
continued to perform in-line with expectations.
Adjusted gross margins increased from 24% to 28%, which included the
benefit of a favourable sales mix. The increase in sales and the higher
percentage margin resulted in a GBP5.0m increase in adjusted gross
margin from GBP12.9m to GBP17.9m. This was partially offset by higher
adjusted SG&A, which increased from GBP6.2m to GBP7.3m as the Group
invested in anticipation of continuing growth. As a result, the
adjusted operating profit increased by 61% from GBP6.7m to GBP10.8m.
Adjusted profit after tax increased from GBP6.3m to GBP10.2m, resulting
in a 62% increase in adjusted fully diluted EPS from 0.90p to 1.46p.
After exceptional charges of GBP0.2m (H1 2015: GBP1.7m), the reported
profit after tax increased from GBP4.5m to GBP10.0m and the reported
fully diluted EPS more than doubled from 0.65p to 1.43p.
The exceptional charge of GBP0.2m (H1 2015: GBP1.7m) relates to an
exceptional gain on the reassessment of contingent deferred
consideration of GBP2.2m (H1 2015: GBPnil), less non-cash accounting
charges of GBP1.8m (H1 2015: GBP1.9m), and related deferred tax charges
of GBP0.6m (H1 2015: GBP0.2m credit). These items are fully detailed in
note 5.
Net cash generated from operating activities increased more than
threefold from GBP3.5m to GBP11.0m, due to the improvement in
profitability and strong working capital management.
The Group's balance sheet leverage, which comprises bank borrowings and
deferred consideration from previous acquisitions, reduced by 28% from
GBP49.0m at 30 June 2015 to GBP35.4m at 30 June 2016. Since the 31
December 2015, net debt increased by GBP10.4m to GBP33.6m largely
reflecting that in January 2016 the Group settled the final balance
deferred consideration from the Kopin acquisition (GBP10.7m). Conversely,
the deferred consideration balance reduced from GBP17.9m to GBP1.8m. The
deferred consideration balance will be eliminated in full by the end of
September 2016.
The Group's Net Assets at June 2016 were GBP171.9m (December 2015:
GBP147.0m) which included a presentational foreign exchange benefit of
GBP12.7m arising primarily from the translation of US Dollar denominated
assets at spot rate which had shifted significantly following the Brexit
vote.
The Group has approximately GBP139m of accumulated tax losses, which
represents a potential reduction in future tax payable of approximately
GBP40m. The adjusted effective tax rate of 1.8% which has reduced from
6.7% in H1 2015 and 2.8% for FY 2015, reflects the anticipated rate for
the full year, recognition of additional tax losses and other
anticipated deferred tax movements. The reported effective tax rate of
-4.2% (H1 2015: 15.4%, FY 2015: 4%) reflects that the Group has utilised
its brought forward tax losses in Asia and the deferred tax impact of
exceptional items.
4. VISION AND STRATEGY
Our Vision
The advanced properties of compound semiconductors will ensure that they
play an increasingly significant role in the electronics industry in the
21(st) century. Through continuing innovation we are pushing the
boundaries of their performance at the same time as reducing
manufacturing costs. We are now achieving the cost-performance
thresholds that is driving their rapid adoption in a range of photonic
applications. Furthermore, we believe that the semiconductor industry
is at an inflexion point. The next 'quantum leap' in our industry is
the adoption of compound semiconductors on silicon to combine the
performance advances of compound semiconductors with the low cost of
silicon manufacturing.
Our vision is to be the global number one provider of advanced
semiconductor materials as these technologies enable the transformation
of the electronics industry.
Our Strategy
Our strategy is to use our technology leadership and scale to deliver
the performance, cost points and security of supply required for mass
market adoption of compound semiconductor materials.
5. MARKETS
The Group has established six business units along market lines, to
address its primary and emerging markets, the emerging markets of Solar
and Power control are not yet significant enough to be separated in our
segmental reporting.
Wireless
"Wireless" refers to a broad range of applications from mobile devices
such as smartphones, tablets, routers, and WiFi through to large system
applications such as base stations and radar. It is IQE's largest
market today, and accounted for 69% of sales in the first half of 2016
(H1 2015: 76%). This has been the main growth driver in IQE's business
over the last decade.
The smartphone revolution was triggered by the launch of the iPhone in
2007. The consumer "feeding frenzy" that followed delivered double
digit growth in the market for wireless materials, driven by both the
increase in the volume of handsets sold and an increasing chip content
in each handset. Through this period of strong growth IQE has built its
global leadership position in wireless, and now enjoys an estimated 55%
global market share. However, the market has been more subdued over the
past few years reflecting a lull in mobile phone handset innovation. As
a result, we estimate that the materials market is currently growing at
approximately 5% per annum. The supply chain has also been characterised
by inventory corrections.
Nevertheless, compound semiconductors remain critical to wireless
communication which remains an exciting growth area due to the
continuing exponential growth in data traffic. Indeed, we expect the
growth rate of the wireless market to increase over the next few years
due to multiple factors, including :
-- Innovation in handset technology (eg advanced photonic sensors) will
accelerate replacement cycles
-- The emergence of 5G communication
-- Technology upgrade in base stations "gallium nitride on silicon
technology" (GaN on Si)
-- Integration of "front end" components (potential of using IQE's cREO
technology)
-- The "Internet of Things" increasing the connectivity of devices
Photonics
Photonics relates to semiconductor applications which emit or detect
light - essentially lasers and sensors. It accounted for 17% of the
Group's sales in the first half of 2016 (H1 2015: 14%). It is the
fastest growing segment within IQE, and delivered a growth rate of 45%
in the first half following several years of strong double digit growth.
The critical materials technologies in this market are VCSEL (Vertical
Cavity Surface Emitting Lasers) and InP (Indium Phosphide). After
several years of development, the advances in these technologies and the
improvement in manufacturing processes means that these technologies are
now hitting the performance and cost points necessary for mass market
adoption.
The application space for VCSEL is very broad and includes data centres,
consumer applications, industrial applications and health applications.
The devices made from these materials include gesture recognition, 3D
imaging, industrial heating, machine control, and biometrics to name but
a few.
InP is the technology that is critical to fibre optics in
telecommunications. The main growth drivers here are "Fibre to the
Premises" (FTTx), data centre infrastructure and mobile base station
backhaul. The continued exponential growth in data traffic is driving
the roll out of fibre "to the last mile" across the planet, the need for
greatly increased data storage capacity with rapid access to data, and
4G/LTE backhaul Fibre Optic links. .
The Photonics market is at an early stage of this growth phase. Indeed,
we believe that our photonics business is at the start of a long term
and exciting high growth curve. Our growth ambitions are underpinned by
an impressive pipeline of programmes with blue chip customers for high
volume applications.
Infrared
We are the market leader in the supply of indium antimonide (InSb) and
gallium antimonide (GaSb) materials used in high resolution infrared
systems, with an estimated market share of approximately 80%. This
segment accounted for approximately 7% of Group's sales in the first
half of 2016.
Sales are currently concentrated in defence related applications, but
through our engagement in programmes in consumer, medical and industrial
imagining, we expect this segment to increasingly transition into new
markets over the coming years.
Power
"Power" relates to the use of semiconductors in Power Switching and LED
lighting applications. IQE is developing materials solutions to
address some of the key technological challenges faced in these markets.
The size and scale of these markets are many time larger than IQE's
existing markets, so these represent truly transformational
opportunities for IQE.
Power switching devices are used where electricity is switched between
AC and DC, or where voltage is switched. The happens throughout
electricity generation and distribution, and in virtually all
applications that are powered from the grid, from transformers in
industrial machinery and electric vehicles, through to power supplies
for your laptop. The market for power switching chips is estimated to be
worth approximately $12 billion, which is approximately 4x the size of
the existing wireless power amplifier chip market. Again, a truly
transformational opportunity.
At present, these power switching chips are made using silicon, which
has performance limitations. Accordingly, the industry is investing
heavily in a step change in technology to overcome this inefficiency and
deliver a high performing lower cost solution. That step change is the
adoption of a hybrid compound semiconductor on silicon technology called
GaN on Si. IQE is at the forefront of the materials development.
We are all becoming accustomed with LED technology as it gathers
momentum in a range of lighting applications from automotive lighting to
office lighting and residential lighting. The prevalent materials
technology in this in industry is currently "gallium nitride on
sapphire", but it is widely accepted that GaN on Si will become an
important technology in this space. This provides a major opportunity
for IQE to leverage its development of GaN on Si for Power into this
adjacent market.
Advanced Solar
We are all familiar with solar panels (photovoltaics) as a means of
generating electricity. Solar panels are largely made from silicon,
which is inherently inefficient in converting sunlight into electricity,
typically achieving efficiencies of only 15-20%. In contrast, compound
semiconductors are significantly more efficient, and today deliver
efficiencies of over 44%. Furthermore, there is a technology roadmap
to increase this efficiency to over 50%. With its supply chain partners,
IQE has developed technology leadership and is working to qualify this
into production.
There are two key markets for this Compound Semiconductor solar
technology : "space" ( satellite power supplies) and "terrestrial"
(renewable energy). The adoption of this technology in terrestrial
has been slower than anticipated, largely due to the collapse of the
global oil price and over-supply within the silicon panel market, but
this remains a major market opportunity as these issues resolve
themselves. In the meanwhile, we have been switching our primary focus
to penetrating the space market, where this technology is already
embedded. As technology leader we have a clear strategy to penetrate the
market and win market share. The current pipeline of activities
suggests that IQE can expect to see good commercial progress in the next
1-2 years.
CMOS++
The ever-increasing demand for higher speed and improved performance
from today's electronic devices is ushering in a new era of
semiconductor materials that combine the scale of the silicon industry
with the power and performance of compound semiconductors.
IQE is at the forefront of developing this technology, and is working
with a range of partners from global industry giants, universities and
governments to dynamic start-ups. As a result, we have developed an
enviable portfolio of technologies and patents which position us well to
increasingly participate in the continuing evolution of the
semiconductor industry.
6. INNOVATION AND COLLABORATION
Intellectual property relating to advanced materials is playing an
increasing role in the evolution of the semiconductor industry. It is
widely accepted that advanced materials are needed to overcome the
challenges and realise the opportunities facing the electronics
industry. This is evident from recent M&A activity in the "Compound
Semiconductor" CS space, including the formation of a Joint Venture by
Qualcomm and TDK (January 2016), the acquisitions by II-VI Inc of
Epiworks (January 2016) and Anadigics (March 2016). The prices being
paid in these deals are running into revenue multiples of 3x to 4x,
reflectingstrong recognition of the value and importance of CS materials
technology to future advanced systems deployment..
IQE has been at the forefront of advanced semiconductor technology for
over a quarter of a century. It has built a reputation within the CS
industry for an unparalled breadth and depth of its materials
technologies and capabilities. This is now becoming increasingly
recognised outside the CS industry, where IQE is becoming viewed as the
'go to' advanced materials innovator and provider. Indeed, IQE is now
engaged directly with a number of Tier 1 OEMs, bypassing the normal
"materials-chip-OEM" model.
There are many examples in history that show collaboration is a powerful
tool in accelerating innovation. The benefits are even greater when
whole ecosystems "cluster" in the same location, breaking down the
barriers created by geography and time zones. Indeed, Silicon Valley in
California is a prime example of how the benefit of clustering can
propel an industry to a global platform. It is the benefits of
collaboration and clustering that underpin IQE's strategic rationale for
the joint venture partnerships it announced during 2015, and its highly
successful Open Innovation programme (openiqe.com).
The silicon supply chain is no stranger to the benefits of clustering.
Indeed, there are 4 clusters within Europe which are centred around the
development and commercialisation of Silicon technology. These are
strongholds of innovation and value creation, with over 800 companies
and 150,000 employees. IQE's vision is to be at the epicentre of the
world's first compound semiconductor cluster, based in the UK. There has
been significant progress in making this a reality over the past 12
months, and momentum continues to build:
-- Cardiff University is investing c.GBP75m in the creation of the Institute
of Compound Semiconductors as part of its GBP300m innovation campus;
-- IQE and Cardiff University invested GBP24m in the formation of the
Compound Semiconductor Centre Joint Venture;
-- In January 2016 the Chancellor of the Exchequer announced GBP50m funding
for a Compound Semiconductor Catapult in Wales, which will leverage a
further GBP100m funding from Innovate UK and Industry; and,
-- In March 2016, the Cardiff City Region Deal was announced which
identifies the emerging CS cluster in Cardiff as one of its 5 headline
goals.
This level of investment is recognition of the increasing significance
of compound semiconductor technology in the electronics industry, and
the UK's ambitions to build on its existing academic and industrial
strengths to develop a world class end-to-end supply chain for compound
semiconductor technologies in the UK.
6. CORPORATE GOVERNANCE
Following the AGM on 23(rd) June 2016, the Nominations Committee of the
Board has appointed an independent external advisor to undertake an
executive search for Non-Executive Director candidates. In addition, the
Remuneration Committee has appointed independent external advisors to
undertake a benchmarking of Executive Remuneration.
7. CURRENT TRADING AND OUTLOOK
The Group has continued to make good strategic, operational and
financial progress in 2016, and has a clear vision and roadmap for the
continuing growth of the business. Trading in the second half has
commenced well, and with the benefit of a strong pipeline and increasing
revenue diversification the Board remains confident that the Group is on
track to deliver full year earnings in line with expectations.
Dr Drew Nelson, CEO
CONSOLIDATED INCOME STATEMENT 6 months to 6 months to 12 months to
30 Jun 2016 30 Jun 2015 31 Dec 2015
(All figures GBP'000s) Note Unaudited Unaudited Audited
Revenue 63,010 53,219 114,024
Cost of sales (45,766) (40,980) (83,372)
Gross profit 17,244 12,239 30,652
Other income 2,163 - 779
Selling, general and
administrative expenses (8,270) (7,160) (15,452)
Profit on disposal of property,
plant and equipment 137 - 5,187
Operating profit 11,274 5,079 21,166
Net finance costs (802) (1,145) (1,790)
Adjusted profit before tax 10,061 5,871 17,574
Adjustments 5 411 (1,937) 1,802
Profit before tax 10,472 3,934 19,376
Income tax (charge)/credit (444) 607 773
Profit for the period 10,028 4,541 20,149
Profit attributable to:
Equity shareholders 9,936 4,388 19,864
Non-controlling interests 92 153 285
10,028 4,541 20,149
Basic earnings per share 6 1.49p 0.67p 3.00p
Diluted earnings per share 6 1.43p 0.65p 2.90p
Adjusted basic and diluted earnings per share is presented in Note 6.
CONSOLIDATED STATEMENT OF 6 months to 6 months to 12 months to
COMPREHENSIVE INCOME 30 Jun 2016 30 Jun 2016 31 Dec 2015
(All figures GBP'000s) Unaudited Unaudited Audited
Profit for the period 10,028 4,541 20,149
Currency translation differences on foreign currency
net investments* 12,713 (1,756) 3,165
Total comprehensive income for the period 22,741 2,785 23,314
Total comprehensive income attributable to:
Equity shareholders 22,333 2,605 23,000
Non-controlling interests 408 180 314
22,741 2,785 23,314
* This may be subsequently reclassified to the income statement when it
becomes realised.
As At As At As At
CONSOLIDATED BALANCE SHEET 30 Jun 2016 30 Jun 2015 31 Dec 2015
(All figures GBP'000s) Unaudited Unaudited Audited
Non-current assets :
Intangible assets 95,990 81,309 86,843
Property, plant and
equipment 73,331 64,968 65,154
Deferred tax asset 15,745 13,239 14,210
Financial Assets 8,000 - 8,000
Total non-current assets 193,066 159,516 174,207
Current assets :
Inventories 23,767 18,857 21,215
Trade and other receivables 25,838 23,483 23,050
Cash and cash equivalents 8 4,311 5,356 4,644
Total current assets 53,916 47,696 48,909
Total assets 246,982 207,212 223,116
Current liabilities :
Borrowings 8 (3,344) (3,596) (3,241)
Trade and other payables (33,083) (40,306) (43,693)
Provisions for other
liabilities and charges 9 (1,351) (1,432) (1,116)
Total current liabilities (37,778) (45,334) (48,050)
Non-current liabilities :
Borrowings 8 (34,553) (32,875) (24,626)
Other payables - (484) (484)
Provisions for other
liabilities and charges 9 (2,778) (3,369) (2,922)
Total non-current
liabilities (37,331) (36,728) (28,032)
Total liabilities (75,109) (82,062) (76,082)
Net assets 171,873 125,150 147,034
Equity attributable to
shareholders :
Share capital 10 6,723 6,621 6,655
Share premium 50,609 49,282 49,600
Retained earnings 80,136 54,724 70,200
Other reserves 31,564 12,224 18,146
169,032 122,851 144,601
Non-controlling Interest 2,841 2,299 2,433
Total equity 171,873 125,150 147,034
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Exchange
Unaudited Share Share Retained rate Other Non-controlling Total
(All figures GBP'000s) capital premium earnings reserve reserves interests equity
Balance as at 1 January
2016 6,655 49,600 70,200 7,925 10,221 2,433 147,034
Profit for the period - - 9,936 - - 92 10,028
Foreign exchange - - - 12,397 - 316 12,713
Total comprehensive
income - - 9,936 12,397 - 408 22,741
Employee share scheme - - - - 1,021 - 1,021
Issues of ordinary
shares 68 1,009 - - - - 1,077
Total transactions with
owners 68 1,009 - - 1,021 - 2,098
Balance as at 30 June
2016 6,723 50,609 80,136 20,322 11,242 2,841 171,873
Exchange
Unaudited Share Share Retained rate Other Non-controlling Total
(All figures GBP'000s) capital premium earnings reserve reserves interests equity
Balance as at 1 January
2015 6,603 49,108 50,336 4,789 8,220 2,119 121,175
Profit for the period - 4,388 - - 153 4,541
Foreign exchange - - - (1,783) - 27 (1,756)
Total comprehensive
income/(expense) - - 4,388 (1,783) - 180 2,785
Employee share scheme - - - - 998 - 998
Issues of ordinary
shares 18 174 - - - - 192
Total transactions with
owners 18 174 - - 998 - 1,190
Balance as at 30 June
2015 6,621 49,282 54,724 3,006 9,218 2,299 125,150
Exchange
Audited Share Share Retained rate Other Non-controlling Total
(All figures GBP'000s) capital premium earnings reserve reserves interests equity
Balance at 1 January
2015 6,603 49,108 50,336 4,789 8,220 2,119 121,175
Profit for the year - - 19,864 - - 285 20,149
Foreign exchange - - - 3,136 - 29 3,165
Total comprehensive
income - - 19,864 3,136 - 314 23,314
Share based payments - - - - 2,001 - 2,001
Issues of ordinary
shares 52 492 - - - - 544
Total transactions with
owners 52 492 - - 2,001 - 2,545
Balance at 31 December
2015 6,655 49,600 70,200 7,925 10,221 2,433 147,034
6 months to 6 months to 12 months to
CONSOLIDATED CASH FLOW STATEMENT 30 Jun 2016 30 Jun 2015 31 Dec 2015
(All figures GBP'000s) Unaudited Unaudited Audited
Cash flows from operating activities :
Adjusted cash inflow from operations 13,010 5,322 22,575
Cash impact of adjustments 5 (605) (773) (1,604)
Cash inflow from operations 7 12,405 4,549 20,971
Net interest paid (723) (809) (1,403)
Income tax paid (684) (192) (459)
Net cash generated from operating activities 10,998 3,548 19,109
Cash flows from investing activities :
Acquisition deferred consideration for
Kopin Wireless (10,650) - -
Capitalised development expenditure (2,784) (2,109) (4,979)
Investment in other intangible fixed assets (755) (216) (1,198)
Purchase of property, plant and equipment (4,323) (1,296) (3,825)
Proceeds from disposal of property, plant and
equipment 258 - -
Net cash used in investing activities (18,254) (3,621) (10,002)
Cash flows from financing activities :
Issues of ordinary share capital 74 191 544
Repayment of borrowings (1,765) (13,125) (15,109)
Increase in borrowings 8,269 12,830 4,349
Net cash generated from/(used in) financing
activities 6,578 (104) (10,216)
Net decrease in cash and cash equivalents (678) (177) (1,109)
Cash and cash equivalents at the beginning of the
period 4,644 5,584 5,584
Exchange gains/(losses) on cash and cash
equivalents 345 (51) 169
Cash and cash equivalents at the end of
the period 8 4,311 5,356 4,644
1 BASIS OF PREPARATION
These interim results have been prepared under the historical cost
convention and in accordance with International Financial Reporting
Standards ("IFRS") and interpretations in issue at 30 June 2016.
The interim results were approved by the Board of Directors and the
Audit Committee on 13 September 2016. The interim results do not
constitute statutory accounts within the meaning of section 434 of the
Companies Act 2006 and have not been audited. Comparative figures in
the interim results for the year ended 31 December 2015 have been taken
from the published audited statutory financial statements. All other
periods presented are unaudited. Statutory accounts for the year ended
31 December 2015 were approved by the Board of Directors on 22 March
2016 and were delivered to the Registrar of Companies. The report of the
auditors on those accounts was unqualified, did not contain an emphasis
of matter paragraph and did not contain any statement under section 498
of the Companies Act 2006.
IQE plc is a public limited company incorporated in the United Kingdom
under the Companies Act 2006. The Company is domiciled in the United
Kingdom and is quoted on the Alternative Investment Market (AIM).
As permitted these interim results for the half-year ended 30 June 2016
have been prepared in accordance with UK AIM rules and the IAS 34,
'Interim financial reporting' as adopted by the European Union. These
interim financial results should be read in conjunction with the annual
financial statements for the year ended 31 December 2015, which have
been prepared in accordance with IFRSs as adopted by the European Union.
The accounting policies applied are consistent with those of the annual
financial statements for the year ended 31 December 2015, as described
in those annual financial statements.
The financial information contained in these interim results has been
reviewed by the Company's auditor in accordance with ISRE 2410 however
this does not constitute an audit.
Having considered the Group's forecasts the Directors have formed a
judgment that there is a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. For this reason the Directors continue to adopt the
going concern basis in preparing the condensed consolidated financial
information.
2 ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of the annual
financial statements for the year ended 31 December 2015, as described
in those financial statements on pages 60 to 65.
Recent accounting developments
In preparing the condensed consolidated half-yearly financial
information the Group has adopted the following Standards, amendments
and interpretations which are effective for 2016 and will be adopted for
the year ended 31 December 2016:
-- Annual improvements 2014 (2012-2014 cycle)
-- Amendment to IFRS 11, 'Joint arrangements' on acquisition of an interest
in a joint operation
-- Amendment to IAS 16, 'Property, plant and equipment' and IAS
38,'Intangible assets', on depreciation and amortisation
-- Amendments to IAS 27, 'Separate financial statements' on the equity
method
-- Amendment to IAS 1, 'Presentation of financial statements' on the
disclosure initiative
The adoption of these standards and amendments has not had a material
impact on the interim financial information.
The following new standards and amendments to standards and
interpretations have been issued but are not yet endorsed for annual
periods beginning after 1 January 2016 (noted below), and have not been
adopted in preparing the condensed consolidated half-yearly financial
information.
-- IAS Amendments to IAS 7, Statement of cash flows on disclosure initiative
-- Amendments to IAS 12,'Income taxes' on Recognition of deferred tax assets
for unrealised losses
-- Amendments to IFRS 2 'Share based payments' on clarifying how to account
for certain types of share based payment transactions
-- IFRS 15 Revenue from contracts with customers
-- IFRS 9 Financial instruments
-- IFRS 16 Leases
--
Financial Instruments
The carrying value of cash, trade and other receivables, trade and other
payables and borrowings also represent their estimated fair values.
There are no material differences between carrying value and fair value
at 30 June 2016.
Additional disclosure of the basis of measurement and policies in
respect of financial instruments are described on pages 83 to 87 of our
2015 Annual Report and remain unchanged at 30 June 2016.
Estimates
The preparation of interim financial statements requires management to
make judgements, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets and
liabilities, income and expense. Actual results may differ from these
estimates.
In preparing these condensed interim financial statements, the
significant judgements made by management in applying the group's
accounting policies and the key sources of estimation uncertainty were
the same as those that applied to the consolidated financial statements
for the year ended 31 December 2015, with the exception of changes in
estimates that are required in determining the provision for income
taxes.
Impairment
No Impairment charges have been recognised in the period to 30 June
2016.
3 PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties impacting the Group are described
on pages 33 to 36 of our 2015 Annual Report and remain unchanged at 30
June 2016.
They include: competition, technological change, financial liquidity,
natural disasters, retention of key employees, business interruption -
supply chain, customer concentration and legislative compliance.
4. SEGMENTAL INFORMATION
6 Months to 30 June 2016 6 Months to 30 June 2015 12 Months to 31 Dec 2015
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Revenue
Wireless 43,228 40,454 79,482
Photonics 10,705 7,359 15,985
Infra Red 4,689 4,584 8,878
CMOS++ 871 822 1,655
Total Segment
Revenue 59,493 53,219 106,000
License income
from sales to
joint ventures 3,517 - 8,024
Total Revenue 63,010 53,219 114,024
Adjusted
operating
profit
Wireless 5,085 5,045 7,147
Photonics 2,734 1,631 4,320
Infra Red 830 655 1,181
CMOS++ (1,384) (650) (1,695)
Segment adjusted
operating
profit 7,265 6,681 10,953
Profit from
license income
from sales to
joint ventures* 3,517 - 8,024
Adjusted
operating
profit 10,782 6,681 18,977
Exceptional gain
on disposal of
fixed assets - - 5,187
Non-cash
accounting
charges (1,752) (1,937) (3,596)
Net reduction in
contingent
deferred
consideration 2,163 - 779
Restructuring and
reorganisation - - (568)
Underlying
finance costs (721) (810) (1,403)
Profit before tax 10,472 3,934 19,376
* The profit arising for the 12 months to 31 December 2015 from license
income sales to joint ventures represents revenue of GBP15,310,000
offset by an elimination of unrealised profit of GBP7,286,000 relating
to our retained interest in the Compound Semiconductor Centre Limited
joint venture. No elimination of unrealised profit occurred in the 6
months to 30 June 2016.
5 ADJUSTED PROFIT MEASURES
The group's results are reported after a number of imputed non-cash
charges and non-recurring items. Therefore, we have provided additional
information to aid an understanding of the group's performance.
6 months to 30 6 months to 30
Adjustments to profit Jun 2016 Jun 2015 12 months to
(All figures GBP'000s) Unaudited Unaudited 31 Dec 2015 Audited
Exceptional gain on
disposal of fixed
assets - - 5,187
Non-cash accounting
charges (1,752) (1,937) (3,596)
Gain on release of
contingent deferred
consideration 2,163 - 779
Restructuring and
reorganisation - - (568)
Total before tax 411 (1,937) 1,802
Deferred tax on
adjustments (629) 212 281
Total after tax (218) (1,725) 2,083
The Group incurred a number of non-cash accounting charges relating to
acquisition accounting GBP0.8m (H1 2015: GBP0.9m, FY15: GBP1.6m) and
share based payments GBP1.0m (H1 2015: GBP1.0m, FY15: GBP2.0m).
These are classified GBP0.7m (H1 2015: GBP0.7m, FY15: GBP1.8m) within
gross margin, GBP1.0m (H1 2015: GBP1.0m, FY15: GBP2.0m) in selling,
general administrative expenses and GBP0.1m (H1 2015: GBP0.3m, FY15:
GBP0.4m) in net finance costs.
The Group generated a non-cash profit of GBP2.2m (H1 2015: GBPnil, FY
16: GBP0.8m) arising from a reduction in the estimated remaining
deferred consideration (settled via trade discount) in respect of a
previous acquisition. This has been classified within other income and
expenses in the consolidated income statement.
The deferred tax debit of GBP0.6m (H1 2015: GBP0.2m credit, FY15:
GBP0.3m credit) reflects the deferred tax impact associated with the
adjustments to profit.
In addition the year-end adjustments to profit included the following
items:
In July 2015 the group established a joint venture with Cardiff
University to develop and commercialise compound semiconductor
technologies in Europe. To establish the joint venture, IQE contributed
equipment with a market value of GBP12m, which was matched by a GBP12m
cash contribution from Cardiff University. This created a non-cash
exceptional gain of GBP4.8m in IQE's accounts reflecting the Group's
share of the difference between the book value and market value of the
equipment contributed. In addition, other unrelated disposals of fixed
assets realised a net gain of GBP0.4m.
The restructuring and reorganisation costs of GBP0.6m (H1 2015: GBPnil)
reflects some one-off redundancy and asset write downs associated with
the restructuring of the groups manufacturing operations.
The cash flow impact of adjustments in the first half of 2016 relates to
the onerous lease rental payments which are offset by the unwind of the
onerous lease provision.
Certain items noted above are accounting estimates based on judgements,
accordingly, the actual amounts may differ from these estimates.
6 months to 6 months to
30 Jun 2016 30 Jun 2015 12 months to
(All figures GBP'000s) Unaudited Unaudited 31 Dec 2015 Audited
Adjusted gross margin 17,925 12,904 32,439
Reported gross margin 17,244 12,239 30,652
Adjusted sales, general
and administrative
expenses (7,280) (6,223) (13,462)
Reported sales, general
and administrative
expenses (8,270) (7,160) (15,452)
Adjusted operating profit 10,782 6,681 18,977
Reported operating profit 11,274 5,079 21,166
Adjusted profit before tax 10,061 5,871 17,574
Reported profit before tax 10,472 3,934 19,376
Adjusted profit after tax 10,246 6,266 18,066
Reported profit after tax 10,028 4,541 20,149
Earnings before interest, tax, depreciation and amortisation
(EBITDA) have been calculated as follows:
6 months to 6 months to
30 Jun 2016 30 Jun 2015
(All figures GBP'000s) Unaudited Unaudited 12 months to 31 Dec 2015 Audited
Profit attributable to
equity shareholders 9,936 4,388 19,864
Minority interest 92 153 285
Tax 444 (607) (773)
Finance costs 802 1,145 1,790
Depreciation of
tangible fixed
assets 3,120 3,260 6,192
Amortisation of
intangible fixed
assets 2,444 2,031 5,040
Share based payments* 1,021 998 2,001
Profit and Loss on
disposal* (137) - (5,187)
Impairment of
assets* - - 453
Release of contingent
deferred consideration* (2,163) - (779)
Restructuring and
re-organisation* - - 115
EBITDA 15,559 11,368 29,001
*Exceptional items impacting EBITDA include the following items: share
based payments, profit and loss on disposal, impairment of assets,
provision for onerous lease, wireless business unit re-organisation
costs and the release of contingent deferred consideration.
6 EARNINGS PER SHARE 6 months to 6 months to 12 months to
30 Jun 2016 30 Jun 2015 31 Dec 2015
Unaudited Unaudited Audited
Results in GBP'000s:
Profit attributable to ordinary
shareholders 9,936 4,388 19,864
Adjustments to profit after tax
(note 5) 218 1,725 (2,083)
Adjusted profit attributable to
ordinary shareholders 10,154 6,113 17,781
Number of shares:
Weighted average number of
ordinary shares 666,683,779 657,385,746 662,633,162
Dilutive share options 27,885,351 20,835,987 21,247,935
Adjusted weighted average number
of ordinary shares 694,569,130 678,221,733 683,881,097
Adjusted basic earnings per share 1.52p 0.93p 2.68p
Basic earnings per share 1.49p 0.67p 3.00p
Adjusted diluted earnings per 1.46p 0.90p 2.60p
share
Diluted earnings per share 1.43p 0.65p 2.90p
Basic earnings per share is calculated by dividing the profit
attributable to ordinary shareholders by the weighted average number of
ordinary shares during the period.
Diluted earnings per share is calculated by dividing the profit
attributable to ordinary shareholders by the weighted average number of
shares and 'in the money' share options in issue. Share options are
classified as 'in the money' if their exercise price is lower than the
average share price for the period. As required by IAS 33, this
calculation assumes that the proceeds receivable from the exercise of
'in the money' options would be used to purchase shares in the open
market in order to reduce the number of new shares that would need to be
issued.
6 months to 6 months to 12 months to
7 CASH GENERATED FROM OPERATIONS 30 Jun 2016 30 Jun 2015 31 Dec 2015
(All figures GBP'000s) Unaudited Unaudited Audited
Profit before tax 10,472 3,934 19,376
Finance costs 802 1,145 1,790
Depreciation of property, plant and equipment 3,120 3,260 6,192
Amortisation of intangible assets 2,444 2,031 5,040
Profit and loss on disposal (137) - (5,187)
Non cash element of joint venture transactions - - (714)
Impairment of assets - - 453
Release of contingent deferred consideration (2,163) - (779)
Contingent deferred consideration (settled through
contractual discounts) (2,528) (2,744) (4,837)
Share based payments 1,021 998 2,001
Cash inflow from operations before changes in working
capital 13,031 8,624 23,335
(Increase) in inventories (1,546) (656) (2,813)
Decrease in trade and other receivables 774 946 2,739
Increase/(decrease) in trade and other payables 146 (4,365) (2,290)
Cash inflow from operations 12,405 4,549 20,971
As At As At As At
8 ANALYSIS OF NET DEBT 30 Jun 2016 30 Jun 2015 31 Dec 2015
(All figures GBP'000s) Unaudited Unaudited Audited
Bank borrowings due after one year (34,553) (32,875) (24,626)
Bank borrowings due within one year (3,344) (3,081) (3,162)
Finance leases due after one year - - -
Finance leases due within one year - (515) (79)
Total borrowings (37,897) (36,471) (27,867)
Cash and cash equivalents 4,311 5,356 4,644
Net debt (33,586) (31,115) (23,223)
As at As at As at
9 PROVISIONS FOR OTHER LIABILITIES
AND CHARGES 30 Jun 2016 30 Jun 2015 31 Dec 2015
(All figures GBP'000s) Unaudited Unaudited Audited
As at 1 January 4,038 5,485 5,485
Charged to the income statement 53 - 116
Utilised during the period (605) (715) (1,489)
Foreign exchange 643 31 (74)
As at 30 June / 31 December 4,129 4,801 4,038
As part of the re-organisation and rationalisation of the Group's
facilities the Group ceased its manufacturing activities in Singapore
and established the Compound Semiconductor Development Centre. The
provision above represents the onerous lease obligation in respect of
the Singapore property. This is expected to be utilised over the next
four years. The provision has been discounted using a risk free rate of
2.5%.
As At As at As at
10 SHARE CAPITAL 30 Jun 2016 30 Jun 2015 31 Dec 2015
Number of shares Unaudited Unaudited Audited
As at 1 January 665,533,170 660,327,767 660,327,767
Employee share schemes 1,667,010 1,799,123 5,205,403
Shares issue to settle Translucent
consideration 5,141,467 - -
As at 30 June / 31 December 672,341,647 662,126,890 665,533,170
In the period to the 30 June 2016 1,667,010 (H1 2015: 1,799,123)
ordinary shares were issued to satisfy employee share schemes.
As At As at As at
30 Jun 2016 30 Jun 2015 31 Dec 2015
(All figures GBP'000s) Unaudited Unaudited Audited
As at 1 January 6,655 6,603 6,603
Employee share schemes 17 18 52
Shares issue to settle Translucent
consideration 51 - -
As at 30 June / 31 December 6,723 6,621 6,655
11 RELATED PARTY TRANSACTIONS
The Group recognised revenue of GBP0.8m and made purchases of GBP4.2m
from its joint venture in Singapore the Compound Semiconductor
Development Centre Private Limited. The Group also recognised revenue of
GBP2.8m, made purchases of GBP2.0m and recharged costs of GBP0.2m with
its joint venture in the UK the Compound Semiconductor Centre Limited.
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: IQE plc via Globenewswire
http://www.iqep.com
(END) Dow Jones Newswires
September 13, 2016 02:01 ET (06:01 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.