IQE plc half-yearly report: first half acquisit...
Cardiff, UK. 26 September 2012: 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 half year results for the six months to 30 June 2012.
FINANCIAL HIGHLIGHTS
Revenues £34.3m (H1 2011: £38.3m)
EBITDA £4.0m (H1 2011: £6.1m)
Operating profit £0.2m (H1 2011: £3.0m)
Adjusted basic EPS* 0.13 pence (H1 2011: 0.71 pence)
Basic EPS 0.02 pence (H1 2011: 0.60 pence)
Net debt £7.5m (Dec 2011: £3.9m)
BUSINESS HIGHLIGHTS
Demand returns to expected levels after inventory correction in the first quarter
Two transformational and complementary transactions position Group for accelerating growth and cash generation
Solar Junction Corporation - strategic investment and supply agreement with leading edge Concentrated PhotoVoltaic ("CPV") cell developer
RF Micro Devices ("RFMD") - acquired in-house MBE epitaxy manufacturing unit, secured supply agreement
Tool installation for Solar Junction remains on track as market demand continues to gather pace
Completed full integration of newly acquired epitaxial operation in North Carolina
Sales commence on new BiHEMT qualifications
Extending IP portfolio with additional patent filings
Capex programme nearing completion
*Adjusted EPS - EPS before non-cash share based payment charges
Dr Drew Nelson, IQE Chief Executive, said:
"The inventory correction by two major customers concluded after the first quarter as expected. The second half has started well and demand has returned as expected with the additional benefit of our newly acquired North Carolina business from RFMD.
"The transactions with Solar Junction and RFMD represent significant milestones in the execution of our growth strategy and will significantly enhance both our short and long term growth. They are highly complementary, extending our critical mass and global leadership in wireless, and bringing additional capacity to service the emerging high growth CPV market.
"Given IQE's strategic positioning and with our international capacity expansion programme nearing completion, we remain confident of meeting current earnings expectations for the full year and of the Group's exciting longer term growth prospects."
Contacts:
| IQE plc | +44 (0) 29 2083 9400 |
| Drew Nelson | |
| Phil Rasmussen | |
| Chris Meadows | |
| Espirito Santo Investment Bank | + 44 (0) 20 7456 9191 |
| Richard Crawley | |
| James Bromhead | |
| Canaccord Genuity | + 44 (0) 20 7523 8000 |
| Simon Bridges | |
| Cameron Duncan | |
| College Hill | +44 (0) 20 7457 2020 |
| Adrian Duffield | |
| Kay Larsen |
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 ('epi-wafers') 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, WiMAX, base stations, GPS, and satellite communications; 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 (CD, DVD, BluRay), thermal imaging, leading-edge medical products, pico-projection, finger navigation ultra-high brightness LEDs, and high efficiency concentrator 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 nine facilities located in Cardiff (two), Milton Keynes and Bath in the UK; in Bethlehem, Pennsylvania, Somerset, New Jersey, Greensboro, North Carolina and Spokane, Washington in the USA; and Singapore. The Group also has 11 sales offices located in major economic centres worldwide.
INTERIM RESULTS 2012
1. GROUP OVERVIEW
IQE is the world's leading supplier of advanced wafers to the semiconductor industry with a strategy that focuses on developing, maintaining and exploiting intellectual property-rich technologies for high-growth, high-volume markets.
IQE manufactures compound semiconductor wafers for major chip manufacturing companies, which use these wafers to make the chips that form the key components of virtually all high-technology systems from wireless devices such as smartphones, to photonic devices such as advanced solar energy generation and high efficiency lighting.
The Group has developed a unique set of competitive advantages to provide its customers with world-leading epitaxial wafer foundry services. By delivering these advantages both consistently and globally, and through its strong operational performance, IQE has become the leader in its field.
Smartphones continue to represent a fundamental structural shift in mobile communications and still only accounted for 27% of the total handsets shipped during 2011. Industry analysts predict continued growth in smartphone shipments for several years to come. In addition, the rapid roll out of LTE and 4G communications in 2012 and beyond, and the proliferation of wireless applications such as with smart meters and point-to-point communications, will add further demand for IQE's wireless products.
Demand for wireless products is strongly supported by accelerating growth of optoelectronic devices across a range of new technologies and applications, including optical communications, finger navigation, lasers for projection, high efficiency LEDs and CPV materials for advanced solar energy generation.
The Group has built a powerful platform for continuing growth and cash generation in the first half of 2012, with two strategic and complementary transactions:
Solar Junction Corporation (SJC). In February, the Group raised £10.5m in a share placing to fund a strategic investment and exclusive wafer supply agreement with leading edge CPV cell developer and manufacturer SJC. The investment for a 9% equity stake in SJC is expected to significantly accelerate IQE's strategy to become a leading global supplier of CPV wafers for the solar power markets.
RFMD. In June, IQE signed a multi-faceted agreement to acquire the entire in-house MBE epi-wafer manufacturing unit of RFMD, a global leader in the design and manufacture of high performance RF components and compound semiconductor technologies. The transaction also included a long-term wafer supply agreement for exclusive provision of all of RFMD's MBE wafers and for provision of a majority of RFMD's MOCVD wafer requirements and is effectively funded by future wafer discounts.
The RFMD agreement provided IQE with a significant step up in manufacturing capacity, bringing substantial financial and scale benefits to the Group. It has further strengthened IQE's leadership position in the supply of wafers to the global wireless industry and provided significant capacity for the manufacture of CPV solar wafers, enabling IQE to build a global leadership position in the supply of wafers for the expected rapid growth in the CPV sector.
2. RESULTS
First half revenues of £34.3m (H1 2011: £38.3m) were impacted as previously reported by the inventory correction with two major customers during the first quarter. Sales and customer order patterns returned to expected levels in the second quarter, and trading has begun well in the second half.
Gross profit amounted to £5.5m (H1 2011: £8.4m). The Group's underlying profit margins were unchanged and were consistent with expected operating metrics. The year on year reduction in sales volumes and the operational gearing resulted in gross margins of 16% (H1 2011: 22%).
Selling, general and administrative expenses were broadly flat at £5.3m (H1 2011: £5.4m).
EBITDA was £4.0m (H1 2011: £6.1m). As a result of the Group's high level of operational gearing, the first quarter inventory correction outlined above led to an operating profit decline to £0.2m (H1 2011: £3.0m).
The Group benefited from a £0.2m tax credit relating to R&D tax refunds. In addition, the Group has tax losses available to offset over £30m of future tax charges.
Retained profit for the period was £0.1m (H1 2011: £3.1m), resulting in earnings per share adjusted for share based payments of 0.13p (H1 2011: 0.71p). Reported EPS were 0.02p (H1 2011: 0.60p).
Cash inflow from operations was £2.8m (H1 2011: £5.9m).
The Group issued new equity of £11.4m, including a £10.5m share placing in February 2012 to fund an equity investment in Solar Junction Corporation, and capital equipment to service an exclusive supply contract.
Net debt increased to £7.5m (31 December 2011: £3.9m) reflecting the investment in capacity to service the growing wireless market. This major expansion programme, which has spanned 2011 and 2012, will conclude during the second half of 2012.
3. STRATEGY, MARKET POSITION AND OPPORTUNITY
IQE's strategy remains focused on delivering technology and production leadership in high-growth markets. The Group offers its customers the industry's broadest product range, access to the latest, innovative technologies, unrivalled capabilities across a range of manufacturing platforms, facilities across three continents and an enviable intellectual property portfolio.
IQE offers its customers a powerful set of USPs:
most comprehensive, IP rich product portfolio covering all major applications;
global multi-site production capabilities;
choice of all the key manufacturing platforms;
global presence with broad contact base and access to all the key global markets; and
competitive pricing enabled by economies of scale including purchasing power and research and development efficiencies.
By leveraging these USPs, IQE has successfully established a clear leadership position in the high-growth wireless communications sector, currently accounting for around 75% of its sales. Through innovation and technology leadership, IQE is actively replicating its success in the wireless sector across a number of emerging high-growth markets including VCSEL technology (for applications such as optical connectivity, laser projection and finger navigation), CPV solar technology, high-efficiency solid-state light sources, and Infrared sensing applications.
The growth in the end markets for IQE's products are being driven by global trends :
the explosion of personal consumer devices for enhanced lifestyle;
high-speed connectivity;
sustainable clean energy generation and the efficient use of energy; and
the increased sophistication and performance of security related systems.
Each of these growth trends involves a wave of technology upgrades driven by economic, environmental, consumer or regulatory pressures, and each is being enabled to a very large degree by compound semiconductor materials and technology.
4. PRODUCTS
Wireless
The continuing adoption of advanced, high-speed mobile communications, including 3G, 4G/LTE, WiFi, GPS into mobile handsets, smartphones, personal computers, tablet PCs and the plethora of other mobile devices is a keydriver for compound semiconductor content in front end communication modules.
As mobile technologies continue to advance at a rapid pace with new features constantly emerging, the role of advanced compound-semiconductor materials such as gallium arsenide (GaAs) has become critical in enabling high-speed data communication, while maintaining low levels of power consumption.
IQE's products are critical in the drive to 3G, 4G and beyond, providing the speed, power and efficiency to facilitate features such as high-resolution imaging, video streaming, high-speed wireless data access, voice over IP (VoIP) and satellite navigation. Each new generation of mobile device contains a much higher compound semiconductor content than the previous generation to facilitate backward compatibility, increased functionality and improved operational performance.
Industry analysts predict that total handset shipments will remain flat at around 1.7bn units in 2012, but expect an acceleration in shipments of smartphones, increasing from 26% of total shipments in 2011 to around 35% in 2012. Industry analysts including Gartner and iSuppli forecast that smartphone sales will grow at 28% CAGR, surpassing 1bn units by 2015.
The wider use of smartphones is expected to be enhanced as manufacturers and wireless operators roll out 4G networks and devices, with analysts forecasting 28m 4G LTE handsets being shipped in 2012. Furthermore, increasing sales of tablet PCs is expected to bolster the total number of mobile broadband devices to over 350m units a year by 2015.
Wireless sector growth is expected to be further enhanced between 2012 and 2020 with the widespread adoption of machine-to-machine communications such as smart metering.
IQE's strategy is to maintain a range of wireless products (HBTs, pHEMTs and BiFETs) across all key chip manufacturers in the sector. This strategy provides some insurance against market share gains and losses amongst our customer base.
IQE is very strongly positioned to take maximum advantage of this powerful communication trend and continues to strengthen its position:
acquisition of RFMD's entire epiwafer production unit in Greensboro, NC.
qualified with and in production with all the top 12 wireless chip manufacturers globally, with at least one major customer product line (multiple lines with several customers);
in qualification of a further 20 major product lines with the top 12 customers;
developed high end products with at least six of the major customers for 4G/LTE roll out during 2012; and
established global leadership in GaN technology for high performance/high linearity wireless systems including base stations and line amplifiers for cable and satellite TV.
Optoelectronics
Connectivity and consumer
Consumer demand for faster and more flexible means of communication is driving a number of high-growth, high-volume applications that depend on compound semiconductor technology. This includes optical cables (such as Active Optical Cables, optical USB and Intel's Light Peak / Thunderbolt), finger navigation for mobile devices and laser projection systems. Optical cables are widely expected to displace the copper cables used to connect computers, TVs and peripherals.
IQE is the world leader in Vertical Cavity Surface Emitting Laser (VCSEL) technology, which lies at the heart of optical cables and finger navigation. Red, green and blue semiconductor lasers are also used to generate images in an emerging range of pico-projectors. It is anticipated that pico-projectors will quickly be embedded within handsets, tablet pcs, digital cameras and other portable devices, with almost 100m units forecast to be shipped in 2017. Rapid improvements in semiconductor laser technology are expected to drive a surge in laser pico-projectors over the coming years to replace first generation pico-projectors that use cheaper LED light sources. In addition, applications such as laser printers, industrial cutting, cosmetics and medical applications are driving rapid deployment of miniature semiconductor lasers.
IQE continues to make strong progress in becoming established as the leader in the supply chain for these applications:
supplying three of the top six VCSEL manufacturers globally and in qualification with a further two;
multiple qualifications ongoing with 10 other Tier 2 VCSEL customers;
major global supplier of red laser materials for wide ranging applications;
significant progress on development of free-standing GaN substrates and blue lasers using NanogaN patented technology; and
global leader in advanced infrared imaging materials by virtue of Wafer Technology Ltd and the recently acquired Galaxy Inc business units.
Cleantech
Demand for IQE's products in this area are being driven by the sustained move towards clean, efficient and sustainable energy sources (solar cells), and highly efficient light sources (LEDs) in order to reduce the impact of climate change and the reliance on fossil fuels to provide a much cleaner environment.
IQE's technology provides the material for the most efficient and cost effective solar cells for power generation in the form of CPV (Concentrator Photo Voltaic) solar cells.
CPV solar energy generation is approaching an inflection point at which CAGR is expected to be around 175% over the next five years compared with 19% for the overall solar market. This is driven by the growing appreciation that in sunny areas, CPV can have the lowest cost of production of electricity, including fossil and nuclear fuels. Even with the significant growth in the sector, at 1.6GW installed capacity CPV will only account for 4% of total solar energy generation in 2015, but will require as many compound semiconductor wafers as the entire wireless industry consumes today.
IQE is uniquely positioned as a global leader in the advanced semiconductor enabling technology for CPV:
investment in and exclusive supply agreement with CPV technology leader, Solar Junction Corporation;
engaged with four of the top five cell manufacturers at various levels; and
supplying advanced quantum confined products, producing high levels of efficiency.
Closely linked with sustainable power generation is the move towards high efficiency lighting in the form of Ultra High Efficiency Light Emitting Diodes (LEDs). Lighting accounts for over 20% of the world's energy consumption. A key driver for the adoption of alternative lighting technology will be the almost universal banning of incandescent lighting technology from 2012. LED Solid State Lighting is emerging as the major technology to displace existing lighting, and has been predicted by Hans van Wijngaarde of Philips to account for 90% of the general lighting market by 2020. IQE's strategy is based on the development of much higher quality substrates using NanoGaN's patented technology to develop extremely high power LED chips for the general lighting market.
Electronics
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 versatility of silicon, which has been the default semiconductor material for the last half century, with the power and performance of compound semiconductors that have emerged as true 21st century materials.
IQE is at the forefront of developing highly advanced technology for producing compound semiconductor on Si wafers and has also developed a new range of engineered substrates such as Germanium on Insulator (GeOI) for next-generation integrated circuits and devices.
IQE has established strong positions in both technologies, working with some of the industry's biggest names, and has published over 21 papers and made nine conference presentations jointly with partners.
The Group has:
developed the world's first 8" fully integrated CS on Si wafer as part of major US COSMOS programme;
developed a range of engineered substrates including germanium on insulator (GeOI), silicon on insulator (SOI), silicon on sapphire (SOS) and germanuim on silicon (GeOS); and
undertaken development of GaN on Silicon for large volume power conversion markets.
5. CURRENT TRADING AND OUTLOOK
Growth in demand for IQE's products was temporarily interrupted during the fourth quarter of 2011 and the first quarter of 2012 as previously reported as a result of inventory corrections and market share swings within IQE's wireless customer base. These were resolved by the end of the first quarter and business returned to normal during the second quarter. With this correction behind us, the Group is now returning to growth driven by demand for wireless components for a wide range of connected devices including smartphones and tablet PC technologies together with increasing demand for the Group's extensive range of optoelectronic products.
The two strategic transactions in the first half of 2012, with Solar Junction and RFMD, have further positioned the Group for continued growth and cash generation within both the wireless sector and the rapidly growing CPV market. With our capex programme for capacity expansion and investment in CPV coming to a conclusion, we expect strong cash generation over the coming years.
The end markets for our products continue to look attractive, with a significantly increasing range of high-tech applications offering excellent opportunities for sustained rapid growth in revenues and profitability. Given IQE's strategic positioning, enhanced by two major transactions during the first half of the year, and notwithstanding the current poor macroeconomic environment, the Board remains confident of meeting current market earnings expectations and of the Group's exciting longer term growth prospects.
Dr Drew Nelson
CEO
Independent review report to IQE plc
Introduction
We have been engaged by the Company to review the interim statements in the half-yearly financial report for the six months ended 30 June 2012, which comprises the consolidated income statement, consolidated balance sheet, consolidated cash flow statement, statement of changes in shareholders' equity and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the Company's annual financial statements.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
The maintenance and integrity of IQE plc's website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the AIM Rules for Companies and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules for Companies.
PricewaterhouseCoopers LLP
Chartered Accountants
Cardiff
26 September 2012
| 6 months to | 6 months to | 12 months to | |||||||||||
| CONSOLIDATED INCOME STATEMENT | 30 Jun 2012 | 30 Jun 2011 | 31 Dec 2011 | ||||||||||
| (All figures £'000s) | Note | Unaudited | Unaudited | Audited | |||||||||
| Revenue | 34,276 | 38,304 | 75,318 | ||||||||||
| Cost of sales | (28,804) | (29,893) | (57,142) | ||||||||||
| Gross profit | 5,472 | 8,411 | 18,176 | ||||||||||
| Selling, general and administrative expenses | (5,281) | (5,403) | (10,803) | ||||||||||
| Operating profit | 191 | 3,008 | 7,373 | ||||||||||
| Finance costs | (282) | (192) | (481) | ||||||||||
| (Loss)/profit before tax | (91) | 2,816 | 6,892 | ||||||||||
| Income tax income | 193 | 285 | 1,551 | ||||||||||
| Profit attributable to equity shareholders | 102 | 3,101 | 8,443 | ||||||||||
| Adjusted basic earnings per share | 3 | 0.13p | 0.71p | 1.86p | |||||||||
| Basic earnings per share | 3 | 0.02p | 0.60p | 1.62p | |||||||||
| Adjusted diluted earnings per share | 3 | 0.12p | 0.66p | 1.74p | |||||||||
| Diluted earnings per share | 3 | 0.02p | 0.55p | 1.51p | |||||||||
| Earnings before interest, tax, depreciation and amortisation (EBITDA) have been calculated as follows: | |||||||||||||
| Profit attributable to equity shareholders | 102 | 3,101 | 8,443 | ||||||||||
| Tax | (193) | (285) | (1,551) | ||||||||||
| Share based payments | 598 | 596 | 1,284 | ||||||||||
| Net interest payable | 282 | 192 | 481 | ||||||||||
| Depreciation of tangible fixed assets | 2,641 | 2,020 | 4,175 | ||||||||||
| Amortisation of intangible fixed assets | 587 | 485 | 1,123 | ||||||||||
| EBITDA | 4,017 | 6,109 | 13,955 | ||||||||||
| CONSOLIDATED STATEMENT OF | 6 months to | 6 months to | 12 months to | ||||||||||
| COMPREHENSIVE INCOME | 30 Jun 2012 | 30 Jun 2011 | 31 Dec 2011 | ||||||||||
| (All figures £'000s) | Unaudited | Unaudited | Audited | ||||||||||
| Profit attributable to equity shareholders | 102 | 3,101 | 8,443 | ||||||||||
| Foreign exchange hedges | 220 | 243 | (598) | ||||||||||
| Currency translation differences on foreign currency net investments | (591) | (58) | 432 | ||||||||||
| Total comprehensive income for the period | (269) | 3,286 | 8,277 | ||||||||||
| As At | As At | As At | |||||||||||
| CONSOLIDATED BALANCE SHEET | 30 Jun 2012 | 30 Jun 2011 | 31 Dec 2011 | ||||||||||
| (All figures £'000s) | Unaudited | Unaudited | Audited | ||||||||||
| Non-current assets : | |||||||||||||
| Intangible assets | 55,545 | 31,699 | 32,706 | ||||||||||
| Property, plant and equipment | 61,461 | 32,069 | 37,348 | ||||||||||
| Trade investment | 3,205 | - | - | ||||||||||
| Deferred tax asset | 14,536 | 824 | 1,876 | ||||||||||
| Total non-current assets | 134,747 | 64,592 | 71,930 | ||||||||||
| Current assets : | |||||||||||||
| Inventories | 17,915 | 13,630 | 15,122 | ||||||||||
| Trade and other receivables | 19,495 | 18,164 | 14,338 | ||||||||||
| Cash and cash equivalents | 5,524 | 6,067 | 3,233 | ||||||||||
| Total current assets | 42,934 | 37,861 | 32,693 | ||||||||||
| Total assets | 177,681 | 102,453 | 104,623 | ||||||||||
| Current liabilities : | |||||||||||||
| Borrowings | (556) | (816) | (49) | ||||||||||
| Trade and other payables | (38,007) | (29,335) | (23,157) | ||||||||||
| Total current liabilities | (38,563) | (30,151) | (23,206) | ||||||||||
| Non-current liabilities : | |||||||||||||
| Borrowings | (12,516) | (4,244) | (7,105) | ||||||||||
| Other payables | (41,702) | (1,563) | (1,562) | ||||||||||
| Total non-current liabilities | (54,218) | (5,807) | (8,667) | ||||||||||
| Total liabilities | (92,781) | (35,958) | (31,873) | ||||||||||
| Net assets | 84,900 | 66,495 | 72,750 | ||||||||||
| Shareholders' equity : | |||||||||||||
| Ordinary shares | 5,864 | 5,247 | 5,251 | ||||||||||
| Share premium | 33,491 | 22,078 | 22,122 | ||||||||||
| Profit and loss account | 36,220 | 31,120 | 36,118 | ||||||||||
| Other reserves | 9,325 | 8,050 | 9,259 | ||||||||||
| Total shareholders' equity | 84,900 | 66,495 | 72,750 | ||||||||||
| 6 months to | 6 months to | 12 months to | |||
| CONSOLIDATED CASH FLOW STATEMENT | 30 Jun 2012 | 30 Jun 2011 | 31 Dec 2011 | ||
| (All figures £'000s) | Unaudited | Unaudited | Audited | ||
| Cash flows from operating activities : | |||||
| Cash inflow from operations | 5 | 2,796 | 5,881 | 10,823 | |
| Net interest paid | (247) | (257) | (515) | ||
| Income tax received | - | 13 | 13 | ||
| Net cash inflow from operating activities | 2,549 | 5,637 | 10,321 | ||
| Cash flows from investing activities : | |||||
| Acquisition of subsidiaries | (3,805) | (622) | (1,134) | ||
| Investment in trade investment | (3,205) | - | - | ||
| Development expenditure | (2,197) | (1,651) | (3,666) | ||
| Investment in other intangible fixed assets | (107) | (60) | (328) | ||
| Purchase of property, plant and equipment | (8,299) | (8,924) | (15,517) | ||
| Proceeds from sale of tangible fixed assets | - | 42 | 90 | ||
| Net cash used in investing activities | (17,613) | (11,215) | (20,555) | ||
| Cash flows from financing activities : | |||||
| Issues of ordinary share capital | 11,365 | 580 | 616 | ||
| Loans and leases received/(repaid) | 5,975 | (1,487) | 334 | ||
| Net cash generated from/(used in) financing activities | 17,340 | (907) | 950 | ||
| Net increase/(decrease) in cash and cash equivalents | 2,276 | (6,485) | (9,284) | ||
| Cash and cash equivalents at the beginning of the period | 3,233 | 12,507 | 12,507 | ||
| Exchange gains on cash and bank overdrafts | 15 | 45 | 10 | ||
| Cash and cash equivalents at the end of the period | 6 | 5,524 | 6,067 | 3,233 | |
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 2012.
The interim results were approved by the Board of Directors and the Audit Committee on 26 September 2012. 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 2011 have been taken from the published audited statutory financial statements. All other periods presented are unaudited. Statutory accounts for the year ended 31 December 2011 were approved by the Board of Directors on 20 March 2012 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 2012 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 2011, 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 2011, as described in those annual financial statements.
The financial information contained in this 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.
| 6 months to | 6 months to | 12 months to | |||||||||
| 2 SEGMENTAL INFORMATION | 30 Jun 2012 | 30 Jun 2011 | 31 Dec 2011 | ||||||||
| (All figures £'000s) | Unaudited | Unaudited | Audited | ||||||||
| Revenue by business segment : | |||||||||||
| Wireless | 25,367 | 28,282 | 55,156 | ||||||||
| Optoelectronics | 8,312 | 8,925 | 18,551 | ||||||||
| Electronics | 597 | 1,097 | 1,611 | ||||||||
| Total revenue | 34,276 | 38,304 | 75,318 | ||||||||
| EBITDA by business segment : | |||||||||||
| Wireless | 2,874 | 4,735 | 10,718 | ||||||||
| Optoelectronics | 1,226 | 1,463 | 3,409 | ||||||||
| Electronics | (83) | (89) | (172) | ||||||||
| Total EBITDA | 4,017 | 6,109 | 13,955 | ||||||||
| Operating profit/(loss) by business segment : | |||||||||||
| Wireless | (154) | 2,400 | 5,864 | ||||||||
| Optoelectronics | 594 | 877 | 2,057 | ||||||||
| Electronics | (249) | (269) | (548) | ||||||||
| Total operating profit | 191 | 3,008 | 7,373 | ||||||||
| 3 EARNINGS PER SHARE | 6 months to | 6 months to | 12 months to | ||
| 30 Jun 2012 | 30 Jun 2011 | 31 Dec 2011 | |||
| Unaudited | Unaudited | Audited | |||
| Results in £'000s: | |||||
| Profit attributable to ordinary shareholders | 102 | 3,101 | 8,443 | ||
| Share based payments | 598 | 596 | 1,284 | ||
| Adjusted profit attributable to ordinary shareholders | 700 | 3,697 | 9,727 | ||
| Number of shares: | |||||
| Weighted average number of ordinary shares | 559,978,074 | 519,683,065 | 522,386,930 | ||
| Dilutive share options | 30,570,184 | 43,896,647 | 37,008,723 | ||
| Adjusted weighted average number of ordinary shares | 590,548,258 | 563,579,712 | 559,395,653 | ||
| Adjusted basic earnings per share | 0.13p | 0.71p | 1.86p | ||
| Basic earnings per share | 0.02p | 0.60p | 1.62p | ||
| Adjusted diluted earnings per share | 0.12p | 0.66p | 1.74p | ||
| Diluted earnings per share | 0.02p | 0.55p | 1.51p | ||
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.
| 4 STATEMENT OF CHANGES IN | 6 months to | 6 months to | 12 months to | |||
| SHAREHOLDERS' EQUITY | 30 Jun 2012 | 30 Jun 2011 | 31 Dec 2011 | |||
| (All figures £'000s) | Unaudited | Unaudited | Audited | |||
| Profit attributable to equity shareholders | 102 | 3,101 | 8,443 | |||
| Foreign exchange hedges | 220 | 243 | (598) | |||
| Net exchange differences offset in reserves | (591) | (58) | 432 | |||
| Total comprehensive (expense)/income | (269) | 3,286 | 8,277 | |||
| Employee share option scheme | 438 | 580 | 940 | |||
| Share placing | 10,013 | - | - | |||
| Other issues of ordinary shares | 1,968 | 355 | 1,259 | |||
| Total transactions with owners | 12,419 | 935 | 2,199 | |||
| Shareholders' equity at start of period | 72,750 | 62,274 | 62,274 | |||
| Shareholders' equity at end of period | 84,900 | 66,495 | 72,750 | |||
| 6 months to | 6 months to | 12 months to | ||||
| 5 CASH GENERATED FROM OPERATIONS | 30 Jun 2012 | 30 Jun 2011 | 31 Dec 2011 | |||
| (All figures £'000s) | Unaudited | Unaudited | Audited | |||
| Operating profit | 191 | 3,008 | 7,373 | |||
| Depreciation of tangible assets | 2,641 | 2,020 | 4,175 | |||
| Amortisation of intangible assets | 587 | 485 | 1,123 | |||
| Gain on sale of tangible assets | - | (38) | (68) | |||
| Non cash share based payment costs | 598 | 596 | 1,284 | |||
| Cash from operations before changes in working capital | 4,017 | 6,071 | 13,887 | |||
| (Increase)/decrease in inventories | (3,029) | (2,060) | (3,087) | |||
| (Increase)/decrease in trade and other receivables | (5,231) | (1,053) | 2,033 | |||
| Increase/(decrease) in trade and other payables | 7,039 | 2,923 | (2,010) | |||
| Cash inflow generated from operations | 2,796 | 5,881 | 10,823 | |||
| As At | As At | As At | |||
| 6 ANALYSIS OF NET DEBT | 30 Jun 2012 | 30 Jun 2011 | 31 Dec 2011 | ||
| (All figures £'000s) | Unaudited | Unaudited | Audited | ||
| Cash and cash equivalents | 5,524 | 6,067 | 3,233 | ||
| Loans due after one year | (12,514) | (3,442) | (7,087) | ||
| Loans due within one year | (518) | (530) | - | ||
| Finance leases due after one year | (2) | (802) | (18) | ||
| Finance leases due within one year | (38) | (286) | (49) | ||
| Total borrowings | (13,072) | (5,060) | (7,154) | ||
| Net funds/(debt) | (7,548) | 1,007 | (3,921) | ||
7 Acquisition trade and assets
On 11 June 2012 the group acquired the in-house epitaxy operation of RFMD, a leading wireless chip manufacturer. Under the terms of this trade and assets deal, the Group acquired the leasehold production facility, the production equipment and related inventories; assumed employment of the workforce; and entered into a long term supply contract. The consideration for the acquisition is being settled entirely via discount on future product sales.
The comparison of book value to fair value is summarised as follows :
| Book value | Fair value Adjustment | Fair value | |||
| (All figures £'000s) | £'000 | £'000 | £'000 | ||
| Intangible assets | - | 3,116 | 3,116 | ||
| Property plant and equipment | 17,400 | 2,600 | 20,000 | ||
| Inventory | 1,001 | - | 1,001 | ||
| Deferred tax asset | 13,187 | ||||
| Goodwill | 18,287 | ||||
| Total consideration | 55,591 | ||||
The fair value of the intangible assets represents the estimated fair value of the supply contract, and has been assessed based on an imputed royalty on future cash flows.
The fair value of the property plant and equipment has been estimated on a depreciated replacement cost basis.
Inventory has been recognised at the lower of cost at net realisable value.
Deferred tax has been recognised in respect of temporary timing differences between the accounting and tax treatments for the assets and liabilities recognised.
Goodwill reflects items not separately recognisable under IFRS, and largely reflect financial and operational synergies of the enlarged group including improved economies of scale and equipment utilisation.
The fair value of the consideration has been estimated based on expected future volumes and price discounts. Sales are recorded at their fair value, but billed at the discounted rate. The discount on each sales transaction is accounted for as a reduction in the contingent deferred consideration balance. As a guide to the sensitivity of this estimate, if actual volumes were 5% lower than the estimated future volumes then the total consideration would reduce by approximately £2.8m.
The fair values for intangibles assets and consideration are provisional fair values, and as long term balances have been discounted at discount rate of 1%.
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: IQE plc via Thomson Reuters ONE
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