2009 Full Year Results
24 March 2010
IQE plc
Strong H2 secures £3.0m full year operating profit and £3.7m free cash flow
IQE plc (AIM: IQE, "IQE" or the "Group"), the leading global supplier of
advanced wafer products and wafer services to the semiconductor industry,
publishes audited results for the year ended 31 December 2009.
Financial highlights
* Record H2 revenues of £31.2m result in full-year revenues of £52.7m (2008:
£60.5m)
* Sequential revenue growth of 46% in H2 demonstrates strong recovery after
industry wide inventory adjustments in H1
* Improved efficiency boosts gross margins to 22% resulting in £11.6m of gross
profit (2008: 19%, £11.8m*)
* High operational gearing and tight cost control delivers second half EBITDA
of £6.1m - full year EBITDA £8.1m (2008: £8.4m*)
* Pre-tax profit £2.1m (2008: loss £1.4m)
* Basic EPS of 0.47p (2008: loss 0.32p per share)
* Capital expenditure of £1.4m (2008: £6.6m) - normal maintenance levels
following conclusion of 2008 major capital programme
* Strong trading performance and cash management generated free cash flow* of
£3.7m (2008: £0.7m)
* Net debt reduced to £14.9m (2008: £18.1m)
* Stated before exceptional costs and cash flows relating to relocation and
restructuring undertaken in 2008
Operational highlights
· Fulfilled goal of qualifying with all major wireless chip manufacturers
· NanoGaN acquisition brings valuable IP, accelerates high power LED and
blue/green laser development
· Significant new patents in solar and advanced electronics secured
Dr Drew Nelson, IQE Chief Executive, said:
"We made excellent progress in 2009 on all fronts - strategic, operational and
financial. We continue to build on our market leadership, and by continued
investment in R&D throughout the downturn. We now have a product range that
addresses almost all of the rapidly growing markets for compound semiconductor
materials.
"We demonstrated a high degree of operational and financial resilience through a
challenging year thanks to proactive management, and a committed and
professional workforce.  This has enhanced our customers' confidence in us and
builds on the strong relationships that we enjoy with them. We believe that
this positions us well to continue to grow our market share.
"I am extremely pleased with our progress on developing intellectual property
for the solar power and advanced electronics markets.  These advances are
keeping us at the forefront of emerging markets, and give me confidence that we
will emerge as a clear leader as these markets move from development phase into
production.
"We are at a very exciting time in the Group's history. We continue to make
excellent progress in our core wireless business, whilst at the same time are
building an IP rich advanced semi-conductor 'power house' that is uniquely
positioned to take advantage of the high growth markets that are rapidly
emerging in areas such as solid state lighting (SSL), CPV solar cells and
consumer electronics. We are confident that IQE is well positioned to achieve
continued growth in sales in 2010."
Contacts:
IQE plc +44 29 2083 9400
Drew Nelson
Phil Rasmussen
Chris Meadows
College Hill +44 20 7457 2020
Adrian Duffield/Carl Franklin
Execution Noble & Company Limited + 44 20 7456 9191
John Llewellyn-Lloyd/Sam Reynolds
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, optical storage (CD, DVD), laser optical mouse, laser printers &
photocopiers, thermal imagers, leading-edge medical products, barcode, ultra
high brightness LEDs, a variety of advanced silicon based systems 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 six manufacturing facilities located in Cardiff (two) and Milton
Keynes in the UK; in Bethlehem, Pennsylvania and Somerset, New Jersey in the
USA; and Singapore. The Group also has 11 sales offices located in major
economic centres worldwide.
1. OVERVIEW
2009 was a year of strong progress against the Group's strategic, operational
and financial objectives, despite the tough economic environment.
After a challenging start to the year, the full year returned a strong financial
performance, demonstrating the resilience of the organisation and the strength
of the highly operationally geared business model.
As predicted, the rapid destocking that began in the fourth quarter of 2008
caused a severe reduction in volumes across all of the primary markets.
Inevitably, the impact of the destocking continued into 2009, but started to
ease towards the end of the first half.
Customer demand normalised in July 2009 and continued strongly throughout the
second half to deliver half on half revenue growth of over 45% with the Group
rapidly returning to high volumes.  This was a significant achievement on the
back of a major cost reduction programme and confirms the Group's customers'
well-placed confidence in IQE, and it operational resilience.
Beyond the strong operational performance, and success in strengthening the
business during a challenging time, IQE has also achieved a number of other
milestones of strategic importance:
· Attracted the best talent from throughout the industry including a number of
high profile appointments into the technical, sales and group management teams;
· Achieved qualification with all of the major wireless chip makers, putting IQE
in a very strong position to continue to grow its market share organically and
mitigating customer risk;
· Developed significant intellectual property including  a number of patents
relating to solar power and advanced electronics; and
· Completed the acquisition of NanoGaN Limited (NanoGaN), which brought exciting
new talent and patented IP to IQE. This has accelerated the progress against
the Group's technology roadmap for solid state lighting (residential and
commercial lighting using LEDs) and advanced laser applications (laser
projection systems for mobile phones, digital cameras and office applications).
2. RESULTS
The well-documented destocking adversely affected the Group's financial
performance during the first half of 2009, but a strong recovery during the
second half saw a 46% half on half increase in sales to give total revenue for
the year of £52.7m. Inevitably, as a result of the slow first half, full year
sales were lower than the prior year (£60.5m).
Gross profit margins, (before exceptional items) improved from 19% to 22% year
on year, despite lower volumes, reflecting strong cost control and the benefit
of improved efficiencies as a result of the restructuring undertaken in
2008.
Selling, general and administrative expenses remained tightly controlled at
£8.5m (2008: £8.5m), and EBITDA was only slightly down to £8.1m (2008: £8.4m).
Operating profit was £3.0m (2008: £69,000 or £4.0m before exceptional items).
The Group reported a pretax profit of £2.1m (2008: loss £1.4m or £2.5m profit
before exceptional items). At the end of 2009 the Group had an unrecognised
deferred tax asset of £29.5m largely relating to historic tax losses. These
losses will be utilised to reduce the tax payable on future profits of certain
UK and US business units.
Earnings per share were 0.47p (2008: loss 0.32p or profit 0.59p before
exceptional items).
In cash flow, the Group converted the EBITDA of £8.1m (2008: £8.4m) into a cash
inflow from operations of £8.1m (2008: £8.5m), a 100% cash conversion rate
(2008: 101%) before exceptional items.
IQE invested £2.3m (2008: £1.5m) in development expenditure, relating to the
qualification of new wireless products and the development of new solar and
gallium nitride products. These development activities are expected to generate
increased sales as projects are completed in the near future.
The Group also invested £1.4m in capital expenditure compared with £6.6m in the
prior year. The cash outflow for capital expenditure was £1.7m (2008: £6.4m)
when taking into account a £0.3m reduction (£0.2m increase) in capital
creditors. The year-on-year reduction in capital expenditure reflects the
completion of a major capital investment programme in 2008 and the return to a
maintenance level of capital expenditure in 2009.
The strong operating cash flow and low level of capital expenditure contributed
to a significant improvement in free cash flow (net cash flow before financing
activities and debt service), which increased from £0.7m in 2008 to £3.7m in
2009 (before exceptional items). With the absorption of £1.3m of free cash
during the first half, the free cash generation in the second half was £5.0m.
The strong free cash generation resulted in a £3.2m year-on-year reduction in
net debt to £14.9m (2008: £18.1m) and a reduction of £4.1m during the second
half.
3. STRATEGY
IQE's strategy is to focus on high-growth, high-volume technologies. During
2009, the Group's major markets were focused in particular on high-speed
wireless communications and rapidly emerging technologies such as advanced solar
cells, ultra-efficient LEDs and ultra-high-speed microprocessor and memory-chip
materials.
The global emphasis on green technologies is expected to create high demand for
some of these new technologies, particularly CPV solar cells for highly
efficient energy generation and consumer optoelectronics. IQE's capabilities in
these fields have been enhanced with the acquisition of some significant new
intellectual property in a number of key technologies.
In order to provide customers with the most competitive global wafer outsourcing
service, IQE has established, including:
· a complete range of products covering all major applications;
· global multi-site production capabilities in the primary manufacturing
platforms to allow efficient capacity planning and for disaster scenario
contingency;
· a broad contact base with access to all the key global markets;
· benefits from economies of scale including purchasing power and research and
development efficiencies;
· improved operating and cost efficiencies from sharing best practices and
innovation; and
· providing surge capacity to meet the expected growth in demand in the mobile
device sector and other high volume activities.
4. PRODUCTS AND MARKETS
IQE's product roadmap and strategy continues to be driven by three key market
dynamics, all of which have fast growth, high volume prospects:
High-Speed Wireless Communications
Approximately 80% of Group sales in 2009 were into the wireless market. This is
a global market spanning a broad range of applications from mobile phones,
mobile laptops, mobile netbooks, Wi-Fi enabled devices, GPS devices, mobile
infrastructure, and direct broadcast satellite TV.
These are high-growth markets that are expected to grow rapidly for the
foreseeable future, driven by 3G communications and increasing demand for mobile
internet.
IQE is the largest epitaxial foundry, giving critical mass in an industry where
economies of scale enable a wide range of advantages including cost and
technology leadership. Industry analysts estimate that IQE's share of the
outsource market is approximately 30%. IQE's nearest competitors are estimated
to command approximately 15% of the market.
There remain excellent growth prospects for IQE in this global market. The
overall market is growing, the outsource segment of the market is increasing,
and IQE is seeking to increase its market share by leveraging its broad customer
base and its unique competitive advantages. These are its technology
leadership, cost leadership and the security of supply provided by its
multi-site capability and its large installed capacity.
Optoelectronics
This market accounts for approximately 15% of IQEs sales but is expected to
increase very rapidly over the next few years. In broad terms, optoelectronics
refers to devices that convert electricity into light (lasers and LEDs) or light
into electricity (fibre optic communication receivers and solar power
generation).
It is a diverse market with a broad range of applications including LEDs, lasers
for data storage (CD, DVD, Blu Ray), lasers for office applications (laser
printers, laser mouse), medical and industrial lasers, and components for
fibre-optic communication systems covering all applications from USB cables to
long distance telecommunication networks.
Optical communications
The fibre-optic communications market is set to enjoy significant growth over
the coming years as the proliferation of video streaming and social networking
on the internet continue to consume bandwidth at an exponential rate.
Governments and corporations are embarking on major investment programmes to
increase the bandwidth of fibre-optic networks to meet this increasing demand.
Consumer Optoelectronics
This diverse area is set to grow very rapidly in the coming years as optical
devices penetrate large segments of the consumer markets, including the
following areas:
(i)Â Â Â Active Optical Cables and Plastic Optical Fibre (LightPeak)
The increase in data transfer rates is also driving investment in optical
communication at peripheral level. Active Optical Cables (AOC) look set to
replace existing interconnects such as USB and HDMI cables, as these traditional
cables struggle to meet the increasing demands for data transfer. The current
market for USB cables alone is estimated at 3 billion per annum. Intel is
leading the way in this area with its recently announced 'Light Peak' project.
(ii)Â Â Optical Storage (Blu Ray, DVD)
As data storage requirements grow, high density storage media are required,
including Blu Ray Disc which used shorter wavelength blue lasers to store large
amounts of data. IQE's technology includes red lasers for DVD, and through
NanoGaN are developing blue laser technology for both Blu Ray and blue/green
lasers for projection systems
(iii) Office equipment and Sensing
This market includes various optical devices for office equipment such as laser
printers, high resolution photocopy machines and laser mouse for computer
navigation. IQE supplies many of the materials used for such applications
(iv) Laser projection
IQE acquired UK based NanoGaN in October 2009. NanoGaN brings exciting new
intellectual property to IQE, including its proprietary nanocolumn technology
for producing high quality Gallium Nitride advanced semiconductor materials
(GaN). This material is critical for the emerging high growth laser projection
(red, green and blue lasers) and solid state lighting (SSL) markets.
Laser projection systems have performance, efficiency and size advantages over
conventional projection systems. In particular, this technology will offer high
quality miniature projectors that have been termed 'pico projectors', which will
extend this application for incorporation into mobile phones and into digital
cameras to support mobile video streaming and image projection. Industry
analysts predict rapid growth for laser projection, given the scale and growth
in mobile devices.
Solid-state lighting (SSL)
Solid-state lighting is widely viewed as the only credible long term solution to
replace the incandescent light bulb. Efficient energy consumption will remain a
key driver in the development and adoption of this technology, but the critical
success factors are reducing cost and improving the ambience of solid-state
lighting units. High-quality gallium nitride provides the route map to
achieving this, which will revolutionise residential and commercial lighting in
the coming years.
Solar power generation
The efficiency at which solar cells convert sunlight into electricity is a key
determinant in their size and cost. Solar cells that use advanced
semiconductors (called CPV or Concentrator PhotoVoltaics) provide the most
efficient solution by using multiple layers of finely tuned materials to absorb
sunlight across a wider range of wavelengths.
Industry analysts predict that CPV will reach cost parity with fossil fuels
within the next 2 to 3 years. This will be a key catalyst for large scale
adoption, creating a market for epitaxy which could outgrow the current wireless
market in only a few years.
Electronics
IQE's electronics business provides advanced epitaxy services on silicon, which
account for almost 5% of Group sales. Part of this business is engaged in
mainstream consumer electronics market and accordingly suffered more
significantly as a result of the global economic downturn. Recovery in this
market sector lagged that of the rest of the business but has seen a pick-up in
demand in recent months.
The Group has also developed a powerful range of engineered wafers based on
silicon substrates such as germanium-on-insulator (GeOI), germanium-on-silicon
(GeOSi) and silicon-on-sapphire (SOS), which help ensure the continuation of
Moore's Law for continuing enhancements to microprocessor performance.
The intellectual property that the Group is developing in this field has the
potential to revolutionise the semi-conductor world, and create significant long
term value.
6. TRADING OUTLOOK
IQE is widely recognised as the global market leader in advanced semi-conductor
materials. The technical, operational and financial successes of recent years
provide clear evidence of the Group's forward momentum and endorse its strategy,
management and execution.
2010 promises to be another exciting year for IQE as it expands its technology
leadership and builds market share in new, rapidly growing sectors such as
active optical cables, laser projection, LED lighting and CPV solar energy.
The Group's solid financial performance achieved during a particularly difficult
year, coupled with a comprehensive portfolio of products, services and
intellectual property, underline the Board's confidence in IQE's ability to
increase revenue, profitability and cash generation over the coming years.
Dr Drew Nelson, CEO, IQE plc
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2009
 H2 2009 H2 2008 2009 2008
  £'000 £'000 £'000 £'000
Note unaudited unaudited audited audited
--------------------------------------------------------------------------------
Revenue 2 31,231 30,307 52,652 60,485
Cost of sales  (23,459) (25,729) (41,073) (51,898)
--------------------------------------------------------------------------------
Gross profit  7,772 4,578 11,579 8,587
+------------------------------------------------------------------------------+
|Gross profit before exceptional  7,772 6,518 11,579 11,755|
|items |
| |
|Exceptional items 3 - (1,940) - (3,168)|
+------------------------------------------------------------------------------+
Selling, general and administrative  (3,895) (4,520) (8,535) (8,518)
expenses
--------------------------------------------------------------------------------
Operating profit 2 3,877 58 3,044 69
+------------------------------------------------------------------------------+
|Operating profit before exceptional 2 3,877 2,421 3,044 4,000|
|items |
| |
|Exceptional items 3 - (2,363) - (3,931)|
+------------------------------------------------------------------------------+
Finance costs  (458) (734) (986) (1,454)
--------------------------------------------------------------------------------
Profit/(loss) for the period  3,419 (676) 2,058 (1,385)
attributable to equity shareholders
--------------------------------------------------------------------------------
Pre-exceptional earnings per share 4 0.77p 0.29p 0.47p 0.59p
Basic earnings per share 4 0.77p (0.16p) 0.47p (0.32p)
Diluted earnings per share 4 0.71p (0.16p) 0.44p (0.32p)
--------------------------------------------------------------------------------
EBITDA (Earnings before Interest, Taxes, Depreciation, Amortisation and
Exceptionals)
is calculated as follows:
   2009 2008
£'000 £'000
--------------------------------------------------------------------------------
Profit/(loss) attributed to equity shareholders   2,058 (1,385)
Share based payments   898 884
Exceptional costs   - 3,931
Net finance costs   986 1,454
Depreciation of tangible fixed assets   3,372 3,076
Amortisation of intangible fixed assets   737 447
--------------------------------------------------------------------------------
EBITDA Â Â 8,051 8,407
--------------------------------------------------------------------------------
EBITDA was generated during the period as follows:
H1 EBITDA (unaudited) Â Â 1,909 3,600
H2 EBITDA (unaudited) Â Â 6,142 4,807
--------------------------------------------------------------------------------
Full year EBITDA (audited) Â Â 8,051 8,407
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2009
   2009 2008
£'000 £'000
--------------------------------------------------------------------------------
Profit/(loss) for the period   2,058 (1,385)
Currency translation differences on foreign currency net   (3,859) 7,723
investments
Revaluation gain of initial investment on acquisition   28 -
--------------------------------------------------------------------------------
Total comprehensive (expense)/income for the period   (1,773) 6,338
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2009
 Share Share Retained Exchange Other Total
capital premium earnings rate reserves equity
reserve
 £'000 £'000 £'000 £'000 £'000 £'000
--------------------------------------------------------------------------------
Balance at 1 4,333 124 18,455 5,604 1,702 30,218
January 2009
--------------------------------------------------------------------------------
Comprehensive
income
Profit for the - - 2,058 - - 2,058
period
Foreign - - - (3,859) - (3,859)
exchange
translation
differences
Revaluation - - - - 28 28
gain on
business
combination
--------------------------------------------------------------------------------
Total - - 2,058 (3,859) 28 (1,773)
comprehensive
income
Transactions
with owners
Employee share - - - - 264 264
option scheme
Shares issued 58 709 - - - 767
for business
combination
Other issues of 44 317 - - - 361
ordinary shares
--------------------------------------------------------------------------------
Total 102 1,026 - - 264 1,392
transactions
with owners
--------------------------------------------------------------------------------
Balance at 31 4,435 1,150 20,513 1,745 1,994 29,837
December 2009
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Balance at 1 4,310 172,183 (152,441) (2,119) 1,027 22,960
January 2008
--------------------------------------------------------------------------------
Comprehensive
income
Loss for the - - (1,385) - - (1,385)
period
Foreign - - - 7,723 - 7,723
exchange
translation
differences
--------------------------------------------------------------------------------
Total - - (1,385) 7,723 - 6,338
comprehensive
income
Transactions
with owners
Employee share - - - - 747 747
option scheme
Issues of 23 222 - - (72) 173
ordinary shares
Capital - (172,281) 172,281 - - -
reduction
--------------------------------------------------------------------------------
Total 23 (172,059) 172,281 - 675 920
transactions
with owners
--------------------------------------------------------------------------------
Balance at 31 4,333 124 18,455 5,604 1,702 30,218
December 2008
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
as at 31 December 2009
   2009 2008
Note £'000 £'000
------------------------------------------------------------------
Non-current assets:
Intangible assets   19,182 14,675
Property, plant and equipment   21,365 25,626
------------------------------------------------------------------
Total non-current assets   40,547 40,301
------------------------------------------------------------------
Current assets:
Inventories   10,789 11,262
Trade and other receivables   13,261 11,671
Cash and cash equivalents 6 Â 4,233 -
------------------------------------------------------------------
Total current assets   28,283 22,933
------------------------------------------------------------------
Total assets   68,830 63,234
------------------------------------------------------------------
Current liabilities:
Borrowings 6 Â (6,573) (8,090)
Trade and other payables   (16,770) (14,798)
------------------------------------------------------------------
Total current liabilities   (23,343) (22,888)
------------------------------------------------------------------
Non-current liabilities:
Borrowings 6 Â (12,591) (10,045)
Deferred consideration   (3,014) -
Deferred income   (45) (83)
------------------------------------------------------------------
Total non-current liabilities   (15,650) (10,128)
------------------------------------------------------------------
Total liabilities   (38,993) (33,016)
------------------------------------------------------------------
Net assets   29,837 30,218
------------------------------------------------------------------
Shareholders' equity:
Ordinary shares   4,435 4,333
Share premium   1,150 124
Profit and loss account   20,513 18,455
Other reserves   3,739 7,306
------------------------------------------------------------------
Total shareholders' equity   29,837 30,218
------------------------------------------------------------------
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2009
 H2 2009 H2 2008 2009 2008
 Note £'000 £'000 £'000 £'000
unaudited unaudited audited audited
--------------------------------------------------------------------------------
Cash flows from operating activities:
Cash inflow from operations 5 7,617 4,703 7,712 7,461
+------------------------------------------------------------------------------+
|Cash inflow from operations before  7,617 5,161 8,139 8,526|
|exceptional items |
| |
|Exceptional items 3 - (458) (427) (1,065)|
+------------------------------------------------------------------------------+
Net interest paid  (540) (1,050) (1,099) (1,505)
--------------------------------------------------------------------------------
Net cash inflow from operating  7,077 3,653 6,613 5,956
activities
--------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of NanoGaN Limited  (205) - (205) -
Development expenditure  (1,409) (734) (2,325) (1,520)
Investment in other intangible fixed  (248) (34) (248) (134)
assets
Purchase of property, plant and  (744) (3,756) (1,660) (6,361)
equipment
Proceeds from sale of property, plant  - 179 - 179
and equipment
--------------------------------------------------------------------------------
Net cash used in investing activities  (2,606) (4,345) (4,438) (7,836)
--------------------------------------------------------------------------------
Cash flows from financing activities:
Issues of ordinary share capital  356 101 596 208
Loans and leases received  3,022 (1,983) 2,778 1,755
--------------------------------------------------------------------------------
Net cash generated from financing  3,378 (1,882) 3,374 1,963
activities
--------------------------------------------------------------------------------
Net increase/(decrease) in cash and  7,849 (2,574) 5,549 83
bank overdrafts
Cash/(bank overdrafts) at 1 January    (928) (1,011)
Exchange losses on cash and bank    (388) -
overdrafts
--------------------------------------------------------------------------------
Cash/(bank overdrafts) at 31 December 6 Â Â 4,233 (928)
--------------------------------------------------------------------------------
NOTES TO THE RESULTS
1.            Basis of preparation
These results have been prepared under the historical cost convention and in
accordance with International Financial Reporting Standards ("IFRS") as adopted
by the European Union and interpretations in issue at 31 December 2009.
The preliminary results were approved by the Board of Directors and the Audit
Committee on 22 March 2010. These results do not constitute statutory accounts
within the meaning of the Companies Act 2006. All figures are taken from the
2009 audited annual accounts unless denoted as 'unaudited'. Comparative figures
in the results for the year ended 31 December 2008 have been taken from the
2008 audited annual accounts.
These results will be announced to all shareholders on the London Stock Exchange
and published on the Group's website on 24 March 2010. Copies will be available
to members of the public upon application to the Finance Director at Pascal
Close, Cardiff CF3 0LW.
2.            Segmental analysis
The group considers its three key market areas of wireless, opto-electronics and
electronics to be its primary reporting segments, based on the reports reviewed
by the board of directors that are used to make strategic decisions.
Further detail on the nature of the segments is provided in the Products and
Markets commentary.
Revenues by business segment : 2009 2008
£'000 £'000
--------------------------------------------------------------------------------
Wireless 41,598 48,490
Optoelectronics 9,843 10,169
Electronics 1,211 1,826
--------------------------------------------------------------------------------
Total revenue 52,652 60,485
--------------------------------------------------------------------------------
Operating profit/(loss) by business segment before exceptional
items :
Wireless 4,659 7,356
Optoelectronics (942) (1,999)
Electronics (673) (1,357)
--------------------------------------------------------------------------------
Total operating profit before exceptional items 3,044 4,000
--------------------------------------------------------------------------------
Operating profit/(loss) by business segment :
Wireless 4,659 4,381
Optoelectronics (942) (2,645)
Electronics (673) (1,667)
--------------------------------------------------------------------------------
Total operating profit 3,044 69
--------------------------------------------------------------------------------
3.            Exceptional items
 2009 2008
£'000 £'000
-------------------------------------------------
Exceptional charges comprise:
Relocation costs - 2,486
Group restructuring - 1,445
-------------------------------------------------
 - 3,931
-------------------------------------------------
The relocation costs in 2008 of £2,486,000 related to the one-off costs incurred
in relocating the Singapore operation to a new state-of-the-art facility. The
relocation was completed in November 2008. The related cash outflow in 2008 was
£990,000.
The Group restructuring costs in 2008 of £1,445,000 related to the restructuring
of the Group's activities and operations to reduce operating costs. This
involved a 20% reduction in headcount in addition to a streamlining of certain
manufacturing activities. This restructuring was completed by the end of 2008.
As a result the Group incurred an exceptional charge of £1,445,000 in 2008, the
majority of which was a non-cash charge relating to the write down of assets.
The related cash outflow in 2008 was £75,000, with the majority of the
exceptional cash outflow of £427,000 in 2009 relating to the settlement of
liabilities created by this restructuring.
Of the exceptional costs incurred in 2008, £3,168,000 was charged to cost of
sales in the income statement and £763,000 was charged to selling, general and
administrative expenses. This allocation was determined by identifying to which
classification of expenses each component of the exceptional charge most closely
relates.
4.            Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
ordinary shareholders by the weighted average number of ordinary shares during
the year.
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares in issue on the assumption of conversion of all
potential ordinary shares. Share options are only considered to be dilutive if
they are 'in the money', i.e. that they can result in the purchase of ordinary
shares for less than the average mid market share price in the period (2009:
10.84p). The group incurred losses in the prior year and, as such, options and
warrants that may be converted were considered anti dilutive, since they would
reduce the loss per share.
 2009 2008
 £'000 £'000
--------------------------------------------------------------------------------
Basic and diluted profit/(loss) attributable to 2,058 Â (1,385)
ordinary shareholders
--------------------------------------------------------------------------------
 No No
--------------------------------------------------------------------------------
Weighted average number of ordinary shares 436,881,052 432,207,766
Dilutive share options 26,321,661 -
--------------------------------------------------------------------------------
Adjusted weighted average number of ordinary shares 463,202,713 432,207,766
--------------------------------------------------------------------------------
Pre-exceptional earnings per share 0.47p 0.59p
Earnings/(loss) per share 0.47p (0.32p)
Diluted earnings/(loss) per share 0.44p (0.32p)
--------------------------------------------------------------------------------
5.            Cash generated from operations
               2009 2008
 £'000 £'000
------------------------------------------------------------------------------
Operating profit 3,044 69
Depreciation of tangible assets 3,372 3,076
Amortisation of intangible assets 737 447
(Gain)/loss on sale of tangible assets (100) 6
Government grants released (39) (39)
Non cash exceptional costs - impairment of development costs - 521
Non cash exceptional costs - other costs - 2,345
Non-cash share based payment costs 898 884
------------------------------------------------------------------------------
Operating profit before changes in working capital 7,912 7,309
(Increase)/decrease in inventories (340) (1,426)
(Increase)/decrease in trade and other receivables (2,457) 1,618
Increase/(decrease) in trade and other payables 2,597 (40)
------------------------------------------------------------------------------
Net cash inflow from operations 7,712 7,461
------------------------------------------------------------------------------
6.            Analysis of net debt
 At 1  Other At 31
January Cash non-cash December
2009 flow movements 2009
£'000 £'000 £'000 £'000
------------------------------------------------------------------------
Cash and cash equivalents - 4,621 (388) 4,233
Bank overdraft (928) 928 - -
Loans due after one year (9,961) (5,879) 3,272 (12,568)
Loans due within one year (7,098) 3,041 (2,462) (6,519)
Finance leases due after one year (84) - 61 (23)
Finance leases due within one year (64) 60 (50) (54)
------------------------------------------------------------------------
Total borrowings (18,135) (1,850) 821 (19,164)
------------------------------------------------------------------------
Net debt (18,135) 2,771 433 (14,931)
------------------------------------------------------------------------
Cash and cash equivalents at 31 December 2009 comprised balances held in instant
access bank accounts.
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