IQE plc : Continued growth in underlying earnin...
Cardiff, UK. 16 September 2014: 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 2014.
FINANCIAL HIGHLIGHTS
- EBITDA up 6% to £11.1m (H1 2013: £10.5m)
- Revenues down 17% to £52.0m (H1 2013: £63.0m) reflecting inventory de-stocking and strength of sterling
- Wireless demand recovered during Q2 from customer inventory de-stocking
- Photonics H1 2014 revenues up 22% on H1 2013 in constant currency to £10.1m
- Adjusted PBT up 11% to £5.6m (H1 2013: £5.1m)
- Reported LBT of £2.3m after £4.8m non-cash exceptionals and £3.1m cash cost of restructuring.
- Adjusted basic EPS increases 10% from 0.82p to 0.90p (reported basic EPS of -0.92p)
- Net debt £35.5m (December 2013: £34.4m)
Note: EBITDA and the adjusted profit measures exclude non-cash charges for share based payments, non-cash acquisition related charges and exceptional items as detailed in note 5.
BUSINESS HIGHLIGHTS
- Clear leadership position in wireless supply chain as industry consolidation continues
- Strong and sustainable photonics growth reflects significant contract wins
- Benefits of restructuring programme beginning to come through in H1 2014
- Restructuring largely complete, with further benefits to be seen in H2 2014 and thereafter
- Signed MOU on collaboration to create specialist R&D centre of excellence in Singapore.
- Significant technical and commercial milestones in GaN technology
Dr Drew Nelson, IQE Chief Executive, said:
"The Group has again demonstrated the resilience of its business model through the delivery of continued growth in profitability despite the lower than expected revenues resulting from adverse effects of a significant inventory correction in the wireless industry and the translational effect of a strengthening of the sterling exchange rate against the US Dollar.
"IQE is unquestionably the global leader in the manufacture and supply of the industry's broadest portfolio of advanced semiconductor wafer products for the wireless sector. Wireless will continue to be a long term growth driver for our business as increasing connectivity continues to drive increasing demand for compound semiconductor devices.
"In addition our technology leadership and credibility in photonics are translating into contract wins which have delivered a 22% year on year growth in photonics revenues in constant currency. This is being driven by a range of end market applications including optical communications for backhaul, fibre-to-the-home, and data centres, gesture recognition and sensing, and industrials applications. This growth will be further supported with the transition from the development phase into commercial production for high efficiency solar power (CPV), anticipated for the second half of 2014.
"Having established a world-leading position in the wireless communications market, IQE is beginning to replicate this across our other markets including photonics, infrared, power, solar and CMOS++, the last of which is focussing on advanced technologies combining the simplicity of CMOS with the power of compound semiconductors."
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
Daniel Harris
Broker Profile +44 (0) 20 7448 3244
Simon Courtenay
Tamsin Shephard
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, WiMAX, 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 2013
1. GROUP OVERVIEW
IQE is the global leader in the design and manufacture of advanced semiconductor materials (compound semiconductor wafers).
The materials that we make are used by major global chip companies to produce the chips which enable a wide range of high-tech applications. The unique properties of these materials enable a diverse range of markets including wireless communications, advanced solar power (CPV), high resolution infrared systems, high efficiency LED lighting, efficient power switching and a range of consumer and industrial applications using advanced photonic lasers and detectors.
Beyond this, we are also working with leading silicon chip companies and on a number of major government funded programmes to develop the next generation of technology which will combine the scale and maturity of the silicon industry with the advanced properties of compound semiconductors.
Approximately 80% of our sales are into the wireless communications market. Although subject to short term inventory cycles, this market continues to enjoy strong and sustainable long term growth driven by the proliferation of wireless communication devices, and the requirement for more compound semiconductor chips per device as wireless communication becomes increasingly complex. The wireless revolution still has a long way to run, so these factors will continue to drive growth in demand for compound semiconductors for many years to come.
We have an unparalleled breadth of technology, economies of scale, and a broad customer base. Our market leadership and competitive advantages enable us to provide a unique service that is second to none, and helps tie our customers in to the anticipated long term growth in wireless communication products and services.
We have also made major progress in our other business units, which will both accelerate organic growth and diversify our revenue streams as these opportunities transition from development and pilot production into high volume manufacture.
Our photonics business unit enables a diverse range of end applications, from data communications and advanced optical-fibres, to consumer and industrial applications. This business unit is being propelled by our technology leadership in advance lasers (VCSELs), and has already begun the transition from development and pilot revenues into high volume manufacturing following a number of key contract wins during the last twelve months. The groundwork has been set for significant progress in this business unit for the remainder of this year and into 2015.
Advanced solar (CPV) is a highly disruptive renewable energy technology which continues to gain traction. Advances in cell and system efficiency are accelerating the adoption of CPV for utility scale energy generation, which is widely expected to be a $200m market for compound semiconductor materials in the next 2 to 5 years. Having successfully hit all of our major technical and operational milestones we are fully prepared for high volume manufacturing and poised for the ramp as our products complete full end customer qualification and a robust supply chain becomes established.
Our infrared business unit continues to deliver robust performance for a range of industrial and defence applications, whilst our Gallium Nitride (GaN) materials, including GaN on Silicon, have achieved a number of key technical and commercial milestones which is moving us toward new product launches in the high volume, high growth, power control and LED markets.
2. RESULTS
The results are reported after a number of exceptional charges which primarily relate to group restructuring and acquisition accounting. Therefore, in order to help readers assess the Group's underlying performance, we have provided details of these items in note 5.
First half revenues reduced by 17% to £52.0m (H1 2013: £63.0m) which primarily reflect the impact on the group of an industry-wide inventory reduction of approximately £8.5m and the translational impact of a strong sterling to US dollar exchange rate which accounts for approximately £4.2m of the shortfall.
Despite lower revenues, adjusted profit before tax increased by 11% from £5.1m to £5.6m, which includes the benefit of cost reductions realised from our restructuring programme. This restructuring is now largely complete and is expected to deliver further recurring savings from H2. After exceptional charges, the group incurred a loss before tax of £2.3m. As set out in note 5, the cash impact of the non-recurring exceptional charges was £3.1m during the period.
Adjusted gross margin improved from 20.5% to 24.5% whilst adjusted SG&A reduced from £7.1m to £6.4m, which include the benefit of cost reductions. After exceptional charges the reported gross margin were broadly in-line with the prior year at 17.2% (H1 2013 17.5%), and reported SG&A increased from £7.6m to £8.3m.
The adjusted retained profit attributable to ordinary shareholders (see note 6) increased from £5.0m to £5.8m, giving rise to an increase in adjusted basic EPS from 0.82p to 0.90p. After exceptional charges, the reported retained profit attributable to ordinary shareholders decreased from £2.4m to a loss of £5.9m, representing an decrease in reported basic EPS from 0.39p to a loss of 0.92p per share.
The exceptional charges include cash costs of £3.1m relating to restructuring and re-organisation of the business and the non-cash charges for an onerous lease provision of £6.7m, impairment of fixed assets of £5.0m, and inventory write downs of £1.4m primarily relating to the formation of the Compound Semiconductor Development Centre (CSDC) in Singapore. In addition we reassessed the expected future volumes which drive the deferred consideration payable on the RFMD transaction. The re-assessment of the volumes resulted in an exceptional profit of £9.7m. On the exceptional items there is a deferred tax charge of £3.9m.
Other adjustments to profit relate to non-cash share based payments of £0.7m, non-cash discounting of long term acquisition related balances £0.2m and amortisation of acquired intangibles £0.5m.
The group has approximately £125 million of accumulated tax losses, which represents a potential reduction in future tax payable of up to £35m. The adjusted effective tax rate of -7.1% reflects the anticipated tax rate for the full year, and incorporates the benefit of R&D tax credits, recognition of additional tax losses, and other anticipated deferred tax movements. The reported effective tax rate is 81.8% primarily driven by the deferred tax charge on the release of deferred consideration.
Net cash generated from operations reduced from £5.1m to £2.0m, after funding cash exceptionals of £3.1m (H1 2013: £nil), deferred consideration £3.5m (H1 2013: £6.0m), tax receipts of £1.8m (H1 2013: tax payment £0.4m) and a working capital outflow of £3.4m (H1 2013: inflow £3.3m).
Net debt of £35.5m was £1.1m higher than 31 December 2013 (£34.4m), and £2.2m lower than 30 June 2013 (£37.7m).
3. VISION AND STRATEGY
Our Vision
The advanced properties of compound semiconductors will secure their position at the heart of mainstream electronic applications in the 21st century. These materials have already enabled ground breaking technologies such as wireless communications, the internet (through both wireless and optical fibre), and the solid state lighting revolution. Moreover, compound semiconductors have reached an inflection point where they are coming of age. With the advances in technology that have already been achieved, these materials are being adopted in a wide range of new applications including advanced solar power (CPV), lighting (ultra high brightness LEDs), efficient power switching (GaN), a range of consumer and industrial photonic applications, breakthroughs in medicine and photobiology, and ultimately, next generation microprocessors. These are very significant market opportunities which in a few short years will transform the demand for compound semiconductor materials.
Our vision is to be the leading global provider of compound semiconductor technology in the 21st century.
Our Goal
Our goal is to use our technology leadership and scale to deliver the performance, cost points and security of supply required for mass market adoption.
Over the past few years we have been the driving force shaping the compound semiconductor materials supply chain.
We have established ourselves as the leading global outsource materials provider to the wireless, photonics and antimony based infrared markets. Our goal is to extend our leadership in existing markets and to replicate this success in our emerging markets : advanced solar power (CPV), power switching and LED, and ultimately CMOS++.
Our Strategy
Over our 25 year history we have built a compelling set of competitive advantages : technology leadership by virtue of a unique depth and breadth of intellectual property, cost leadership through an unparalleled economies of scale, and a unique multi-site capability offering security of supply to our customers. Combined with our proven track record for high volume production, we have developed a powerful platform for delivering sustainable long term growth.
Our strategy to achieve leadership in our chosen markets is to use our competitive advantages to deliver excellence to our customers for our mutual success.
4. MARKETS AND PRODUCTS
Market overview
Our key end markets are Wireless, Photonics (incorporating advanced CPV solar, high resolution infrared sensing and imaging and opto-electronics), Electronics (advanced technologies), and the emerging opportunities of power switching and LED lighting.
These are high growth markets, which are being driven by a number of common themes:
- high-speed connectivity;
- the exponential growth of personal consumer devices for enhanced lifestyle;
- sustainable clean energy generation and the efficient use of energy; and
- safety and security.
Each of these growth trends involves a wave of technology upgrades driven by economic, environmental, consumer and regulatory pressures. Most important is that each of these technology areas are enabled by compound semiconductors. We have established separate IQE business units to focus on these specific end markets.
Wireless
Compound semiconductors lie at the heart of the wireless communication systems. It is the advanced properties of these materials that have enabled the wireless revolution to date and will continue to drive future innovation.
Wireless accounts for approximately 80% of our group revenues. IQE is the clear market leader with an estimated global market share of more than 50%. Overall, this market has enjoyed several years of strong and sustainable growth driven by both the proliferation of wireless communication; and by the need for more high performance compound semiconductors to power the increasing needs and complexities in wireless communications.
Without doubt, future wireless generations will rely more heavily on compound semiconductor technologies. Next generation devices with advanced WiFi, 4G, 5G capabilities and beyond, will require increasing use of compound semiconductors. Indeed, the anticipated explosive growth in the volume and complexity of data traffic will not be possible without compound semiconductor technology.
The market for mobile handsets is highly competitive, with product innovation driving significant swings in market share between the leading handset manufacturers. The innovation war continues to rage as the OEMS battle to capture the imagination of consumers with phones, tablets, phablets, and wearable technologies. However, the wireless story is more far reaching than this, as can be seen from the innovation, investment and excitement surrounding the "internet of things", which will result in our lives and the world around us becoming more and more wirelessly connected over the coming years.
In our view, it is unquestionable that wireless communication, in whatever form it takes, is set to continue to enjoy a long term growth trend and become increasingly complex as data traffic grows exponentially and the need for bandwidth and speed become paramount. This is excellent news for IQE because we make the fundamental building blocks for all of these technologies. We are agnostic to the application, to the device, and now, even largely to shifts in the supply chain.
Photonics
Key segments within photonics include a broad range of opto-electronic products spanning a wide range of consumer and industrial applications, infrared sensing and imaging as well as advanced solar (CPV) applications:
- Opto-electronics
This segment relates to a wide range of consumer and industrial applications spanning a number of high growth applications including data communications, optical interconnectors (such as USBs), printing, cosmetics, laser projection, gesture recognition and industrial heating. We are the technology leader in this space, and the leading global outsource supplier in an industry which is transitioning from vertical integration to outsourcing. This change is being largely being driven by an advanced laser technology called VCSEL (Vertical Cavity Surface Emitting Laser). We have been supporting a number of customers with their product develop over the last couple of years, which are now transitioning into pilot and high volume production.
- High resolution infrared
We are market leader in the supply of indium antimonide and gallium antimonide materials for high resolution infrared systems, with an estimated market share of approximately 80%. Production is concentrated in defence related applications, which is transitioning to industrial and commercial applications.
- Advanced Solar (CPV)
CPV is a highly disruptive technology in the energy market. This technology is distinct from the silicon solar panels which are familiar to most people, and are a common sight on UK rooftops. As a material, silicon is inherently inefficient at converting sunlight into electricity, typically achieving an efficiency of only 15-16%. Nevertheless, a large market has been created for silicon solar panels by virtue of government subsidy. In contrast, compound semiconductors are highly efficient, currently exceeding 44% efficiency and with a route map to exceed 50% over the next few years. Higher efficiency clearly translates into lower cost energy generation, which is why this technology is widely forecast to achieve rapid growth, now that pilot installations have proven their reliability. In light of this, industry analysts are typically forecasting that CPV will be approximately a one gigawatt market in the next 2 to 5 years. This equates to a materials market in the order of $200m.
Power switching
The distribution of electricity from the point of generation to the point of consumption necessitates switching between AC and DC, and in switching between high and low voltages. The dominant switching technology is based on silicon. It is estimated that more that 10% of all electricity generated is ultimately lost as a result of the inherent limitations in the properties of silicon. A compound semiconductor called gallium nitride (GaN) offers far superior performance which has the potential to eliminate up to 90% of these conversion losses. Analysts are forecasting that the market for power materials will reach $2.6B by 2020.
Unsurprisingly, there is significant activity world-wide in the development and investment within the semiconductor industry, with products at an early stage of adoption. IQE has built on its leadership in GaN wireless to develop material for this market. This includes participating in a significant US government funded programme to develop GaN on silicon power switching technology for grid applications. IQE's materials development is at an advanced stage, with initial product launches expected over the coming months.
LED lighting
Conventional incandescent lighting is being phased out across the planet in response to climate change concerns. LED lighting is widely considered as the only credible solution for future commercial and residential lighting, and has been predicted by Hans van Wijngaarde of Philips to account for 90% of the general lighting market by 2020.
LED lighting is based on GaN technology. Advances in GaN materials technology will play a critical role in advancing the cost-performance of LED lighting and the acceleration of mass adoption. As with our development in power switching, we are at an advanced stage of development with initial product launches expected shortly.
Advanced technologies
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, which has been the base 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 silicon wafers and has also developed a new range of engineered substrates such as germanium-on-insulator (GeOI), germanium-on-silicon (GeOsi), and silicon-on-sapphire (SOS) for next-generation microprocessors, ultra high speed/density flash memory and MEMs devices.
IQE is at the forefront of advanced compound semiconductor on silicon (CS on Si) development, working with some of the industry's biggest names and on major government funded programmes. Key customers continue to indicate that initial product launches are anticipated on the 2016-2018 timeframe.
5. CURRENT TRADING AND OUTLOOK
The improvement in underlying profitability achieved reflects the work we have done to improve efficiencies and deliver economies of scale. We remain on track to deliver further synergies during the second half. Despite anticipating lower full year revenues due to the inventory corrections during the first half, coupled with changes in product mix, the Board remains confident in the Group being on track to deliver full year earnings in line with expectations.
All of our lead indicators are pointing in the right direction. The destocking was concluded during Q2 and customers are forecasting an upbeat second half. Our investment in photonics technology is delivering tangible benefits, and has resulted in multiple contract wins. Our CPV business is in the final stages of end customer qualification and remains on track to move from final development and customer qualification to production in H2.
We have also made significant technical and commercial progress in other areas such as GaN development and we are well positioned to enjoy a transition to volume production in the next two to three years
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 2014, which comprises the consolidated income statement, consolidated statement of comprehensive income/(expense), consolidated balance sheet, consolidated statement of changes in equity, consolidated cash flow statement 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 2014 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
16 September 2014
| CONSOLIDATED INCOME STATEMENT | ||||
| 6 months to | 6 months to | 12 months to | ||
| 30 Jun 2014 | 30 Jun 2013 | 31 Dec 2013 | ||
| (All figures £'000s) | Note | Unaudited | Unaudited | Audited |
| Revenue | 52,001 | 63,001 | 126,774 | |
| Cost of sales | (43,064) | (51,945) | (103,669) | |
| Gross profit Other income and expenses | 8,937 (1,905) | 11,056 - | 23,105 (179) | |
| Selling, general and administrative expenses | (8,318) | (7,624) | (15,580) | |
| Operating (loss)/profit | (1,286) | 3,432 | 7,346 | |
| Net finance costs | (976) | (963) | (2,154) | |
| Adjusted profit before tax | 5,627 | 5,069 | 13,010 | |
| Adjustments | 5 | (7,889) | (2,600) | (7,818) |
| (Loss)/profit before tax | (2,262) | 2,469 | 5,192 | |
| Income tax (expense)/credit | (3,489) | 74 | 934 | |
| (Loss)/profit for the period | (5,751) | 2,543 | 6,126 | |
| (Loss)/profit attributable to: | ||||
| Equity shareholders | (5,930) | 2,419 | 5,955 | |
| Non-controlling interests | 179 | 124 | 171 | |
| (5,751) | 2,543 | 6,126 | ||
| Adjusted basic earnings per share | 6 | 0.90p | 0.82p | 2.09p |
| Basic (loss)/earnings per share | 6 | (0.92)p | 0.39p | 0.93p |
| Adjusted diluted earnings per share | 6 | 0.86p | 0.79p | 2.00p |
| Diluted (loss)/earnings per share | 6 | (0.92)p | 0.38p | 0.89p |
| CONSOLIDATED STATEMENT OF | ||||
| 6 months to | 6 months to | 12 months to | ||
| COMPREHENSIVE INCOME/(EXPENSE) | 30 Jun 2014 | 30 Jun 2013 | 31 Dec 2013 | |
| (All figures £'000s) | Unaudited | Unaudited | Audited | |
| (Loss)/profit for the period | (5,751) | 2,543 | 6,126 | |
| Currency translation differences on foreign currency net investments* | (2,668) | 3,333 | (3,294) | |
| Total comprehensive income/(expense) for the period | (8,419) | 5,876 | 2,832 | |
| Total comprehensive income/(expense) attributable to: | ||||
| Equity shareholders | (8,533) | 5,733 | 2,779 | |
| Non-controlling interests | 114 | 143 | 53 | |
| (8,419) | 5,876 | 2,832 | ||
* This maybe subsequently reclassified to the income statement when it becomes realised.
| As At | As At | As At | ||||
| CONSOLIDATED BALANCE SHEET | 30 Jun 2014 | 30 Jun 2013 | 31 Dec 2013 | |||
| (All figures £'000s) | Unaudited | Unaudited | Audited | |||
| Non-current assets : | ||||||
| Intangible assets | 74,715 | 78,835 | 75,859 | |||
| Property, plant and equipment | 62,984 | 79,529 | 71,840 | |||
| Investments | - | 3,205 | - | |||
| Deferred tax asset | 11,744 | 16,728 | 16,040 | |||
| Total non-current assets | 149,443 | 178,297 | 163,739 | |||
| Current assets : | ||||||
| Inventories | 18,687 | 27,202 | 17,702 | |||
| Trade and other receivables | 22,558 | 22,178 | 22,907 | |||
| Cash and cash equivalents | 4,230 | 3,885 | 3,258 | |||
| Total current assets | 45,475 | 53,265 | 43,867 | |||
| Total assets | 194,918 | 231,562 | 207,606 | |||
| Current liabilities : | ||||||
| Borrowings | (13,789) | (4,983) | (4,804) | |||
| Trade and other payables | (29,528) | (35,843) | (31,114) | |||
| Provisions for other liabilities and charges | (1,378) | - | - | |||
| Total current liabilities | (44,695) | (40,826) | (35,918) | |||
| Non-current liabilities : | ||||||
| Borrowings | (25,928) | (36,561) | (32,805) | |||
| Other payables | (14,658) | (39,912) | (26,632) | |||
| Provisions for other liabilities and charges | (5,001) | - | - | |||
| Total non-current liabilities | (45,587) | (76,473) | (59,437) | |||
| Total liabilities | (90,282) | (117,299) | (95,355) | |||
| Net assets | 104,636 | 114,263 | 112,251 | |||
| Equity attributable to shareholders : | ||||||
| Share capital | 6,483 | 6,459 | 6,475 | |||
| Share premium | 49,025 | 48,832 | 48,958 | |||
| Retained earnings | 42,774 | 45,168 | 48,704 | |||
| Other reserves | 4,487 | 11,961 | 6,361 | |||
| 102,769 | 112,420 | 110,498 | ||||
| Non-controlling Interest | 1,867 | 1,843 | 1,753 | |||
| Total Equity | 104,636 | 114,263 | 112,251 | |||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Unaudited (All figures £'000s) | Share capital | Share premium | Retained earnings | Exchange rate reserve | Other reserves | Non-controlling interests | Total equity | |
| Balance as at 1 January 2014 | 6,475 | 48,958 | 48,704 | (401) | 6,762 | 1,753 | 112,251 | |
| Loss for the period | - | - | (5,930) | - | - | 179 | (5,751) | |
| Foreign exchange | - | - | - | (2,603) | - | (65) | (2,668) | |
| Total comprehensive income/(expense) | - | - | (5,930) | (2,603) | - | 114 | (8,419) | |
| Employee share scheme | - | - | - | - | 729 | - | 729 | |
| Issues of ordinary shares | 8 | 67 | - | - | - | - | 75 | |
| Total transactions with owners | 8 | 67 | - | - | 729 | - | 804 | |
| Balance as at 30 June 2014 | 6,483 | 49,025 | 42,774 | (3,004) | 7,491 | 1,867 | 104,636 | |
| Unaudited (All figures £'000s) | Share capital | Share premium | Retained earnings | Exchange rate reserve | Other reserves | Non-controlling interests | Total equity | |
| Balance as at 1 January 2013 | 5,882 | 33,445 | 42,749 | 2,775 | 5,347 | - | 90,198 | |
| Profit for the period | - | - | 2,419 | - | - | 124 | 2,543 | |
| Foreign exchange | - | - | - | 3,314 | - | 19 | 3,333 | |
| Total comprehensive income | - | - | 2,419 | 3,314 | - | 143 | 5,876 | |
| Acquisition of Kopin | - | - | - | - | - | 1,700 | 1,700 | |
| Employee share scheme | - | - | - | - | 525 | - | 525 | |
| Issues of ordinary shares | 577 | 15,387 | - | - | - | - | 15,964 | |
| Total transactions with owners | 577 | 15,387 | - | - | 525 | 1,700 | 18,189 | |
| Balance as at 30 June 2013 | 6,459 | 48,832 | 45,168 | 6,089 | 5,872 | 1,843 | 114,263 | |
| Audited (All figures £'000s) | Share capital | Share premium | Retained earnings | Exchange rate reserve | Other reserves | Non-controlling interests | Total equity | ||
| Balance as at 1 January 2013 | 5,882 | 33,445 | 42,749 | 2,775 | 5,347 | - | 90,198 | ||
| Comprehensive income | |||||||||
| Profit for the year | - | - | 5,955 | - | - | 171 | 6,126 | ||
| Foreign exchange | - | - | - | (3,176) | - | (118) | (3,294) | ||
| Total comprehensive income | - | - | 5,955 | (3,176) | - | 53 | 2,832 | ||
| Transactions with owners | |||||||||
| Acquisition of Kopin Wireless | - | - | - | - | - | 1,700 | 1,700 | ||
| Employee share option scheme | - | - | - | - | 1,415 | - | 1,415 | ||
| Issues of ordinary shares | 593 | 15,513 | - | - | - | - | 16,106 | ||
| Total transactions with owners | 593 | 15,513 | - | - | 1,415 | 1,700 | 19,221 | ||
| Balance as at 31 December 2013 | 6,475 | 48,958 | 48,704 | (401) | 6,762 | 1,753 | 112,251 | ||
| 6 months to | 6 months to | 12 months to | |||
| CONSOLIDATED CASH FLOW STATEMENT | 30 Jun 2014 | 30 Jun 2013 | 31 Dec 2013 | ||
| (All figures £'000s) | Unaudited | Unaudited | Audited | ||
| Cash flows from operating activities : | |||||
| Adjusted cash inflow from operations | 4,010 | 6,301 | 16,173 | ||
| Cash impact of adjustments | (3,057) | - | (3,411) | ||
| Cash inflow from operations | 7 | 953 | 6,301 | 12,762 | |
| Net interest paid | (737) | (759) | (1,546) | ||
| Income tax received/(paid) | 1,759 | (442) | (686) | ||
| Net cash generated from operating activities | 1,975 | 5,100 | 10,530 | ||
| Cash flows from investing activities : | |||||
| Acquisition of Kopin Wireless | - | (36,533) | (36,533) | ||
| Capitalised development expenditure | (1,737) | (1,870) | (4,346) | ||
| Investment in other intangible fixed assets | (656) | (217) | (556) | ||
| Purchase of property, plant and equipment | (1,664) | (2,448) | (5,196) | ||
| Net cash used in investing activities | (4,057) | (41,068) | (46,631) | ||
| Cash flows from financing activities : | |||||
| Issues of ordinary share capital | 75 | 15,964 | 16,106 | ||
| Repayment of borrowings | (2,295) | (4,107) | (4,437) | ||
| Increase in borrowings | 5,367 | 25,000 | 25,000 | ||
| Net cash generated from financing activities | 3,147 | 36,857 | 36,669 | ||
| Net increase in cash and cash equivalents | 1,065 | 889 | 568 | ||
| Cash and cash equivalents at the beginning of the period | 3,258 | 2,773 | 2,773 | ||
| Exchange gains on cash and cash equivalents | (93) | 223 | (83) | ||
| Cash and cash equivalents at the end of the period | 8 | 4,230 | 3,885 | 3,258 | |
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 2014.
The interim results were approved by the Board of Directors and the Audit Committee on 16 September 2014. 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 2014 have been taken from the published audited statutory financial statements. All other periods presented are unaudited. Statutory accounts for the year ended 31 December 2013 were approved by the Board of Directors on 26 March 2014 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 2014 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 2013, 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 2013, 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 2013, as described in those financial statement on pages 56 to 60.
Recent accounting developments
The following standards, amendments and interpretations have been issued by the International Accounting Standards Board (IASB) or by the International Financial Reporting Interpretations Committee (IFRIC) and have been endorsed by the EU. In preparing the condensed consolidated half-yearly financial information the Group has adopted the following Standards, amendments and interpretations which are effective for 2014 and will be adopted for the year ended 31 December 2014:
- IFRS10, 'Consolidated financial statements'
- IFRS 11, 'Joint arrangements'
- IFRS 12, 'Disclosure of interests in other entities'
- IAS27 (revised 2011), 'Separate financial statements'
- IAS 28 (revised 2011), 'Associates and joint ventures'
- IAS32, 'Financial instruments: Presentation'
- IAS39, 'Financial instruments: Recognition and measurement'
- IAS 36, 'Impairment of assets'
- IFRIC 21, 'Levies'
The adoption of these standards and amendments has not had a material impact on the interim financial information.
Financial Instruments
The carrying value of trade and other receivables and of trade and other payables also represent their estimated fair values.
Impairment
As part of IQE's global reorganisation plan, which is on track to deliver annual recurring synergies in excess of £7m per annum, IQE has recognised provisions for fixed asset impairments of £5.0m. The impairment review was conducted in accordance with IAS 36. A provision has been recognised to write the carrying value of assets down to recoverable amount which is the higher of fair value less cost to sell and value in use. Where the recoverable amount is based on value in use the cash flows have been discounted at a pre-tax discount rate of 11%.
3 PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties impacting the Group are described on pages 39 to 40 of our 2013 Annual Report and remain unchanged at 30 June 2014.
They include: competition, technological change, supply chain, retention of key employees, Interest rate risk, credit risk currency risk, liquidity risk and capital risk.
4. SEGMENTAL INFORMATION
| 6 months to | 6 months to | 12 months to | |||||||||
| 30 Jun 2014 | 30 Jun 2013 | 31 Dec 2013 | |||||||||
| (All figures £'000s) | Unaudited | Unaudited | Audited | ||||||||
| Revenue by business segment : | |||||||||||
| Wireless | 41,330 | 53,654 | 107,219 | ||||||||
| Photonics | 10,066 | 8,926 | 18,685 | ||||||||
| Electronics | 605 | 421 | 870 | ||||||||
| Total revenue | 52,001 | 63,001 | 126,774 | ||||||||
| EBITDA by business segment : | |||||||||||
| Wireless | 9,293 | 10,030 | 22,541 | ||||||||
| Photonics | 2,108 | 374 | 2,279 | ||||||||
| Electronics | (291) | 119 | 100 | ||||||||
| Total EBITDA | 11,110 | 10,523 | 24,920 | ||||||||
| Adjusted operating profit/(loss) by business segment (note 5) : | |||||||||||
| Wireless | 5,586 | 6,109 | 13,578 | ||||||||
| Photonics | 1,228 | (266) | 1,020 | ||||||||
| Electronics | (450) | (15) | (42) | ||||||||
| Total operating profit | 6,364 | 5,828 | 14,556 | ||||||||
| Operating profit/(loss) by business segment : | |||||||||||
| Wireless | (1,893) | 3,791 | 9,859 | ||||||||
| Photonics | 1,057 | (340) | (2,454) | ||||||||
| Electronics | (450) | (19) | (59) | ||||||||
| Total operating profit | (1,286) | 3,432 | 7,346 | ||||||||
5 ADJUSTED PROFIT MEASURES
The results are reported after a number of imputed non-cash charges, largely relating to the group restructuring and reorganisation and acquisition accounting. Therefore we have provided additional information to assist the understanding of the underlying financial performance.
| 6 months to 30 Jun 2014 Unaudited | 6 months to 30 Jun 2013 Unaudited | 12 months to 31 Dec 2013 Audited | |
| Acquisition related inventory fair value adjustment | - | 1,500 | 1,475 |
| Restructuring and reorganisation | 1,906 | - | 2,415 |
| Impairment of inventories | 1,410 | - | - |
| Share based payments | 486 | 350 | 944 |
| Adjustments to gross profit | 3,802 | 1,850 | 4,834 |
| Provision for onerous lease | 6,652 | - | - |
| Impairment of property plant and equipment | 4,954 | - | - |
| Impairment of Intangibles | 39 | - | - |
| Impairment of investments | - | - | 3,205 |
| Amortisation of acquired intangibles | 549 | 371 | 730 |
| Share based payments | 243 | 175 | 471 |
| Release of contingent deferred consideration | (9,740) | - | (3,026) |
| Restructuring and reorganisation | 1,151 | - | 996 |
| Adjustments to operating profit | 7,650 | 2,396 | 7,210 |
| Discounting of long term acquisition related balances | 239 | 204 | 608 |
| Adjustments to profit before tax | 7,889 | 2,600 | 7,818 |
| Deferred tax on adjustments | 3,889 | - | (330) |
| Adjustments to profit after tax | 11,778 | 2,600 | 7,488 |
| Represented by: | |||
| Cash impact | 3,057 | - | 3,411 |
| Non-cash impact | 8,721 | 2,600 | 4,077 |
| 11,778 | 2,600 | 7,488 |
As previously highlighted, the group is restructuring and reorganising its operations. During H1 2014, the Group incurred cash costs of £3.1m (2013 £3.4m) in connection with these programmes, which included redundancy costs, requalification costs and the duplication of overheads to support the transition of customers between production facilities. In addition there were non-cash charges for an onerous lease provision of £6.7m, impairment of fixed assets of £5.0m, and inventory write downs of £1.4m primarily relating to the expected formation of the Compound Semiconductor Development Centre (CSDC) in Singapore. The non-cash charges are accounting estimates based on judgements, accordingly, the actual amounts may differ from these estimates.
The Group also generated a non-cash profit of £9.7m (2013 £3.0m) arising from a reduction in the estimated remaining deferred consideration (to be settled via trade discount) in respect of a previous acquisition. This has been classified as other income in the consolidated income statement.
The other items relate to non-cash items relating to acquisition accounting and share based payments.
In 2013 in fair valuing the assets of the acquired Kopin Wireless business, the inventories were recorded in the Group's accounts at their fair value. Therefore, the reported gross margin reflects a reduced profit on the sale (post acquisition) of the inventories acquired. The £1.5m adjustment above eliminates this fair value uplift so that the adjusted gross margin reflects the normal trading profit.
The investment in Solar Junction Corporation was fully provided for at 31 December 2013, and classified within other income and expenses in the consolidated income statement.
The deferred tax charge of £3.9m (2013: £0.3m credit) reflects the net deferred tax impact associated with these items.
| 6 months to 30 Jun 2014 Unaudited | 6 months to 30 Jun 2013 Unaudited | 12 months to 31 Dec 2013 Audited | |||
| Adjusted gross margin | 12,739 | 12,906 | 27,939 | ||
| Reported gross margin | 8,937 | 11,056 | 23,105 | ||
| Adjusted sales, general and administrative expenses | (6,375) | (7,078) | (13,383) | ||
| Reported sales, general and administrative expenses | (8,318) | (7,624) | (15,580) | ||
| Adjusted operating profit | 6,364 | 5,828 | 14,556 | ||
| Reported operating (loss)/profit | (1,286) | 3,432 | 7,346 | ||
| Adjusted profit before tax | 5,627 | 5,069 | 13,010 | ||
| Reported (loss)/profit before tax | (2,262) | 2,469 | 5,192 | ||
| Adjusted profit after tax | 6,027 | 5,143 | 13,614 | ||
| Reported (loss)/profit after tax | (5,751) | 2,543 | 6,126 | ||
| Earnings before interest, tax, depreciation and amortisation (EBITDA) have been calculated as follows: | |||||
| 6 months to 30 Jun 2014 Unaudited | 6 months to 30 Jun 2013 Unaudited | 12 months to 31 Dec 2013 Audited | |||
| Profit attributable to equity shareholders | (5,930) | 2,419 | 5,955 | ||
| Minority interest | 179 | 124 | 171 | ||
| Tax | 3,489 | (74) | (934) | ||
| Share based payments | 729 | 525 | 1,415 | ||
| Finance costs | 976 | 963 | 2,154 | ||
| Depreciation of tangible fixed assets | 3,811 | 4,129 | 8,503 | ||
| Amortisation of intangible fixed assets | 1,484 | 937 | 2,591 | ||
| Acquisition related inventory fair value adjustment* | - | 1,500 | 1,475 | ||
| Provision for onerous lease* | 6,652 | ||||
| Impairment of assets/investments* | 6,403 | - | 3,205 | ||
| Release of contingent deferred consideration* | (9,740) | - | (3,026) | ||
| Restructuring and re-organisation* | 3,057 | - | 3,411 | ||
| EBITDA | 11,110 | 10,523 | 24,920 | ||
*Exceptional items impacting EBITDA include the following items: acquisition related inventory fair value adjustments, transaction costs, impairment of assets/investments, 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 2014 | 30 Jun 2013 | 31 Dec 2013 | |||
| Unaudited | Unaudited | Audited | |||
| Results in £'000s: | |||||
| (Loss)/profit attributable to ordinary shareholders | (5,930) | 2,419 | 5,955 | ||
| Adjustments to profit before tax (note 5) | 11,778 | 2,600 | 7,488 | ||
| Adjusted profit attributable to ordinary shareholders | 5,848 | 5,019 | 13,443 | ||
| Number of shares: | |||||
| Weighted average number of ordinary shares | 647,265,414 | 612,427,613 | 642,239,979 | ||
| Dilutive share options | 32,844,588 | 26,662,335 | 30,127,305 | ||
| Adjusted weighted average number of ordinary shares | 680,110,002 | 639,089,948 | 672,367,284 | ||
| Adjusted basic earnings per share | 0.90p | 0.82p | 2.09p | ||
| Basic (loss)/earnings per share | (0.92)p | 0.39p | 0.93p | ||
| Adjusted diluted earnings per share | 0.86p | 0.79p | 2.00p | ||
| Diluted (loss)/earnings per share | (0.92)p | 0.38p | 0.89p | ||
Basic (loss)/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 (loss)/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 2014 | 30 Jun 2013 | 31 Dec 2013 | |||
| (All figures £'000s) | Unaudited | Unaudited | Audited | |||
| (Loss)/profit before tax | (2,262) | 2,469 | 5,192 | |||
| Finance costs | 976 | 963 | 2,154 | |||
| Depreciation of property, plant and equipment | 3,811 | 4,129 | 8,503 | |||
| Amortisation of intangible assets | 1,484 | 937 | 2,591 | |||
| Acquisition related inventory fair value adjustment | - | - | 1,475 | |||
| Impairment of assets / investments | 6,403 | - | 3,205 | |||
| Onerous lease provision | 6,652 | - | - | |||
| Release of contingent deferred consideration | (9,740) | - | (3,026) | |||
| Contingent deferred consideration (settled through contractual discounts) | (3,529) | (6,020) | (14,191) | |||
| Share based payments | 729 | 525 | 1,415 | |||
| Cash inflow from operations before changes in working capital | 4,524 | 3,003 | 7,318 | |||
| Decrease/(Increase) in inventories | (2,385) | (57) | 6,405 | |||
| Decrease/(Increase) in trade and other receivables | 253 | 5,913 | 2,308 | |||
| (Decrease)/Increase in trade and other payables | (1,439) | (2,558) | (3,269) | |||
| Cash inflow from operations | 953 | 6,301 | 12,762 | |||
| As At | As At | As At | |||
| 8 ANALYSIS OF NET DEBT | 30 Jun 2014 | 30 Jun 2013 | 31 Dec 2013 | ||
| (All figures £'000s) | Unaudited | Unaudited | Audited | ||
| Cash and cash equivalents | 4,230 | 3,885 | 3,258 | ||
| Bank borrowings due after one year | (25,452) | (35,061) | (31,902) | ||
| Bank borrowings due within one year | (12,999) | (4,213) | (4,002) | ||
| Finance leases due after one year | (476) | (1,500) | (903) | ||
| Finance leases due within one year | (790) | (770) | (802) | ||
| Total borrowings | (39,717) | (41,544) | (37,609) | ||
| Net debt | (35,487) | (37,659) | (34,351) | ||
| As At | As At | As At | |||
| 9 PROVISIONS FOR OTHER LIABILITIES AND CHARGES | 30 Jun 2014 | 30 Jun 2013 | 31 Dec 2013 | ||
| (All figures £'000s) | Unaudited | Unaudited | Audited | ||
| As at 1 January | - | - | - | ||
| Charged/(Credited) to the income statement | 6,652 | - | - | ||
| Utilised during the period | - | - | - | ||
| Foreign exchange | (273) | - | - | ||
| As at 30 June / 31 December | 6,379 | - | - | ||
As part of the re-organisation and rationalisation of the Group's facilities the Group is ceasing activates at its Singapore facility and expect to establish the Singapore Compound Semiconductor foundation. Provision for the onerous lease obligation in respect of the Singapore property has been recorded.
10 POST BALANCE SHEET EVENTS
IQE has entered into a Memorandum Of Understanding ("MOU") with WIN Semiconductors Corp ("WIN") and Nanyang Technological University ("NTU") to participate in the formation of a centre of excellence for the development of compound semiconductor technology in Singapore. The MOU anticipates the creation of a new entity called the Compound Semiconductor Development Centre (CSDC), which will be jointly owned by IQE, WIN, NTU, local management and key academics.
This project forms part of IQE's global reorganisation plan, which in total is on track to deliver annual recurring synergies in excess of £7m per annum. As part of its contribution to this joint venture, IQE will be providing facilities, equipment and IP on favourable terms to the CSDC. As a consequence, IQE has booked provisions of £5.7m for asset impairment comprising the transfer of tools to the CSDC and £6.2m for the lease of existing buildings and facilities.
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
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