IQE plc Half Year Results: Wireless drives reco...
IQE plc
Wireless drives record results as business diversifies into other mass markets
Cardiff, UK. 19 September 2013: 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 2013.
FINANCIAL HIGHLIGHTS
- Revenues up 84% to £63.0m (H1 2012: £34.3m) boosted by strategic acquisitions
- EBITDA up 162% to £10.5m (H1 2012: £4.0m)
- Adjusted PBT increases tenfold from £0.5m to £5.1m (reported PBT £2.5m)
- Adjusted basic EPS increases from 0.13p to 0.82p (reported basic EPS 0.39p).
- Strong conversion of operating profit into cash and completion of capex expansion programme marks return to free cash generation
- Net debt £37.7m (December 2012: £15.5m)
Note: EBITDA and adjusted profit measures exclude non-cash charges for share based payments, non-cash acquisition related charges and exceptional items as detailed in note 5. Free cash flow is net cash flow before acquisitions, financing and tax.
BUSINESS HIGHLIGHTS
- Clear leadership in wireless market evident in record financial performance
- Acquisition of Kopin Wireless integrated and performing strongly
- Significant milestones achieved in advanced solar (CPV), now primed for rapid mass market adoption
- Photonics transitioning to volume production including data centre and communication applications (VCSEL)
- Significant progress with gallium nitride (GaN) technology for Power Semiconductors and LED
- Internal business units created to address evolving market needs
- Programme to realise significant synergies on track
- Board remain confident of achieving earnings expectations for the full year
Dr Drew Nelson, IQE Chief Executive, said:
"These record financial results are a clear testimony to the transformation we've achieved over the last 18 months. Our two strategic wireless acquisitions have been successfully integrated and are performing very strongly. These deals represented the final building blocks in our wireless strategy, and we are now firmly focussed on delivery.
"Although the recent weakness in the global smartphone market, ahead of new product launches, has injected a greater degree of uncertainty in the short term, the overall wireless story remains as exciting as ever. The demand for greater connectivity, the increasing complexity of wireless communications and the explosion in data traffic continue to drive increasing demand for compound semiconductors. We are uniquely positioned to exploit this long term growth trend as the clear leader in providing a broad range of high performance wireless products.
"The advanced properties of compound semiconductors go far beyond just wireless communication. We have built a strong IP portfolio and are primed to exploit the adoption of compound semiconductors in a number of mass market applications. These include advanced solar (CPV), Power Semiconductors, LED lighting as well as a range of consumer and industrial applications utilising advanced lasers (VCSELs).
"Advanced solar (CPV) is a disruptive technology which is gaining traction in the energy market. Advances in cell and system efficiency are accelerating the adoption of CPV, which is widely expected to be a $200-500m market for compound semiconductor materials in the next three to five years. Having successfully hit all major technical and operational milestones, and recently posted new world record efficiencies from our production platform, we are now qualified for high volume manufacturing to commence over the coming months.
"Our significant progress in strengthening and broadening the wireless business, whilst building a solid platform of technologies which are poised for strong growth in our other target markets, mean we remain confident of achieving market earnings expectations for the full year. The operational leverage of our business model should create significant earnings growth as our revenues increase."
Contacts:
IQE plc
+44 (0) 29 2083 9400
Drew Nelson
Phil Rasmussen
Chris Meadows
Espirito Santo Investment Bank
+ 44 (0) 20 7456 9191
John Llewellyn-Lloyd
Alastair MacLachlan
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 ('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 (CD, DVD, BluRay), 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 the Group makes are used by major global chip companies to produce 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 energy generation (CPV), high resolution infrared systems, high efficiency LED lighting, efficient power switching and a range of consumer and industrial applications using advanced lasers and detectors.
Beyond this, IQE is 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.
Currently, approximately 85% of the Group's sales are into the wireless communications market. This market has enjoyed strong and sustainable 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 Group expects these factors to continue to drive growth in demand for compound semiconductors for many years to come.
IQE has completed and successfully integrated two major competitors during the last 18 months, establishing a compelling platform in the wireless supply chain. The Group has technology leadership, economies of scale, and a broad customer base. IQE's market leadership and competitive advantages enable the Group to provide a high level of service to its customers, and lock in to the anticipated long term growth in wireless communication without suffering the volatility of swings in market share between chip companies.
The acquisition of Kopin Wireless, which was completed in January 2013, has integrated very well into the Group and has performed strongly. IQE is firmly focussed on delivery, and fully realising the many synergies which arise from these combinations.
The Group has also made major progress in its other markets, which will both accelerate organic growth and diversify its revenue streams as these opportunities transition from development and pilot production into high volume.
Advanced solar (CPV) is a highly disruptive renewable energy technology which is gaining traction. Advances in cell and system efficiency are accelerating the adoption of CPV, which is widely expected to be a $200m-$500m market for compound semiconductor materials in the next three to five years. Having successfully hit all major technical and operational milestones set out at the time of its investment in Solar Junction Corporation, IQE is now qualified for high volume manufacturing and poised for the ramp as customers qualifications in the end market complete over the coming months.
IQE's photonics business has a diverse range of end applications, from data communications and advanced fibre optics to consumer and industrial applications. This business is being propelled by IQE's technology leadership in advance lasers (VCSELs), and is in the process of shifting from development and pilot revenues into high volume. The groundwork has been set for significant progress in this business in 2014 and 2015.
IQE has also made very strong progress with gallium nitride materials, and is nearing new product launches. These materials will offer the Group's customers major cost-performance advantages in the high volume, high growth power switching and LED markets.
2. RESULTS
The results are reported after a number of imputed non-cash charges largely relating to acquisition accounting. Therefore, the Group has provided additional information to assist understanding of the underlying performance. Details of these adjusted profit measures are provided in note 5.
First half revenues grew 84% to £63.0m (H1 2012: £34.3m) bolstered by strong performance in the newly acquired operating divisions. The newly acquired Kopin business generated £15.6m of revenues during the first half (see note 9). This robust performance reflects the successful integration of these acquisitions into the Group, and the strength of IQE's risk mitigation strategy.
Adjusted gross profit more than doubled from £5.9m to £12.9m (reported gross profit increased from £5.5m to £11.1m). The increase primarily reflects the benefit of increased sales and the high operational gearing inherent in IQE's business model. The Group continues to employ stringent cost control measures and drive operational efficiencies.
Adjusted SG&A expenses increased from £5.1m to £7.1m (reported SG&A increased from £5.3m to £7.6m), primarily reflecting additional overheads associated with the newly acquired operating divisions.
The adjusted retained profit attributable to ordinarily shareholders (see note 6) increased from £0.7m to £5.0m, giving rise to a sixfold increase in adjusted EPS from 0.13p to 0.82p. Reported retained profit attributable to ordinary shareholders increased from £0.1m to £2.4m, representing an increase in reported EPS from 0.02p to 0.39p.
The Group has approximately £130m of accumulated tax losses, which represents a potential reduction in future tax payable of up to £35m. The net amount of the deferred tax asset not recognised is approximately £18m, which would be recognised if sufficient profits from the same trade arise in future periods. The effective tax rate of -3% reflects the anticipated tax rate for the full year, and incorporates the benefit of tax losses, R&D tax credits, and other anticipated deferred tax movements.
Cash inflow from operations more than doubled from £2.8m to £6.3m, representing a 108% conversion of adjusted operating profit into cash (H1 2012: 354%). After investment in capex and product development of £4.5m (H1 2012: £10.6m) the Group generated a free cash flow of £1.8m (H1 2012: free cash outflow £7.8m). This reduction in investment reflects that the Group's two year capital expansion programme was completed at the end of 2012, as expected.
The Group completed the acquisition of Kopin Wireless in January 2013 (see note 8). The upfront consideration (£36.5m net of cash acquired) was financed by a combination of bank debt (£20.9m net loans drawn) and an issue of new equity (16.0m).
Net debt increased to £37.7m at 30 June 2013 (31 December 2012: £15.5m).
3. VISION AND STRATEGY
IQE's 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 the internet (via fibre optic communication), LEDs, and the wireless communication and solid state lighting revolutions. Moreover, compound semiconductors have reached an inflexion point. With the advances in technology that have been achieved, these materials are being adopted in a wide range of new applications including advanced solar power, general lighting (ultra high brightness LEDs), efficient power switching, a range of consumer and industrial applications, breakthroughs in medicine and photobiology, and ultimately microprocessors. These are significant market opportunities which will transform demand for compound semiconductor materials over the coming years.
IQE's vision is to be the leading provider of compound semiconductor technology in the 21st century. IQE's goal is to use its technology leadership and scale to deliver the performance, cost points and security of supply required for mass market adoption.
IQE's Goal
Over the past few years IQE has been a key player in the compound semiconductor materials supply chain. The Group has developed a comprehensive depth and breadth of technologies, and achieved significant scale and credibility for high volume production. The Group has achieved global leadership in the wireless market, assembled a team with a high level of skills and expertise and is primed for growth.
IQE has multiple high growth market opportunities and a powerful platform for delivery. The Group relishes the challenge ahead, and is focussed on delivery. In due course the Group plans to move to the main market, and aspires to be a FTSE 250 company within the next three to five years.
IQE's Strategy
The Group's strategy is to use its technology leadership and scale to deliver the performance, cost points and security of supply required for mass market adoption of compound semiconductor materials.
The Group has developed a powerful competitive position, including:
- Global Footprint - IQE's footprint spans US, Asia and Europe. This allows the Group to be close to customers and build strong relationships;
- Technology Leadership - IQE is one of the pioneers of this technology with over 25 years of experience, and has developed a substantial IP portfolio. This has created a virtuous circle which continues to attract the brightest and best talent;
- Cost Leadership - The Group has achieved cost leadership by virtue of its technology and global scale.
- Security of Supply - Confidence in a secure supply is critical to the supply chains in which the Group operates. IQE offers customers identical supply from multiple locations allowing the Group to be a primary and trusted supplier; and
- Risk mitigation strategy - The Group is a pre-eminent supplier to all major chip companies. This provides strong risk mitigation against swings in market share between the chip companies, and aligns the Group's growth with the end market.
4. MARKETS AND PRODUCTS
Market overview
IQE's key end markets are Wireless, Photonics (incorporating advanced solar, high resolution infrared, 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 or regulatory pressures, and each is being enabled by compound semiconductor technology. IQE is in the process of establishing internal business units to focus on these specific end markets. Our market facing teams are focussed on their respective markets to ensure that we remain aligned with our customers changing needs, and anticipate market trends.
Wireless
Compound semiconductors are at the heart of wireless communication systems. The advanced properties of these materials have enabled the wireless revolution, including the development of smartphones and mobile internet.
Wireless accounts for approximately 85% of the Group's sales. IQE is the clear market leader with an estimated market share of over 50% globally. The two wireless acquisitions have been successfully integrated into the Group and are performing strongly. The group remains on track to achieve recurring synergies from the second half of 2014 of at least £7m per annum.
This market has enjoyed several years of strong and sustainable growth driven by the proliferation of wireless devices and the need for more compound semiconductor in each device to address the increasing complexities of wireless communication.
Continued innovation in wireless devices will be needed to address the growth in data traffic and increasing performance requirements. The leading edge of wireless technology incorporating the next generations of wifi, 4G, 5G and more, will depend on increasing compound semiconductor content. Even at the trailing edge, the cost-performance of compound semiconductors is challenging silicon in its heartland. Teardowns of the recently launched Nokia 105 handset show that this mass market $20 phone utilises compound semiconductor power amplifiers in preference to silicon.
The market for mobile phones is highly competitive, with product innovation creating significant swings in market share between the leading handset manufacturers. This innovation also creates new types of wirelessly enabled devices including tablets, phablets, and wearable technology such as watches and glasses. In addition, the "internet of things" will bring even greater wireless connectivity to everyday life over the coming years.
Wireless communication, whatever form it takes, is set for long term growth and will become increasingly complex as data traffic expands and the need for bandwidth and speed become paramount. IQE makes the fundamental building blocks for all of these technologies and is agnostic to the application, the device, and to shifts in the supply chain.
Photonics
Key segments within photonics include advanced solar (CPV), infrared, and a broad range of opto-electronic products spanning a wide range of consumer and industrial 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 a common sight on UK rooftops. As a material, silicon is inherently inefficient at converting sunlight into electricity, typically achieving 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, and pilot installations have proven the reliability of the technology. In light of this, industry analysts are forecasting that CPV will be approximately a one gigawatt market in the next three to five years, which equates to a materials market in the order of $200m.
In February 2012 IQE forged a strategic alliance with a leading Silicon Valley CPV solar cell company, Solar Junction Corporation (SJC). At that time, the Group set out the technical and operational milestones to achieve in order to move into volume production. IQE has achieved all of these milestones as anticipated, and expects to move into volume production as SJC completes its qualifications with systems companies over the next few months.
Through this strategic alliance IQE is a technology leader in this field, with an SJC cell produced using IQE material certified by NREL (National Renewable Energy Laboratory) at 44.1% efficiency. Advances in other parts of the CPV systems (for example, tracker and optics), such as recently announced by the market leader, Amonix, are further reducing the overall cost of energy generation which will further accelerate demand.
- High resolution infrared
IQE is 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 commercial applications.
- Opto-electronics
This segment relates to a range of consumer and industrial applications spanning a number of high growth applications including data comms, optical USBs, printing, cosmetics, miniature laser projectors and industrial heating. IQE is a 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). IQE has been supporting a number of customers with product development over the last couple of years, and these products are now transitioning into pilot and high volume production.
Power switching
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 super 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 $1.6bn by 2020.
Unsurprising this is a hot bed of development and investment within the semiconductor industry, with products at an early stage of adoption. IQE has been building 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 Wijngaarden, Senior Development Director at Philips, to account for 90% of the general lighting market by 2020.
All 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. The Group is 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 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 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 this development, working with some of the industry's biggest names and on major government funded programmes. Indications from customers are that initial product launches are anticipated as early as 2016.
5. CURRENT TRADING AND OUTLOOK
The Group is making very good progress on all fronts in the current financial year. IQE's wireless business has performed strongly, boosted by the strategic acquisitions made over the past 18 months. The Group has successfully integrated the Kopin Wireless business acquired in January, and this business continues to perform well. IQE is focussed on continuing this strong delivery and realising significant synergies from the acquisitions.
The Group has made very good progress in its other businesses, notably in advanced solar (CPV) and advanced laser applications (VCSEL). Having achieved all key technical and operational milestones, these businesses are transitioning to high volume as anticipated. The progress IQE is making in GaN and advanced materials is advancing as planned, laying the foundation for accelerated growth and further revenue diversity.
The Board is pleased with the significant progress that has been made over the past 18 months in strengthening and broadening the wireless business, and in building a solid platform of other technologies which are poised for rapid growth in IQE's other target markets. Although recent weakness in the global smartphone market, ahead of new product launches, has injected a greater degree of uncertainty in the short term, the longer term outlook remains very strong. The Board remains confident of continuing growth and of achieving market earnings expectations for the current year.
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 2013, which comprises the consolidated income statement, the consolidated statement of comprehensive income/expenses, the consolidated balance sheet, the consolidated cash flow statement, the consolidated statement of changes in 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 2013 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
19 September 2013
| CONSOLIDATED INCOME STATEMENT | ||||
| 6 months to | 6 months to | 12 months to | ||
| 30 Jun 2013 | 30 Jun 2012 | 31 Dec 2012 | ||
| (All figures £'000s) | Note | Unaudited | Unaudited | Audited |
| Revenue | 63,001 | 34,276 | 87,961 | |
| Cost of sales | (51,945) | (28,804) | (69,491) | |
| Gross profit | 11,056 | 5,472 | 18,470 | |
| Selling, general and administrative expenses | (7,624) | (5,281) | (11,456) | |
| Operating profit | 3,432 | 191 | 7,014 | |
| Finance costs | (963) | (282) | (886) | |
| Adjusted profit before tax | 5,069 | 507 | 8,585 | |
| Adjustments | 5 | (2,600) | (598) | (2,457) |
| Profit/(Loss) before tax | 2,469 | (91) | 6,128 | |
| Income tax income | 74 | 193 | 503 | |
| Profit for the period | 2,543 | 102 | 6,631 | |
| Profit attributable to: | ||||
| equity shareholders | 2,419 | 102 | 6,631 | |
| non-controlling interests | 124 | - | - | |
| 2,543 | 102 | 6,631 | ||
| Adjusted basic earnings per share | 6 | 0.82p | 0.13p | 1.59p |
| Basic earnings per share | 6 | 0.39p | 0.02p | 1.16p |
| Adjusted diluted earnings per share | 6 | 0.79p | 0.12p | 1.51p |
| Diluted earnings per share | 6 | 0.38p | 0.02p | 1.10p |
Note : The adjusted profit before tax measure for the year ended 31 December 2012 was not presented in the prior year report. Details of the adjustments are set out in note 5.
| CONSOLIDATED STATEMENT OF | |||||||||
| 6 months to | 6 months to | 12 months to | |||||||
| COMPREHENSIVE INCOME/(EXPENSE) | 30 Jun 2013 | 30 Jun 2012 | 31 Dec 2012 | ||||||
| (All figures £'000s) | Unaudited | Unaudited | Audited | ||||||
| Profit for the period | 2,543 | 102 | 6,631 | ||||||
| Currency translation differences on foreign currency net investments | 3,333 | (371) | (2,497) | ||||||
| Total comprehensive income/(expense) for the period | 5,876 | (269) | 4,134 | ||||||
| Total comprehensive income/(expense) attributable to: | |||||||||
| equity shareholders | 5,733 | (269) | 4,134 | ||||||
| non-controlling interests | 143 | - | - | ||||||
| 5,876 | (269) | 4,134 | |||||||
| As At | As At | As At | ||||
| CONSOLIDATED BALANCE SHEET | 30 Jun 2013 | 30 Jun 2012 | 31 Dec 2012 | |||
| (All figures £'000s) | Unaudited | Unaudited | Audited | |||
| Non-current assets : | ||||||
| Intangible assets | 78,835 | 55,545 | 54,165 | |||
| Property, plant and equipment | 79,529 | 61,461 | 62,320 | |||
| Trade investment | 3,205 | 3,205 | 3,205 | |||
| Deferred tax asset | 16,728 | 14,536 | 14,549 | |||
| Total non-current assets | 178,297 | 134,747 | 134,239 | |||
| Current assets : | ||||||
| Inventories | 27,202 | 17,915 | 18,351 | |||
| Trade and other receivables | 22,178 | 19,495 | 19,186 | |||
| Cash and cash equivalents | 3,885 | 5,524 | 2,773 | |||
| Total current assets | 53,265 | 42,934 | 40,310 | |||
| Total assets | 231,562 | 177,681 | 174,549 | |||
| Current liabilities : | ||||||
| Borrowings | (4,983) | (556) | (2,428) | |||
| Trade and other payables | (35,843) | (38,007) | (31,709) | |||
| Total current liabilities | (40,826) | (38,563) | (34,137) | |||
| Non-current liabilities : | ||||||
| Borrowings | (36,561) | (12,516) | (15,828) | |||
| Other payables | (39,912) | (41,702) | (34,386) | |||
| Total non-current liabilities | (76,473) | (54,218) | (50,214) | |||
| Total liabilities | (117,299) | (92,781) | (84,351) | |||
| Net assets | 114,263 | 84,900 | 90,198 | |||
| Equity attributable to shareholders of the parent : | ||||||
| Ordinary shares | 6,459 | 5,864 | 5,882 | |||
| Share premium | 48,832 | 33,491 | 33,445 | |||
| Profit and loss account | 45,168 | 36,220 | 42,749 | |||
| Other reserves | 11,961 | 9,325 | 8,122 | |||
| 112,420 | 84,900 | 90,198 | ||||
| Non-controlling Interest | 1,843 | - | - | |||
| Total Equity | 114,263 | 84,900 | 90,198 | |||
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 | |
| 1 January 2013 | 5,882 | 33,445 | 42,749 | 2,775 | 5,347 | - | 90,198 | |
| Profit for the year | - | - | 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 | |
| 30 June 2013 | 6,459 | 48,832 | 45,168 | 6,089 | 5,872 | 1,843 | 114,263 | |
| Unaudited (All figures £'000s) | Share capital | Share premium | Retained earnings | Exchange rate reserve | Other reserves | Non-controlling interests | Total equity | |
| 1 January 2012 | 5,251 | 22,122 | 36,118 | 5,272 | 3,987 | - | 72,750 | |
| Profit for the year | - | - | 102 | - | - | - | 102 | |
| Foreign exchange | - | - | - | (372) | - | - | (372) | |
| Total comprehensive income | - | - | 102 | (372) | - | - | (270) | |
| Employee share scheme | - | - | - | - | 438 | - | 438 | |
| Issues of ordinary shares | 613 | 11,369 | - | - | - | 11,982 | ||
| Total transactions with owners | 613 | 11,369 | - | - | 438 | - | 12,420 | |
| 30 June 2012 | 5,864 | 33,491 | 36,220 | 4,900 | 4,425 | - | 84,900 | |
| Audited (All figures £'000s) | Share capital | Share premium | Retained earnings | Exchange rate reserve | Other reserves | Non-controlling interests | Total equity | |
| 1 January 2012 | 5,251 | 22,122 | 36,118 | 5,272 | 3,987 | - | 72,750 | |
| Profit for the year | - | - | 6,631 | - | - | - | 6,631 | |
| Foreign exchange | - | - | - | (2,497) | - | - | (2,497) | |
| Total comprehensive income | - | - | 6,631 | (2,497) | - | - | 4,134 | |
| Employee share scheme | - | - | - | - | 1,360 | - | 1,360 | |
| Issues of ordinary shares | 631 | 11,323 | - | - | - | 11,954 | ||
| Total transactions with owners | 631 | 11,323 | - | - | 1,360 | - | 13,314 | |
| 31 December 2012 | 5,882 | 33,445 | 42,749 | 2,775 | 5,347 | - | 90,198 | |
| 6 months to | 6 months to | 12 months to | |||
| CONSOLIDATED CASH FLOW STATEMENT | 30 Jun 2013 | 30 Jun 2012 | 31 Dec 2012 | ||
| (All figures £'000s) | Unaudited | Unaudited | Audited | ||
| Cash flows from operating activities : | |||||
| Cash inflow from operations | 7 | 6,301 | 2,796 | 4,109 | |
| Net interest paid | (759) | (247) | (616) | ||
| Income tax (paid)/received | (442) | - | 1,284 | ||
| Net cash inflow from operating activities | 5,100 | 2,549 | 4,777 | ||
| Cash flows from investing activities : | |||||
| Acquisition of subsidiaries (net of cash acquired) | (36,533) | (3,805) | (7,043) | ||
| Investment in trade investment | - | (3,205) | (3,205) | ||
| Development expenditure | (1,870) | (2,197) | (4,042) | ||
| Investment in other intangible fixed assets | (217) | (107) | (307) | ||
| Purchase of property, plant and equipment | (2,448) | (8,299) | (11,562) | ||
| Net cash used in investing activities | (41,068) | (17,613) | (26,159) | ||
| Cash flows from financing activities : | |||||
| Issues of ordinary share capital | 15,964 | 11,365 | 11,445 | ||
| Loans and leases repaid | (4,107) | - | (1,383) | ||
| Loans and leases received | 25,000 | 5,975 | 10,877 | ||
| Net cash generated from financing activities | 36,857 | 17,340 | 20,939 | ||
| Net increase/(decrease) in cash and cash equivalents | 889 | 2,276 | (443) | ||
| Cash and cash equivalents at the beginning of the period | 2,773 | 3,233 | 3,233 | ||
| Exchange gains on cash and bank overdrafts | 223 | 15 | (17) | ||
| Cash and cash equivalents at the end of the period | 8 | 3,885 | 5,524 | 2,773 | |
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 2013.
The interim results were approved by the Board of Directors and the Audit Committee on 19 September 2013. 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 2012 have been taken from the published audited statutory financial statements. All other periods presented are unaudited. Statutory accounts for the year ended 31 December 2012 were approved by the Board of Directors on 20 March 2013 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 2013 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 2012, 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 2012, 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 2012, as described in those financial statement on pages 56 to 61.
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's has adopted the following Standards, amendments and interpretations which are effective for 2013 and will be adopted for the year ended 31 December 2013:
- IAS 19 (revised 2011) 'Employee benefits'
- IFRS 13, 'Fair value measurement
- Amendment to IFRS 1,'First time adoption' on hyperinflation and fixed dates
- Amendment to IAS 1, 'Presentation of Items of Other Comprehensive Income'
- Amendment to IAS 12,'Income taxes' on deferred tax
- Amendment to IFRS 1,'First time adoption' on government grants
- Amendments to IFRS 7 on financial instruments asset and liability offsetting
- IFRIC 20, 'Stripping costs in the production phase of a surface mine'
The adoption of these standards and amendments has not had a material impact on the interim financial information.
3 PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties impacting the Group are described on pages 39 to 40 of our Annual Report 2012 and remain unchanged at 30 June 2013.
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 2013 | 30 Jun 2012 | 31 Dec 2012 | |||||||||
| (All figures £'000s) | Unaudited | Unaudited | Audited | ||||||||
| Revenue by business segment : | |||||||||||
| Wireless | 53,654 | 25,367 | 68,962 | ||||||||
| Photonics | 8,926 | 8,312 | 18,049 | ||||||||
| Electronics | 421 | 597 | 950 | ||||||||
| Total revenue | 63,001 | 34,276 | 87,961 | ||||||||
| EBITDA by business segment : | |||||||||||
| Wireless | 10,030 | 2,874 | 12,929 | ||||||||
| Photonics | 374 | 1,226 | 3,732 | ||||||||
| Electronics | 119 | (83) | (224) | ||||||||
| Total EBITDA | 10,523 | 4,017 | 16,437 | ||||||||
| Adjusted operating profit/(loss) by business segment (note 5) : | |||||||||||
| Wireless | 6,109 | 289 | 7,389 | ||||||||
| Photonics | (266) | 739 | 2,334 | ||||||||
| Electronics | (15) | (239) | (521) | ||||||||
| Total operating profit | 5,828 | 789 | 9,202 | ||||||||
| Operating profit/(loss) by business segment : | |||||||||||
| Wireless | 3,791 | (154) | 5,610 | ||||||||
| Photonics | (340) | 594 | 1,940 | ||||||||
| Electronics | (19) | (249) | (536) | ||||||||
| Total operating profit | 3,432 | 191 | 7,014 | ||||||||
5 ADJUSTED PROFIT MEASURES
The results are reported after a number of imputed non-cash charges, largely relating to acquisition accounting. Therefore we have provided additional information to assist the understanding of the underlying financial performance.
| 6 months to 30 Jun 2013 Unaudited | 6 months to 30 Jun 2012 Unaudited | 12 months to 31 Dec 2012 Audited | ||
| Acquisition related inventory fair value adjustment | 1,500 | - | - | |
| Share based payments | 350 | 434 | 989 | |
| Adjustments to gross margin | 1,850 | 434 | 989 | |
| Transaction costs (includes Kopin Wireless acquisition costs) | - | - | 570 | |
| Amortisation of acquired intangibles | 371 | - | 258 | |
| Share based payments | 175 | 164 | 371 | |
| Adjustments to operating profit | 2,396 | 598 | 2,188 | |
| Discounting of long term acquisition related balances | 204 | - | 269 | |
| Adjustments to profit before tax | 2,600 | 598 | 2,457 | |
In fair valuing the assets of the acquired Kopin Wireless business, the inventories acquired were booked into the Group's accounts at their selling price (see note 9). Therefore, the reported gross margin reflects no 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.
| 6 months to 30 Jun 2013 Unaudited | 6 months to 30 Jun 2012 Unaudited | 12 months to 31 Dec 2012 Audited | ||||||||
| Adjusted gross margin | 12,906 | 5,906 | 19,459 | |||||||
| Reported gross margin | 11,056 | 5,472 | 18,470 | |||||||
| Adjusted sales, general and administrative expenses | (7,078) | (5,117) | (10,257) | |||||||
| Reported sales, general and administrative expenses | (7,624) | (5,281) | (11,456) | |||||||
| Adjusted operating profit | 5,828 | 789 | 9,202 | |||||||
| Reported operating profit | 3,432 | 191 | 7,014 | |||||||
| Adjusted profit after tax | 5,143 | 700 | 9,088 | |||||||
| Reported profit after tax | 2,543 | 102 | 6,631 | |||||||
| Earnings before interest, tax, depreciation and amortisation (EBITDA) have been calculated as follows: | ||||||||||
| 6 months to 30 Jun 2013 Unaudited | 6 months to 30 Jun 2012 Unaudited | 12 months to 31 Dec 2012 Audited | ||||||||
| Profit attributable to equity shareholders | 2,419 | 102 | 6,631 | |||||||
| Minority interest | 124 | - | - | |||||||
| Tax | (74) | (193) | (503) | |||||||
| Share based payments | 525 | 598 | 1,360 | |||||||
| Finance costs | 963 | 282 | 886 | |||||||
| Acquisition related inventory fair value adjustment | 1,500 | - | - | |||||||
| Transaction costs | - | - | 570 | |||||||
| Depreciation of tangible fixed assets | 4,129 | 2,641 | 5,998 | |||||||
| Amortisation of intangible fixed assets | 937 | 587 | 1,495 | |||||||
| EBITDA | 10,523 | 4,017 | 16,437 | |||||||
The adjusted profit before tax measure for the year ended 31 December 2012 was not presented in the prior year report, and has been represented to conform to current period presentation.
| 6 EARNINGS PER SHARE | 6 months to | 6 months to | 12 months to | ||
| 30 Jun 2013 | 30 Jun 2012 | 31 Dec 2012 | |||
| Unaudited | Unaudited | Audited | |||
| Results in £'000s: | |||||
| Profit attributable to ordinary shareholders | 2,419 | 102 | 6,631 | ||
| Adjustments to profit before tax (note 4) | 2,600 | 598 | 2,457 | ||
| Adjusted profit attributable to ordinary shareholders | 5,019 | 700 | 9,088 | ||
| Number of shares: | |||||
| Weighted average number of ordinary shares | 612,427,613 | 559,978,074 | 571,972,538 | ||
| Dilutive share options | 26,662,335 | 30,570,184 | 29,715,163 | ||
| Adjusted weighted average number of ordinary shares | 639,089,948 | 590,548,258 | 601,687,701 | ||
| Adjusted basic earnings per share | 0.82p | 0.13p | 1.59p | ||
| Basic earnings per share | 0.39p | 0.02p | 1.16p | ||
| Adjusted diluted earnings per share | 0.79p | 0.12p | 1.51p | ||
| Diluted earnings per share | 0.38p | 0.02p | 1.10p | ||
Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares during the period.
Diluted earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of shares and 'in the money' share options in issue. Share options are classified as 'in the money' if their exercise price is lower than the average share price for the period. As required by IAS 33, this calculation assumes that the proceeds receivable from the exercise of 'in the money' options would be used to purchase shares in the open market in order to reduce the number of new shares that would need to be issued.
| 6 months to | 6 months to | 12 months to | ||||
| 7 CASH GENERATED FROM OPERATIONS | 30 Jun 2013 | 30 Jun 2012 | 31 Dec 2012 | |||
| (All figures £'000s) | Unaudited | Unaudited | Audited | |||
| Operating profit | 3,432 | 191 | 7,014 | |||
| Depreciation of tangible assets | 4,129 | 2,641 | 5,998 | |||
| Amortisation of intangible assets | 937 | 587 | 1,495 | |||
| Gain on sale of tangible assets | - | - | - | |||
| Contingent deferred consideration (settled through contractual discounts) | (6,020) | - | (8,379) | |||
| Non cash share based payment costs | 525 | 598 | 1,360 | |||
| Cash from operations before changes in working capital | 3,003 | 4,017 | 7,488 | |||
| (Increase) in inventories | (57) | (3,029) | (3,030) | |||
| Decrease/(increase) in trade and other receivables | 5,913 | (5,231) | (5,924) | |||
| (Decrease)/increase in trade and other payables | (2,558) | 7,039 | 5,575 | |||
| Cash inflow generated from operations | 6,301 | 2,796 | 4,109 | |||
| As At | As At | As At | |||
| 8 ANALYSIS OF NET DEBT | 30 Jun 2013 | 30 Jun 2012 | 31 Dec 2012 | ||
| (All figures £'000s) | Unaudited | Unaudited | Audited | ||
| Cash and cash equivalents | 3,885 | 5,524 | 2,773 | ||
| Loans due after one year | (35,061) | (12,514) | (14,094) | ||
| Loans due within one year | (4,213) | (518) | (1,687) | ||
| Finance leases due after one year | (1,500) | (2) | (1,734) | ||
| Finance leases due within one year | (770) | (38) | (741) | ||
| Total borrowings | (41,544) | (13,072) | (18,256) | ||
| Net debt | (37,659) | (7,548) | (15,483) | ||
9 ACQUISITIONS
On 15 January 2013, IQE plc completed the acquisition of the Kopin Wireless, the compound semiconductor epiwafer manufacturing business of Kopin Corporation ("Kopin"), a NASDAQ listed entity.
The consideration for the acquisition was $75m, of which $60m was paid in cash on completion, and $15m falls payable in January 2016. The deferred consideration is secured over the US assets acquired.
The assets acquired were the trade and assets of Kopin Wireless' a US domiciled business, which operates from a long leasehold premises located in Massachusetts USA; and its 90% equity stake in its Taiwanese subsidiary (KTC), which operates from a freehold premises in Hsinchu Taiwan.
The upfront consideration of $60m was financed by $40m acquisition finance provided by HSBC. The Balance was financed from the proceeds of a placing of 56,900,961 new ordinary shares at 29p.
The fair value of the assets acquired is summarised as follows:
| Provisional Fair value | |||
| (All figures £'000s) | £'000 | ||
| Intangible assets | 1,426 | ||
| Property plant and equipment | 14,853 | ||
| Working capital | 11,122 | ||
| Deferred tax asset | 1,312 | ||
| Total identifiable net asset | 28,713 | ||
| Non-controlling interest | (1,700) | ||
| Goodwill | 19,237 | ||
| Total | 46,250 | ||
| Cash consideration on completion | 37,500 | ||
| Deferred cash consideration | 8,750 | ||
| Total consideration | 46,250 |
The fair value of the intangible assets represents the estimated fair value of the qualifications for customer contracts. The fair value has been determined based on cost plus a premium for development risk.
The fair value of the property plant and equipment has been estimated based on market valuation or depreciated replacement cost basis as appropriate.
Inventory has been recognised at fair value which for raw materials this is the lower of cost at net realisable value and for finished goods is selling price less costs to sell.
Deferred tax has been recognised in respect of temporary timing differences between the accounting and tax treatments for the assets and liabilities recognised.
The Non-controlling interest has been valued on a proportionate share of the net assets of IQE Taiwan formally Kopin Taiwan Corporation.
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. $21.7m of the goodwill is expected to be deductible for tax purposes.
The fair value of the consideration has been estimated based discounting the $15m deferred consideration. The discount rate adopted was 2.3%. The discount rate has been determined based on a three year liability with similar characteristics.
Post acquisition the acquired business contributed £15.6m of revenue and £0.8m of profit after tax to the consolidated income statement. If the transaction had completed at the beginning of the financial period the acquired business would have contributed £16.6m of revenue and £0.8m of profit after tax to the consolidated income statement.
The asset fair values are provisional.
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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