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Wednesday 20 March, 2019


2018 Full Year Results

2018 Full Year Results

Embargoed until 07:00, 20 March 2019

IQE plc

Significant capital investment in capacity establishes sound base for growth in 2019, driven by Photonics and 5G Wireless

Cardiff, UK. 20th March 2019: IQE plc (AIM: IQE; "IQE", the “Company” or the "Group"), the leading global supplier of advanced wafer products and materials solutions to the semiconductor industry, announces its results for the year ended 31 December 2018.

Financial Summary

£m (except EPS and profit %)31 December 201831 December 2017
(as restated)***
Revenue156.3 154.6+1.1%
Wafers156.3 152.7+2.4%
Licensing- 1.9(100%)
Wafers Gross Profit*36.8 41.9(12.2%)
Wafers Gross Profit %*23.5 27.4(14.2%)
EBITDA*26.4 37.2(28.9%)
Operating Profit*16.0 26.5(39.6%)
Wafers16.0 24.6(35.0%)
Licensing- 1.9

Operating Profit %*10.2 17.1(40.2%)
Wafers Operating Profit %*10.2 16.1(36.5%)
Licensing Operating Profit %*- 100.0(100.0%)
Share of joint venture losses(2.0)-N/A
Profit Before Tax*14.0 24.5(43.0%)
Fully Diluted EPS*1.38 3.38(59.2%)
Cash generated from operations17.0 29.7(42.8%)
Capital Investment42.4 34.8+21.8%
Net funds20.8 45.6(54.4%)

* Non-GAAP adjusted measures have been presented as detailed in note 5
** Capital investment represents cash invested in tangible and intangible assets, including assets acquired under finance leases in 2018 of £nil (2017: £6.6m).
*** The comparative financial contained in the financial statements for the year ended 31 December 2017 has been restated following the introduction of IFRS 15 “Revenue from contracts with customers”.


  • Wafer revenues at constant currency (which excludes licence income) increased 5.3% to $209.3m (2017: $198.7).
  • Wireless revenues increased £6.1m (up 6.6%) to £97.8m (2017: £91.7m).  £5m of the increase was from customer last time buys of GaN prior to the closure of our facility in New Jersey.  Replenishment of wireless inventory channels that were depleted following the conversion of wireless capacity to accommodate the aggressive VCSEL ramp in H2 2017 during a period of capacity constraint also contributed to the wireless growth.
  • Photonics revenues decreased £3.9m (down 8.1%) to £43.8m (2017: £47.7m). There was a substantial VCSEL inventory correction in H1 2018 and a sudden disruption in a significant supply chain and reduction in demand for VCSELs in November.
  • Infrared revenues increased £1.1m (up 9.5%) to £13.1m (2017: £12.0m).
  • Wireless represented 62.5% (2017: 60.0%) of wafer segmental revenue in 2018, Photonics 28% (2017: 31.2%) and Infrared 8.4% (2017: 7.8%)

Profit and Margins

  • Operating profit and margins were adversely affected by:
    • the currency headwind;
    • production inefficiencies resulting from lower VCSEL production volumes;
    • a higher proportion of lower margin wireless revenues;
    • material investment in low and zero margin VCSEL qualifications for multiple new photonics customers; and
    • Newport foundry pre-production costs for recruitment, increased headcount and training.

Consolidated Cashflow

  • Cash generated from operations was £17.0m (2017: £29.7m).  Operating cash conversion was 106% (2017: 112%).
  • Net cash used in investing activities was £42.4m (2017: £34.8m).  Investment in property, plant and equipment was £30.4m (2017: £17.9m**) with the major proportion being in the new mega foundry in Newport with additional investment in wireless capacity in Taiwan, GaN facilities in Massachusetts and in infrared production expansion in Milton Keynes. These projects will greatly increase production capacity and operational efficiency.
  • Investment in capitalised research and development fell £4.1m to £10.4m (2017: £14.5m) as an intensive period of investment in first generation VCSELs moved into production.
  • Free cash outflow was £25.3m (2017: inflow £40.9m) leaving net cash at £20.8m (2017: £45.6m).  Post year-end, the Company secured a three year $35m multi-currency revolving credit facility with HSBC.

Exceptional Items

  • Included in the adjusted measures are charges before tax for the year of £7.2m (2017: £9.4m) consisting:
    • Restructuring costs of £3.3m (2017: £nil) in respect of the closure of the GaN facility in New Jersey.  Of this £1.2m will be cash costs relating to severance payments and reactor decommissioning and £2.15m of non-cash impairments.  The closure is expected to deliver operating cost savings of approximately £3m per annum starting in Q2 2019;
    • £1.3m (2017: £nil) relating to legal fees in connection with a patent dispute defence which is ongoing and scheduled for an arbitration hearing in September 2019; and
    • a £4.4m (2017: £nil) onerous lease provision for unlet and unused space to the end of the lease on our Singapore manufacturing site  

Operational and Strategic Highlights

  • New mega foundry in Newport has opened with ten reactors now delivered and installed.  Five reactors have already been released for product qualification and the remaining five are in the process of final commissioning.  Throughput, uniformity and yields are significantly better than originally expected at the outset of the project.  Twelve customers are currently in the process of qualifying or have qualified the new facility. The first and largest customer has  now completed all product testing and reliability, has conducted a detailed final audit and has released the site for mass production. Several others are in the final stages of production releases.
  • The Taiwan facility expansion, which will increase its wireless capacity by 40%, will complete in Q1 2019.  Massachusetts (GaN) and Milton Keynes (infrared) capacity expansions will also both complete by the end of H1 2019.
  • Investment in product development was focused on materials that will directly address next generation 5G wireless and advanced photonics applications, including sensing.
  • A milestone first production order of US$250k was received for edge emitting Distributed Feedback (DFB) lasers employing the Group’s Nano Imprint Lithography (NIL) technology.
  • The option to acquire the cREO technology and IP portfolio for US$5m from Translucent Inc, was exercised in March 2018 and satisfied in September 2018 with a share issuance.
  • A long-term supply contract with a Tier 1 wireless customer was completed, securing an extended range of products and increased share of their epi-wafer requirements.
  • The Group completed the sublet of 25,000 square feet of space in the new Newport Facility to the Compound Semiconductor Applications Catapult, underpinning the continued drive and contribution of IQE for creating a global centre of excellence for compound semiconductors in South Wales.
  • Mr Timothy Pullen was recruited as Chief Financial Officer, following the tragic death of Mr Phillip Rasmussen on 1st April 2018.  Mr Pullen took office on 4th February 2019.

Dr Drew Nelson, Chief Executive of IQE, said:

“2018 was a very difficult and challenging year for IQE group from many perspectives; including the tragic and untimely death of Phil Rasmussen.  Our disappointing 2018 financial performance was materially impacted by a very substantial VCSEL inventory correction in the first half of 2018 and the sudden disruption in a highly significant supply chain causing greatly reduced short-term demand for VCSEL wafers during the last two months of the year. Compounding this is the current well-heralded softness in the smartphone market.

This overshadows and disguises the excellent position and prospects of IQE which should not  be defined by this short-term impact on our growth trajectory and profitability.   Revenue increases in 2019 will be driven by the return to strong growth of our photonics business and emerging opportunities in 5G and will be soundly based on operational improvements, rationalisation and capacity expansions that have been in progress for the last two years and which will complete in H1 2019.

In addition to the capital investment in our new mega foundry in Newport (for photonics), we are completing additional capacity in Taiwan (wireless), Massachusetts (GaN) and Milton Keynes (infrared).  We have also made considerable investment in engaging with more than 25 VCSEL chip companies underscoring IQE’s exceptional leadership position in the emerging VCSEL supply chains based on our technical excellence, proven ability to ramp and dedicated commitment to install capacity, with 12 companies already actively qualifying the new facility.

Complementing this investment in physical infrastructure, we closed on the acquisition of the cREO technology and IP portfolio from Translucent Inc.  We have also continued to invest in our own internal Research and Development projects including materials for high performance HBTs, Porous RF switches, and Crystalline RF filters for 5G, next generation VCSELs and diffusers for VCSELs, and infrared materials for high volume consumer markets.

Alongside its leadership position in VCSELs, IQE is at the forefront of the next generation of millimetre wave wireless communications technology for 5G infrastructure addressing the important challenges of high speed,  high bandwidth and low latency wireless connectivity for 5G. The huge growth of mobile data and consumer demand for video streaming, along with the Internet of Things, driverless vehicles, virtual reality and a multitude of other emerging technologies are going to require fibre-quality data speeds delivered wirelessly and ubiquitously. 

5G networks will function across an unprecedented frequency range from traditional cellular bands to millimetre wave.  IQE offers a powerful array of materials solutions enabling 5G, including enhanced efficiency GaAs HBT PAs, novel RF filter products utilising IQE’s proprietary cREO technology, and high performance switches for mobile devices, GaN HEMTs for wireless infrastructure, InP products for high-speed oscillators and photodiodes, and many more.  Our participation in the DLINK program, announced earlier this week, is another example of how compound semiconductors produced by IQE will continue to fuel the connected world as it transitions to 5G platforms.

The investment we have made in site rationalisation, increased production capacity and new products and the opportunity that this has created in the key sector areas of sensing, connectivity and energy, will deliver margin expansion, growing profitability and increasing free cash flow in 2019 and beyond”.

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

VCSEL......................... Vertical Cavity Surface Emitting Laser
GaN............................. Gallium Nitride
NIL …………………………….Nano Imprint Lithography
DFB laser…………………….Distributed Feedback Laser
Adjusted EBITDA…….  EBITDA after adjusting for the impact of one-off, non-cash and non-operational items


IQE plc
Godfrey Ainsworth
Drew Nelson
Tim Pullen
Chris Meadows

+44 (0) 29 2083 9400
Canaccord Genuity (Nomad and Joint Broker) 
Simon Bridges
Richard Andrews

+ 44 (0) 20 7523 8000

Peel Hunt (Joint Broker)
Edward Knight
Nick Prowting
+44 (0) 20 7418 8900



IQE is the leading global supplier of advanced semiconductor wafers that enable a diverse range of applications, supported by an innovative outsourced foundry services portfolio that allows the Group to provide a 'one stop shop' for the wafer needs of the world's leading semiconductor manufacturers.

IQE uses advanced crystal growth technology (epitaxy) to manufacture and supply bespoke semiconductor wafers 'epi-wafers' to the major chip manufacturing companies, who then use these wafers to make the chips which form the key components of virtually all high technology systems. IQE is unique in being able to supply wafers using all of the leading crystal growth technology platforms.

IQE's products are found in many leading-edge consumer, communication, computing and industrial applications, including a complete range of wafer products for the wireless industry, such as smartphones and wireless infrastructure, Wi-Fi, base stations, and satellite communications; optical communications, optical storage, printing, thermal imagers, leading-edge medical technologies, automotive and aerospace technologies, a variety of advanced silicon based systems and high efficiency concentrator photovoltaic (CPV) solar cells.

IQE operates multiple manufacturing and R&D facilities worldwide.  


IQE has been the pioneer in compound semiconductor (CS) materials technology for over thirty years. From its origins in products for optical-fibre communications, the group has progressively expanded its product range and intellectual property (IP) portfolio across a broad range of advanced semiconductor materials. The Group has developed the industry’s broadest IP portfolio and has an enviable track record of delivering its complex atomically engineered wafers consistently and repeatedly in mass market volumes, with the precision and quality needed by its customers to achieve high-yielding low-cost components.

Through its technology leadership and a reputation for quality and scale, IQE is the proven market leader well positioned to exploit the rapidly growing markets for compound semiconductor materials.

The evolution of semiconductor technology

Impressive though the impact of silicon has been on our lives, being a single element, it has a very basic and limited set of properties that restricts its application in many new and emerging technology areas that demand ultra high-performance levels along with sensing and other capabilities.

By atomically engineering crystal structures that combine elements either side of those in group IV of the periodic table (eg groups III and V), a set of new semiconductor materials has emerged whose enhanced properties offer significant capability and performance improvements over those of silicon alone.

Compound semiconductors provide significant performance advantages that are absolutely essential for a growing range of technology applications. In general terms, these advantages fall into three categories: speed, light and power.

SPEED - Compound semiconductors such as GaAs and InP can operate at speeds that are several orders of magnitudes higher than is possible using silicon alone.

LIGHT – Unlike silicon, compound semiconductors can generate and receive a broad range of the electromagnetic spectrum from high frequency ultraviolet through the visible spectrum to long wavelength infrared light.

POWER – Compound semiconductors including silicon carbide (SiC) and GaN are capable of operating at high powers (high voltages and current levels) and are highly efficient at converting different types of power and at high frequencies.

Today, Semiconductors in the form of both silicon and compound semiconductors, form the heart of many technology applications that have an everyday impact on the way we live, work and spend our leisure time. Without semiconductors, many devices and applications that we rely on simply would not exist.

Semiconductors are a key enabling technology that feed into multiple supply chains feeding a wide range of market sectors including: communications and connected devices (5G), healthcare technologies, electrically powered connected autonomous vehicles, aerospace technologies, safety & security systems, efficient energy generation and consumption, robotics and AI.

Compound semiconductors have already complimented silicon in areas such as wireless communications, where chips made from material combinations such as gallium and arsenic (gallium arsenide, or GaAs) are found in virtually every smartphone where they enable high speed, high efficiency wireless communications in cellular and WiFi networks.

Other properties offered by compound semiconductor materials include the ability to emit and sense light in the form of general lighting (LEDs) and communications (lasers and receivers for fibre-optics).

The photonic and power efficiency properties offered by compound semiconductors that could not be achieved with silicon alone, will enable technologies essential in areas such as safety and security systems, healthcare technologies, aerospace and automotive applications including electrically powered and autonomous vehicles.

It is our ability to harness the advanced properties of the full range of semiconducting materials that will drive the digital revolution for generations to come. Welcome to the world of advanced, compound semiconductors. Compound semiconductors are the DNA of next generation technologies.

The inflection in the adoption of compound semiconductor technologies is well under way across a number of end markets from 5G to connected devices and sensors.

Financial Review

The Group reports financial performance in accordance with International Financial Reporting Standards adopted by the European Union (‘IFRS’) and provides disclosure of additional alternative non IFRS GAAP performance measures to provide further understanding of financial performance. Details of the alternative performance measures used by the Group including a reconciliation to reported IFRS GAAP performance measures is set out in note 4 to the results.

Consolidated revenues were up 1% to £156.3m (2017: £154.6m) which has been achieved with a similar manufacturing capacity compared to 2017 and without the recognition of any license income (2017: £1.9m).

Wireless continues to represent the largest proportion of the Group’s revenue accounting for 62% (2017: 60%) of total wafer sales with Photonics representing 28% (2017: 31%), Infrared representing 8% (2017: 8%) and CMOSS++ representing 1% (2017: 1%).  

Wireless wafer revenues were up 7% to £97.8m (2017: £91.7m). Wireless demand, especially for GaN products, has been strong throughout the year and additional capacity has been made available to address GaAs demand, including the replenishment of inventory channels in the first half of the year that were depleted during 2017 as manufacturing capacity was switched to photonics.

Photonics wafer revenues were down 8% to £43.8m (2017: £47.7m). Photonics demand, especially for VCSEL products was adversely impacted in the first half of the year as excess inventory in the downstream supply chain took longer than expected to be consumed whilst the sudden decline in short term demand for VCSEL wafers in the final quarter of the year also adversely impact sales and volumes. Despite the decline in revenue year on year the group has made significant progress to strengthen its position in the VSCEL market with more than 25 engagements with VCSEL chip companies at varying stages of product development, qualification and production.

Infrared wafer revenues were up 10% to £13.1m (2017: £12.0m). Infrared demand, especially for defence applications has remained strong whilst successful progress continues to be made in broadening customer engagements into product development for mass market consumer applications where continued growth opportunities exist.

Gross profit declined from £38.8m to £37.5m. Adjusted gross margin, which excludes the charge for share based payments, decreased from £43.8m to £36.8m. Excluding license income, which has a 100% margin, the adjusted gross margin on wafer sales declined from 27.5% to 23.5% reflecting a shift in mix from higher margin photonics sales to lower margin wireless sales.

Other income increased from £nil to £1.1m. The increase in other income relates to the net insurance proceeds received following the death of the Chief Financial Officer and the income has been excluded from the adjusted profit measures in 2018 as the income did not relate to underlying trading.

Selling, general and administrative (‘SG&A’) expenses increased from £21.6m to £29.9m.  Adjusted SG&A, which excludes charges for share based payments, amortisation of acquired intangibles, restructuring costs, onerous property leases and patent dispute legal costs increased from £17.3m to £20.7m reflecting investment for growth alongside the Group’s capital expansion programme.

Adjusted restructuring costs totalling £3.3m relate to the closure of the Group’s manufacturing facility in New Jersey, USA and the associated transfer of the trade and assets to the Group’s manufacturing facility in Massachusetts as part of the Group’s consolidation and expansion of GaN capacity at the Massachusetts site. The consolidation of GaN capacity at the Massachusetts site is expected to deliver annual cost savings of c.£3.0m per annum starting in Q2 2019. Adjusted onerous property lease costs totalling £4.4m relate to the extension of the onerous lease at the Group’s Singapore manufacturing facility to the end of the lease in 2022 whilst adjusted legal costs relate to costs incurred in respect of a patent dispute defence.    

Operating profit decreased from £17.2m to £8.7m, reflecting the adjustments noted above with adjusted operating profit decreasing from £26.5m to £16.0m. The segmental analysis in note 3 reflects the adjusted operating margins for the primary segments (before central corporate support costs). Wireless adjusted operating margins declined from approx. 15% to approx. 12%, partially reflecting costs associated with switching capacity from Photonics to Wireless in the first half of the year and the competitive nature of the wireless market. The decline in adjusted Photonics operating margins from approx. 38% to approx. 26% reflects the decline in volume and a focus on lower margin customer development work as the Group has sought to strengthen its position in the VCSEL market by engaging with all the major VCSEL chip companies. Infrared margins have remained robust at approx. 26% (2017: 27%) as the segment continues to grow. 

Share of losses in joint ventures (2018: £2.0m, 2017: £nil) reflects payments made on behalf of the Group’s joint venture, CSDC, during a period when CSDC has required funding following a significant (£6.0m) reduction in revenues in 2018 which has coincided with increased investment in new customer engagements.  New engagements include twelve Chinese customers for fifteen separate product qualifications which CSDC expects to ramp into mass production.

Finance costs decreased from £2.1m to £0.1m of income following the successful equity fund raising in 2017 and the subsequent repayment of the Group’s bank borrowings.  Adjusted finance costs, which exclude imputed interest associated with the discounting, remain negligible at £0.1m (2017: £2.0m).  Net cash at the year end was £20.8m (2017: £45.6m).  Post year-end, the Company secured a three year $35m multi-currency revolving credit facility with HSBC.

The charge for taxation increased from £0.4m to £5.6m. Adjusted tax, which excludes the tax affect associated with the alternative performance measure adjustments was £2.7m (2017: credit £0.4m) at an effective underlying tax rate of 17%. The adjusted tax charge reflects deferred tax associated with accelerated capital allowances in excess of depreciation, reflecting the on-going significant capital investment in the business partially offset by the recognition of certain US tax losses. The tax charge on adjusted items of £2.8m and the associated high effective tax rate principally reflects the impact of the effective tax rate on the share based payment charge.  The effective tax rate on the share based payment charge reflects a deferred tax charge in relation to a reduction in future corporation tax deductions associated with the decrease in share price and a reduction in the number of options where performance criteria are expected to be achieved. The cash payment of taxes decreased from £5.8m to £0.7m due to the settlement in 2017 of US taxes relating to prior years.  Cash taxes are expected to remain at approximately £1m to £2m for the near future, whilst the effective rate is expected to be approximately 15% to 20% reflecting the deferred tax charge associated with the utilisation of tax losses.

Cash invested increased from £28.2m in 2017 to £42.4m in 2018 as the Group has continued with a significant two-year investment program across its global operations. Capital expenditure has increased from £11.3m to £30.4m as the Group has focused on capacity expansion with the construction of a new mega epi foundry in Newport, which will be dedicated to photonics applications, installation of additional wireless capacity in Hsinchu, expansion of GaN capacity in Massachusetts and additional capacity for infrared production in Milton Keynes whilst continuing to invest in technology and intellectual property with cash expenditure totalling £12.0m (2017: £16.9m) and share based payments for the purchase of the cREO technology and intellectual property portfolio totalling £3.5m (2017:£nil).

Operational Review

2018 represented a year of transformation, consolidation and preparation to position our business to maximise the opportunities ahead.


From turnkey manufacturer to value added innovator

IQE has a clearly demonstrable track-record in successfully developing and commercialising advanced semiconductor materials that enable everyday innovations across a wide range of digital electronic devices including new and emerging mobile communications devices.

Our technology leadership and comprehensive product portfolio coupled with our reputation for quality of service and excellence in manufacturing are testament to IQE’s position and consequently, our ability to provide excellent long-term shareholder value.

There is little doubt that our products will continue to transform the way we live, work, travel and spend our leisure-time, but IQE has also transformed the way it adds value to its customers.

During its formative years, IQE’s expertise was focussed on process innovation which transformed the Company into the world leader in the provision of specialised outsourcing services to the semiconductor industry. Under this model, our customers owned the product intellectual property (IP) whilst IQE owned the process know-how in how to achieve the customers’ specifications to exacting standards in a manufacturing environment.

In recent years, IQE has been adding greater value that is increasingly being embedded within our customers’ products. Our innovation in materials science has enabled us to offer unique solutions that enhance our customers’ products and our expertise ensures early engagement in new product development processes. The added value not only provides IQE with unique IP across a broad product portfolio, but further integrates our products and services deep within the supply chain, creating significant barriers to entry to our competitors.


Focus on high growth opportunities for cash-generation

IQE has established its global leadership position through a combination of organic growth and acquisitions which has resulted in a geographically diverse manufacturing base.

Our product portfolio also spans a number of key markets which is reflected across a number of market-focussed business units.

Our multiple manufacturing facilities around the world have served the Group well by providing continuous manufacturing capabilities and de-risking our customers supply chains, giving IQE a unique competitive advantage. Our facilities, which all operate 24/7, also allow us to service our customers’ needs at a regional level.

Transferring manufacturing operations between manufacturing sites involves complex and lengthy qualification processes but once fully established, the multiple-site manufacturing capabilities cannot be matched by our competitors and become effective barriers to entry.

The operation of manufacturing facilities across different jurisdictions also allows targeted deployment of new and emerging technologies that could be subject to import/export restrictions in some territories, allowing the Group to engage in a wide range of technological areas.

During the last two-years, great efforts have been made to consolidate our research, development and manufacturing activities enabling the transfer of technologies and processes which in turn have led to the closure of our activities in Bath, UK and Somerset, New Jersey with activities being transferred to other IQE facilities whilst maintaining consistency of supply with our customer base.

Whilst it is intended to maintain specialist manufacturing and development activities at some IQE sites, we have been implementing a long-term strategy to focus our high-volume manufacturing at four key “production-optimized” facilities in Greensboro (North Carolina), Taunton (Massachusetts), Hsinchu (Taiwan) and our new flagship operation in Newport (Wales, UK).

In terms of our markets, we are also focussing on our three primary sectors of wireless (connectivity, 5G), photonics (sensors, optical communications) and infrared (high-end imaging, healthcare technologies). The remaining three sectors of power (power control and switching), solar (space PV, concentrated PhotoVoltaics/CPV) and CMOS++ (advanced, next generation Compound Semicoductor on Silicon technologies) will be combined under an “emerging technologies” umbrella to provide a focus on next-generation applications, and provide an efficient route to market.


Stepping up a gear

The last two years have seen unprecedented progress in the Group’s expansion of its high-volume manufacturing capacity and capabilities. Our investment in capacity expansion is clearly focussed on servicing a number of new and emerging high-growth markets.

By far the largest single expansion has been at our new mega-foundry in Newport, Wales, UK which was initiated by IQE in September 2017.

The 30,000m2 building was originally constructed by the Welsh Government in 1998 to serve as a silicon technology packaging and test centre for a major global semiconductor company as part of a programme to attract inward investment into the UK. The inward investment project was never completed and the building remained unoccupied until it was acquired in September 2017 by the Cardiff Capital Region and subsequently leased by IQE.

Since taking on the lease of the building as an empty shell, IQE has completed the first phase of construction of cleanrooms and services for up to 20 MOCVD tools, of which, the first 10 tools have been installed and are in various stages of commissioning and qualification.

In addition to the internal cleanrooms and supporting services, the initial construction phase has included external facilities for deliveries, storage, access and car parking that will also support future expansion.

When fully occupied, the Newport facility will have the capacity to house up to 100 high-volume production tools comprising a mixture of platforms (MOCVD and MBE). To put this into perspective, prior to the start of the current expansion plan, the Group operated around 100 legacy tools across its entire global facilities, so the expansion when completed will create almost three times the manufacturing capacity .

The initial phase of construction at the Newport facility is dedicated to photonics for a diverse range of sensor applications.

In addition to the new flagship facility in Newport, our expansion program also includes the installation of additional wireless capacity in Hsinchu (Taiwan), expansion of our gallium nitride (GaN) capacity in Taunton (Massachusetts) as well as additional capacity for our gallium antimonide (GaSb) and indium antimonide (InSB) infrared production lines in Milton Keynes.

2018 also saw the completion of the migration of production of GaN from our Somerset, New Jersey facility to our Taunton Massachusetts site, a process requiring complex process and customer re-qualifications whilst maintaining consistency of supply to our customer base. The transfer was completed at the end of of the year with the subsequent closure of the New Jersey facility expected to result in annual operating savings of $4M per annum from 2019.

A further consolidation during 2018 was the relocation of research and development activities from Bath, UK to our facility in Cardiff, Wales, UK.

Further operating efficiencies are expected to be achieved through merging and consolidating existing operational facilities over time. Continuous improvement is an ongoing process across IQE’s global operations, with numerous programmes under way at any given time.


The Group has established external market facing business units within the organisation. The three primary business units are: wireless, photonics and infrared. We also have an Emerging Technologies unit that includes Solar, Power, Silicon and advanced Compound Semiconductor on Silicon technologies.

Each of our business units has a clear product and customer focus, but continues to benefit from the production and technology synergies of the whole Group. The emerging technologies of Solar, Power and CMOS++ are in pre-production and hence are not yet significant enough to be separated in our segmental reporting.

WIRELESS (including 5G)

The wireless market covers electronic radio-frequency (RF) devices that enable wireless communications. Our markets include, but are not limited to, mobile communications (smartphones), base stations, mobile networks, WiFi, smart metering, satellite navigation, and a plethora of other connected devices.

Our products will play an increasingly important role in enabling 5G systems and connected devices globally.

For over a decade, compound semiconductors have been the key enabling technology for mass market applications such as smartphones, wifi and wirelessly connected devices thanks to their high-speed and high-performance capabilities.

IQE is the clear market leader in compound semiconductor wafers for wireless applications with an estimated 55%-60% share of this global market.

After the first smartphone was launched in 2007, the wireless market enjoyed several years of double-digit organic growth, as the launch of newer, faster and more powerful devices enticing consumers to upgrade to the latest models. However, since 2013 the innovation cycle appeared to have slowed and market growth has cooled. According to industry analyst IDC, overall smartphone shipments had stagnated since 2016 with sales in 2018 showing a 3% decline but expected to return to growth in 2019.

Whilst smartphone sales volumes may have declined, the relentless increase in data traffic continues to drive the need for more sophisticated wireless chip solutions in handsets. It is anticipated that this will drive the market towards 5G connectivity sooner rather than later, which provides significant upside potential for IQE’s wireless business as the transition will require much more complex material technologies.

Furthermore, infrastructure applications such as base stations, radar and CATV are likely to become an increasingly important part of IQE’s wireless business as the superior performance of our materials technology continues to displace the incumbent silicon LDMOS technology.

The fastest growing segment of the wireless chip market over the past few years has been for high performance filters.  Although the primary materials technology for filters (aluminium nitride, or AlN) is made from compound semiconductor elements, the wafers have been fabricated using a much less sophisticated “sputtering” process.

Employing its new cREO process, IQE has overcome some challenges to produce prototypes of single crystal AlN wafers for 5G filter applications and are engaged with multiple potential customers with this potentially disruptive high-performance solution.

Wireless sales grew 6.6% year-on-year and the sector accounted for 62% of the Group’s sales in 2018.


The photonics market covers applications that either transmit or sense light. A number of optical communications and sensing applications depend on the ability to emit or receive light.

Emitters include laser and LED based devices that transmit light. Lasers broadly further sub-divide into edge emitters and surface emitters.  Edge-emitting lasers represent the base technology that has been traditionally used in applications such as optical communications and CD/DVD storage devices.  Surface emitting lasers are highly complex epitaxial structures that allow light to be emitted vertically rather than horizontally.

Photonics products made using IQE’s advanced semiconductor materials enable a wide range of end markets in consumer, communications and industrial applications.

IQE is a world leader in Photonics technologies generally, but two in particular have been at the heart of IQE’s growth in recent years: VCSELs and indium phosphide (InP) products.

Vertical Cavity Surface Emitting Lasers (“VCSEL”) are the key enabling technology behind a number of high growth markets including 3D sensing, data communications, data centres, gesture recognition, health, cosmetics, illumination and heating applications.

IQE is the market leader for outsourced VCSEL materials, which has been achieved by virtue of its technology leadership.  This includes the demonstration of VCSELs with record speeds, efficiencies and temperature performance.  In addition, with its 6-inch / 150mm wafer capability IQE has been successful at enabling its customers to reduce significantly the unit cost of chips which is accelerating the adoption of this technology.  

Advanced sensing technologies, from face recognition, to gesture recognition, LIDAR and machine vision, will represent a major growth area in the near term and extending into the future.

IQE has built a strong technical lead in this market, which combined with its unparalleled track record for mass market delivery, positions IQE well for continuing strong growth.

Whilst VCSELs have been the centre of attention, our InP business continues to provide solid performance, being driven by the need for higher speed, higher capacity fibre optic systems to address continuing growth in data traffic. 

Our InP technologies enables fibre to the premises (FTTX). The deployment of of this technology to achieve higher performance at lower costs, coupled with the continuing growth in data traffic is leading to the extension of the fibre optic network “to the premises” (also known as “the last mile”). IQE’s advanced laser technologies with differentiated IP underpins its high growth expectations for this business.

The proportion of sales generated from photonics products accounted for 28% of the Group’s wafer sales in 2018, up from 31% in 2017.


Although similar in nature to our photonics business, infrared applications tend to specialise in safety, security and defence applications that deploy indium antimonide (InSb) and gallium antimonide (GaSb) engineered materials that enable high resolution, long wavelength infrared systems.

IQE is the undisputed global leader in the supply of indium antimonide and gallium antimonide wafers for advanced infrared technology - primarily “see in the dark” defence applications.

Whilst key markets are currently limited to defence applications, IQE is actively engaged with tier 1 OEMs working on major new opportunities to migrate mid to far infrared technologies into consumer markets.

We are the technology leader with the launch of the industry’s first 6-inch / 150mm indium antimonide wafers, a major milestone in reducing the overall cost of chips to drive increasing adoption. This has enabled the business to secure several contract wins and drive sales growth.

Beyond defence, the InfraRed division has been successful in broadening its customer engagements into product development for mass market consumer applications. Indeed, we are now engaged with major OEM and device companies in developing InfraRed products for consumer applications including sensing.  This provides potential for higher growth rates, and therefore we will highlight new technologies as these reach commercial adoption.

Infrared sales accounted for 8.4% of the Group’s sales in 2018 up from 7.8% in 2017.


Although not reported as separate business unit activities, IQE operates in a number of new and emerging technology areas including solar energy, efficient power conversion and integration of compound semiconductors with advanced silicon processes.


Compound semiconductor technologies provide a route to highly efficient solar energy harvesting. The prevalent solar technology is based on silicon which typically achieves a conversion of less than 18% of the suns energy into electricity.

IQE has been at the centre of developing solar materials using compound semiconductors, which can deliver much higher levels of efficiency.  This technology, which is also known as Concentrating Photovoltaics, or “CPV”, can already deliver efficiencies in excess of 45% and has a route map to much higher levels of efficiency.   Although this offers a lower overall cost of energy generation in sunny territories, the challenge in mass adoption is in reducing the end system install costs, which has been hampered by global macroeconomics.

The terrestrial market remains an exciting market opportunity, but as a result of the shifting macroeconomics, focus has shifted to the space market, where these advanced materials are used to power satellites where the higher efficiency has a dramatic cost benefit on payload. Product qualifications are underway with leading satellite manufacturers, paving the way for commercial revenues, therefore we will highlight new technologies as these reach commercial adoption.


Gallium Nitride on Silicon (GaN on Si) is driving a technology shift in the multi-billion dollar power switching and LED markets.  IQE has continued to push the technology boundaries and is making rapid progress both technically and in developing commercial relationships in the supply chain. The power switching market alone is approximately 3-4 times the size of the current wireless power amplifier chip market, and represents a major growth opportunity for IQE.   IQE’s patented technology, cREO, provides a significant competitive advantage in this space. We will highlight new technologies as these reach commercial adoption.


The CMOS++ business unit focusses on advanced semiconductor materials related to silicon including the combination of the advanced properties of compound semiconductors with those of lower cost of silicon technologies.

The key advantages of compound semiconductors are that they:

  • are much more efficient at emitting and processing high-speed wireless signals
  • are much more efficient at emitting and sensing light
  • operate at much higher speeds and lower power consumption

It is these advanced properties which determine the top level high margin markets for our materials.

Future semiconductor technology architectures are moving strongly toward hybrid integrated chips using a combination of traditional CMOS based chips with compound semiconductor chips, all built on a silicon base wafer. This provides the market with the significant technical advantages of compound semiconductors at the cost point of silicon, and allows the CS industry to utilise the huge investment already made into large scale Silicon chip manufacturing. As a result, this greatly increases the available market for compound semiconductors. IQE has developed multiple routes to delivering this powerful new hybrid, and the addition of cREO and other IP provides unique solutions to achieving the end goal. IQE is involved in multiple programmes across the globe, which are developing the core technologies from which we expect highly significant revenue streams to emerge over the next 3-5 years.

As advanced materials technologies enter mass adoption across multiple markets, we are approaching a paradigm shift with the merging of compound semiconductor and silicon technologies on the horizon. IQE is well positioned to be a pioneer of the compound materials on silicon (CMOS) generation.


Year of opportunity

The Group’s unique strength in the expanding compound semiconductor market, position it well for future growth. In order to capitalise on this opportunity and maintain market leadership, the Group has been investing in capacity since FY17. With the New Jersey site closure, capacity expansion projects in Massachusetts and Taiwan and commencement of production of the Epi-foundry in Newport all completing in H1 FY19, the Group has made significant progress in positioning itself for operational execution at scale.

Given the market opportunity and the Group’s operational readiness, the outlook for FY19 and beyond remains strong. In the short term there are headwinds in the form of (i) the unwind of inventory levels in the VCSEL supply chain given the sudden disruption experienced in Q4 FY18 and (ii) the general market softness in the semiconductor industry in general and specifically in the mobile handset market. These headwinds will affect the revenues and profitability of the Group in the first half of FY19. The Board believes this is a temporary impact and there are strong signs that significant growth can be achieved in the second half of the FY19 and into FY20 in both the Group’s Photonics and Wireless business units. The key drivers for this growth will be (i) broader adoption of 3D sensing VCSELs across multiple devices and multiple OEMs and (ii) anticipated 5G technology deployments into products and infrastructure.


IQE provides the following revenue guidance (on a $USD constant currency basis) for FY19, FY20 and over a 5 year horizon:

RevenueFY19FY205 year CAGR
Year on Year Revenue growth rates
(constant currency)
Wireless: ~ (15)%
Photonics: > 50%
Infra Red: ~ +15%
Total IQE: ~+9%
Wireless return to growth
Continued Photonics growth
Consistent growth in Infra Red

Wireless: 0-20%
Photonics: 40%
Infra Red: 5-15%


The H1:H2 split of revenues is currently expected to be ~ 40:60 for FY19, being influenced by the handset market softness in H1 and expected completion of Photonics customer qualifications in H1, leading to higher production volumes in H2.

IQE expects to generate an Adjusted Operating Margin of over 10% of revenues in FY19, with H1 in particular being affected by general market softness and high levels of customer qualification work associated with future revenue streams. Operating Profits are expected to increase towards the end of FY19 and for FY20 and beyond due to the expanding revenue opportunity and the Group’s ability to drive industry leading production yield.

To fuel this growth, the Group continues to be committed to investing in capacity. Capital expenditure of ~£40m will be spent in 2019 in order to ensure the growing revenue opportunities can be captured.

The Group provides the following guidance on Adjusted Operating Margins, Capex, Capitalisation of Development Costs and Tax:

 FY19FY203-5 year view
Group Adjusted Operating MarginOver 10%Margins expected to increase over the medium term as revenues and production yields increase
Capex~ £40m~ £15m In line with business opportunity
Capitalisation of Development Costs£10m to £15m per annum
TaxEffective Tax Rate ~ 18%
Cash Tax ~ £1-2m

Dr Drew Nelson OBE, DSc, FREng, FLSW
President & Chief Executive Officer
20 March 2019


Consolidated income statement for the year ended 31 December 2018


Revenue 156,291 154,553 
Cost of sales (118,840)(115,755)
Gross profit 37,451 38,798 
Other income and expenses 1,097 - 
Selling, general and administrative expenses (29,888)(21,582)
Loss on disposal of property, plant and equipment - (22)
Operating profit 8,660 17,194 
Finance income / (costs) 87 (2,099)
Share of losses of joint ventures accounted for using the equity method (2,000)- 
Adjusted profit before income tax 13,974 24,515 
Adjustments (7,227)(9,420)
Profit before income tax 6,747 15,095 
Taxation (5,558)(435)
Profit for the year 1,189 14,660 
Profit attributable to:  
Equity shareholders966 14,560 
Non-controlling interest223 100 
 1,189 14,660 
Earnings per share attributable to owners of the parent during the year   
Basic earnings per share 0.13p2.11p
Diluted earnings per share 0.12p1.98p

Consolidated statement of comprehensive income for the year ended 31 December 2018


Profit for the year 1,18914,660 
Currency translation differences on foreign currency net investments* 11,140(10,948)
Total comprehensive income for the year 12,3293,712 
Total comprehensive income attributable to:   
Equity shareholders 12,0103,640 
Non-controlling interest 31972 

* Items that may be subsequently be reclassified to profit or loss.

Consolidated balance sheet as at 31 December 2018           


Non-current assets   
Intangible assets 121,775 108,513 
Fixed asset investments 75 75 
Property, plant and equipment 124,445 90,800 
Deferred tax assets 13,244 17,768 
Financial Assets 7,937 7,680 
Total non-current assets 267,476 224,836 
Current assets   
Inventories 35,709 33,044 
Trade and other receivables 38,015 33,269 
Cash and cash equivalents 20,807 45,612 
Total current assets 94,531 111,925 
Total assets 362,007 336,761 
Current liabilities   
Trade and other payables (45,908)(43,172)
Current tax liabilities (431)(210)
Borrowings - - 
Provisions for other liabilities and charges (2,554)(1,534)
Total current liabilities (48,893)(44,916)
Non-current liabilities   
Borrowings - - 
Provisions for other liabilities and charges (3,836)(666)
Total non-current liabilities (3,836)(666)
Total liabilities (52,729)(45,582)
Net assets 309,278 291,179 
Equity attributable to the shareholders of the parent    
Share capital 7,767 7,560 
Share premium 151,147 145,927 
Retained earnings 99,299 98,333 
Other reserves 47,517 36,130 
  305,730 287,950 
Non-controlling interest 3,548 3,229 
Total equity 309,278 291,179 

Consolidated statement of changes in equity for the year ended 31 December 2018

 Share capitalShare premiumRetained earningsExchange rate reserveOther reservesNon-controlling interestsTotal equity
At 1 January 20187,560145,92798,33320,06916,061 3,229291,179 

Comprehensive income
Profit for the year--966-- 2231,189 
Other comprehensive income for the year---11,044- 9611,140 
Total comprehensive income for the year--96611,044- 31912,329 
Transactions with owners       
Share based payments----1,826 -1,826 
Tax relating to share options----(437)-(437)
Proceeds from shares issued2075,220--(1,046)-4,381 
Total transactions with owners2075,220--343 -5,770 
At 31 December 20187,767151,14799,29931,11316,404 3,548309,278 

Consolidated statement of changes in equity for the year ended 31 December 2017


Share capitalShare premiumRetained earningsExchange rate reserveOther reservesNon-controlling interestsTotal equity
At 1 January 2017 - restated 6,755  51,08183,77330,989 12,263 3,157 188,018 

Comprehensive income
Profit for the year--14,560- - 100 14,660 
Other comprehensive income for the year---(10,920)- (28)(10,948)
Total comprehensive income for the year--14,560(10,920)- 72 3,712 
Transactions with owners       
Share based payments---- 3,854 - 3,854 
Tax relating to share options---- 683 - 683 
Proceeds from shares issued80594,846-- (739)- 94,912 
Total transactions with owners80594,846-- 3,798 - 99,449 
At 31 December 2017 - restated7,560145,92798,33320,069 16,061 3,229 291,179 

Consolidated cash flow statement for the year ended 31 December 2018

Cash flows from operating activities   
Adjusted cash inflow from operations 16,982 31,089 
Cash impact of adjustments 6 (1,372)
Cash generated from operations 16,988 29,717 
Net interest paid (66)(2,125)
Income tax paid (665)(5,844)
Net cash generated from operating activities 16,257 21,748 
Cash flows from investing activities   
Purchase of property, plant and equipment (30,375)(11,260)
Purchase of intangible assets (1,550)(2,419)
Capitalised development expenditure (10,437)(14,511)
Net cash used in investing activities (42,362)(28,190)
Cash flows from financing activities   
Proceeds from issuance of ordinary shares 813 94,912 
Proceeds from borrowings - 27,864 
Repayments of borrowings - (75,430)
Net cash generated from financing activities 813 47,346 
Net (decrease)/increase in cash and cash equivalents (25,292)40,904 
Cash and cash equivalents at 1 January 45,612 4,957 
Exchange gains / (losses) on cash and cash equivalents 487 (249)
Cash and cash equivalents at 31 December 20,807 45,612 

Notes to the results

General information

The company is a public limited company admitted to trading on AIM, a market operated by The London Stock Exchange plc and incorporated and domiciled in England and Wales. The address of its registered office is Pascal Close, St Mellons, Cardiff, CF3 0LW.

  1. Basis of preparation

The financial statements of IQE plc have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations adopted by the European Union and in accordance with the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention except where fair value measurement is required by IFRS.

  1. Changes in accounting policy and disclosures

New standards, amendments and interpretations.

The following new standards, amendments and interpretations have been adopted by the Group for the first time for the financial year beginning on 1 January 2018:

  • Annual improvements 2014 – 2016 cycle
  • Amendment to IFRS 2, ‘Share based payments’ which clarifies the classification and measurement of certain share based payment transactions
  • IFRS 9 ‘Financial instruments’
  • IFRS 15 ‘Revenue from contracts with customers’
  • Amendments to IAS 40, ‘Investment Property’ which clarifies that transfers to, or from, investment property can only be made if there has been a change in use that is supported by evidence
  • Interpretation 22 ‘Foreign Currency Transactions and Advance Consideration’ which clarifies how to determine the date of transaction for the exchange rate to be used on initial recognition of a related asset, expense or income where an entity pays or receives consideration in advance for foreign currency-denominated contracts.

The adoption of these standards, amendments and interpretations has not had a material impact on the financial statements of the Group or parent company, except for the adoption of IFRS 15 ‘Revenue from contracts with customers’ where the impact of adoption of this new standard is set out below.

IFRS15 ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. 

The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction Contracts’, and related interpretations and is effective for annual periods beginning on or after 1 January 2018.

The Group has adopted IFRS 15 ‘Revenue from contracts with customers’ using the retrospective method with the practical expedient for completed contracts. The comparative financial information contained in the financial statements for the twelve months ended 31 December 2017 has been restated.

Implementation of IFRS 15, ‘Revenue from contracts with customers’ has resulted in changes in the recognition of revenue in circumstances where the Group produces bespoke customer products with a guaranteed contractual right to payment. In these situations revenue is recognised on an over time basis earlier in the manufacturing process than was historically the case where revenue was typically recognised on delivery and acceptance of the goods by the customer.

The comparative financial information as at and for the twelve months ended 31 December 2017 has been restated to reflect the impact of this change in accounting policy. Brought forward retained earnings at 1 January 2017 in the balance sheet and statement of changes in equity have been restated by £191,000 and brought forward other reserves at 1 January 2017 in the balance sheet and statement of changes in equity have been restated for the impact of foreign exchange by £4,000. Revenue in the income statement for the twelve month period has been restated to include a net credit of £73,000 and cost of sales has been restated to include an additional net credit of £102,000 with an associated reduction in inventory of £663,000, increase in contract assets of £1,029,000 and foreign exchange impact in other reserves of £4,000 recorded in the balance sheet.

The adjustment has increased net assets at 31 December 2017 by £366,000 and is summarised in the tables below.

Impact on the condensed consolidated Income statement for the 12 months ended 31 December 2017ReportedOpening IFRS 15Closing IFRS 15Restated
2017 2017 2017 2017 
Revenue154,480 (956)1,029 154,553 
Cost of sales(115,857)765 (663)(115,755)
Gross profit38,623 (191)366 38,798 
Operating profit17,019 (191)366 17,194 
Profit before tax14,920 (191)366 15,095 
Income tax expense(435)- - (435)
Profit for the period14,485 (191)366 14,660 

Impact on the condensed consolidated balance sheet as at 31 December 2017ReportedOpening IFRS 15Closing IFRS 15Restated
 2017 2017 2017 2017 
Non-current assets224,836 - - 224,836 
Inventories33,707 - (663)33,044 
Trade and other receivables32,240 - 1,029 33,269 
Cash and cash equivalents45,612 - - 45,612 
Total assets336,395 - 366 336,761 
Current liabilities(44,916)- - (44,916)
Non-current liabilities(666)- - (666)
Total liabilities(45,582)- - (45,582)
Net assets290,813  -  366  291,179  
Retained earnings at 1 January83,582 191 - 83,773 
Profit for the period14,385 (191)366 14,560 
Retained earnings at 31 December97,967 - 366 98,333 
Other reserves192,846 - - 192,846 
Total equity290,813  -  366  291,179  

New standards, amendments and interpretations issued but not effective and not adopted early

A number of new standards, amendments to standards and interpretations which are set out below are effective for annual periods beginning after 1 January 2019 and have not been applied in preparing these consolidated financial statements.

  • IFRS 16 ‘Leases’
  • IFRS 17 ‘Insurance contracts’
  • Amendments to IAS 19 ‘Employee Benefits’ which clarifies the accounting for defined benefit plan amendments, curtailments and settlements.
  • Amendment to IAS 28 ‘Investments in associates and joint ventures’ which clarifies the accounting for long-term interests in an associate or joint venture, which in substance form part of the net investment in the associate or joint venture, but to which equity accounting is not applied
  • Amendments to IFRS 10 ‘Consolidated financial statements’ and IAS 28 ‘Investments in associates and joint ventures’ which clarifies the accounting treatment for sales or contribution of assets between an investor and its associates or joint ventures.
  • Interpretation 23 ‘Uncertainty over Income Tax Treatments’ which explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment.

The Directors anticipate that none of the new standards, amendments to standards and interpretations is expected to have a significant effect on the financial statements of the Group or parent company, except for IFRS 16 ‘Leases’.

IFRS16 ‘Leases’ addresses the definition of a lease, the recognition and measurement of leases and establishes principles for reporting useful information to users of financial statements about the leasing activities of both lessees and lessors. A key change arising from IFRS 16 is that most operating leases will be accounted for on balance sheet for lessees. The standard replaces IAS 17 ‘Leases’, and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2019.

The Group currently leases a number of assets principally relating to property, including the newly constructed Newport facility as well as leasing property, plant and equipment from its joint venture, Compound Semiconductor Centre under operating leases.

The adoption of IFRS 16 will have a significant impact on the financial statements as the standard will require operating leases to be accounted for through the recognition of a right of use asset and a corresponding lease liability where certain criteria are met. In adopting the new standard the Group will adopt IFRS16 using the modified retrospective approach and apply the following practical expedients on a lease-by-lease basis to its portfolio of leases:

  • Application of a single discount rate to the portfolio of property and plant leases that are deemed to have reasonably similar characteristics;
  • Adjustment to the asset associated with the leased Singapore manufacturing facility on transition by the amount of the previously recognised onerous lease provision as an alternative to performing an impairment review;
  • Application of recognition and measurement exemptions for all leases where the lease term ends within 12 months or fewer of the date of initial application and account for those leases as short-term leases;
  • Application of hindsight in applying the new standard to determine the lease term where lease contracts contains option to extend or terminate the lease; and
  • Exclusion of any initial direct costs in the measurement of the right of use asset.

The impact on adoption of IFRS16 at 1 January 2019 will be to increase non-current assets by £45,854k (net of the previously recognised Singapore onerous lease of £5,256k) for the recognition of a right of use asset and increase liabilities by £51,110k for the recognition of a lease liability.

  1. Segmental analysis

The Chief Operating Decision Maker is defined as the executive directors. The executive directors consider that the Wireless, Photonics, Infra-red and CMOS++ markets are the Group’s primary reporting segments. The executive directors assess the performance of these operating segments based on their adjusted operating profit.

Further detail on the nature of the segments is provided in the Strategic Report.


Revenue    £’000£’000
Wireless    97,754 91,666 
Photonics    43,819 47,676 
Infra-Red    13,096 11,955 
CMOS++    1,622 1,382 
Total Segment Revenue    156,291  152,679 
License income from sales to joint ventures    - 1,874 
Total Revenue    156,291  154,553 
Adjusted operating profit      
Wireless    11,896 13,736 
Photonics    11,495 18,355 
Infra-Red    3,396 3,259 
CMOS++    (1,295)(1,677)
Central corporate costs    (9,452)(9,013)
Segment adjusted operating profit    16,040  24,660 
Profit from license income from sales to joint ventures    - 1,874 
Adjusted operating profit    16,040  26,534 
Adjusted items (see note 5)    (7,380)(9,340)
Operating profit    8,660  17,194 
Share of losses of joint venture accounted for using the equity method    (2,000)- 
Finance income / (costs)    87 (2,099)
Profit before tax    6,747  15,095 

  1. Adjusted profit measures

The Group’s results report certain financial measures after a number of adjusted items that are not defined or recognised under IFRS including adjusted operating profit, adjusted profit before income tax and adjusted earnings per share. The Directors believe that the adjusted profit measures provide a more useful comparison of business trends and performance and allow management and other stakeholders to better compare the performance of the Group between the current and prior year, excluding the effects of certain non-cash charges and one-off or non-operational items. The Group uses these adjusted profit measures for internal planning, budgeting, reporting and assessment of the performance of the business.

The tables below show the adjustments made to arrive at the adjusted profit measures and the impact on the Group’s reported financial performance.

 2018 2017 
(All figures £’000s)Adjusted
Revenue156,291 - 156,291 154,553 -  154,553  
Cost of sales(119,536)696 (118,840)(110,738)(5,017)(115,755)
Gross profit36,755 696 37,451 43,815 (5,017)38,798  
Other income- 1,097 1,097 - - - 
Profit on disposal of PPE- - - (22)- (22)
Operating profit16,040 (7,380)8,660 26,534 (9,340)17,194  
Share of JV losses(2,000)- (2,000)- - - 
Finance costs(66)153 87 (2,019)(80)(2,099)
Profit before tax13,974 (7,227)6,747 24,515 (9,420)15,095  
Taxation(2,745)(2,813)(5,558)483 (918)(435)
Profit for the period11,229 (10,040)1,189 24,998 (10,338)14,660  

 2018 2017 
(All figures £’000s)Pre tax
Pre tax
Share based payments1,044 (3,607)(2,563)(7,526)5,439 (2,087)
Amortisation of acquired intangibles(518)109 (409)(1,429)563 (866)
Restructuring(3,337)701 (2,636)- - - 
Insurance income1,097 (197)900 - - - 
Patent dispute legal fees(1,262)227 (1,035)- - - 
Onerous property lease(4,404)- (4,404)- - - 
Discounting153 (46)107 (80)14 (66)
Non cash rent charge- - - (385)69 (316)
Change in US tax rate- - - - (7,003)(7,003)

The comparative financial information for the year ended 31 December 2017 has been restated.

The nature of the adjusted items is as follows:

  • Share based payments – The credit (2017: charge) recorded in accordance with IFRS 2 ‘Share based payment’, of which £696k (2017: £5,017k charge) has been classified within cost of sales in gross profit and £348k (2017: £2,509k charge) has been classified as selling, general and administrative expenses in operating profit. The charge is non-cash.
  • Amortisation of acquired intangibles – The amortisation of customer contract intangible assets which arose in respect of fair value exercises associated with previous acquisitions. The charge of £518k (2017: £1,429k) has been classified as selling, general and administrative expenses within operating profit and is non-cash.

  • Restructuring – The charge relates to the closure of the Group’s manufacturing facility in New Jersey, USA and the transfer of the associated trade and assets to the Group’s manufacturing facility in Massachusetts, USA. Cash costs, none of which have has been defrayed in 2018 total £1,134k and comprise severance and reactor decommissioning costs with non-cash costs of £2,203k relating to asset impairments. The charge has been classified as selling, general and administrative expenses within operating profit.
  • Insurance income – The income relates to insurance proceeds received following the death of the Chief Financial Officer, Phillip Rasmussen, in April 2018. Obligations payable to Phillip Rasmussen’s estate and fees associated with the recruitment of Phillip Rasmussen’s successor totalling £1,037k (2017: £nil), of which £589k has been defrayed in 2018 have been netted off the gross insurance proceeds of £2,134k (2017: £nil). The net insurance proceeds have been classified as other income within operating profit.
  • Patent dispute legal costs – The charge relates to legal fees incurred in respect of a patent dispute defence. Costs of £1,262k (2017: £nil), of which none has been defrayed in 2018 have been classified within selling, general and administrative expenses within operating profit.
  • Onerous property lease - A provision for an onerous property lease was made in 2014 following the restructuring of the Group’s operations in Singapore. The provision for unused and unlet space at the manufacturing site has been reassessed in the current year and extended to the end of the lease obligation in 2022.The extension of the onerous lease provision has resulted in a charge of £4,404k which has been classified within selling, general and administrative expenses within operating profit. Cash costs associated with the annual rental for the unused and unlet space total £1,539k. 
  • Discounting – This relates to the unwind of discounting on long term financial assets of £257k (2017: £235k) and the unwinding of discounting on long term liabilities of £104k (2017: £155k). Discounting is non-cash and has been classified as finance costs within profit before tax.
  • Non-cash property rent charge – The charge associated with rent free periods on leased property (New foundry in Newport) classified as selling, general and administrative expenses within operating profit in the prior period (2017: £385k) has been included as part of the on-going commissioning cost of the foundry in 2018. The charge is non cash.
  • Change in US tax rate – This refers to a deferred tax charge of £nil (2017: £7,003k) relating to the impact of the change in US Federal tax rates from 35% to 21% and the associated reduction in value of the Group’s US deferred tax asset.

The cash impact of adjusted items in the consolidated cash flow statement represents the cash costs defrayed in 2018 in respect of net insurance proceeds (£1,545k income) and the annual rental associated with the onerous property lease provision (£1,539k payment).

Adjusted EBITDA (adjusted earnings before interest, tax, depreciation and amortisation) has been calculated as follows:


Profit attributable to equity shareholders 966   14,560
Non-controlling interest 223 100
Finance (income) / costs (87)2,099
Tax 5,558 435
Depreciation of property, plant and equipment 6,773 5,637
Amortisation of intangible fixed assets 6,109 6,388
Loss on disposal of fixed assets - 22
Share based payments (1,044)7,526
Adjusted Items 7,906 385
Restructuring 3,337 -
Insurance income (1,097)-
Patent dispute legal costs 1,262 -
Onerous property lease 4,404 -
Non cash property lease charge - 385
Adjusted EBITDA 26,404 37,152
  1. Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. 

Diluted earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of shares and the dilutive effect of ‘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 year. 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. 

The directors also present an adjusted earnings per share measure which eliminates certain adjusted items in order to provide a more meaningful measure of underlying profit.  The adjustments are detailed in note 4.



Profit attributable to ordinary shareholders96614,560
Adjustments to profit after tax (note 5)10,04010,338
Adjusted profit attributable to ordinary shareholders11,00624,898
Weighted average number of ordinary shares761,750,145689,537,776
Dilutive share options37,072,89247,142,160
Adjusted weighted average number of ordinary shares798,823,037736,679,936
Adjusted basic earnings per share1.44p3.61p
Basic earnings per share0.13p2.11p
Adjusted diluted earnings per share1.38p3.38p
Diluted earnings per share0.12p1.98p

  1. Cash generated from operations

Profit before tax6,747 15,095 
Finance costs(87)2,099 
Depreciation of property, plant and equipment6,773 5,637 
Amortisation of intangible assets6,109 6,388 
Loss on disposal of fixed assets- 22 
Impairment of property, plant & equipment1,651 - 
Non-cash provision movements5,495 - 
Non cash rent charges on rent free periods on leased property- 385 
Share based payments(1,044)7,526 
Cash inflow from operations before changes in working capital25,644 37,152 
Increase in inventories(1,387)(6,506)
Increase in trade and other receivables(4,032)(6,822)
(Decrease) / increase in trade and other payables(3,237)5,893 
Cash inflow from operations16,988 29,717 

a d v e r t i s e m e n t