TIDMIQE
Embargoed until 7 am on 21 March 2017
IQE plc
Final Results
Record revenues, profits and cash generation reflect the strength of
IQE's IP portfolio, which is delivering continued growth across a
diverse range of applications and markets
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 final results for the year ended 31 December 2016.
GBP' Million (except EPS) 2016 2015 Change
Revenue 132.7 114.0 16.4%
Adjusted(*) Operating Profit 22.1 18.9 16.6%
Adjusted(*) Profit Before Tax 20.6 17.6 17.4%
Adjusted(*) Fully Diluted EPS 3.0p 2.6p 15.4%
Cash generated from operations 22.5 20.9 7.1%
Capital investment (tangible plus intangible) 19.1 10.0 90.6%
Leverage (net debt + deferred consideration) 39.5 40.4 -2.0%
Financial highlights
-- Strong financial performance with continued double digit growth in
revenues and profits
-- Revenues up 16% to GBP132.7m (PY GBP114.0m), reflects multiple growth
drivers and currency benefits in H2
-- Adjusted* operating profit up 17% to GBP22.1m
-- Adjusted* fully diluted EPS up 15% to 3.0p
-- Strong conversion of adjusted* operating profit into operating cash of
102% (PY: 111%)
-- Capital investment increased to GBP19.1m to address near term growth
opportunities (PY GBP10.0m)
-- Deferred consideration from previous acquisitions settled in full (PY
GBP17.1m outstanding)
-- Total leverage reduced by 2% to GBP39.5m (19% reduction in constant
currency)
* Adjustments reflect non-cash charges and exceptional items as
detailed in note 4
Operational highlights
-- Diverse range of growth drivers and end markets enables 19% growth in
wafer sales, reflecting organic growth in all markets, supplemented by a
currency tailwind in H2
-- Photonics revenues up 43% to GBP22.8m
-- Wireless revenues up 15% to GBP91.3m
-- InfraRed revenues up 19% to GBP10.6m
-- US dollar strengthened 11% against sterling in H2 following Brexit
vote in June
-- License income of GBP6.7m higher than expected, but lower than prior year
(GBP8.0m) which included a significant element of upfront income.
-- Direct engagement with multiple Tier 1 OEMs reflect IQE's strong IP
position and the increasing importance of epitaxial IP as a key enabling
technology within electronic systems;
-- Major milestones achieved in 2016, enabled by IQE's growing portfolio of
leading edge IP, provide a positive lead indicator of significant growth
opportunities ahead :
-- Key milestones delivered on several major photonics programmes
during H2 2016, providing significant growth opportunities for
2017 and beyond;
-- Excellent progress with new cREO technology delivers some early
wins, including delivering a step change in GaN on Silicon
technology (the elimination of "parasitic channel"), and
engagement in development programmes for advanced RF filter
applications;
-- A key customer is engaged in end market qualification using IQE's
GaN on Silicon material, signifying that this technology is close
to commercialisation; and
-- Significant contract wins in InfraRed, and progress in a number of
development programmes underpin the continued growth of this
business, and progress towards new high volume applications.
-- Positive market dynamics, including increasing M&A and sector investment,
reflect the increasing focus on compound semiconductors as a critical
enabling technology to major growth themes, including high speed
communication, the "internet of things", big data, advanced medical
technology, energy efficiency, and autonomous vehicles.
-- Good progress by IQE's Joint Ventures in the UK and Singapore mark key
milestones in their development as centres of excellence in driving
innovation and commercialisation of advanced CS technologies. The UK
Joint Venture was a catalyst to securing c.GBP300m of funding towards the
continued development of a UK CS Cluster, and the Singapore JV has been
selected as a partner in a major programme for CS on silicon technology.
Dr Drew Nelson, IQE Chief Executive, said:
"IQE delivered a strong set of results in 2016, with revenues up 16%,
PBT up 17%, and EPS up 15%. The continuing growth in revenues,
profits and cash generation is being enabled by the Group's portfolio of
cutting edge intellectual property, and is being delivered through a
diverse range of growth engines.
"Revenues were up in all key markets: wireless, photonics and InfraRed.
Photonics continues to be the star of the show with 43% year on year
growth in sales, and a CAGR of more than 35% over the past three years.
This is being driven by VCSEL and InP technologies which enable a broad
range of applications from fibre optic communication, to advanced
sensors, and industrial processes. The depth and breadth of photonics
development programmes and customer qualifications provide a solid
platform for continued strong growth over the coming years.
"InfraRed sales were up 19% with a number of notable contract wins
during 2016. This division has gone from strength to strength, with
good technological and commercial progress. Our largest division,
Wireless, also performed well, with revenues up 15%. Good progress
within the wireless division in 2016, including continued innovation,
new product development and new qualifications, has strengthened IQE's
strong leadership position in this space and provides a good platform
for further growth.
"Our focus on building a strong IP portfolio reflects our vision of
global leadership across a range of markets as advanced semiconductor
materials become an increasingly important enabler of a wide range of
electronics applications. This strategy underpins our strong financial
performance, and the exciting outlook we see for our business."
Contacts:
IQE plc +44 (0) 29 2083 9400
Drew Nelson
Phil Rasmussen
Chris Meadows
Canaccord Genuity + 44 (0) 20 7523 8000
Simon Bridges
Peel Hunt + 44 (0) 20 7418 8900
Richard Kauffer
Capital Access Group +44 (0) 20 3763 3400
Scott Fulton
Jessica Bradford
Note to Editors
IQE is the leading global supplier of advanced semiconductor wafers with
products that cover a diverse range of applications, supported by an
innovative outsourced foundry services portfolio that allows the Group
to provide a 'one stop shop' for the wafer needs of the world's leading
semiconductor manufacturers.
IQE uses advanced crystal growth technology (epitaxy) to manufacture and
supply bespoke semiconductor wafers ('epiwafers') to the major chip
manufacturing companies, who then use these wafers to make the chips
which form the key components of virtually all high technology systems.
IQE is unique in being able to supply wafers using all of the leading
crystal growth technology platforms.
IQE's products are found in many leading-edge consumer, communication,
computing and industrial applications, including a complete range of
wafer products for the wireless industry, such as mobile handsets and
wireless infrastructure, Wi-Fi, WiMAX, base stations, GPS, and satellite
communications; and optical communications.
The Group also manufactures advanced optoelectronic and photonic
components such as semiconductor lasers, vertical cavity surface
emitting lasers (VCSELs) and optical sensors for a wide range of
applications including optical storage, thermal imaging, leading-edge
medical products, pico-projection, finger navigation ultra-high
brightness LEDs, and high efficiency concentrated photovoltaic (CPV)
solar cells.
The manufacturers of these chips are increasingly seeking to outsource
wafer production to specialist foundries such as IQE in order to reduce
overall wafer costs and accelerate time to market.
IQE also provides bespoke R&D services to deliver customised materials
for specific applications and offers specialist technical staff to
manufacture to specification either at its own facilities or on the
customer's own sites. The Group is also able to leverage its global
purchasing volumes to reduce the cost of raw materials. In this way,
IQE's outsourced services provide compelling benefits in terms of
flexibility and predictability of cost, thereby significantly reducing
operating risk.
IQE operates a number of manufacturing and R&D facilities across Europe,
Asia and the USA. The Group also delivers its products and services
through regional sales offices located in major economic centres
worldwide.
Overview
IQE has been at the forefront of the Compound Semiconductor (CS)
industry for nearly 30 years, and has developed an unparalleled depth
and breadth of technology.
The Group leverages its technology leadership and scale to deliver the
performance, cost points and security of supply to support increasing
mass market adoption across a significant number of high volume market
verticals.
IQE is the clear global leader in the supply of advanced materials to
mass market wireless applications. The Groups strategy is to replicate
this success in its other markets: photonics, infrared, advanced solar
(CPV), LED, power switching and CMOS++(advanced electronics).
The Group has established a powerful platform for delivering this
strategy, through the following USPs:
-- Global footprint spanning US, Europe and Asia
-- Breadth and depth of advanced semiconductor materials technology
-- Talented, committed and experienced team
-- Proven credibility and reputation
-- Secure multi-site supply
-- Scale and cost leadership
-- Largest capacity in the industry
The Vision
By harnessing the properties of semiconducting materials, scientists and
engineers have enabled the electronics revolution that has transformed
the way we live our lives.
Silicon has been at the heart of this revolution by virtue of dramatic
improvements in performance combined with reducing costs. This has been
enabled by the continued reduction in the size of silicon chips
("Moore's Law"), combined with heavy investment in scaling up the
industry. However, chip shrinkage is now facing diminishing returns,
and the industry needs a new dimension to continue its expansion. This
is where epitaxy and compound semiconductors play an enabling role.
Epitaxy is the technology of combining different semiconducting elements
to make more advanced semiconductor materials, also known as compound
semiconductors. These materials have superior optical and electronic
properties, and operate at frequencies and speeds not achievable with
silicon. Amongst other things, compound semiconductors are the enabling
technology behind high speed wireless communication (enabling the
smartphone revolution), fibre optic communication (enabling the
internet), and LEDs (the lighting revolution). However, the compound
semiconductor industry is far less mature than the silicon industry and
is much smaller in scale. As a result, compound semiconductor chips are
more costly to produce.
It is widely agreed that the future of the semiconductor industry is to
combine the advanced properties of compound semiconductors with the low
cost of the silicon industry with a hybrid technology called "compound
semiconductors on silicon". In simple terms, this means using
epitaxial IP to grow layers of compound semiconductors on a base silicon
material. This is a highly complex technology. IQE has been a pioneer
in this space over more than a decade, and through its many development
programmes and collaborations it has built a powerful portfolio of IP
including patents and trade secrets.
With a strong pedigree in high tech manufacturing, IQE is uniquely
positioned to commercialise this IP over the coming years and decades.
Innovation through collaboration
Intellectual property relating to advanced materials is playing an
increasingly important role in the evolution of the semiconductor
industry. It is widely accepted that advanced materials are needed to
overcome the challenges and realise the opportunities facing the
electronics industry. This was evident from the level of M&A activity
in the CS space during 2016, including the formation of a JV by Qualcomm
and TDK, the acquisitions by II-VI Inc of Epiworks and Anadigics, and
the attempted acquisitions of GCS and Aixtron. The multiples being paid
in these deals reflect the increasing value being placed on compound
semiconductor technology.
IQE has been at the forefront of advanced semiconductor technology for
over a quarter of a century. It has built a reputation within the CS
industry for the breadth and depth of its materials technologies and
capabilities. This is now becoming increasingly recognised outside the
CS industry, where IQE is becoming recognised as the 'go to' advanced
materials innovator and provider. Indeed, IQE is now engaged directly
with a number of Tier 1 OEMs, bypassing the normal "materials - chip -
OEM" model.
There are many examples in history which reflect that collaboration is a
powerful tool in accelerating innovation. The benefits are even greater
when whole ecosystems "cluster" in the same location, breaking down the
barriers created by geography and time zones. Indeed, Silicon Valley
in California is a prime example of how the benefit of clustering can
propel an industry to a global platform.
It is the benefits of collaboration and clustering that underpin IQE's
strategic rationale for the joint venture partnerships in the UK and
Singapore, and its highly successful Open Innovation programme
(openiqe.com)
The silicon supply chain is no stranger to the benefits of clustering.
Indeed, there are 4 clusters within Europe which are centred around the
development and commercialisation of Silicon technology. These are
strongholds of innovation and value creation, with over 800 companies
and 150,000 employees.
IQE's vision is to be at the epicentre of the world's first compound
semiconductor cluster, based in the UK. There was significant progress
during 2016, and momentum continues to build :
-- Cardiff University is investing c.GBP75m in the formation of the
Institute of Compound Semiconductors as part its GBP300m innovation
campus;
-- IQE and Cardiff University invested GBP24m in the formation of the
Compound Semiconductor Centre;
-- The UK government has committed GBP50m funding for a Compound
Semiconductor Catapult in Cardiff, which will leverage a further GBP100m
funding from Innovate UK and Industry;
-- The Cardiff City Region Deal has identified the emerging CS cluster in
Cardiff as one of its 5 headline goals.
-- EPSRC's GBP10m investment to create a CS Manufacturing Hub in Cardiff,
led by Cardiff University and partnered by UCL, the University of
Manchester and the University of Sheffield.
This level of investment is recognition of the increasing significance
of compound semiconductor technology in the electronics industry, and
the UK's ambitions to build on its existing academic and industrial
strengths in to a world class end-to-end supply chain for compound
semiconductor technologies in the UK.
Financial Review
In order to provide a fuller understanding of the Group's underlying
performance, we have included a number of adjusted profit measures as
supplementary information. As detailed in note 4, the adjusted measures
eliminate the impact of certain non-cash charges and non-recurring
items.
Revenues of GBP132.7m were up 16% on 2015 (GBP114.0m). Revenues from
wafer sales were up 19% reflecting strong growth in each of IQE's
primary markets : Photonics revenues were up 43%; wireless revenues up
15% and InfraRed revenues up 19%. Growth in underlying demand was
accompanied by a currency tailwind, with the US dollar strengthening 11%
against sterling in H2 primarily due to the Brexit vote in June.
License revenue of GBP6.7m was better than expected, albeit down from
GBP8.0m in the prior year, which as flagged benefited from a significant
element of up front income.
Adjusted gross profit increased from GBP32.4m to GBP36.4m largely driven
by the increase in revenue. As a percentage of sales, adjusted gross
margins reduced from 28% to 27% reflecting the impact of sales mix.
In particular, high margin license income reduced from 2015 which
included a significant element of upfront income. Adjusted gross
margins on wafer sales increased from 23% to 24% driven by increasing
efficiencies. Reported gross profit increased from GBP30.7m to GBP34.7m,
with percentage margin reducing from 27% to 26%.
Other income increased from GBP0.8m to GBP2.3m. This relates to gains
on the reduction of the estimated remaining balance of contingent
deferred consideration payable in respect of a previous acquisition. The
balance under this contingent deferred consideration arrangement have
now been settled in full. These gains, which do not relate to
underlying trade, have been excluded from the adjusted profit measure.
Adjusted selling, general and administration expenses (SG&A) increased
from GBP13.5m to GBP14.2m, which primarily reflects the impact of
currency movements. Reported SG&A increased from GBP15.5m to GBP16.4m.
The profit on disposal of fixed assets of GBP5.2m in the prior year
primarily reflected a gain of GBP4.8m on the establishment of the UK
Joint Venture, in which the Group contributed equipment in return for a
50% equity share in the JV. There was a loss on disposal of fixed
assets in the ordinary course of business of less than GBP0.1m (2015:
profit GBP0.4m).
Adjusted operating profit increased by 17% from GBP18.9m to GBP22.1m,
despite the reduction in high margin license income, reflecting the
benefit of higher sales and operational efficiencies. Reported operating
profit decreased from GBP21.2m to GBP20.7m, primarily reflecting that
the prior year included a profit on disposal of fixed assets of GBP5.2m.
Interest costs increased from GBP1.4m to GBP1.5m, largely due to the
impact of foreign exchange.
There was a net tax credit of GBP0.8m on underlying profits compared to
GBP0.5m. In addition there was a GBP0.4m tax charge relating to
exceptional items compared with a tax credit of GBP0.3m on exceptional
items in 2015. The Group has sufficient tax losses available to shield
future tax payable of circa GBP39.9m.
Adjusted profit after tax increased by 19% from GBP18.1m to GBP21.4m,
and reported profit after tax decreased GBP20.1m to GBP19.4m. The
adjusted fully diluted earnings per share was 3.00p, up 15% from 2.60p
in the prior year. Reported diluted earnings per share was 2.71p, down
from 2.90p in 2015. The Board will not be recommending the payment of a
dividend.
Cash inflow from operations increased 7% from GBP20.9m to GBP22.5m,
representing a 102% conversion of adjusted operating profit into cash
(2015: 111%).
Capital investment of GBP19.1m represents a GBP9.1m increase over the
prior year to address growth opportunities, principally in photonics,
GaN and cREO. Investment in capital equipment was up GBP7.1m, and
investment in intangibles was up GBP1.9m.
Balance sheet leverage was down 2% from GBP40.4m to GBP39.5m, as gearing
reduced from 22% to 17%. Deferred consideration relating to previous
acquisitions was reduced by GBP17.1m in the year and has now been
settled in full. Net debt increased by GBP16.3m from GBP23.2m to
GBP39.5m, although c.GBP7m of this increase represents a presentational
foreign currency impact.
Impact of foreign currency
IQE revenues are denominated in a range of currencies, but primarily
they are billed in US dollars. Therefore, given that revenues are
reported in sterling there is a foreign currency translation benefit,
particularly with the dramatic devaluation of sterling in the second
half of 2016 following the Brexit referendum on 23rd June 2016. This
is estimated to account for approximately 10% of the Group's revenue
growth (being the movement in the average exchange rate).
Similarly, IQE's costs are denominated in a range of currencies, but
primarily billed in US dollars. As a result, the impact of foreign
currency movements on the Group's results presented in sterling is
largely presentational because of this underlying natural hedge.
There is also a presentational effect on the Groups balance sheet, as
both non-sterling assets and liabilities will be translated at the
year-end spot rate. This is estimated to account for an increase in
asset and liabilities of approximately 17% (being the movement in the
year end spot rates). Therefore, although the balance sheet leverage
has reduced by 2%, the underlying increase is approximately 19%.
Operating Review
Organisation
The Group has established six Business Units along market lines, to
address its primary and emerging markets:
-- IQE Wireless
-- IQE Photonics
-- IQE InfraRed
-- IQE Solar
-- IQE Power
-- IQE CMOS++
Each Business Unit has a clear product and customer focus, but continues
to benefit from the production and technology synergies of the whole
Group. The emerging markets of Solar and Power control are not yet
significant enough to be separated in our segmental reporting.
Wireless
Compound Semiconductors ("CS") are essential for high speed wireless
communication, and have been an enabling technology for mass market
applications such as smartphones and wifi. IQE is the market leader
with an estimated 55% share of this global market. Wireless accounted
for approximately 69% of IQE's sales in 2016.
Following the launch of the iPhone in 2007 this market enjoyed several
years of double digit growth, as the launch of new handsets were usually
met with a "feeding frenzy" of consumers eager to secure the latest
model. However, market growth cooled in 2013 as the innovation cycle
struggled to keep up pace. Indeed, according to industry analyst IDC,
smartphone shipments in 2016 increased by 2.8% to 1.47 billion units
(2015: 1.43 billion units). This is broadly consistent with IQE's
estimate that the market for its wireless materials has been growing at
a "mid single digit" rate in recent years.
Nevertheless, the relentless increase in data traffic continues to drive
the need for more sophisticated wireless chip solutions in order that
handsets continue to meet consumer expectations. This will continue to
necessitate an increasing content of CS materials in handsets, and
ongoing innovation in the underlying CS materials and chip technologies.
These factors underpin wireless as a solid and sustainable market for
IQE.
Beyond this, the outlook for the wireless materials market has strong
potential to return to double digit growth due to a number of factors,
including :
-- Innovation in smartphone hardware, including the adoptions of advanced
photonics sensors;
-- The adoption of GaN on Silicon technology for base stations
-- The transition to 5G communications, requiring more advanced CS materials
-- The adoption of compound semiconductors using cREO for other wireless
communication chips
Photonics
Photonics refers to devices which emit or detect light ie advanced laser
and sensors. Photonics chips enable a wide range of end markets in the
communications, consumer, and industrial space. This segment accounted
for 17% of IQE's sales in 2016. However, as IQE's most rapidly growing
market, this is expected to represent an increasing proportion of IQE's
sales going forward.
There are two critical technologies which are driving rapid growth in
this market for IQE:
-- Vertical Cavity Surface Emitting Lasers ("VCSEL") - 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" 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.
-- Indium Phosphide ("InP") - this technology enables fibre to the premises
("FTTX"). The continued development of this technology to achieve higher
performance at lower costs, plus the explosive growth in data traffic is
finally leading to the extension of the fibre optic network "to the
premises" - also know as "the last mile". IQE has developed advanced
laser technologies with differentiated IP which underpins it high growth
expectations for this business.
Optical interconnects
Currently, wired data transmission in the home, the office and in data
centres is largely undertaken using copper cables. However, data traffic
is growing at an explosive rate due to technologies such as high
definition imaging, video streaming, the Internet of Things (IoT) and
cloud computing. This phenomenon is necessitating a switch from copper
wires to optical communication. This is a natural evolution which
mirrors the transformation that has already taken place in the telecoms
infrastructure.
Optical interconnects offer significantly higher-speed data transfers
over much longer distances than their copper counterparts, and are much
more efficient. Data centres have become major consumers of electrical
energy, rivalling traditional heavy industries in terms of the power
requirements needed to keep large warehouses full of servers operating
and cooled. It is therefore of little surprise that enterprises such as
data centres are amongst the first adopters, where optical technology
now offers both higher performance and lower overall operating cost
compared with copper.
Compound semiconductor technology that enable optical interconnects
include Vertical Cavity Surface Emitting Lasers (VCSELs). VCSELs are an
advanced laser technology geared to mass production and low cost. IQE is
the market and technology leader for VCSEL products, with world record
data speeds in excess of 64 Gb/s already demonstrated.
3D sensing
There is little doubt that sensing technologies will represent a major
growth area in the near term and extending into the future.
Initially, consumer devices are likely to be the early adopters of 3D
sensing technologies. In fact, laser (VCSEL)/detector pairs are already
being deployed to enable "environment awareness" features in a number of
smartphone and wearable applications and "time-of-flight" laser
technology is being adopted for high speed auto-focus functionality in
camera applications.
3D sensing is an essential feature for devices that need detailed and
accurate information about their environment for applications such as
augmented reality.
Future applications for 3D sensing will extend into autonomous vehicles
for sensing features in the environment in order to make safety
judgements.
Gesture recognition
Closely related to 3D sensing, gesture recognition represents the
ability of electronic devices to recognise hand and body gestures and
movements in order to control any device. The advanced properties of
compound semiconductor epiwafers are a key component in gesture
recognition devices which are expected to appear in many new product
launches over the coming years.
The potential applications for this technology extend far beyond gaming,
from medical applications, disability aids, remote controls, to sign
language recognition, and more. In fact, the use of this technology is
only limited by human imagination, and has far reaching implications for
how we will interface with technology in the near future. It is
anticipated that many household appliances will be controlled by
gesture.
Laser projection
Conventional projection technologies use incandescent or halogen lamps
as their light sources. Such devices are power hungry, physically bulky,
have relatively short lifetimes and require focusing optics which can
limit the image quality and flexibility.
The emergence of lasers in each of the primary colours (red, green and
blue) enables a low cost, high quality laser projection solution which
can be miniaturised and does not require focusing optics. This
technology is called pico-projection.
Solid state lighting (LEDs)
Light emitting diodes (LEDs) are a high performance, low cost, green
alternative to incandescent light bulbs.
Global concerns about climate change and the Earth's dwindling natural
resources continue to be a priority for governments worldwide.
Significant new policies and legislation continue to be introduced in
the direction of renewable and highly efficient energy devices.
Already, many governments have introduced wide-ranging legislation to
progressively ban incandescent lighting. Alternative low energy, compact
fluorescent lighting is unpopular because of perceptions of low quality
lighting and on-going issues with heavy metal content including mercury.
In light of these drivers, we expect this market to continue to deliver
strong double digit growth.
InfraRed
IQE is a global leader in the supply of indium antimonide and gallium
antimonide wafers for advanced infrared applications. We are the
technology leader with the launch of the industry's first 150mm indium
antimonide wafers, a major milestone in reducing the overall cost of
chips to drive increasing adoption. This success was followed up with a
number of significant contract wins for the division. In addition, there
has been significant work in developing these materials for consumer
sensing applications, which will drive much higher volumes of wafers in
the future.
We expect this market to growth at a rate of approximately 5-10% for the
near future.
Advanced Solar (CPV)
Technologies which convert sunlight into electricity are also called
PhotoVoltaics (or "PV"). The prevalent solar technology is based on
silicon material, which typically achieves a conversion of between
15%-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 44%, 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 as the cost of oil has plummeted.
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.
Power
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 market for wireless PA chip market, and
represented a major growth market for IQE. IQE's patented technology,
cREO, provides a significant competitive advantage in this space.
CMOS++
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 investments 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 a 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.
Current Trading and Outlook
The Group's technology and market leadership, and its strong pipeline of
high growth opportunities positions it well to continue its growth
profile over the coming years.
The current financial year has started well and trading is in line with
expectations. The outlook for the full year remains very positive, with
good upside potential. The Board remains confident that the Group is
on track to achieve expectations for the full year, and anticipates that
the Group will continue to benefit from strong cash flows.
Dr Drew Nelson OBE
President & Chief Executive Officer
21 March 2017
Consolidated income statement for the year ended 31
December 2016 2016 2015
GBP'000 GBP'000
Revenue 132,707 114,024
Cost of sales (97,979) (83,372)
Gross profit 34,728 30,652
Other income and expenses 2,340 779
Selling, general and administrative expenses (16,356) (15,452)
(Loss) / profit on disposal of property, plant and
equipment (47) 5,187
Operating profit 20,665 21,166
Finance costs (1,633) (1,790)
Adjusted profit before tax 20,630 17,574
Adjustments (1,598) 1,802
Profit before tax 19,032 19,376
Taxation 408 773
Profit for the year 19,440 20,149
Profit attributable to:
Equity shareholders 19,276 19,864
Non-controlling interest 164 285
19,440 20,149
Adjusted basic earnings per share 3.17p 2.68p
Basic earnings per share 2.87p 3.00p
Adjusted diluted earnings per share 3.00p 2.60p
Diluted earnings per share 2.71p 2.90p
Consolidated statement of comprehensive income for
the year ended 31 December 2016 2016 2015
GBP'000 GBP'000
Profit for the year 19,440 20,149
Currency translation differences on foreign currency
net investments* 24,347 3,165
Total comprehensive income for the year 43,787 23,314
*This may be subsequently reclassified to profit or
loss
Total comprehensive income attributable to:
Equity shareholders 43,063 23,000
Non-controlling interest 724 314
43,787 23,314
Consolidated Balance Sheet as at 31 December 2016 2016 2015
GBP'000 GBP'000
Non-current assets:
Intangible assets 103,972 86,843
Property, plant and equipment 85,001 65,154
Deferred tax assets 18,181 14,210
Financial Assets 8,000 8,000
Total non-current assets 215,154 174,207
Current assets:
Inventories 28,498 21,215
Trade and other receivables 30,868 23,050
Cash and cash equivalents 4,957 4,644
Total current assets 64,323 48,909
Total assets 279,477 223,116
Current liabilities:
Borrowings (7,652) (3,241)
Trade and other payables (36,939) (43,693)
Provisions for other liabilities and charges (1,421) (1,116)
Total current liabilities (46,012) (48,050)
Non-current liabilities:
Borrowings (36,854) (24,626)
Other payables - (484)
Provisions for other liabilities and charges (2,167) (2,922)
Total non-current liabilities (39,021) (28,032)
Total liabilities (85,033) (76,082)
Net assets 194,444 147,034
Equity attributable to the shareholders of the parent:
Share capital 6,755 6,655
Share premium 51,081 49,600
Retained earnings 89,476 70,200
Other reserves 43,975 18,146
191,287 144,601
Non-controlling interest 3,157 2,433
Total equity 194,444 147,034
Consolidated statement of changes in equity for the
year ended 31 December 2016
Exchange
Share Share Retained rate Non-controlling Total
capital premium earnings reserve Other reserves interests equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
January 2016 6,655 49,600 70,200 7,925 10,221 2,433 147,034
Comprehensive
income
Profit for the
year - - 19,276 - 164 19,440
Foreign
exchange - - - 23,787 - 560 24,347
Total
comprehensive
income - - 19,276 23,787 - 724 43,787
Transactions
with owners
Share based
payments - - - - 2,042 - 2,042
Issues of
ordinary
shares 100 1,481 - - - - 1,581
Total
transactions
with owners 100 1,481 - - 2,042 - 3,623
Balance at 31
December
2016 6,755 51,081 89,476 31,712 12,263 3,157 194,444
Exchange
Share Share Retained rate Non-controlling Total
capital premium earnings reserve Other reserves interests equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
January 2015 6,603 49,108 50,336 4,789 8,220 2,119 121,175
Comprehensive
income
Profit for the
year - - 19,864 - - 285 20,149
Foreign
exchange - - - 3,136 - 29 3,165
Total
comprehensive
income - - 19,864 3,136 - 314 23,314
Transactions
with owners
Share based
payments - - - - 2,001 - 2,001
Issues of
ordinary
shares 52 492 - - - - 544
Total
transactions
with owners 52 492 - - 2,001 - 2,545
Balance at 31
December
2015 6,655 49,600 70,200 7,925 10,221 2,433 147,034
Consolidated cash flow statement for year ended 31
December 2016 2016 2015
GBP'000 GBP'000
Cash flows from operating activities:
Adjusted cash inflow from operations 24,281 22,575
Cash impact of adjustments (1,818) (1,604)
Cash inflow from operations 22,463 20,971
Net interest paid (1,489) (1,403)
Income tax paid (839) (459)
Net cash generated from operating activities 20,135 19,109
Cash flows from investing activities:
Acquisition deferred consideration Kopin Wireless (11,250) -
Capitalised development expenditure (6,310) (4,979)
Investment in other intangible fixed assets (1,794) (1,198)
Purchase of property, plant and equipment (10,956) (3,825)
Net cash used in investing activities (30,310) (10,002)
Cash flows from financing activities:
Issues of ordinary share capital 578 544
Repayment of borrowings (3,341) (15,109)
Increase in borrowings 12,623 4,349
Net cash generated from/(used in) financing activities 9,860 (10,216)
Net decrease in cash and cash equivalents (315) (1,109)
Cash and cash equivalents at 1 January 4,644 5,584
Exchange gains on cash and cash equivalents 628 169
Cash and cash equivalents at 31 December 4,957 4,644
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
All figures are taken from the 2016 audited annual accounts which were
approved by the directors on 21(st) March 2017, unless denoted as
'unaudited'. Comparative figures in the results for the year ended 31
December 2015 have been taken from the 2015 audited annual accounts.
This financial information has been prepared in accordance with the
Companies Act 2006 applicable to companies reporting under International
Financial Reporting Standards ("IFRS") as adopted by the European Union
and IFRIC interpretations. The application of these standards and
interpretations necessitates the use of estimates and judgements. This
financial information is also prepared on a going concern basis under
the historical cost convention except where fair value measurement is
required by IFRS.
Certain statements in this announcement constitute forward-looking
statements. Any statement in this announcement that is not a statement
of historical fact including, without limitation, those regarding the
Company's future expectations, operations, financial performance,
financial condition and business is a forward-looking statement. Such
forward-looking statements are subject to risks and uncertainties that
may cause actual results to differ materially. These risks and
uncertainties include, among other factors, changing economic, financial,
business or other market conditions. These and other factors could
adversely affect the outcome and financial effects of the plans and
events described in this announcement and the Company undertakes no
obligation to update its view of such risks and uncertainties or to
update the forward-looking statements contained herein. Nothing in this
announcement should be construed as a profit forecast.
These results will be announced to all shareholders on the London Stock
Exchange and published on the Group's website on 21(st) March 2017.
Copies will be available to members of the public upon application to
the Finance Director at Pascal Close, Cardiff, CF3 0LW.
2 ACCOUNTING POLICIES
The accounting policies adopted are set out in the annual financial
statements for the year ended 31 December 2016, as described in those
financial statements.
The financial information does not constitute statutory accounts within
the meaning of sections 434(3) and 435(3) of the Companies Act 2006 or
contain sufficient information to comply with the disclosure
requirements of International Financial Reporting Standards (IFRS).
The Company's auditors, PricewaterhouseCoopers LLP, have given an
unqualified report on the consolidated financial statements for the year
ended 31 December 2016. The auditor's report did not include reference
to any matters to which the auditors drew attention without qualifying
their report and did not contain any statement under section 498 of the
Companies Act 2006.
The consolidated financial statements will be filed with the Registrar
of Companies, subject to their approval by the Company's shareholders at
the Company's Annual General Meeting.
3 Segmental analysis
2016 2015
GBP'000 GBP'000
Revenue
Wireless 91,291 79,482
Photonics 22,792 15,985
Infra Red 10,560 8,878
CMOS++ 1,406 1,655
Total Segment Revenue 126,049 106,000
License income from sales to joint ventures 6,658 8,024
Total Revenue 132,707 114,024
Adjusted operating profit
Wireless 7,950 7,147
Photonics 6,888 4,320
Infra Red 2,227 1,181
CMOS++ (1,604) (1,695)
Segment adjusted operating profit 15,461 10,953
Profit from license income from sales to joint ventures 6,658 8,024
Adjusted operating profit 22,119 18,977
Gain on disposal of fixed assets (note 4) - 5,187
Non-cash accounting charges (note 4) (3,560) (3,596)
Net reduction in contingent deferred consideration
(note 4) 2,340 779
Restructuring and reorganisation (note 4) (378) (568)
Finance Costs (1,489) (1,403)
Profit before tax 19,032 19,376
4 Adjusted profit measures
The Group's results are reported after a number of imputed non-cash
charges and non-recurring items. Therefore, we have provided additional
information to aid an understanding of the Group's performance.
2016 2015
GBP'000 GBP'000
Gain on disposal of fixed assets - 5,187
Non-cash accounting charges (3,560) (3,596)
Gain on release of contingent deferred consideration 2,340 779
Restructuring and reorganisation (378) (568)
Total before tax (1,598) 1,802
Deferred tax on adjustments (402) 281
Total after tax (2,000) 2,083
The non-cash accounting charges of GBP3.6m (2015: GBP3.6m) reflect a
charge for share based payments of GBP2.0m (2015 GBP2.0m), the
amortisation of acquired intangibles GBP1.4m (2015 GBP1.2m) and the
unwind of the discounting of long term balances GBP0.2m (2015 GBP0.4m).
The Group generated a non-cash profit of GBP2.3m (2015 GBP0.8m) arising
from a reduction in the estimated remaining deferred consideration
(settled via trade discount) in respect of a previous acquisition. The
deferred consideration has now been fully settled. This has been
classified within other income and expenses in the consolidated income
statement.
The restructuring and reorganisation costs of GBP0.4m (2015: GBP0.6m)
reflects some one-off costs relating to staff, facility and asset write
downs associated with the restructuring of the Groups manufacturing
operations.
The deferred tax charge of GBP0.4m (2015: GBP0.3m credit) reflects the
net deferred tax impact associated with these adjustments.
The gain on disposal of fixed assets in 2015 related to a non-cash
exceptional gain of GBP4.8m relating to IQE's contribution to the
creation of a joint venture Compound Semiconductor Centre Limited. In
addition, other unrelated disposals of fixed assets in 2015 realised a
net gain of GBP0.4m.
Certain items noted above are accounting estimates based on judgements,
accordingly, the actual amounts may differ from these estimates. The
adjustments above are classified GBP1.7m (2015: GBP1.8m) within gross
margin, and GBP2.1m (2015: GBP2.0m) within selling, general and
administrative expenses.
2016 2015
GBP'000 GBP'000
Adjusted gross margin 36,415 32,439
Reported gross margin 34,728 30,652
Adjusted sales, general and administrative expenses (14,249) (13,462)
Reported sales, general and administrative expenses (16,356) (15,452)
Adjusted operating profit 22,119 18,977
Reported operating profit 20,665 21,166
Adjusted profit before tax 20,630 17,574
Reported profit before tax 19,032 19,376
Adjusted profit after tax 21,440 18,066
Reported profit after tax 19,440 20,149
Earnings before interest, tax, depreciation and amortisation (EBITDA)
has been calculated as follows:
2016 2015
GBP'000 GBP'000
Profit attributable to equity shareholders 19,276 19,864
Non-controlling interest 164 285
Tax (408) (773)
Share based payments 2,042 2,001
Finance costs 1,633 1,790
Depreciation of tangible fixed assets 5,561 6,192
Amortisation of intangible fixed assets 5,377 5,040
Loss/(profit) on disposal of fixed assets 47 (5,187)
Impairment of assets* - 453
Gain on release of contingent deferred consideration* (2,340) (779)
Restructuring and re-organisation costs* 378 115
EBITDA 31,730 29,001
* Exceptional items impacting EBITDA include the following items:
impairment of assets, wireless business unit re-organisation costs, and
the release of contingent deferred consideration.
5 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 non-cash items in order to provide a more meaningful
underlying profit measure. The adjustments are detailed in note 4.
2016 2015
GBP'000 GBP'000
Profit attributable to ordinary shareholders 19,276 19,864
Adjustments to profit after tax (note 4) 2,000 (2,083)
Adjusted profit attributable to ordinary
shareholders 21,276 17,781
2016 2015
Number Number
Weighted average number of ordinary shares 671,532,674 662,633,162
Dilutive share options 38,548,084 21,247,935
Adjusted weighted average number of ordinary shares 710,080,758 683,881,097
Adjusted basic earnings per share 3.17p 2.68p
Basic earnings per share 2.87p 3.00p
Adjusted diluted earnings per share 3.00p 2.60p
Diluted earnings per share 2.71p 2.90p
6 CASH GENERATED FROM OPERATIONS
2016 2015
GBP'000 GBP'000
Profit before tax 19,032 19,376
Finance costs 1,633 1,790
Depreciation of property, plant and equipment 5,561 6,192
Amortisation of intangible assets 5,377 5,040
Loss/(profit) on disposal of fixed assets 47 (5,187)
Non cash element of joint venture transactions - (714)
Impairment of assets - 453
Gain on release of contingent deferred consideration (2,340) (779)
Contingent deferred consideration (settled through
contractual discounts) (3,959) (4,837)
Share based payments 2,042 2,001
Cash inflow from operations before changes in working
capital 27,393 23,335
Increase in inventories (4,206) (2,813)
Decrease in trade and other receivables 1,437 2,739
Decrease in trade and other payables (2,161) (2,290)
Cash inflow from operations 22,463 20,971
7 ANALYSIS OF NET DEBT
At 1 Other At 31
January Cash non-cash December
2016 flow movements 2016
GBP'000 GBP'000 GBP'000 GBP'000
Bank borrowings due after one year (24,626) (12,623) 395 (36,854)
Bank borrowings due within one year (3,162) 3,252 (7,742) (7,652)
Finance leases due after one year - - - -
Finance leases due within one year (79) 89 (10) -
Total borrowings (27,867) (9,282) (7,357) (44,506)
Cash and cash equivalents 4,644 (315) 628 4,957
Net debt (23,223) (9,597) (6,729) (39,549)
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: IQE plc via Globenewswire
http://www.iqep.com
(END) Dow Jones Newswires
March 21, 2017 03:01 ET (07:01 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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