TIDMIQE
IQE plc
Strong ramp in sales of VCSEL wafers marks the start of a new wave of
growth with a pipeline of new mass market technologies.
Cardiff, UK. 5 September 2017: 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 unaudited half
year results for the six months to 30 June 2017.
GBP' MILLION (except EPS) 30 June 2017 30 June 2016 Change
REVENUE 70.4 63.0 +12%
WAFERS 69.4 59.5 +17%
LICENSING 1.0 3.5 -71%
ADJUSTED OPERATING PROFIT* 10.6 10.8 -2%
WAFERS 9.6 7.3 +32%
LICENSING 1.0 3.5 -71%
ADJUSTED PROFIT BEFORE TAX* 9.6 10.1 -5%
PROFIT FOR THE PERIOD 7.3 10.0 -27%
ADJUSTED FULLY DILUTED EPS* 1.35p 1.46p -8%
CASH GENERATED FROM OPERATIONS 11.2 12.4 -10%
CAPITAL INVESTMENT 15.4 7.6 102%
LEVERAGE (NET DEBT + DEFERRED
CONSIDERATION) 41.9 35.4 18%
HIGHLIGHTS
-- Wafer sales up 17% against H1 2016, delivering a 32% increase in the
related operating and adjusted operating profit.
-- Overall revenues up 12% against H1 2016.
-- Sales up in all three primary markets with Wireless up 9%, Photonics up
48%, and Infrared up 19% compared with H1 of 2016. Foreign exchange
tailwind of c10% following the devaluation of sterling in 2016.
-- Continued strong growth in Photonics includes the early phase of a
significant ramp in VCSEL wafers for a mass market consumer application,
and contributed to record monthly Photonics sales in June 2017.
-- License income of GBP1.0m, compared with GBP3.5m in H1 2016 (which
included upfront amounts). No upfront license income in H1 2017.
-- Conversion of adjusted operating profit (GBP10.6m) into operating cash
(GBP11.2m) of 106% after funding GBP3.7m investment in working capital,
largely in connection with mass market VCSEL ramp (H1 2016: 115%
conversion).
-- Investment in capex and product development of GBP15.4m (H1 2016:
GBP7.6m) to support further growth, including the expected mass market
adoption of VCSELs. This investment was funded primarily through organic
cash generation, and supplemented by debt funding.
-- A further capacity expansion plan initiated to meet higher levels of
demand which are expected in H2 2018. 5 new tools on order and lease
signed on new premises in South Wales which provides a flexible and cost
effective route to add up to 100 new tools, which would double IQE's
current tool count.
-- Breadth and depth of customer engagement across a range of technologies
and applications sets the scene for increasing revenue diversity and
growth through 2018 and beyond.
-- Direct engagement with OEMs has expanded to multiple programmes across a
range of materials technologies, validating the strength of IQE's IP
portfolio as a key differentiator and strong competitive advantage.
These programmes are central to several next generation mass market
applications.
-- Net debt up GBP2.4m since year end to GBP41.9m (December 2016: GBP39.5m).
* The Directors believe that the adjusted measures provide a more useful
comparison of business trends and performance. Adjusted measures exclude
exceptional items, share based payments and non-cash acquisition
accounting charges as detailed in note 5.
Dr Drew Nelson, IQE Chief Executive, said:
"The compound semiconductor industry is moving through an inflection
point. Many of the key innovations that are taking place in the
technology world would not be possible without the advanced properties
of compound semiconductor materials. Indeed, compound semiconductors
are the fundamental enabler of innovations such as 3D sensing, biometric
sensors, electric and autonomous vehicles, high speed wireless and
optical communications, and advanced manufacturing.
"IQE has developed an unparalleled breath of materials IP, which
position it to prosper from the inflection that is taking place in our
industry. Our broad portfolio of IP is a powerful competitive
advantage which is enabling us to differentiate ourselves in the
marketplace. The strength of our IP has enabled us to broaden our
direct engagement with OEMs from single points of engagement a few years
ago, to multiple programmes enabling a number of next generation mass
market technologies.
"IQE's outlook has never looked better. The broad range of customer
engagements across multiple technologies and multiple end markets,
provide a clear path to increase revenue diversity and accelerate growth
over the coming months and years ahead. The breadth and depth of
customer engagement underpins the Board's confidence in approving the
capacity expansion plan, which provides a flexible and cost effective
route to significantly scaling up in our business over the next few
years"
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.
CONTACTS
IQE plc +44 (0) 29 2083 9400
Drew Nelson
Phil Rasmussen
Chris Meadows
Canaccord Genuity + 44 (0) 20 7523 8000
Simon Bridges
Henry Fitzgerald O'Connor
Richard Andrews
Peel Hunt +44 (0) 20 7418 8900
Edward Knight
Nick Prowling
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, base stations, GPS, and satellite
communications and optical communications.
The Group also manufactures advanced optoelectronic and photonic
components such as semiconductor lasers, vertical cavity surface
emitting lasers (VCSELs) and optical sensors for a wide range of
applications including optical storage, thermal imaging, leading-edge
medical products, pico-projection, finger navigation ultra-high
brightness LEDs, and high efficiency concentrated photovoltaic (CPV)
solar cells.
The manufacturers of these chips are increasingly seeking to outsource
wafer production to specialist foundries such as IQE in order to reduce
overall wafer costs and accelerate time to market.
IQE also provides bespoke R&D services to deliver customised materials
for specific applications and offers specialist technical staff to
manufacture to specification either at its own facilities or on the
customer's own sites. The Group is also able to leverage its global
purchasing volumes to reduce the cost of raw materials. In this way,
IQE's outsourced services, provide compelling benefits in terms of
flexibility and predictability of cost, thereby significantly reducing
operating risk.
IQE operates a number of manufacturing and R&D facilities across Europe,
Asia and the USA. The Group also delivers its products and services
through regional sales offices located in major economic centres
worldwide.
INTERIM RESULTS 2017
1. INDUSTRY BACKGROUND
Integrated circuits or "chips" are the critical components which lie at
the heart of all electronic devices. In the past, these chips have been
primarily fabricated using silicon. Silicon is an abundant
semiconducting element which has enabled the Silicon chip market to grow
to over $350 billion per annum. However, like every element, silicon
has a finite, and therefore limited, set of properties.
There are many other semiconducting elements which have much more
advanced properties than silicon. Compound semiconductors refers to the
technology of combining these other semiconducting elements to create
materials which overcome the inherent performance limitations of
silicon. This enables chip companies to produce compound semiconductor
chips which achieve functionality that silicon chips just cannot match.
Indeed, the wireless communications revolution, fibre optic
communication (the internet), and LED lighting would not be possible
without compound semiconductors.
2. IQE AND THE COMPOUND SEMI SUPPLY CHAIN
The three key steps in the supply chain are typically viewed as
"wafers-chips-devices". IQE designs and fabricates compound
semiconductor wafers. It generates its revenues primarily from selling
bespoke wafers to its customers, who in turn fabricate these wafers into
compound semiconductor chips such as wireless communication chips, laser
devices or advanced sensors. These chips are then incorporated into
devices such as smartphones, base stations or other electronic systems
and gadgets.
IQE also generates income from licensing IP to Joint Ventures, being
related entities which are not controlled by IQE. These joint ventures
were established with IQE's partners to provide a bridge between
academia and industry. Our university partners are participating in
these JV's to provide a cost-effective route to commercialise their new
technologies, whereas IQE and its industrial partner are using the JV's
to seed future revenues by using their "right of first refusal" over the
commercial supply for these new technologies.
IQE differentiates itself from its competitors through technology
leadership, economies of scale, and dual site manufacturing for security
of supply. This has enabled IQE to develop a strong leadership position,
where it is recognised globally as the market leader, with an estimated
55% share of the wireless market and an unparalleled breadth of
materials technologies.
IQE has developed a market facing organisational structure, based around
its 6 key markets: Wireless, Photonics, Infrared, Solar, Power, and
CMOS++.
3. RESULTS
The Group's results are reported after a number of one-off items and
non-cash accounting charges. In aggregate, these resulted in a net
charge of GBP2.5m in H1 2017 (H1 2016: GBP0.2m) consisting of non-cash
accounting charges of GBP2.8m (H1 2016: GBP1.8m), the release of
deferred consideration (H1 2016: GBP2.1m credit) in the prior year and a
related deferred tax credit of GBP0.3m (H1 2016: GBP0.6m charge). These
items are fully detailed in note 5, in order to assist with an
assessment of the Group's underlying business performance. The following
commentary on the first half results is based on these adjusted profit
measures.
First half revenues increased by 12% to GBP70.4m (H1 2016: GBP63.0m).
Wafer sales of GBP69.4m were up 17% against H1 2016. This reflects
increased sales in each of its primary markets: Wireless sales were up
9% to GBP47.3m, Photonics sales ups 48% to GBP15.9m and InfraRed sales
up 19% to GBP5.6m. License income from joint ventures was GBP1.0m (H1
2016: GBP3.5m), reflecting that IQE benefitted from significant upfront
license fees in H1 2016.
Gross margins on wafer sales increased from 24% to 25%, and gross margin
on license income remained at 100%. Overall gross margin of 26% was
lower than prior year (H1 2016: 28%), reflecting the mix effect of lower
license income in 2017.
Selling, General and Administration expenses (SG&A), increased 3% to
GBP7.5m (H1 2016: GBP7.3m). Despite the increase in sales, the
operating profit of GBP10.6m was 2% lower than prior year (H1 2016:
GBP10.8m), which benefitted from one-off upfront license income. There
was no upfront license income in H1 2017.
Adjusted profit after tax reduced GBP0.4m to GBP9.8m (H1 2016: GBP10.2m),
which combined with an increase in the fully diluted share count (due to
the increase in share price) resulted in an 8% decrease in adjusted
fully diluted EPS from 1.46p to 1.35p. After exceptional charges of
GBP2.5m (H1 2016: GBP1.7m), the reported profit after tax decreased from
GBP9.8m to GBP7.3m.
The Group's net debt increased by GBP2.4m since the prior year end to
GBP41.9m (December 2016: GBP39.5m). Deferred consideration, which
related to previous acquisitions, is nil, having being settled in full
during H2 of 2016.
The Group has approximately GBP115m of accumulated tax losses, which
represent a potential reduction in future tax payable of GBP33m. The tax
credit of GBP0.6m (H1 2016: GBP0.4m charge) primarily reflects the
recognition of additional tax losses consistent with the Groups growth
opportunities, partially offset by tax charges in Asia where historical
brought forward tax losses have now been utilised. This has resulted in
an adjusted effective tax rate of -2.8% which has reduced from 1.8% in
H1 2016 (FY 2016: -3.9%) and a reported effective tax rate of -8.4% (H1
2016: 4.2%, FY 2016: -2.1%).
4. VISION AND STRATEGY
The evolution of semiconductors
Compound semiconductors are continuing to play an increasingly important
role in the electronics industry as their advanced properties exceed the
performance limitations of silicon semiconductors. Through continuing
innovation, compound semiconductor technologies are now achieving the
cost-performance thresholds that is accelerating their adoption on many
fronts. Moreover, as the technology continues through this inflection
point of mass adoption, it is approaching a paradigm shift with the
emergence of "Compound Semiconductor on Silicon" technology (CS-on-Si).
CS-on-Si combines the superior performance of compound semiconductors
with the low cost of traditional silicon technology to create a high
performance, low cost hybrid solution. This technology has been under
development for more than a decade, through a host of government and
industry funded programmes that has engaged blues chips, leading
universities and specialist high technology companies alike. IQE has
been firmly embedded in these programmes as a materials specialist, and
has many patents in this field. This transition is almost upon us, as
the supply chain anticipates initial commercialisation of GaN-on-Si for
wireless base stations as early as 2018.
Vision and strategy
Our vision is to be the leading global provider of advanced
semiconductor materials - the global "go to" compound semiconductor
materials specialist in the electronics industry.
To realise this vision requires the ability to deliver "enabling
technology", which meets the price points needed for adoption, and which
can be delivered reliably, on-time, every-time with the ability to scale
rapidly. IQE has positioned itself well for this challenge, having
built the broadest portfolio of materials IP in the industry, and
developed a unique platform for a secure low cost supply. Moreover, IQE
believes it has developed a reputation to match - for excellence and
reliability.
As part of the Group's strategy, IQE announced in July 2017 that, as
part of its expansion plans, it has agreed a lease of a new premises in
South Wales. The lease is with the Cardiff City Region, which has a
goal of supporting the development of the Compound Semiconductor Cluster
in South Wales. This lease provides the infrastructure needed for IQE's
expansion in a highly cost effective manner. The lease is for 11 years,
and provides IQE with an option to extend the lease or purchase the
freehold. In parallel, the Group has placed orders for new MOCVD
equipment.
5. MARKETS
The Group has established six business units along market lines, to
address its primary and emerging markets, the emerging markets of Solar
and Power control are not yet significant enough to be separated in our
segmental reporting.
Wireless
"Wireless" refers to a broad range of applications from mobile devices
such as smartphones, tablets, routers, and WiFi through to large system
applications such as base stations and radar. It is IQE's largest
market today, and accounted for 68% of wafer sales in the first half of
2017 (H1 2016: 73%). This has been the main growth driver in IQE's
business over the last decade.
The smartphone revolution was triggered by the launch of the iPhone in
2007. The consumer "feeding frenzy" that followed delivered double
digit growth in the market for wireless materials including power
amplifiers (PAs), driven by both the increase in the volume of handsets
sold and an increasing chip content in each handset. Through this period
of strong growth IQE built its global leadership position in wireless,
and now enjoys an estimated 55% global market share. However, the
market has been more subdued over the past few years reflecting a lull
in mobile phone handset innovation, and technology/fabrication trends
resulting in smaller die size has resulted in the materials market
remaining relatively flat over that period. However, the much
speculated revival in handset innovation, and the advent of 5G, provide
clear routes to the return of double digit growth in this segment.
At present, growth in IQE's wireless division is being driven by high
voltage applications such radars and base stations. Although this has
historically represented only a modest part of IQE's wireless sales
(C.10-15%), it is a high growth area delivering double digit growth.
In these applications, compound semiconductor technology (GaN-on-SiC) is
replacing incumbent silicon technology (LDMOS) which is unable to meet
the rising performance required for today's high speed communication
systems. Moreover, working closely with its chip customers, IQE has
developed GaN-on-Si technology which delivers the high performance of
compound semiconductors but at a dramatically lower cost of manufacture,
and hence offers the potential to disrupt this market and deliver strong
growth for IQE in the near term.
A further dimension to IQE's wireless business is the market for
wireless filters. This is a very large market, which is already more
than double the size of the existing wireless PA market, and growing
rapidly. Currently, a range of filters are made using poly-crystal
aluminium nitride material. However, IQE has developed and internally
demonstrated a single-crystal aluminium nitride material which offers
superior performance characteristics. Further development is required
before this technology can be commercialised, but initial results
reflect substantial promise, and the potential to commercialise over a
2-3 year time frame.
Photonics
Photonics refers to semiconductor applications which emit or detect
light - essentially lasers and sensors. It accounted for 23% of the
Group's wafer sales in the first half of 2017 (H1 2016: 18%). It is the
fastest growing segment within IQE, and delivered a growth rate of 48%
in the first half following several years of strong double digit growth.
The critical materials technologies in this market are VCSEL (Vertical
Cavity Surface Emitting Lasers) and InP (Indium Phosphide). After
several years of development, the advances in these technologies and the
improvement in manufacturing processes means that these technologies are
now hitting the performance and cost points necessary for mass market
adoption.
The application space for VCSEL is very broad and spans mass-market
consumer applications, fibre optic communication, and industrial and
health applications. Specific uses include 3D sensing, LIDAR, gesture
recognition, laser autofocus, proximity sensing, fibre optics for data
centres, industrial heating, machine control and biometrics to name but
a few.
IQE is the technology and market leader in VCSEL materials, working with
leading chip companies and OEMs directly. Indeed, IQE's IP is a strong
differentiator which provides a powerful competitive advantage in the
VCSEL marketplace, and which has enabled IQE to secure multiple
multi-year contracts for mass market applications.
Over the past few years, IQE has enjoyed strong double-digit growth in
its VCSEL business, much of which has been customer funded development
spanning a broad base of customers and applications. In its recent
trading update, IQE announced the start of a ramp in a mass market
consumer application using VCSELs. This application, which relates to a
sensing technology, helped deliver record sales for IQE in June, and
offers the potential for a dramatic acceleration in VCSEL sales growth
over the next few years.
InP is the technology that is critical to fibre optics in
telecommunications. The main growth drivers here are "Fibre to the
Premises" (FTTx), data centre infrastructure and mobile base station
backhaul. The continued exponential growth in data traffic is driving
the roll out of fibre "to the last mile" across the planet, the need for
greatly increased data storage capacity with rapid access to data and
4G/LTE backhaul Fibre Optic links.
A key technology in InP fibre optics is Distributed Feedback Lasers
("DFB"s). In contrast to our other technologies, there is an
intermediary step in the supply chain which sits between the epitaxial
wafer production and the chip fabrication. In particular, a "grating"
is added to the epitaxial wafer, followed by further epitaxial films on
top of the grating. Historically, IQE has only provided the base
epitaxial wafers with third parties undertaking the additional steps.
However, IQE has developed a cost effective, highly flexible grating
technology which solves some of the key challenges currently facing this
sector. This technology has passed internal testing and is being
qualified by customers. We believe that this is a disruptive technology
which could allow for rapid growth and market share gains for IQE in
this segment in the near term.
In overview, we believe that our photonics business is at the start of a
long term and exciting high growth curve. Our growth ambitions are
underpinned by an impressive pipeline of programmes with blue chip
customers for high volume applications, and IP which provides IQE with
powerful competitive advantages.
Infrared
We are the market leader in the supply of indium antimonide (InSb) and
gallium antimonide (GaSb) materials used in high resolution infrared
systems, with an estimated market share of approximately 80%. This
segment accounted for approximately 8% of the Group's wafer sales in the
first half of 2017 (H1 2016: 8%).
Sales are currently concentrated in defence related applications, but
through our engagement in programmes in consumer, medical and industrial
imagining, we expect this segment to increasingly transition into new
high volume markets over the coming years.
Power
"Power" relates to the use of semiconductors in Power Switching and LED
lighting applications. IQE is developing materials solutions to
address some of the key technological challenges faced in these markets.
The size and scale of these markets are many times larger than IQE's
existing markets, so these represent truly transformational
opportunities for IQE.
Power switching devices are used where electricity is switched between
AC and DC, or where voltage is switched. This happens throughout
electricity generation and distribution, and in virtually all
applications that are powered from the grid, from transformers in
industrial machinery and electric vehicles, through to power supplies
for your laptop. The market for power switching chips is estimated to be
worth at least $12 billion, which is approximately 4x the size of the
existing wireless power amplifier chip market. Again, a truly
transformational opportunity.
At present, these power switching chips are made using silicon, which
has performance limitations. Accordingly, the industry is investing
heavily in a step change in technology to overcome this inefficiency and
deliver a high performing lower cost solution. That step change is the
adoption of a hybrid compound semiconductor on silicon technology called
GaN on Si. IQE is at the forefront of the materials development.
We are all becoming accustomed with LED technology as it gathers
momentum in a range of lighting applications from automotive lighting to
office lighting and residential lighting. The prevalent materials
technology in this industry is currently "gallium nitride on sapphire",
but it is widely accepted that GaN on Si will become an important
technology in this space. This provides a major opportunity for IQE to
leverage its development of GaN on Si for Power into this adjacent
market.
Advanced Solar
Solar panels are largely made from silicon, which is inherently
inefficient in converting sunlight into electricity, typically achieving
efficiencies of only 15-20%. In contrast, compound semiconductors are
significantly more efficient, and today deliver efficiencies of over
44%. Furthermore, there is a technology roadmap to increase this
efficiency to over 50%. With its supply chain partners, IQE has
developed technology leadership and is working to qualify this into
production.
There are two key markets for this Compound Semiconductor solar
technology: "space" (satellite power supplies) and "terrestrial"
(renewable energy). The adoption of this technology in terrestrial in
the short term is limited by the historic low oil price and over-supply
within the silicon panel market, but this remains a major market
opportunity as these issues unwind. Therefore, our primarily focus is
on penetrating the space market, where this technology is already
embedded. As technology leader we have a clear strategy to penetrate the
market and win market share.
CMOS++
The ever-increasing demand for higher speed and improved performance
from today's electronic devices is ushering in a new era of
semiconductor materials that combine the scale and low (per chip) cost
base of the silicon industry with the power and performance of compound
semiconductors.
IQE is at the forefront of developing this technology, and is working
with a range of partners from global industry giants, universities and
governments to dynamic start-ups. As a result, we have developed an
enviable portfolio of technologies and patents which position us well to
increasingly participate in the continuing evolution of the
semiconductor industry.
6. CORPORATE GOVERNANCE
Following the AGM on 13(th) June 2017, Professor Simon Gibson OBE
retired from the Board. The Board would like to take this opportunity
to thank Simon for his significant commitment and the contribution that
Simon provided over the past 15 years.
7. CURRENT TRADING AND OUTLOOK
The Group has continued to make good strategic, operational and
financial progress in 2017, and has a clear vision and roadmap for the
continuing growth of the business. The first half progressed well, and
ended strongly with the start of a major new product ramp. In light of
the benefit of a strong pipeline and increasing revenue diversification
the Board remains confident that the Group is on track to deliver full
year earnings in line with the recently upgraded expectations.
Dr Drew Nelson, CEO
CONSOLIDATED INCOME STATEMENT 6 months to 6 months to 12 months to
30 Jun 2017 30 Jun 2016 31 Dec 2016
(All figures GBP'000s) Note Unaudited Unaudited Audited
Revenue 70,370 63,010 132,707
Cost of sales (53,665) (45,766) (97,979)
Gross profit 16,705 17,244 34,728
Other income - 2,163 2,340
Selling, general and
administrative expenses (8,920) (8,270) (16,356)
(Loss)/profit on disposal of
property, plant and equipment (4) 137 (47)
Operating profit 7,781 11,274 20,665
Net finance costs (1,025) (802) (1,633)
Adjusted profit before tax 9,561 10,061 20,630
Adjustments 5 (2,805) 411 (1,598)
Profit before tax 6,756 10,472 19,032
Income tax credit/(charge) 566 (444) 408
Profit for the period 7,322 10,028 19,440
Profit attributable to:
Equity shareholders 7,297 9,936 19,276
Non-controlling interests 25 92 164
7,322 10,028 19,440
Basic earnings per share 6 1.07p 1.49p 2.87p
Diluted earnings per share 6 1.00p 1.43p 2.71p
Adjusted basic and diluted earnings per share is presented in Note 6.
12
6 months 6 months months
CONSOLIDATED STATEMENT OF to to to
30 Jun 30 Jun 31 Dec
COMPREHENSIVE INCOME 2017 2016 2016
(All figures GBP'000s) Unaudited Unaudited Audited
Profit for the period 7,322 10,028 19,440
Currency translation differences on foreign currency
net investments* (7,521) 12,713 24,347
Total comprehensive income for the period (199) 22,741 43,787
Total comprehensive income attributable to:
Equity shareholders (236) 22,333 43,063
Non-controlling interests 37 408 724
(199) 22,741 43,787
* This may be subsequently reclassified to the income statement when it
becomes realised.
As At As At As At
CONSOLIDATED BALANCE SHEET 30 Jun 2017 30 Jun 2016 31 Dec 2016
(All figures GBP'000s) Unaudited Unaudited Audited
Non-current assets :
Intangible assets 105,903 95,990 103,972
Property, plant and equipment 81,968 73,331 85,001
Deferred tax asset 18,155 15,745 18,181
Financial Assets 8,000 8,000 8,000
Total non-current assets 214,026 193,066 215,154
Current assets :
Inventories 30,358 23,767 28,498
Trade and other receivables 31,683 25,838 30,868
Cash and cash equivalents 8 5,465 4,311 4,957
Total current assets 67,506 53,916 64,323
Total assets 281,532 246,982 279,477
Current liabilities :
Borrowings 8 (5,778) (3,344) (7,652)
Trade and other payables (34,030) (33,083) (36,939)
Provisions for other liabilities
and charges 9 (1,544) (1,351) (1,421)
Total current liabilities (41,352) (37,778) (46,012)
Non-current liabilities :
Borrowings 8 (41,549) (34,553) (36,854)
Provisions for other liabilities
and charges 9 (1,455) (2,778) (2,167)
Total non-current liabilities (43,004) (37,331) (39,021)
Total liabilities (84,356) (75,109) (85,033)
Net assets 197,176 171,873 194,444
Equity attributable to shareholders
:
Share capital 10 6,830 6,723 6,755
Share premium 52,735 50,609 51,081
Retained earnings 96,773 80,136 89,476
Other reserves 37,644 31,564 43,975
193,982 169,032 191,287
Non-controlling Interest 3,194 2,841 3,157
Total equity 197,176 171,873 194,444
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Exchange
Unaudited Share Share Retained rate Other Non-controlling Total
(All figures GBP'000s) capital premium earnings reserve reserves interests equity
Balance as at 1 January 2017 6,755 51,081 89,476 31,712 12,263 3,157 194,444
Profit for the period - - 7,297 - - 25 7,322
Foreign exchange - - - (7,533) - 12 (7,521)
Total comprehensive income - - 7,297 (7,533) - 37 (199)
Issues of ordinary shares including employee share
schemes 75 1,654 - - 1,202 - 2,931
Total transactions with owners 75 1,654 - - 1,202 - 2,931
Balance as at 30 June 2017 6,830 52,735 96,773 24,179 13,465 3,194 197,176
Exchange
Unaudited Share Share Retained rate Other Non-controlling Total
(All figures GBP'000s) capital premium earnings reserve reserves interests equity
Balance as at 1 January 2016 6,655 49,600 70,200 7,925 10,221 2,433 147,034
Profit for the period - 9,936 - - 92 10,028
Foreign exchange - - - 12,397 - 316 12,713
Total comprehensive income/(expense) - - 9,936 12,397 - 408 22,741
Issues of ordinary shares including employee share
schemes 68 1,009 - - 1,021 - 2,098
Total transactions with owners 68 1,009 - - 1,021 - 2,098
Balance as at 30 June 2016 6,723 50,609 80,136 20,322 11,242 2,841 171,873
Exchange
Audited Share Share Retained rate Other Non-controlling Total
(All figures GBP'000s) capital premium earnings reserve reserves interests equity
Balance at 1 January 2016 6,655 49,600 70,200 7,925 10,221 2,433 147,034
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
Issues of ordinary shares including employee share
schemes 100 1,481 - - 2,042 - 3,623
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
6 months to 6 months to 12 months to
CONSOLIDATED CASH FLOW STATEMENT 30 Jun 2017 30 Jun 2016 31 Dec 2016
(All figures GBP'000s) Unaudited Unaudited Audited
Cash flows from operating activities :
Adjusted cash inflow from operations 11,877 13,010 24,281
Cash impact of adjustments 5 (682) (605) (1,818)
Cash inflow from operations 7 11,195 12,405 22,463
Net interest paid (1,043) (723) (1,489)
Income tax paid (946) (684) (839)
Net cash generated from operating activities 9,206 10,998 20,135
Cash flows from investing activities :
Acquisition deferred consideration for
Kopin Wireless - (10,650) (11,250)
Investment in intangible fixed assets (9,604) (3,539) (8,104)
Purchase of property, plant and equipment (5,763) (4,065) (10,956)
Net cash used in investing activities (15,367) (18,254) (30,310)
Cash flows from financing activities :
Issues of ordinary share capital 989 74 578
Repayment of borrowings (9,395) (1,765) (3,341)
Increase in borrowings 15,239 8,269 12,623
Net cash generated from financing activities 6,833 6,578 9,860
672 (678) (315)
Cash and cash equivalents at the beginning of the
period 4,957 4,644 4,644
Exchange (losses)/gains on cash and cash
equivalents (164) 345 628
Cash and cash equivalents at the end of
the period 8 5,465 4,311 4,957
1 BASIS OF PREPARATION
These interim results have been prepared under the historical cost
convention and in accordance with International Financial Reporting
Standards ("IFRS") and interpretations in issue at 30 June 2017.
The interim results were approved by the Board of Directors and the
Audit Committee on 30 August 2017. The interim results do not constitute
statutory accounts within the meaning of section 434 of the Companies
Act 2006 and have not been audited. Comparative figures in the interim
results for the year ended 31 December 2016 have been taken from the
published audited statutory financial statements. All other periods
presented are unaudited. Statutory accounts for the year ended 31
December 2016 were approved by the Board of Directors on 21 March 2017
and were delivered to the Registrar of Companies. The report of the
auditors on those accounts was unqualified, did not contain an emphasis
of matter paragraph and did not contain any statement under section 498
of the Companies Act 2006.
IQE plc is a public limited company incorporated in the United Kingdom
under the Companies Act 2006. The Company is domiciled in the United
Kingdom and is quoted on the Alternative Investment Market (AIM).
As permitted these interim results for the half-year ended 30 June 2017
have been prepared in accordance with UK AIM rules and IAS 34, 'Interim
financial reporting' as adopted by the European Union. These interim
financial results should be read in conjunction with the annual
financial statements for the year ended 31 December 2016, which have
been prepared in accordance with IFRSs as adopted by the European Union.
The accounting policies applied are consistent with those of the annual
financial statements for the year ended 31 December 2016, as described
in those annual financial statements.
The financial information contained in these interim results has been
reviewed by the Company's auditor in accordance with ISRE 2410 however
this does not constitute an audit.
Having considered the Group's forecasts the Directors have formed a
judgment that there is a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. For this reason the Directors continue to adopt the
going concern basis in preparing the condensed consolidated financial
information.
2 ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of the annual
financial statements for the year ended 31 December 2016, as described
in those financial statements on pages 78 to 82.
Recent accounting developments
In preparing the condensed consolidated half-yearly financial
information the Group has adopted the following Standards, amendments
and interpretations which are effective for 2017 and will be adopted for
the year ended 31 December 2017:
-- Amendment to IFRS 12 "Disclosure of interests in other entities'
clarifying scope.
-- Amendments to clarify the classification and measurement of share-based
payment transactions
-- IAS Amendments to IAS 7, "Statement of cash flows" on disclosure
initiative.
-- Amendments to IAS 12,'Income taxes' on Recognition of deferred tax assets
for unrealised losses.
The adoption of these standards and amendments has not had a material
impact on the interim financial information.
The following new standards and amendments to standards and
interpretations have been issued but are not yet endorsed for annual
periods beginning after 1 January 2017 (noted below), and have not been
adopted in preparing the condensed consolidated half-yearly financial
information.
-- Annual improvements 2014-2016 cycle
-- Amendments to clarify the classification and measurement of share-based
payment transactions
-- Amendment to IFRS 2, 'Share based payments' to clarify the classification
and measurement of certain share based payment transactions
-- IFRS 15 'Revenue from contracts with customers'
-- IFRS 9 'Financial instruments'
-- IFRS 16 'Leases'
-- IFRS 17 'Insurance contracts'
-- Amendment to IAS 28 'Investments in associates and joint ventures' to
clarify certain fair value measurements
-- Amendment to IAS 40 'Investment property' to clarify transfers or
property, to, or from, investment property
Financial Instruments
The carrying value of cash, trade and other receivables, other equity
instruments, trade and other payables and borrowings also represent
their estimated fair values. There are no material differences between
carrying value and fair value at 30 June 2017.
Additional disclosure of the basis of measurement and policies in
respect of financial instruments are described on pages 102 to 105 of
our 2016 Annual Report and remain unchanged at 30 June 2017.
Estimates
The preparation of interim financial statements requires management to
make judgements, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets and
liabilities, income and expense. Actual results may differ from these
estimates.
In preparing these condensed interim financial statements, the
significant judgements made by management in applying the group's
accounting policies and the key sources of estimation uncertainty were
the same as those that applied to the consolidated financial statements
for the year ended 31 December 2016.
Impairment
No Impairment charges have been recognised in the period to 30 June
2017.
3 PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties impacting the Group are described
on pages 28 to 31 of our 2016 Annual Report and remain unchanged at 30
June 2017.
They include: competition, technological change, financial liquidity,
natural disasters, retention of key employees, business interruption -
supply chain, customer concentration and legislative compliance.
4. SEGMENTAL INFORMATION
6 Months to 30 June 2017 6 Months to 30 June 2016 12 Months to 31 Dec 2016
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Revenue
Wireless 47,257 43,228 91,291
Photonics 15,867 10,705 22,792
Infra Red 5,594 4,689 10,560
CMOS++ 702 871 1,406
Total Segment
Revenue 69,420 59,493 126,049
License income
from sales to
joint
ventures 950 3,517 6,658
Total Revenue 70,370 63,010 132,707
Adjusted
operating
profit
Wireless 7,298 6,741 13,040
Photonics 6,451 4,549 9,254
Infra Red 1,360 1,034 2,651
CMOS++ (977) (1,368) (1,576)
Segment
adjusted
operating
profit 14,132 10,956 23,369
Central
corporate
costs (4,531) (3,691) (7,908)
Profit from
license income
from sales to
joint
ventures 950 3,517 6,658
Adjusted
operating
profit 10,551 10,782 22,119
Non-cash
accounting
charges (2,805) (1,752) (3,560)
Net reduction
in contingent
deferred
consideration - 2,163 2,340
Restructuring
and
reorganisation - - (378)
Finance costs (990) (721) (1,489)
Profit before
tax 6,756 10,472 19,032
The segmental disclosure for the 6 months to 30 June 2016 and the 12
months to 31 December 2016 has been restated to separately disclose
central costs following reorganisation of the Group's functions. Central
corporate costs include all head office and other corporate related
support functions.
5 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.
6 months to 30 6 months to 30
Adjustments to profit Jun 2017 Jun 2016 12 months to
(All figures GBP'000s) Unaudited Unaudited 31 Dec 2016 Audited
Non-cash accounting
charges (2,805) (1,752) (3,560)
Gain on release of
contingent deferred
consideration - 2,163 2,340
Restructuring and
reorganisation - - (378)
Total before tax (2,805) 411 (1,598)
Deferred tax on
adjustments 301 (629) (402)
Total after tax (2,504) (218) (2,000)
The non-cash accounting charges of GBP2.8m (H1 2016: GBP1.8m, FY16:
GBP3.6m) reflect a charge for share based payments of GBP2.0m (H1 2016:
GBP1.0m, FY16: GBP2.0m), the amortisation of acquired intangibles
GBP0.7m (H1 2016: GBP0.7m, FY16: GBP1.4m) and the unwind of the
discounting of long term balances of GBP0.1m (H1 2016: GBP0.1m, FY16:
GBP0.2m).
The adjustments above are classified GBP1.3m (H1 2016: GBP0.7m, FY16:
GBP1.7m) within gross margin, GBP1.4m (H1 2016: GBP1.0m, FY16: GBP1.7m)
within selling, general and administrative expenses and GBP0.1m (H1
2016: GBP0.1m, FY16: GBP0.2m) in net finance costs.
The Group generated a non-cash profit of GBPnil (H1 2016: GBP2.2m, FY16:
GBP2.3m) arising from a reduction in the estimated remaining deferred
consideration (settled via trade discount) in respect of a previous
acquisition. The non-cash profit arising in prior periods has been
classified within other income and expenses in the consolidated income
statement. The deferred consideration was settled in full in FY16.
The restructuring and reorganisation costs in the prior period (H1 2016:
GBPnil, FY16: GBP0.4m) reflect some one-off redundancy and asset write
downs associated with the restructuring of the groups manufacturing
operations.
The deferred tax credit of GBP0.3m (H1 2016: GBP0.6m credit, FY16:
GBP0.4m credit) reflects the deferred tax impact associated with the
adjustments to profit.
The cash flow impact of adjustments in the first half of 2017 of
GBP682,000 relates to lease rental payments associated with a previously
provided onerous lease.
Certain items noted above are accounting estimates based on judgements,
accordingly, the actual amounts may differ from these estimates.
5 ADJUSTED PROFIT MEASURES (Continued)
6 months to 6 months to
30 Jun 2017 30 Jun 2016 12 months to
(All figures GBP'000s) Unaudited Unaudited 31 Dec 2016 Audited
Adjusted gross margin 18,047 17,925 36,415
Reported gross margin 16,705 17,244 34,728
Adjusted sales, general
and administrative
expenses (7,492) (7,280) (14,249)
Reported sales, general
and administrative
expenses (8,920) (8,270) (16,356)
Adjusted operating profit 10,551 10,782 22,119
Reported operating profit 7,781 11,274 20,665
Adjusted profit before tax 9,561 10,061 20,630
Reported profit before tax 6,756 10,472 19,032
Adjusted profit after tax 9,826 10,246 21,440
Reported profit after tax 7,322 10,028 19,440
Earnings before interest, tax, depreciation and amortisation
(EBITDA) have been calculated as follows:
6 months 6 months
to 30 Jun to 30 Jun
2017 2016
(All figures GBP'000s) Unaudited Unaudited 12 months to 31 Dec 2016 Audited
Profit attributable to
equity shareholders 7,297 9,936 19,276
Minority interest 25 92 164
Tax (566) 444 (408)
Finance costs 1,025 802 1,633
Depreciation of tangible
fixed assets 3,092 3,120 5,561
Amortisation of
intangible fixed assets 2,714 2,444 5,377
Share based payments* 2,034 1,021 2,042
Profit and Loss on
disposal* 4 (137) 47
Release of contingent
deferred consideration* - (2,163) (2,340)
Restructuring and
re-organisation* - - 378
EBITDA 15,625 15,559 31,730
*Exceptional items impacting EBITDA include the following items: share
based payments, profit and loss on disposal, impairment of assets,
provision for onerous lease, wireless business unit re-organisation
costs and the release of contingent deferred consideration.
6 EARNINGS PER SHARE
6 months to 6 months to 12 months to
30 Jun 2017 30 Jun 2016 31 Dec 2016
Unaudited Unaudited Audited
Results in GBP'000s:
Profit attributable to ordinary
shareholders 7,297 9,936 19,276
Adjustments to profit after tax
(note 5) 2,504 218 2,000
Adjusted profit attributable to
ordinary shareholders 9,801 10,154 21,276
Number of shares:
Weighted average number of
ordinary shares 676,378,550 666,683,779 671,532,674
Dilutive share options 49,256,183 27,885,351 38,548,084
Adjusted weighted average number
of ordinary shares 725,634,733 694,569,130 710,080,758
Adjusted basic earnings per share 1.45p 1.52p 3.17p
Basic earnings per share 1.07p 1.49p 2.87p
Adjusted diluted earnings per 1.35p 1.46p 3.00p
share
Diluted earnings per share 1.00p 1.43p 2.71p
Basic earnings per share is calculated by dividing the profit
attributable to ordinary shareholders by the weighted average number of
ordinary shares during the period.
Diluted earnings per share is calculated by dividing the profit
attributable to ordinary shareholders by the weighted average number of
shares and 'in the money' share options in issue. Share options are
classified as 'in the money' if their exercise price is lower than the
average share price for the period. As required by IAS 33, this
calculation assumes that the proceeds receivable from the exercise of
'in the money' options would be used to purchase shares in the open
market in order to reduce the number of new shares that would need to be
issued.
7 CASH GENERATED FROM OPERATIONS
6 months to 6 months to 12 months to
30 Jun 2017 30 Jun 2016 31 Dec 2016
(All figures GBP'000s) Unaudited Unaudited Audited
Profit before tax 6,756 10,472 19,032
Finance costs 1,025 802 1,633
Depreciation of property, plant and equipment 3,092 3,120 5,561
Amortisation of intangible assets 2,714 2,444 5,377
Loss/(profit) on disposal of fixed assets 4 (137) 47
Gain on release of contingent deferred consideration - (2,163) (2,340)
Contingent deferred consideration (settled through
contractual discounts) - (2,528) (3,959)
Share based payments 2,034 1,021 2,042
Cash inflow from operations before changes in working
capital 15,625 13,031 27,393
Increase in inventories (2,698) (1,546) (4,206)
(Increase)/decrease in trade and other receivables (2,966) 774 1,437
Increase/(decrease) in trade and other payables 1,234 146 (2,161)
Cash inflow from operations 11,195 12,405 22,463
8 ANALYSIS OF NET DEBT
As At As At As At
30 Jun 2017 30 Jun 2016 31 Dec 2016
(All figures GBP'000s) Unaudited Unaudited Audited
Bank borrowings due after one year (41,549) (34,553) (36,854)
Bank borrowings due within one year (5,778) (3,344) (7,652)
Finance leases due after one year - - -
Finance leases due within one year - - -
Total borrowings (47,327) (37,897) (44,506)
Cash and cash equivalents 5,465 4,311 4,957
Net debt (41,862) (33,586) (39,549)
9 PROVISIONS FOR OTHER LIABILITIES AND CHARGES
As at As at As at
30 Jun 2017 30 Jun 2016 31 Dec 2016
(All figures GBP'000s) Unaudited Unaudited Audited
As at 1 January 3,588 4,038 4,038
Charged to the income statement 140 53 104
Utilised during the period (682) (605) (1,283)
Foreign exchange (47) 643 729
As at 30 June / 31 December 2,999 4,129 3,588
As part of the re-organisation and rationalisation of the Group's
facilities the Group ceased its manufacturing activities in Singapore
and established the Compound Semiconductor Development Centre. The
provision above represents the onerous lease obligation in respect of
the Singapore property. This is expected to be utilised over the next
two years. The provision has been discounted using a risk free rate of
2.5%.
10 SHARE CAPITAL
As At As at As at
30 Jun 2017 30 Jun 2016 31 Dec 2016
Number of shares Unaudited Unaudited Audited
As at 1 January 675,506,061 665,533,170 655,533,170
Employee share schemes 7,516,861 1,667,010 4,831,424
Shares issued to settle Translucent
deferred consideration - 5,141,467 5,141,467
As at 30 June / 31 December 683,022,922 672,341,647 675,506,061
In the period to the 30 June 2017 7,516,861 (H1 2016: 1,677,010, FY16:
4,831,424) ordinary shares were issued to satisfy employee share
schemes.
As At As at As at
30 Jun 2017 30 Jun 2016 31 Dec 2016
(All figures GBP'000s) Unaudited Unaudited Audited
As at 1 January 6,755 6,655 6,655
Employee share schemes 75 17 48
Shares issued to settle Translucent
consideration - 51 52
As at 30 June / 31 December 6,830 6,723 6,755
11 RELATED PARTY TRANSACTIONS
The Group recognised revenue of GBP1.0m (H1 2016: GBP0.8m, FY16:
GBP1.7m) and made purchases of GBP6.4m (H1 2016: GBP4.2m, FY16: GBP7.2m)
from its joint venture in Singapore, the Compound Semiconductor
Development Centre Private Limited.
The Group also recognised revenue of GBPnil (H1 2016: GBP2.8m, FY16:
GBP4.9m), made purchases of GBP3.3m (H1 2016: GBP2.0m, FY16: GBP4.0m)
and recharged other costs of GBP1.4m (H1 2016: GBP0.2m, FY16: GBP0.4m)
with its joint venture in the UK the Compound Semiconductor Centre
Limited.
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
September 05, 2017 02:00 ET (06:00 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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