IQE plc : Final Results
IQE plc
Final Results
Strong financial performance and positive outlook reflect strength of growing IP portfolio
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 2015.
Financial highlights
- Revenues up 2% to £114.0m :
- Photonics sales up 28% to £16.0m
- New revenue stream with license income of £8.0m
- Growth tempered by 11% reduction in wireless sales to £79.5m
- Adjusted* operating profit up 8% to £19.0m (reported operating profit up ~3x to £21.2m)
- Reported profit after tax up more than 10x from £2.0m to £20.1m
- Adjusted* diluted EPS up 7% to 2.6p (reported diluted EPS up 12x to 2.9p)
- Cash generated from operations up 41% from £14.9m to £21.0m
- Balance sheet leverage down 22% to £40.3m
- Net debt down 26% to £23.2m
- Deferred consideration down 17% to £17.1m
* Adjustment to operating profit and EPS reflect non-cash charges and exceptional items as detailed in note 4
Operational highlights
- Further diversification of revenues, driven by significant growth in non-wireless sales, which now account for c.30% of revenues (2014: 20%):
- Continued double digit growth in photonics revenues, with increasing adoption for a wide range of applications including data centres, consumer applications, industrial processes, and fibre to the premises. Market outlook and strong pipeline support continuing double digit growth.
- First licensing income reflects new revenue stream, with a combination of upfront and recurring income. This was earned from licenses to Joint Ventures (JVs). License income in Q1 of 2016 of approximately £2m.
- Growing portfolio of epitaxial IP, with over 100 patents and a rich pool of trade secrets for the design and manufacture of advanced semiconductors :
- Direct engagement with multiple Tier 1 OEMs reflect the increasing importance of epitaxial IP as a key enabling technology within electronic systems;
- Market dynamics also reflect the increasing focus on advanced semiconductor materials technologies, with US competitor acquired for 3.5x revenues.
- Joint ventures established in the UK and Singapore for the development and commercialisation of advanced semiconductor technologies. The significance of this technology also recognised by the UK government with a £50m commitment in January 2016 to fund a Compound Semiconductor Applications Catapult in Cardiff, UK.
- The growth in revenue was partially tempered by the widely reported weakness in the smartphone market, which was exacerbated by inventory adjustments. However, the outlook for wireless remains attractive with recent gains in market share, contract wins, and new product qualifications for base station applications.
- Continued progress in other markets :
- Activity in the power semiconductor market continues to intensify. IQE has secured a strong IP position with cREO technology providing freedom to operate in this highly attractive market.
- Advanced solar making good progress in space applications, mitigating slow progress in the terrestrial market which has been hampered by macro-economics. Outlook remains positive.
- InfraRed maintains its market leadership position and, as announced on 26th January 2016 won a $3.7m contract with a leading global substrate manufacturer which underpins its strong outlook for the coming year.
Dr Drew Nelson, IQE Chief Executive, said:
"The Group had another strong financial performance in 2015, with continued growth in revenues, profits and cash generation. EPS is up 7% to 2.6p, and our strong cash generation has enabled us to continue to invest in new technologies whilst de-leveraging our balance sheet. Our balance sheet leverage peaked in January 2013 at c. £94m on the back of acquisitions, but we have significantly reduced this to c. £40m by the end of 2015, whilst almost doubling EBITDA from £16m to £29m over the same period.
"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.
"Moving forward we envisage a return to growth in Wireless, accelerating growth in Photonics, increasing contributions from Power and Solar, and continuing leverage of our powerful IP position through licensing, new product development and introductions.
"We have had a good start to 2016, and are trading in line with our expectations. The outlook remains positive, which underpins the Board's confidence that we remain on track to achieve our expectations for the full year."
Contacts:
| IQE plc | +44 (0) 29 2083 9400 |
| Drew Nelson | |
| Phil Rasmussen | |
| Chris Meadows | |
| Canaccord Genuity | + 44 (0) 20 7523 8000 |
| Simon Bridges | |
| Cameron Duncan | |
| Peel Hunt | + 44 (0) 20 7418 8900 |
| Richard Kauffer | |
| Euan Brown | |
| Capital Access Group | +44 (0) 20 3763 3400 |
| Simon Courtenay | |
| Harry Rippon |
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 over 25 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 a global leader in the supply of advanced wireless materials, and aims to replicate this success in its other primary markets: photonics, infrared, advanced solar (CPV), LED, power switching and CMOS++(advanced electronics).
The Group has now established the 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
This platform supports both the continued robust growth potential available in our markets and is enabling us to continue to diversify our revenues over the coming years.
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 the dramatic improvements in performance whilst 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 fit in.
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 (widely accepted as the future of lighting). However, the compound semiconductor industry is far less mature than the silicon industry and is much smaller in scale. As a result, they 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 the past 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 is evident from recent M&A activity in the CS space, including the formation of a JV by Qualcomm and TDK (January 2016), the acquisitions by II-VI Inc of Epiworks (January 2016) and Anadigics (March 2016), and the pending acquisition by Sanan of GCS. The prices being paid in these deals is running into revenue multiples of 3x to 4x, reflecting 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 it announced during 2015 (see note 8), 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 has been significant progress in making this a reality over the past 12 months, and momentum continues to build :
- Cardiff University is investing c.£75m in the formation of the Institute of Compound Semiconductors as part its £300m innovation campus;
- IQE and Cardiff University invested £24m in the formation of the Compound Semiconductor Centre;
- In January 2016 George Osborne announced £50m funding for a Compound Semiconductor Catapult in Cardiff, which will leverage a further £100m funding from Innovate UK and Industry;
- In March 2016, the Cardiff City Region Deal was announced, which identifies the emerging CS cluster in Cardiff as one of its 5 headline goals.
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 £114.0m were up 2% on 2014 (£112.0m). Strong growth in photonics revenues (up 28% to £16.0m), and the generation of license income (£8.0m) as a new income stream, were partially offset by a reduction in wireless revenues (down 11% to £79.5m). Revenues in other markets were broadly flat year-on-year at £10.5m (2014: £10.4m).
The license income was earned from licenses to Joint Ventures (JVs). These JVs are commercial entities seeking to develop and commercialise new products, to which IQE has first manufacturing rights. IQE's equity share in each JV is ~50%, and it jointly controls these JVs with its JV partners. The license revenue earned and recognised by IQE reflects only its share (~50%) of the gross income (i.e. is stated after the elimination of unrealised gains). Given that the JVs are related parties, the license fees were determined with independent validation. These license fees are primarily upfront fees, although there is a recurring element. This is consistent with the Groups strategy to monetise its IP through production and licensing where appropriate. The Group is also exploring further opportunities to license IP to third parties. By its nature this income is inherently lumpy. In Q1 of 2016 the Group has earned further upfront license income with JV's of approximately £2m.
The reduction in wireless revenues reflects the well publicised slowdown in the smartphone market during the second half of 2015, which was exacerbated by inventory adjustments through the supply chain.
Adjusted gross profit increased from £31.6m to £32.4m largely driven by the increase in revenue. Reported gross profit increased from £26.0m to £30.7m. As a percentage of sales, adjusted gross margins were stable at 28%, whereas reported gross margins increased from 23% to 27%.
Other income of £0.8m relates to a gain on the reduction of the estimated remaining balance of contingent deferred consideration payable in respect of a previous acquisition. The payments under this contingent deferred consideration arrangement cease during 2016. The prior year comparative was a £1.7m charge which related to provisions for onerous leases and the impairment of fixed assets, which were partially offset by a gain on release of contingent deferred consideration.
Adjusted selling, general and administration expenses (SG&A) decreased from £13.9m to £13.5m, which includes the benefit of improved efficiencies. Reported SG&A decreased from £17.1m to £15.5m.
The profit on disposal of fixed assets of £5.2m primarily reflects a gain of £4.8m on the establishment of the UK JV, in which the Group contributed equipment in return for its 50% equity share (see note 4). In addition, other unrelated disposals of equipment realised a net gain of £0.4m.
Adjusted operating profit increased by 8% from £17.6m to £19.0m, reflecting higher sales and the margin benefit from license income. Reported operating profit increased c.3x from £7.2m to £21.2m, which also reflects the restructuring charges included in 2014.
Interest costs reduced from £1.9m to £1.8m reflecting the reduction in borrowings, and a reduction in the imputed (non-cash) interest charges relating to the discounting of long term balances.
There was a net tax credit of £0.5m in respect of the underlying profit, which was consistent with the prior year (2014: £0.5m credit). In addition, there was a £0.3m tax credit relating to the exceptional items, compared with a tax charge of £3.8m on exceptional items in 2014. The Group has sufficient tax losses available to shield future tax payable of circa £37.5m.
Adjusted profit after tax increased by 8% from £16.7m to £18.1m, and reported profit after tax increased £2.0m to £20.1m. The adjusted fully diluted earnings per share was 2.60p, up 7% from 2.42p in the prior year. Reported diluted earnings per share was 2.90p, up from 0.24p in 2014. The Board will not be recommending the payment of a dividend.
Cash inflow from operations, before exceptional items, increased 15% from £19.6m to £22.6m. After exceptional items, cash generated from operations increased 41% from £14.9m to £21.0m.
Capital investment was £10.0m up from £9.4m in the prior year. Investment in new product development of £5.0m was consistent with the prior year (£5.0m), whilst investment in other intangibles was slightly lower at £1.2m (2014: £1.3m). The investment in property, plant and equipment increased by £0.6m from £3.2m to £3.8m, which remains towards the lower end of the normal expected levels of maintenance capex.
Balance sheet leverage was down £11.6m from £51.9m to £40.3m, as gearing reduced from 30% to 22%. This reflects that deferred consideration relating to previous acquisitions reduced by £3.5m from £20.6m to £17.1m, and that net debt reduced by £8.1m from £31.3m to £23.2m. This continues the trend in strong cash generation whilst maintaining investment in new technologies.
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
IQE has continued to develop leading edge materials solutions in conjunction with its customer base to continue to improve the performance of front end modules for the ever increasing demands of reduced power, reduced size and fit for function. This has resulted in the continued improvement in efficiency for Power Amplifiers (PAs), which have consequently been able to continue to dominate over other solutions for this critical application. Device and systems architectures continue to evolve, and several programmes have the potential to increase compound semiconductor content further. In addition, work is underway to address the requirements of 5G, which because of the higher frequencies is highly likely to require even more compound semiconductor content.
In the short term, we expect this market for wireless materials to grow at a rate of approximately 5%. IQE's business is underpinned by a major contract win (c.$55m) announced in January 2016, and recent market share gains following new product qualifications.
We anticipate significant upside potential to this growth in the medium term due to:
- 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, which will require more advanced materials
- The adoption of compound semiconductors using cREO for other wireless communication chips
Photonics
Photonics supports a large and diverse range of end markets. However, there are two critical technologies which are driving rapid growth in this market for IQE:
- VCSEL is the key enabling technology behind a number of high growth photonics markets including data communications, data centres, sensing applications, 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") for fibre to the premises ("FTTX"). IQE's roots lie in photonics and advanced laser technology for fibre optic communications. The continued development of this technology to achieve higher performance at lower costs, plus the explosive growth in data traffic is finally leading to extension of the fibre optic network "to the premises". By way of example, China has committed to delivering fibre to 100 million premises, which alone represents an estimated materials market of $200 million. IQE is introducing advanced laser technologies to the marketplace during 2016 to address the specific needs of this marketplace, with differentiated IP, in order to secure a leading supply position to the world's leading chip companies in this space.
In light of these drivers, we expect this market to continue to achieve 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 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. There is an element of lumpiness in InfraRed sales reflecting an element of product development revenues; however, 2016 has started well, with a contract win of $3.7m, which was announced on 26 January 2016.
Advanced Solar (CPV)
The prevalent solar technology, also called photovoltaics (PV), 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 qualification is underway with a leading satellite manufacturer, paving the way for increasing production revenues in 2017 from this sector of the market.
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. Qualifications with multiple end users are underway, in addition to continued technology development, enabled by cREO and other in house IP.
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 global leadership in wireless and its developing 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 positive, with strong prospects reflecting increasing revenue diversity and a broad IP portfolio. The Board remains confident of achieving our expectations for the full year and we anticipate that we will continue to benefit from strong cash flows.
Dr Drew Nelson OBE
President & Chief Executive Officer
22 March 2016
| Consolidated income statement for the year ended 31 December 2015 | ||
| 2015 | 2014 | |
| £'000 | £'000 | |
| Revenue | 114,024 | 112,011 |
| Cost of sales | (83,372) | (86,015) |
| Gross profit | 30,652 | 25,996 |
| Other income and expenses | 779 | (1,726) |
| Selling, general and administrative expenses | (15,452) | (17,103) |
| Profit on disposal of property, plant and equipment | 5,187 | - |
| Operating profit | 21,166 | 7,167 |
| Finance costs | (1,790) | (1,924) |
| Adjusted profit before tax | 17,574 | 16,189 |
| Adjustments | 1,802 | (10,946) |
| Profit before tax | 19,376 | 5,243 |
| Income tax income / (expense) | 773 | (3,247) |
| Profit for the period | 20,149 | 1,996 |
| Profit attributable to: | ||
| equity shareholders | 19,864 | 1,632 |
| non-controlling interests | 285 | 364 |
| 20,149 | 1,996 | |
| Adjusted basic earnings per share | 2.68p | 2.51p |
| Basic earnings per share | 3.00p | 0.25p |
| Adjusted diluted earnings per share | 2.60p | 2.42p |
| Diluted earnings per share | 2.90p | 0.24p |
| Consolidated statement of comprehensive income for the year ended 31 December 2015 | ||
| 2015 | 2014 | |
| £'000 | £'000 | |
| Profit for the year | 20,149 | 1,996 |
| Currency translation differences on foreign currency net investments* | 3,165 | 5,192 |
| Total comprehensive income for the year | 23,314 | 7,188 |
| *This may be subsequently classified to profit or loss | ||
| Total comprehensive income attributable to: | ||
| Equity shareholders | 23,000 | 6,822 |
| Non-controlling interests | 314 | 366 |
| 23,314 | 7,188 | |
| Consolidated Balance Sheet as at 31 December 2015 | 2015 | 2014 | |
| £'000 | £'000 | ||
| Non-current assets: | |||
| Intangible assets | 86,843 | 82,079 | |
| Property, plant and equipment | 65,154 | 66,588 | |
| Deferred tax assets | 14,210 | 12,332 | |
| Financial assets | 8,000 | - | |
| Total non-current assets | 174,207 | 160,999 | |
| Current assets: | |||
| Inventories | 21,215 | 18,276 | |
| Trade and other receivables | 23,050 | 24,463 | |
| Cash and cash equivalents | 4,644 | 5,584 | |
| Total current assets | 48,909 | 48,323 | |
| Total assets | 223,116 | 209,322 | |
| Current liabilities: | |||
| Borrowings | (3,241) | (14,720) | |
| Trade and other payables | (43,693) | (30,396) | |
| Provisions for other liabilities and charges | (1,116) | (1,551) | |
| Total current liabilities | (48,050) | (46,667) | |
| Non-current liabilities: | |||
| Borrowings | (24,626) | (22,115) | |
| Other payables | (484) | (15,431) | |
| Provisions for other liabilities and charges | (2,922) | (3,934) | |
| Total non-current liabilities | (28,032) | (41,480) | |
| Total liabilities | (76,082) | (88,147) | |
| Net assets | 147,034 | 121,175 | |
| Equity attributable to the shareholders of the parent: | |||
| Share capital | 6,655 | 6,603 | |
| Share premium | 49,600 | 49,108 | |
| Retained earnings | 70,200 | 50,336 | |
| Other reserves | 18,146 | 13,009 | |
| 144,601 | 119,056 | ||
| Non-controlling interest | 2,433 | 2,119 | |
| Total equity | 147,034 | 121,175 | |
Consolidated statement of changes in equity for the year ended 31 December 2015
| Share capital | Share premium | Retained earnings | Exchange rate reserve | Other reserves | Non-controlling interests | Total equity | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'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 |
| Share capital | Share premium | Retained earnings | Exchange rate reserve | Other reserves | Non-controlling interests | Total equity | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Balance at 1 January 2014 | 6,475 | 48,958 | 48,704 | (401) | 6,762 | 1,753 | 112,251 |
| Comprehensive income | |||||||
| Profit for the year | - | - | 1,632 | - | - | 364 | 1,996 |
| Foreign exchange | - | - | - | 5,190 | - | 2 | 5,192 |
| Total comprehensive income | - | - | 1,632 | 5,190 | - | 366 | 7,188 |
| Transactions with owners | |||||||
| Share based payments | - | - | - | - | 1,458 | - | 1,458 |
| Issues of ordinary shares | 128 | 150 | - | - | - | - | 278 |
| Total transactions with owners | 128 | 150 | - | - | 1,458 | - | 1,736 |
| Balance at 31 December 2014 | 6,603 | 49,108 | 50,336 | 4,789 | 8,220 | 2,119 | 121,175 |
Consolidated cash flow statement for the year ended 31 December 2015
| 2015 | 2014 | |
| £'000 | £'000 | |
| Cash flows from operating activities: | ||
| Adjusted cash inflow from operations | 22,575 | 19,614 |
| Cash impact of adjustments | (1,604) | (4,753) |
| Cash inflow from operations | 20,971 | 14,861 |
| Net interest paid | (1,403) | (1,428) |
| Income tax (paid) / received | (459) | 1,258 |
| Net cash generated from operating activities | 19,109 | 14,691 |
| Cash flows from investing activities: | ||
| Capitalised development expenditure | (4,979) | (4,957) |
| Investment in other intangible fixed assets | (1,198) | (1,291) |
| Purchase of property, plant and equipment | (3,825) | (3,178) |
| Net cash used in investing activities | (10,002) | (9,426) |
| Cash flows from financing activities: | ||
| Issues of ordinary share capital | 544 | 278 |
| Repayment of borrowings | (15,109) | (4,680) |
| Increase in borrowings | 4,349 | 1,305 |
| Net cash used in financing activities | (10,216) | (3,097) |
| Net (decrease)/increase in cash and cash equivalents | (1,109) | 2,168 |
| Cash and cash equivalents at 1 January | 5,584 | 3,258 |
| Exchange gains on cash and cash equivalents | 169 | 158 |
| Cash and cash equivalents at 31 December | 4,644 | 5,584 |
NOTES TO THE RESULTS
GENERAL INFORMATION
The company is a public limited company, which is listed on the Alternative Investment Market (AIM) 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 PREPERATION
All figures are taken from the 2015 audited annual accounts which were approved by the directors on 22nd March 2016, unless denoted as 'unaudited'. Comparative figures in the results for the year ended 31 December 2014 have been taken from the 2014 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 22 March 2016. 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 2015, 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 2015. 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
| 2015 | 2014 | ||||||
| £'000 | £'000 | ||||||
| Revenue | |||||||
| Wireless | 79,482 | 89,110 | |||||
| Photonics | 15,985 | 12,485 | |||||
| Infra Red | 8,878 | 9,276 | |||||
| CMOS++ | 1,655 | 1,140 | |||||
| Total Segment Revenue | 106,000 | 112,011 | |||||
| License income from sale to joint ventures | 8,024 | - | |||||
| Total Revenue | 114,024 | 112,011 | |||||
| Adjusted operating profit | |||||||
| Wireless | 7,147 | 15,827 | |||||
| Photonics | 4,320 | 1,833 | |||||
| Infra Red | 1,181 | 1,144 | |||||
| CMOS++ | (1,695) | (1,186) | |||||
| Segment adjusted operating profit | 10,953 | 17,618 | |||||
| Profit from license income from sales to joint ventures | 8,024 | - | |||||
| Adjusted operating profit | 18,977 | 17,618 | |||||
| Gain on disposal of fixed assets | 5,187 | - | |||||
| Non-cash accounting charges | (3,596) | (3,070) | |||||
| Net reduction in contingent deferred consideration | 779 | 9,903 | |||||
| Restructuring and reorganisation | (568) | (17,779) | |||||
| Finance Costs | (1,403) | (1,429) | |||||
| Profit before tax | 19,376 | 5,243 | |||||
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.
| 2015 £'000 | 2014 £'000 | ||||
| Gain on disposal of fixed assets | 5,187 | - | |||
| Non-cash accounting charges | (3,596) | (3,070) | |||
| Gain on release of contingent deferred consideration | 779 | 9,903 | |||
| Restructuring and reorganisation | (568) | (17,779) | |||
| Total before tax | 1,802 | (10,946) | |||
| Deferred tax on adjustments | 281 | (3,759) | |||
| Total after tax | 2,083 | (14,705) | |||
As disclosed in note 8, in July 2015 the group established a joint venture with Cardiff University to develop and commercialise compound semiconductor technologies in Europe. To establish the joint venture, IQE contributed equipment with a market value of £12m, which was matched by a £12m cash contribution from Cardiff University. This created a non-cash exceptional gain of £4.8m in IQE's accounts reflecting the Group's share of the difference between the book value and market value of the equipment contributed. In addition, other unrelated disposals of fixed assets realised a net gain of £0.4m.
The non-cash accounting charges of £3.6m (2014 : £3.1m) reflect a charge for share based payments of £2.0m (2014 £1.5m), the amortisation of acquired intangibles £1.2m (2014 £1.1m) and the unwind of the discounting of long term balances £0.4m (2014 £0.5m).
The Group generated a non-cash profit of £0.8m (2014 £9.9m) arising from a reduction in the estimated remaining deferred consideration (settled via trade discount) in respect of a previous acquisition. This has been classified within other income and expenses in the consolidated income statement.
The restructuring and reorganisation costs of £0.6m (2014: £17.8m) reflects some one-off redundancy and asset write downs associated with the restructuring of the groups manufacturing operations.
The deferred tax credit of £0.3m (2014: £3.8m charge) reflects the net deferred tax impact associated with these adjustments.
Certain items noted above are accounting estimates based on judgements, accordingly, the actual amounts may differ from these estimates. The adjustments above are classified £1.8m (2014: £5.6m) within gross margin, and £2.0m (2014: £3.2m) within sales general & admin costs.
| 2015 £'000 | 2014 £'000 | ||||||||
| Adjusted gross margin | 32,439 | 31,552 | |||||||
| Reported gross margin | 30,652 | 25,996 | |||||||
| Adjusted sales, general and administrative expenses | (13,462) | (13,935) | |||||||
| Reported sales, general and administrative expenses | (15,452) | (17,103) | |||||||
| Adjusted operating profit | 18,977 | 17,618 | |||||||
| Reported operating profit | 21,166 | 7,167 | |||||||
| Adjusted profit before tax | 17,574 | 16,189 | |||||||
| Reported profit before tax | 19,376 | 5,243 | |||||||
| Adjusted profit after tax | 18,066 | 16,701 | |||||||
| Reported profit after tax | 20,149 | 1,996 | |||||||
Earnings before interest, tax, depreciation and amortisation (EBITDA) has been calculated as follows:
| 2015 £'000 | 2014 £'000 | ||||
| Profit attributable to equity shareholders | 19,864 | 1,632 | |||
| Minority interest | 285 | 364 | |||
| Tax | (773) | 3,247 | |||
| Share based payments | 2,001 | 1,458 | |||
| Finance costs | 1,790 | 1,924 | |||
| Depreciation of tangible fixed assets | 6,192 | 6,590 | |||
| Amortisation of intangible fixed assets | 5,040 | 3,902 | |||
| (Profit) / loss on disposal of fixed assets | (5,187) | 15 | |||
| Provision for onerous lease* | - | 6,673 | |||
| Impairment of assets* | 453 | 6,354 | |||
| Gain on release of contingent deferred consideration* | (779) | (9,903) | |||
| Restructuring and re-organisation costs* | 115 | 4,753 | |||
| EBITDA | 29,001 | 27,009 | |||
* Exceptional items impacting EBITDA include the following items: impairment of assets, provision for onerous lease, 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.
| | 2015 £'000 | 2014 £'000 |
| Profit attributable to ordinary shareholders | 19,864 | 1,632 |
| Adjustments to profit after tax (note 4) | (2,083) | 14,705 |
| Adjusted profit attributable to ordinary shareholders | 17,781 | 16,337 |
| | | |
| 2015 Number | 2014 Number | |
| Weighted average number of ordinary shares | 662,633,162 | 650,836,462 |
| Dilutive share options | 21,247,935 | 25,116,813 |
| Adjusted weighted average number of ordinary shares | 683,881,097 | 675,953,275 |
| Adjusted basic earnings per share | 2.68p | 2.51p |
| Basic earnings per share | 3.00p | 0.25p |
| Adjusted diluted earnings per share | 2.60p | 2.42p |
| Diluted earnings per share | 2.90p | 0.24p |
6 CASH GENERATED FROM OPERATIONS
| The Group | 2015 | 2014 |
| £'000 | £'000 | |
| Profit before tax | 19,376 | 5,243 |
| Finance costs | 1,790 | 1,924 |
| Depreciation of property, plant and equipment | 6,192 | 6,590 |
| Amortisation of intangible assets | 5,040 | 3,902 |
| (Profit) / loss on disposal of fixed assets | (5,187) | 15 |
| Non cash element of joint venture transactions | (714) | - |
| Impairment of assets | 453 | 6,354 |
| Onerous lease provisions | - | 6,673 |
| Gain on release of contingent deferred consideration | (779) | (9,903) |
| Contingent deferred consideration (settled through contractual discounts) | (4,837) | (7,981) |
| Share based payments | 2,001 | 1,458 |
| Cash inflow from operations before changes in working capital | 23,335 | 14,275 |
| (Increase) in inventories | (2,813) | (792) |
| Decrease in trade and other receivables | 2,739 | 760 |
| Increase/(decrease) in trade and other payables | (2,290) | 618 |
| Cash inflow from operations | 20,971 | 14,861 |
7 ANALYSIS OF NET DEBT
| At 1 January 2015 £'000 | Cash flow £'000 | Other non-cash movements £'000 | At 31 December 2015 £'000 | |
| Bank borrowings due after one year | (22,002) | (4,349) | 1,725 | (24,626) |
| Bank borrowings due within one year | (13,867) | 14,191 | (3,486) | (3,162) |
| Finance leases due after one year | (113) | - | 113 | - |
| Finance leases due within one year | (853) | 918 | (144) | (79) |
| Total borrowings | (36,835) | 10,760 | (1,792) | (27,867) |
| Cash and cash equivalents | 5,584 | (1,109) | 169 | 4,644 |
| Net debt | (31,251) | 9,651 | (1,623) | (23,223) |
Cash and cash equivalents at 31 December 2015 comprised balances held in instant access bank accounts and other deposits with a maturity of less than 3 months.
Non-cash movements include foreign exchange movements on US dollar denominated borrowings.
8 JOINT VENTURES
On 23 March 2015 the group entered into a joint venture agreement with WIN Semiconductors Corp and Nangyang Technological University to create the Compound Semiconductor Development Centre ("CSDC") in Singapore. The CSDC is a centre of excellence in Asia for the development and commercialisation of advanced semiconductor products. The shareholder agreement establishes that this new entity is jointly controlled by the shareholders.
On 9 July 2015 the group entered into a joint venture agreement with Cardiff University to create the Compound Semiconductor Centre ("CSC") in the United Kingdom. The CSC is a centre of excellence in Europe for the development and commercialisation of advanced semiconductor products. The shareholder agreement establishes that this new entity is jointly controlled by the shareholders
Both of these joint ventures are accounted for using the equity method in IQE's consolidated financial statements. Both joint ventures have 31 December financial year ends, which is co-terminus with the group and have been used in preparing these group accounts. No dividends were received from the Joint ventures in the period.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: IQE plc via Globenewswire
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