IQE plc : Full Year Results

IQE plc

IQE reports solid results and positive outlook

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 2014.

Financial highlights

• Revenue of £112m in line with expectations, reflecting H2 revenues of £60m up 15% from H1
• Adjusted^* operating profit up 21% from £14.6m to £17.6m (reported operating profit £7.2m)
• Adjusted^* operating profit margin up 420bp from 11.5% to 15.7% (reported margin 6.4%)
• Cash inflow from operations (before exceptional items) up 21% from £16.2m to £19.6m (reported £14.9m)
• Adjusted^* fully diluted EPS up 21% to 2.42p (reported FD EPS 0.24p)
• Net debt down by £3.2m (9%) from £34.4m to £31.3m
• Deferred consideration down  £15.0m (42%) to £20.6m

         *   Adjustment to operating profit and EPS reflect non-cash charges and exceptional items as detailed in note 4
       

Operational highlights

• Utilisation of global manufacturing facilities continues to  improve - further capacity also being unlocked through higher equipment  productivity
• Wireless outlook robust, driven by adoption of 4G LTE  for mobile devices and the continuing growth in mobile data
  • Customer and supplier capacity expansion programmes reflect continued confidence within the industry
  • Compound Semiconductor solutions continue to dominate power amplifier (PA) production
• Photonics revenues grew 23% organically year on year in constant currency
  • Rapid adoption of VCSEL technology by Tier 1 customers helps drive 30%  increase in lasers and sensors
  • Solid data infrastructure demand, and consumer product design-ins continue to grow
  • Infrared division winning significant orders, revenues up 13% year on year
• Advanced Solar has commenced pilot production for field deployment, which we expect to ramp into full production through 2015/16
• Gallium Nitride making strong technical progress in  both RF for LTE base station deployment and in power for energy efficient switching
  • Significant supply agreement with MACOM Solutions

Dr Drew Nelson, IQE Chief Executive, said:

" The Group's performance for 2014 was encouraging.  Demand from our customers across multiple product areas strengthened through the year.  We enjoyed a significant pickup  during the second half which enabled us to deliver improved second half revenues.  As a result of reduced overheads and improving utilisation of our manufacturing facilities, we achieved better margins and delivered increased full year earnings and cash flows.  I am also delighted with the progress we have made in reducing net debt.

" We are making good progress against our strategic objectives.  Our wireless business continues to provide a solid platform, whilst our other markets are delivering encouraging revenue growth and are helping us to diversify our revenues.

" Trading in the first three months of the current year has been 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	[phone]
Drew Nelson
Phil Rasmussen
Chris Meadows
Canaccord Genuity	+ 44 (0) 20 7523 8000
Simon Bridges
Cara Griffiths
Peel Hunt	+ 44 (0) 20 7418 8900
Richard Kauffer
Daniel Harris
Broker Profile	[phone]
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 industry for over 25 years, and has developed an unparalleled depth and breadth of technology within its industry.

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 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 enables us to continue to diversify our revenues over the coming years.

IQE has emerged as a market leader through a period of rapid change

The mobile communications industry has gone through a revolution over the past decade.   Less than ten years ago, one in every two mobile phones sold was a Nokia, with RIM's Blackberry devices taking a strong second place in the market.   Since that time, smartphones have taken the world by storm and  communications technology has moved rapidly from 2G to 3G and now LTE/4G.  Mobile data demand is growing exponentially, requiring ever more complex and high performance RF front end solutions, with increasing Compound Semiconductor content.  Apple and Samsung now dominate the handset space, and the mobile revolution has spread to new types of devices including tablets and wearables, and is enabling the Internet of Things (IoT). Future handset designs will include more and more optical content for proximity sensing, auto focus, gesture recognition, sensing and displays.

These changes have driven a revolution within the supply chain.  Skyworks has emerged as the new leader in the chip space, as some chip companies have waned and others have consolidated to compete.    Throughout this period of rapid change, IQE has also played a major role in reshaping the supply chain.  Both through technological innovation, and through consolidating the materials space, IQE has emerged as the clear industry leader for advanced materials.

IQE is the global leader in the provision of wafers to the wireless chip industry, with an estimated market share of over 50%.  The wireless market, which accounts for approximately 80% of the Group's sales, remains a key market driver for the Group.  With the adoption of numerous optical devices in next generation handsets, this will continue to be a major part of the Group's future business.

Furthermore, IQE has developed an unparalleled depth and breadth of advanced materials technology which spans wireless, infrared, photonics, solar, power electronics and CMOS++.   The market drivers for adoption of these technologies are very powerful ; Big Data, IoT, Energy Efficiency (power generation and usage),  Smart Cities, Industry 4.0, Space Technologies, Robotics and Autonomous Vehicles and 5G . These will all drive increasing adoption of Compound Semiconductor Technologies.  As a result, our non-wireless revenues are growing rapidly and increasing our overall revenue diversity. 

Delivering progress through a challenging year

After several years of strong growth, in 2014 the wireless market  paused for breath ahead of the next wave of hardware innovation.   Combined with an industry wide destocking, this volatility created a short term challenge for the Group.   We tackled this head on and delivered increasing underlying profitability and earnings, as well as strengthening our balance sheet as a result of lower deferred consideration and net debt. 

We also made solid progress in line with our strategic plan, including :

• Our photonics business delivered year on year growth of 23% (in constant currency) driven primarily by the increasing adoption of  VCSEL technology into a wide range of applications from data centres through to industrial processes.  This ramp is at an early stage and has a long and sustainable future.
   
• Our solar energy business (CPV) moved into production in early 2015, with our material now being deployed into the field.   Although this was later than originally anticipated, the future for this business remains bright as end market pull should see this ramp through 2015/16.
   
• Conversely, our power business  has progressed more rapidly than we originally expected.  A number of major technical milestones and commercial partnerships are establishing the group in a strong position to commercialise this technology. 

Positioned for continued growth over the next decade

Change is a constant in our world.   The inexorable drive for electronic devices to continue to achieve higher levels of functionality, speed, performance and efficiency  will unquestionably necessitate the increasing use of more sophisticated semiconductor materials.   These advanced semiconductors are enabling a range of new mass market applications such as gesture recognition and short range optical communication,  and at the same time disrupting some existing large markets such as solar energy and  power switching.  We expect that this rate of change will continue to accelerate.

We have established a global manufacturing platform that has the capacity to be able to take advantage of the opportunities in our markets.  The Board remains focussed on increasing throughput, which with the operational gearing is expected to deliver improving margins and cash generation.

This provides a bright outlook for IQE, which through its broad technology portfolio has developed a solid foundation in the wireless market; a high growth photonics business; and transformational opportunities in Solar energy and Power electronics.  The Board believes that this creates a platform for future growth as well as increasing the diversity of the Group's revenues.

Financial Review

The Group's underlying financial performance includes a number of adjusted profit measures that adjust for the impact of non-cash charges  and exceptional items as detailed in note 4.   These largely relate to a two year restructuring programme that was flagged in early 2013.  No further restructuring costs are anticipated in 2015.

Revenues of £112m were in line with expectations, reflecting H2 revenues of £60m up 15% from H1.   Revenues were down from £126.8m in 2013 due to the impact of an industry wide inventory correction, foreign exchange (approx. 5%), and lower underlying growth in demand for wireless wafers.

Strong margins and cost reductions helped improve profitability.  This enabled the Group to generate an adjusted fully diluted EPS of 2.42p, up 21% from 2.00p in the prior year.  Reported diluted EPS was 0.24p, down from 0.89p.

Adjusted gross profit increased from £27.9m to £31.6m, due largely to cost reductions and improved efficiencies.  Reported gross profit increased from £23.1m to £26.0m.  As a percentage of sales, adjusted gross margins increased from 22.0% to 28.2%, whereas reported gross margins  increased from 18.2% to 23.2% .

Other income and expense has increased from a net charge of £0.2m to a net charge of £1.7m.  This relates to the following one-off items as detailed in note 4 : gain on release of contingent deferred consideration, provision for onerous leases and impairment of fixed assets.

Adjusted selling, general and administration expenses (SG&A) increased from £13.4m to £13.9m, largely reflecting the impact of foreign currency exchange.  Reported SG&A increased from £15.6m to £17.1m.

Adjusted operating profit increased by 59% from £14.6m to £17.6m. Reported operating profit, which includes exceptional items, remained broadly flat at £7.2m (2013: £7.3m).

Interest costs reduced from £2.2m to £1.9m reflecting the reduction in borrowings,  and a reduction in the imputed interest relating to the discounting of long term balances.

Adjusted pre tax profit increased by 25% from £13.0m to £16.2m. Reported pre tax profit remained flat at £5.2m. (2013: £5.2m)

The income tax charge of £3.2m  primarily reflects deferred tax on exceptional items of £3.7m.  Excluding exceptionals, there was an underlying tax credit of £0.5m (2013: £0.6m) largely reflecting the benefit of R&D tax credits and deferred tax credits on losses recognised.    The Group has sufficient tax losses available to shield future tax payable of up to £39.1m.

Adjusted profit after tax increased by 23% from £13.6m to £16.7m.  Reported retained profit decreased from £6.1m to £2.0m, largely reflecting the exceptional deferred tax charge of £3.7m.

Cash inflow from operations, before exceptional items, increased 21% from £16.2m to £19.6m.  After exceptional items, cash generated from operations increased 16% from £12.8m to £14.9m.

Cash investments (excluding acquisitions) reduced £0.7m from £10.1m to £9.4m,  reflecting reduced spend on property, plant and equipment (down £2.0m) partially mitigated by higher spend on product development (up £0.6m)  and new IT systems (up £0.7m).

Deferred consideration at the year end was  £20.6m, down £15.0m (42%) from £35.6m

Net Debt at the year end was £31.3m (2013: £34.4m), reflecting net cash generation. The Board will not be recommending the payment of a dividend.

Operating Review

Organisational Development

The group continued with its Organisational Development  Programme which was set out in 2013.  This has involved transferring production between sites to improve operational efficiency,  enabling the group to reduce its operating costs and achieve its cost reduction targets, and the creation of specific end market focussed Business Units. 

This programme has included the formation of the Compound Semiconductor Development Centre ("CSDC"), which has emerged from the groups Singapore operation.  This was announced during the second half of 2014, and has become operational in Q1 2015.  This is a collaboration between IQE, WIN Semiconductors and Nanyang Technological University with the purpose of accelerating the development of compound semiconductor technology in Singapore, and providing an effective incubator for bringing new innovations to market.  IQE will be the wafer provider to new high volume applications which emerge.  As detailed in note 4, this programme necessitated the group incurring cash costs relating to the reorganisation of £4.8m (2013: £3.4m),  provisions for asset impairment of £6.3m, and provisions for onerous leases of £6.7m.

In addition, the group has now 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 IQE Group.

Key Product Development Milestones

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 programs have the potential to further increase compound semiconductor content. In addition, work is now beginning to address the requirements of 5G, which because of the higher frequencies are highly likely to require even more compound semiconductor content.

Photonics

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, the 6" capability IQE demonstrated in 2014 has been significant in reducing the unit cost of chips and accelerating the adoption of this technology.   This is evident in the strong year on year growth in photonics sales, which was c.30% in constant currency for non-infrared applications.

The Group also announced its participation in a €23M programme to establish a Pan European pilot line for the production of VCSEL components in conjunction with Philips, ST, Sidel and Mellanox.

InfraRed

IQE is a global leader in the supply of indium antimonide and gallium antimonide wafers for advanced infrared applications.   We made sound technical progress during 2014 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.

Advanced Solar (CPV)

As announced on 24 March 2014, IQE's stake in Solar Junction ("SJC")  was acquired by a new strategic investor with a strong interest in accelerating the deployment of CPV systems on a global basis.   IQE remains the materials partner to SJC by virtue of its exclusive wafer supply agreement.    IQE achieved full qualification with SJC  on its high volume manufacturing platform, and pilot production for field deployment commenced in January 2015.   We expect this to ramp into volume through 2015 and 2016.

IQE also became a key partner in a EU funded programme during 2014, to develop 4-junction advanced solar cells for space applications.

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.   This includes an agreement with M/A-COM Technology Solutions Inc to deliver 200mm GaN on Si.   IQE was also selected as a key partner in the Clean Energy Manufacturing Innovation Institute announced by President Obama.

Gallium Nitride on Silicon Carbide (GaN on SiC) is similarly driving a technology shift in a number of high power radio applications such as radar, CATV and base stations.  IQE has developed  high quality 150mm GaN on SiC material, which is enabling the supply chain to improve efficiency and reduce cost  in order to accelerate the adoption of this material.   The progress made by IQE was recognised during 2014 with an award from CS International.

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 in line with expectations, and the outlook for the full year remains positive, with strong prospects driven by the Group's diversification strategy.  The Board remains confident of achieving our expectations  for the full year earnings and we anticipate that we will continue to benefit from strong cash flows.

Dr Drew Nelson OBE
President & Chief Executive Officer
24 March 2015  

Consolidated income statement for the year ended 31 December 2014

	Note	2014 £'000	2013 £'000
Revenue	3	112,011	126,774
Cost of sales		(86,015)	(103,669)
Gross profit		25,996	23,105
Other income and expenses		(1,726)	(179)
Selling, general and administrative expenses		(17,103)	(15,580)
Operating profit		7,167	7,346
Finance costs		(1,924)	(2,154)
Adjusted profit before tax		16,189	13,010
Adjustments	4	(10,946)	(7,818)
Profit before tax		5,243	5,192
Taxation		(3,247)	934
Profit for the year		1,996	6,126
Profit attributable to:
Equity shareholders		1,632	5,955
Non-controlling interest		364	171
		1,996	6,126
Adjusted basic earnings per share	5	2.51p	2.09p
Basic earnings per share	5	0.25p	0.93p
Adjusted diluted earnings per share	5	2.42p	2.00p
Diluted earnings per share	5	0.24p	0.89p

Consolidated statement of comprehensive income for the year ended 31 December 2014

		2014 £'000	2013 £'000
Profit for the year		1,996	6,126
Currency translation differences on foreign currency net investments*		5,192	(3,294)
Total comprehensive income for the year		7,188	2,832
*This may be subsequently reclassified to profit or loss
Total comprehensive income attributable to:
Equity shareholders		6,822	2,779
Non-controlling interest		366	53
		7,188	2,832

Consolidated statement of changes in equity for the year ended 31 December 2014

	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

	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 2013	5,882	33,445	42,749	2,775	5,347	-	90,198
Comprehensive income
Profit for the year	-	-	5,955	-	-	171	6,126
Foreign exchange	-	-	-	(3,176)	-	(118)	(3,294)
Total comprehensive income	-	-	5,955	(3,176)	-	53	2,832
Transactions with owners
Acquisition of Kopin wireless	-	-	-	-	-	1,700	1,700
Share based payments	-	-	-	-	1,415	-	1,415
Issues of ordinary shares	593	15,513	-	-	-	-	16,106
Total transactions with owners	593	15,513	-	-	1,415	1,700	19,221
Balance at 31 December 2013	6,475	48,958	48,704	(401)	6,762	1,753	112,251

Consolidated balance sheet as at 31 December 2014                                       

	Note	2014 £'000	2013 £'000
Non-current assets:
Intangible assets		82,079	75,859
Property, plant and equipment		66,588	71,840
Deferred tax asset		12,332	16,040
Total non-current assets		160,999	163,739
Current assets:
Inventories		18,276	17,702
Trade and other receivables		24,463	22,907
Cash and cash equivalents	7	5,584	3,258
Total current assets		48,323	43,867
Total assets		209,322	207,606
Current liabilities:
Borrowings	7	(14,720)	(4,804)
Trade and other payables		(30,396)	(31,114)
Provisions for other liabilities and charges		(1,551)	-
Total current liabilities		(46,667)	(35,918)
Non-current liabilities:
Borrowings	7	(22,115)	(32,805)
Other payables		(15,431)	(26,632)
Provisions for other liabilities and charges		(3,934)	-
Total non-current liabilities		(41,480)	(59,437)
Total liabilities		(88,147)	(95,355)
Net assets		121,175	112,251
Equity attributable to the shareholders of the parent:
Share capital		6,603	6,475
Share premium		49,108	48,958
Retained earnings		50,336	48,704
Other reserves		13,009	6,361
		119,056	110,498
Non-controlling interest		2,119	1,753
Total equity		121,175	112,251

Consolidated cash flow statement for the year ended 31 December 2014

	Note	2014 £'000	2013 £'000
Cash flows from operating activities:
Adjusted cash inflow from operations		19,614	16,173
Cash impact of adjustments		(4,753)	(3,411)
Cash inflow from operations	6	14,861	12,762
Net interest paid		(1,428)	(1,546)
Income tax received / (paid)		1,258	(686)
Net cash generated from operating activities		14,691	10,530
Cash flows from investing activities:
Acquisition of Kopin		-	(36,533)
Capitalised development expenditure		(4,957)	(4,346)
Investment in other intangible fixed assets		(1,291)	(556)
Purchase of property, plant and equipment		(3,178)	(5,196)
Net cash used in investing activities		(9,426)	(46,631)
Cash flows from financing activities:
Issues of ordinary share capital		278	16,106
Repayment of borrowings	7	(4,680)	(4,437)
Increase in borrowings	7	1,305	25,000
Net cash (used)/generated from financing activities		(3,097)	36,669
Net Increase in cash and cash equivalents		2,168	568
Cash and cash equivalents at 1 January	7	3,258	2,773
Exchange gains on cash and cash equivalents		158	(83)
Cash and cash equivalents at 31 December	7	5,584	3,258

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 2014 audited annual accounts unless denoted as 'unaudited'. Comparative figures in the results for the year ended 31 December 2013 have been taken from the 2013 audited annual accounts.

This financial information has been prepared on a going concern basis under the historical cost convention except where fair value measurement is required by IFRS, and in accordance with the Companies Act 2006 applicable to companies reporting under IFRS, 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.

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 24 March 2014. 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 2014, as described in those financial statements.

3          SEGMENTAL ANALYSIS

											2014				2013
(All figures £'000s)											£'000				£'000
Revenue by business segment :
Wireless											89,110			107,219
Photonics											21,761			18,685
Electronics											1,140			870
Total revenue											112,011			126,774
Operating profit/(loss) by business segment :
Wireless											5,077		9,859
Photonics											3,291		(2,454)
Electronics											(1,201)		(59)
Total operating profit											7,167		7,346

4          ADJUSTED PROFIT MEASURES

The groups 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.

				2014 £'000	2013 £'000
Restructuring and reorganisation			17,780		3,411
Gain on release of contingent deferred consideration			(9,903)		(3,026)
Amortisation of acquired intangibles			1,116		730
Discounting of long term acquisition related balances			495		608
Share based payments			1,458		1,415
Write down of investment in Solar Junction			-		3,205
Acquisition related inventory fair value adjustment			-		1,475
Total before tax			10,946		7,818
Deferred tax on adjustments			3,759		(330)
Total after tax			14,705		7,488

• As previously reported, through 2013 and 2014 the group was engaged in restructuring and reorganising its global operations.   This has necessitated incurring certain  cash costs and creating provisions for asset impairments and future lease costs. No further restructuring costs are anticipated in 2015.

The cash costs incurred were £4.8m (2013 : £3.4m) which related to redundancy costs, requalification costs and the duplication of overheads to support the transition of customers between production facilities. 

The asset and lease provisions primarily related to the group setting aside its Singapore facility and certain  equipment for use by a new joint venture called the Compound Semiconductor Development Centre ("CSDC").  The CSDC has been established to accelerate the development of compound semiconductor technology in Singapore, and to provide an effective incubator for bringing new innovations to market. In return, IQE will be the production partner for the high volume manufacturing that emerges from this incubator.  The asset impairments related to equipment (£4.9m) and inventories ( £1.4m), and the provision for onerous leases £6.7m.  There were no provisions relating to restructuring in 2013. These provisions are accounting estimates based on judgements, accordingly, the actual amounts may differ from these estimates.

• The Group also generated a non-cash profit of £9.9m (2013 £3.0m) 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 investment in Solar Junction Corporation was fully provided for at 31 December 2013, and classified within other income and expenses in the consolidated income statement
• In 2013 in fair valuing the assets of the acquired Kopin Wireless business, the inventories were recorded in the Group's accounts at their fair value. Therefore, the reported gross margin reflects a reduced profit on the sale (post acquisition) of the inventories acquired. The £1.5m adjustment above eliminates this fair value uplift so that the adjusted gross margin reflects the normal trading profit.
• The deferred tax charge of £3.8m (2013: £0.3m credit) reflects the net deferred tax impact associated with these items.
• The adjustments above which are classified within gross margin are £3.1m (2013: £2.4m) of the cash costs of restructuring, £1.4m (£nil) inventory provision and £1.0m (£0.9m) of the share based payment charge. In 2013, the acquisition related inventory fair value adjustment was also classified within gross margin.

4          ADJUSTED PROFIT MEASURES - CONTINUED

					2014 £'000		2013 £'000
Adjusted gross margin						31,552	27,939
Reported gross margin						25,996	23,105
Adjusted sales, general and administrative expenses						(13,935)	(13,383)
Reported sales, general and administrative expenses						(17,103)	(15,580)
Adjusted operating profit						17,618	14,556
Reported operating profit						7,167	7,346
Adjusted profit before tax						16,189	13,010
Reported profit before tax						5,243	5,192
Adjusted profit after tax						16,701	13,614
Reported profit after tax						1,996	6,126

					2014 £'000	2013 £'000
Profit attributable to equity shareholders					1,632	5,955
Minority interest					364	171
Tax					3,247	(934)
Share based payments					1,458	1,415
Finance costs					1,924	2,154
Depreciation of tangible fixed assets					6,590	8,503
Amortisation of intangible fixed assets					3,902	2,591
Profit and loss on disposal					15	-
Provision for onerous lease*					6,673	-
Acquisition related inventory fair value adjustment*					-	1,475
Impairment of assets/investments*					6,354	3,205
Release of contingent deferred consideration*					(9,903)	(3,026)
Restructuring and re-organisation*					4,753	3,411
EBITDA					27,009	24,920

* Exceptional items impacting EBITDA include the following items: acquisition related inventory fair value adjustments,  impairment of assets/investments, provision for onerous lease, reorganisation 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 '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.

	2014 £'000	2013 £'000
Profit attributable to ordinary shareholders	1,632	5,955
Adjustments to profit after tax (note 4)	14,705	7,488
Adjusted profit attributable to ordinary shareholders	16,337	13,443
	2014 Number	2013 Number
Weighted average number of ordinary shares	650,836,462	642,239,979
Dilutive share options	25,116,813	30,127,305
Adjusted weighted average number of ordinary shares	675,953,275	672,367,284
Adjusted basic earnings per share	2.51p	2.09p
Basic earnings per share	0.25p	0.93p
Adjusted diluted earnings per share	2.42p	2.00p
Diluted earnings per share	0.24p	0.89p

6          CASH GENERATED FROM OPERATIONS

The Group	2014 £'000	2013 £'000
Profit before tax	5,243	5,192
Finance costs	1,924	2,154
Depreciation of property, plant and equipment	6,590	8,503
Amortisation of intangible assets	3,902	2,591
Profit and loss on disposal	15	-
Acquisition related inventory fair value adjustments	-	1,475
Impairment of assets / investments	6,354	3,205
Onerous lease provisions	6,673	-
Release of contingent deferred consideration	(9,903)	(3,026)
Contingent deferred consideration (settled through contractual discounts)	(7,981)	(14,191)
Share based payments	1,458	1,415
Cash inflow from operations before changes in working capital	14,275	7,318
(Increase)/decrease in inventories	(792)	6,405
Decrease in trade and other receivables	760	2,308
Increase/(decrease) in trade and other payables	618	(3,269)
Cash inflow from operations	14,861	12,762

7          ANALYSIS OF NET DEBT

	At 1 January 2014 £'000	Cash flow £'000	Other non-cash movements £'000	At 31 December 2014 £'000
Cash and cash equivalents	3,258	2,168	158	5,584
Bank borrowings due after one year	(31,902)	(1,305)	11,205	(22,002)
Bank borrowings due within one year	(4,002)	3,867	(13,732)	(13,867)
Finance leases due after one year	(903)	-	790	(113)
Finance leases due within one year	(802)	813	(864)	(853)
Total borrowings	(37,609)	3,375	(2,601)	(36,835)
Net debt	(34,351)	5,543	(2,443)	(31,251)

Cash and cash equivalents at 31 December 2014 comprised balances held in instant access bank accounts.

Non-cash movements include the new finance leases and foreign exchange movements on US dollar denominated borrowings.

8          POST BALANCE SHEET EVENTS

On 23 March 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 for compound semiconductor technology, with the aim of accelerating the development and commercialisation of new advanced semiconductor products.    

IQE is has a 50% equity stake in the new venture, and as part of its contribution to the establishment of the CSDC IQE is providing facilities, equipment and IP on favourable terms.   Further details are set out in note 4.

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Source: IQE plc via Globenewswire

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