REG-IQE plc : Final Results <Origin Href="QuoteRef">IQE.L</Origin>
22/03/2016 07:12
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 26 th
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 22 nd 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.
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