REG-IQE plc : H1 2017 - Interim results <Origin Href="QuoteRef">IQE.L</Origin>
05/09/2017 07:05
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IQE plc
Strong ramp in sales of VCSEL wafers marks the start of a new wave of growth
with a pipeline of new mass market technologies.
Cardiff, UK. 5 September 2017: IQE plc (AIM: IQE, "IQE" or the "Group"), the
leading global supplier of advanced wafer products and wafer services to the
semiconductor industry, announces its unaudited half year results for the six
months to 30 June 2017.
£' MILLION (except EPS) 30 June 2017 30 June 2016 Change
REVENUE WAFERS LICENSING 70.4 69.4 1.0 63.0 59.5 3.5 +12% +17% -71%
ADJUSTED OPERATING PROFIT * WAFERS LICENSING 10.6 9.6 1.0 10.8 7.3 3.5 -2% +32% -71%
ADJUSTED PROFIT BEFORE TAX* 9.6 10.1 -5%
PROFIT FOR THE PERIOD 7.3 10.0 -27%
ADJUSTED FULLY DILUTED EPS* 1.35p 1.46p -8%
CASH GENERATED FROM OPERATIONS 11.2 12.4 -10%
CAPITAL INVESTMENT 15.4 7.6 102%
LEVERAGE (NET DEBT + DEFERRED CONSIDERATION) 41.9 35.4 18%
HIGHLIGHTS
* Wafer sales up 17% against H1 2016, delivering a 32% increase in the related
operating and adjusted operating profit.
* Overall revenues up 12% against H1 2016.
* Sales up in all three primary markets with Wireless up 9%, Photonics up 48%,
and Infrared up 19% compared with H1 of 2016. Foreign exchange tailwind of
c10% following the devaluation of sterling in 2016.
* Continued strong growth in Photonics includes the early phase of a
significant ramp in VCSEL wafers for a mass market consumer application, and
contributed to record monthly Photonics sales in June 2017.
* License income of £1.0m, compared with £3.5m in H1 2016 (which included
upfront amounts). No upfront license income in H1 2017.
* Conversion of adjusted operating profit (£10.6m) into operating cash
(£11.2m) of 106% after funding £3.7m investment in working capital, largely
in connection with mass market VCSEL ramp (H1 2016: 115% conversion).
* Investment in capex and product development of £15.4m (H1 2016: £7.6m) to
support further growth, including the expected mass market adoption of
VCSELs. This investment was funded primarily through organic cash
generation, and supplemented by debt funding.
* A further capacity expansion plan initiated to meet higher levels of demand
which are expected in H2 2018. 5 new tools on order and lease signed on new
premises in South Wales which provides a flexible and cost effective route to
add up to 100 new tools, which would double IQE's current tool count.
* Breadth and depth of customer engagement across a range of technologies and
applications sets the scene for increasing revenue diversity and growth
through 2018 and beyond.
* Direct engagement with OEMs has expanded to multiple programmes across a
range of materials technologies, validating the strength of IQE's IP portfolio
as a key differentiator and strong competitive advantage. These programmes
are central to several next generation mass market applications.
* Net debt up £2.4m since year end to £41.9m (December 2016: £39.5m).
* The Directors believe that the adjusted measures provide a more useful
comparison of business trends and performance. Adjusted measures exclude
exceptional items, share based payments and non-cash acquisition accounting
charges as detailed in note 5.
Dr Drew Nelson, IQE Chief Executive, said:
"The compound semiconductor industry is moving through an inflection point.
Many of the key innovations that are taking place in the technology world
would not be possible without the advanced properties of compound
semiconductor materials. Indeed, compound semiconductors are the fundamental
enabler of innovations such as 3D sensing, biometric sensors, electric and
autonomous vehicles, high speed wireless and optical communications, and
advanced manufacturing.
"IQE has developed an unparalleled breath of materials IP, which position it
to prosper from the inflection that is taking place in our industry. Our
broad portfolio of IP is a powerful competitive advantage which is enabling us
to differentiate ourselves in the marketplace. The strength of our IP has
enabled us to broaden our direct engagement with OEMs from single points of
engagement a few years ago, to multiple programmes enabling a number of next
generation mass market technologies.
"IQE's outlook has never looked better. The broad range of customer
engagements across multiple technologies and multiple end markets, provide a
clear path to increase revenue diversity and accelerate growth over the coming
months and years ahead. The breadth and depth of customer engagement
underpins the Board's confidence in approving the capacity expansion plan,
which provides a flexible and cost effective route to significantly scaling up
in our business over the next few years"
The information contained within this announcement is deemed to constitute
inside information as stipulated under the Market Abuse Regulations (EU) No.
596/2014. Upon the publication of this announcement, this inside information
is now considered to be in the public domain.
CONTACTS
IQE plc +44 (0) 29 2083 9400
Drew Nelson
Phil Rasmussen
Chris Meadows
Canaccord Genuity + 44 (0) 20 7523 8000
Simon Bridges
Henry Fitzgerald O'Connor
Richard Andrews
Peel Hunt +44 (0) 20 7418 8900
Edward Knight
Nick Prowling
Note to Editors
IQE is the leading global supplier of advanced semiconductor wafers with
products that cover a diverse range of applications, supported by an
innovative outsourced foundry services portfolio that allows the Group to
provide a 'one stop shop' for the wafer needs of the world's leading
semiconductor manufacturers.
IQE uses advanced crystal growth technology (epitaxy) to manufacture and
supply bespoke semiconductor wafers ('epiwafers') to the major chip
manufacturing companies, who then use these wafers to make the chips which
form the key components of virtually all high technology systems. IQE is
unique in being able to supply wafers using all of the leading crystal growth
technology platforms.
IQE's products are found in many leading-edge consumer, communication,
computing and industrial applications, including a complete range of wafer
products for the wireless industry, such as mobile handsets and wireless
infrastructure, Wi-Fi, base stations, GPS, and satellite communications and
optical communications.
The Group also manufactures advanced optoelectronic and photonic components
such as semiconductor lasers, vertical cavity surface emitting lasers (VCSELs)
and optical sensors for a wide range of applications including optical
storage, thermal imaging, leading-edge medical products, pico-projection,
finger navigation ultra-high brightness LEDs, and high efficiency concentrated
photovoltaic (CPV) solar cells.
The manufacturers of these chips are increasingly seeking to outsource wafer
production to specialist foundries such as IQE in order to reduce overall
wafer costs and accelerate time to market.
IQE also provides bespoke R&D services to deliver customised materials for
specific applications and offers specialist technical staff to manufacture to
specification either at its own facilities or on the customer's own sites. The
Group is also able to leverage its global purchasing volumes to reduce the
cost of raw materials. In this way, IQE's outsourced services, provide
compelling benefits in terms of flexibility and predictability of cost,
thereby significantly reducing operating risk.
IQE operates a number of manufacturing and R&D facilities across Europe, Asia
and the USA. The Group also delivers its products and services through
regional sales offices located in major economic centres worldwide.
INTERIM RESULTS 2017
1. INDUSTRY BACKGROUND
Integrated circuits or "chips" are the critical components which lie at the
heart of all electronic devices. In the past, these chips have been
primarily fabricated using silicon. Silicon is an abundant semiconducting
element which has enabled the Silicon chip market to grow to over $350 billion
per annum. However, like every element, silicon has a finite, and therefore
limited, set of properties.
There are many other semiconducting elements which have much more advanced
properties than silicon. Compound semiconductors refers to the technology of
combining these other semiconducting elements to create materials which
overcome the inherent performance limitations of silicon. This enables chip
companies to produce compound semiconductor chips which achieve functionality
that silicon chips just cannot match. Indeed, the wireless communications
revolution, fibre optic communication (the internet), and LED lighting would
not be possible without compound semiconductors.
2. IQE AND THE COMPOUND SEMI SUPPLY CHAIN
The three key steps in the supply chain are typically viewed as
"wafers-chips-devices". IQE designs and fabricates compound semiconductor
wafers. It generates its revenues primarily from selling bespoke wafers to
its customers, who in turn fabricate these wafers into compound semiconductor
chips such as wireless communication chips, laser devices or advanced sensors.
These chips are then incorporated into devices such as smartphones, base
stations or other electronic systems and gadgets.
IQE also generates income from licensing IP to Joint Ventures, being related
entities which are not controlled by IQE. These joint ventures were
established with IQE's partners to provide a bridge between academia and
industry. Our university partners are participating in these JV's to provide
a cost-effective route to commercialise their new technologies, whereas IQE
and its industrial partner are using the JV's to seed future revenues by using
their "right of first refusal" over the commercial supply for these new
technologies.
IQE differentiates itself from its competitors through technology leadership,
economies of scale, and dual site manufacturing for security of supply. This
has enabled IQE to develop a strong leadership position, where it is
recognised globally as the market leader, with an estimated 55% share of the
wireless market and an unparalleled breadth of materials technologies.
IQE has developed a market facing organisational structure, based around its 6
key markets: Wireless, Photonics, Infrared, Solar, Power, and CMOS++.
3. RESULTS
The Group's results are reported after a number of one-off items and non-cash
accounting charges. In aggregate, these resulted in a net charge of £2.5m in
H1 2017 (H1 2016: £0.2m) consisting of non-cash accounting charges of £2.8m
(H1 2016: £1.8m), the release of deferred consideration (H1 2016: £2.1m
credit) in the prior year and a related deferred tax credit of £0.3m (H1
2016: £0.6m charge). These items are fully detailed in note 5, in order to
assist with an assessment of the Group's underlying business performance. The
following commentary on the first half results is based on these adjusted
profit measures.
First half revenues increased by 12% to £70.4m (H1 2016: £63.0m). Wafer
sales of £69.4m were up 17% against H1 2016. This reflects increased sales
in each of its primary markets: Wireless sales were up 9% to £47.3m,
Photonics sales ups 48% to £15.9m and InfraRed sales up 19% to £5.6m.
License income from joint ventures was £1.0m (H1 2016: £3.5m), reflecting
that IQE benefitted from significant upfront license fees in H1 2016.
Gross margins on wafer sales increased from 24% to 25%, and gross margin on
license income remained at 100%. Overall gross margin of 26% was lower than
prior year (H1 2016: 28%), reflecting the mix effect of lower license income
in 2017.
Selling, General and Administration expenses (SG&A), increased 3% to £7.5m
(H1 2016: £7.3m). Despite the increase in sales, the operating profit of
£10.6m was 2% lower than prior year (H1 2016: £10.8m), which benefitted from
one-off upfront license income. There was no upfront license income in H1
2017.
Adjusted profit after tax reduced £0.4m to £9.8m (H1 2016: £10.2m), which
combined with an increase in the fully diluted share count (due to the
increase in share price) resulted in an 8% decrease in adjusted fully diluted
EPS from 1.46p to 1.35p. After exceptional charges of £2.5m (H1 2016:
£1.7m), the reported profit after tax decreased from £9.8m to £7.3m.
The Group's net debt increased by £2.4m since the prior year end to £41.9m
(December 2016: £39.5m). Deferred consideration, which related to
previous acquisitions, is nil, having being settled in full during H2 of
2016.
The Group has approximately £115m of accumulated tax losses, which represent
a potential reduction in future tax payable of £33m. The tax credit of £0.6m
(H1 2016: £0.4m charge) primarily reflects the recognition of additional tax
losses consistent with the Groups growth opportunities, partially offset by
tax charges in Asia where historical brought forward tax losses have now been
utilised. This has resulted in an adjusted effective tax rate of -2.8% which
has reduced from 1.8% in H1 2016 (FY 2016: -3.9%) and a reported effective tax
rate of -8.4% (H1 2016: 4.2%, FY 2016: -2.1%).
4. VISION AND STRATEGY
The evolution of semiconductors
Compound semiconductors are continuing to play an increasingly important role
in the electronics industry as their advanced properties exceed the
performance limitations of silicon semiconductors. Through continuing
innovation, compound semiconductor technologies are now achieving the
cost-performance thresholds that is accelerating their adoption on many
fronts. Moreover, as the technology continues through this inflection point
of mass adoption, it is approaching a paradigm shift with the emergence of
"Compound Semiconductor on Silicon" technology (CS-on-Si).
CS-on-Si combines the superior performance of compound semiconductors with the
low cost of traditional silicon technology to create a high performance, low
cost hybrid solution. This technology has been under development for more
than a decade, through a host of government and industry funded programmes
that has engaged blues chips, leading universities and specialist high
technology companies alike. IQE has been firmly embedded in these programmes
as a materials specialist, and has many patents in this field. This
transition is almost upon us, as the supply chain anticipates initial
commercialisation of GaN-on-Si for wireless base stations as early as 2018.
Vision and strategy
Our vision is to be the leading global provider of advanced semiconductor
materials - the global "go to" compound semiconductor materials specialist in
the electronics industry.
To realise this vision requires the ability to deliver "enabling technology",
which meets the price points needed for adoption, and which can be delivered
reliably, on-time, every-time with the ability to scale rapidly. IQE has
positioned itself well for this challenge, having built the broadest portfolio
of materials IP in the industry, and developed a unique platform for a secure
low cost supply. Moreover, IQE believes it has developed a reputation to match
- for excellence and reliability.
As part of the Group's strategy, IQE announced in July 2017 that, as part of
its expansion plans, it has agreed a lease of a new premises in South Wales.
The lease is with the Cardiff City Region, which has a goal of supporting the
development of the Compound Semiconductor Cluster in South Wales. This lease
provides the infrastructure needed for IQE's expansion in a highly cost
effective manner. The lease is for 11 years, and provides IQE with an option
to extend the lease or purchase the freehold. In parallel, the Group has
placed orders for new MOCVD equipment.
5. MARKETS
The Group has established six business units along market lines, to address
its primary and emerging markets, the emerging markets of Solar and Power
control are not yet significant enough to be separated in our segmental
reporting.
Wireless
"Wireless" refers to a broad range of applications from mobile devices such as
smartphones, tablets, routers, and WiFi through to large system applications
such as base stations and radar. It is IQE's largest market today, and
accounted for 68% of wafer sales in the first half of 2017 (H1 2016: 73%).
This has been the main growth driver in IQE's business over the last decade.
The smartphone revolution was triggered by the launch of the iPhone in 2007.
The consumer "feeding frenzy" that followed delivered double digit growth in
the market for wireless materials including power amplifiers (PAs), driven by
both the increase in the volume of handsets sold and an increasing chip
content in each handset. Through this period of strong growth IQE built its
global leadership position in wireless, and now enjoys an estimated 55% global
market share. However, the market has been more subdued over the past few
years reflecting a lull in mobile phone handset innovation, and
technology/fabrication trends resulting in smaller die size has resulted in
the materials market remaining relatively flat over that period. However,
the much speculated revival in handset innovation, and the advent of 5G,
provide clear routes to the return of double digit growth in this segment.
At present, growth in IQE's wireless division is being driven by high voltage
applications such radars and base stations. Although this has historically
represented only a modest part of IQE's wireless sales (C.10-15%), it is a
high growth area delivering double digit growth. In these applications,
compound semiconductor technology (GaN-on-SiC) is replacing incumbent silicon
technology (LDMOS) which is unable to meet the rising performance required for
today's high speed communication systems. Moreover, working closely with its
chip customers, IQE has developed GaN-on-Si technology which delivers the high
performance of compound semiconductors but at a dramatically lower cost of
manufacture, and hence offers the potential to disrupt this market and deliver
strong growth for IQE in the near term.
A further dimension to IQE's wireless business is the market for wireless
filters. This is a very large market, which is already more than double the
size of the existing wireless PA market, and growing rapidly. Currently, a
range of filters are made using poly-crystal aluminium nitride material.
However, IQE has developed and internally demonstrated a single-crystal
aluminium nitride material which offers superior performance characteristics.
Further development is required before this technology can be commercialised,
but initial results reflect substantial promise, and the potential to
commercialise over a 2-3 year time frame.
Photonics
Photonics refers to semiconductor applications which emit or detect light -
essentially lasers and sensors. It accounted for 23% of the Group's wafer
sales in the first half of 2017 (H1 2016: 18%). It is the fastest growing
segment within IQE, and delivered a growth rate of 48% in the first half
following several years of strong double digit growth.
The critical materials technologies in this market are VCSEL (Vertical Cavity
Surface Emitting Lasers) and InP (Indium Phosphide). After several years of
development, the advances in these technologies and the improvement in
manufacturing processes means that these technologies are now hitting the
performance and cost points necessary for mass market adoption.
The application space for VCSEL is very broad and spans mass-market consumer
applications, fibre optic communication, and industrial and health
applications. Specific uses include 3D sensing, LIDAR, gesture recognition,
laser autofocus, proximity sensing, fibre optics for data centres, industrial
heating, machine control and biometrics to name but a few.
IQE is the technology and market leader in VCSEL materials, working with
leading chip companies and OEMs directly. Indeed, IQE's IP is a strong
differentiator which provides a powerful competitive advantage in the VCSEL
marketplace, and which has enabled IQE to secure multiple multi-year contracts
for mass market applications.
Over the past few years, IQE has enjoyed strong double-digit growth in its
VCSEL business, much of which has been customer funded development spanning a
broad base of customers and applications. In its recent trading update, IQE
announced the start of a ramp in a mass market consumer application using
VCSELs. This application, which relates to a sensing technology, helped
deliver record sales for IQE in June, and offers the potential for a dramatic
acceleration in VCSEL sales growth over the next few years.
InP is the technology that is critical to fibre optics in
telecommunications. The main growth drivers here are "Fibre to the Premises"
(FTTx), data centre infrastructure and mobile base station backhaul. The
continued exponential growth in data traffic is driving the roll out of fibre
"to the last mile" across the planet, the need for greatly increased data
storage capacity with rapid access to data and 4G/LTE backhaul Fibre Optic
links.
A key technology in InP fibre optics is Distributed Feedback Lasers
("DFB"s). In contrast to our other technologies, there is an intermediary
step in the supply chain which sits between the epitaxial wafer production and
the chip fabrication. In particular, a "grating" is added to the epitaxial
wafer, followed by further epitaxial films on top of the grating.
Historically, IQE has only provided the base epitaxial wafers with third
parties undertaking the additional steps. However, IQE has developed a cost
effective, highly flexible grating technology which solves some of the key
challenges currently facing this sector. This technology has passed internal
testing and is being qualified by customers. We believe that this is a
disruptive technology which could allow for rapid growth and market share
gains for IQE in this segment in the near term.
In overview, we believe that our photonics business is at the start of a long
term and exciting high growth curve. Our growth ambitions are underpinned by
an impressive pipeline of programmes with blue chip customers for high volume
applications, and IP which provides IQE with powerful competitive advantages.
Infrared
We are the market leader in the supply of indium antimonide (InSb) and gallium
antimonide (GaSb) materials used in high resolution infrared systems, with an
estimated market share of approximately 80%. This segment accounted for
approximately 8% of the Group's wafer sales in the first half of 2017 (H1
2016: 8%).
Sales are currently concentrated in defence related applications, but through
our engagement in programmes in consumer, medical and industrial imagining, we
expect this segment to increasingly transition into new high volume markets
over the coming years.
Power
"Power" relates to the use of semiconductors in Power Switching and LED
lighting applications. IQE is developing materials solutions to address
some of the key technological challenges faced in these markets. The size
and scale of these markets are many times larger than IQE's existing markets,
so these represent truly transformational opportunities for IQE.
Power switching devices are used where electricity is switched between AC and
DC, or where voltage is switched. This happens throughout electricity
generation and distribution, and in virtually all applications that are
powered from the grid, from transformers in industrial machinery and electric
vehicles, through to power supplies for your laptop. The market for power
switching chips is estimated to be worth at least $12 billion, which is
approximately 4x the size of the existing wireless power amplifier chip
market. Again, a truly transformational opportunity.
At present, these power switching chips are made using silicon, which has
performance limitations. Accordingly, the industry is investing heavily in a
step change in technology to overcome this inefficiency and deliver a high
performing lower cost solution. That step change is the adoption of a hybrid
compound semiconductor on silicon technology called GaN on Si. IQE is at the
forefront of the materials development.
We are all becoming accustomed with LED technology as it gathers momentum in a
range of lighting applications from automotive lighting to office lighting and
residential lighting. The prevalent materials technology in this industry is
currently "gallium nitride on sapphire", but it is widely accepted that GaN on
Si will become an important technology in this space. This provides a major
opportunity for IQE to leverage its development of GaN on Si for Power into
this adjacent market.
Advanced Solar
Solar panels are largely made from silicon, which is inherently inefficient in
converting sunlight into electricity, typically achieving efficiencies of only
15-20%. In contrast, compound semiconductors are significantly more
efficient, and today deliver efficiencies of over 44%. Furthermore, there
is a technology roadmap to increase this efficiency to over 50%. With its
supply chain partners, IQE has developed technology leadership and is working
to qualify this into production.
There are two key markets for this Compound Semiconductor solar technology:
"space" (satellite power supplies) and "terrestrial" (renewable energy).
The adoption of this technology in terrestrial in the short term is limited by
the historic low oil price and over-supply within the silicon panel market,
but this remains a major market opportunity as these issues unwind.
Therefore, our primarily focus is on penetrating the space market, where this
technology is already embedded. As technology leader we have a clear strategy
to penetrate the market and win market share.
CMOS++
The ever-increasing demand for higher speed and improved performance from
today's electronic devices is ushering in a new era of semiconductor materials
that combine the scale and low (per chip) cost base of the silicon industry
with the power and performance of compound semiconductors.
IQE is at the forefront of developing this technology, and is working with a
range of partners from global industry giants, universities and governments to
dynamic start-ups. As a result, we have developed an enviable portfolio of
technologies and patents which position us well to increasingly participate in
the continuing evolution of the semiconductor industry.
6. CORPORATE GOVERNANCE
Following the AGM on 13(th) June 2017, Professor Simon Gibson OBE retired from
the Board. The Board would like to take this opportunity to thank Simon for
his significant commitment and the contribution that Simon provided over the
past 15 years.
7. CURRENT TRADING AND OUTLOOK
The Group has continued to make good strategic, operational and financial
progress in 2017, and has a clear vision and roadmap for the continuing growth
of the business. The first half progressed well, and ended strongly with the
start of a major new product ramp. In light of the benefit of a strong
pipeline and increasing revenue diversification the Board remains confident
that the Group is on track to deliver full year earnings in line with the
recently upgraded expectations.
Dr Drew Nelson, CEO
CONSOLIDATED INCOME STATEMENT
6 months to 6 months to 12 months to
30 Jun 2017 30 Jun 2016 31 Dec 2016
(All figures £'000s) Note Unaudited Unaudited Audited
Revenue 70,370 63,010 132,707
Cost of sales (53,665) (45,766) (97,979)
Gross profit 16,705 17,244 34,728
Other income - 2,163 2,340
Selling, general and administrative expenses (8,920) (8,270) (16,356)
(Loss)/profit on disposal of property, plant and equipment (4) 137 (47)
Operating profit 7,781 11,274 20,665
Net finance costs (1,025) (802) (1,633)
Adjusted profit before tax 9,561 10,061 20,630
Adjustments 5 (2,805) 411 (1,598)
Profit before tax 6,756 10,472 19,032
Income tax credit/(charge) 566 (444) 408
Profit for the period 7,322 10,028 19,440
Profit attributable to:
Equity shareholders 7,297 9,936 19,276
Non-controlling interests 25 92 164
7,322 10,028 19,440
Basic earnings per share 6 1.07p 1.49p 2.87p
Diluted earnings per share 6 1.00p 1.43p 2.71p
Adjusted basic and diluted earnings per share is presented in Note 6.
CONSOLIDATED STATEMENT OF
6 months to 6 months to 12 months to
COMPREHENSIVE INCOME 30 Jun 2017 30 Jun 2016 31 Dec 2016
(All figures £'000s) Unaudited Unaudited Audited
Profit for the period 7,322 10,028 19,440
Currency translation differences on foreign currency net investments* (7,521) 12,713 24,347
Total comprehensive income for the period (199) 22,741 43,787
Total comprehensive income attributable to:
Equity shareholders (236) 22,333 43,063
Non-controlling interests 37 408 724
(199) 22,741 43,787
* This may be subsequently reclassified to the income statement when it
becomes realised.
As At As At As At
CONSOLIDATED BALANCE SHEET 30 Jun 2017 30 Jun 2016 31 Dec 2016
(All figures £'000s) Unaudited Unaudited Audited
Non-current assets :
Intangible assets 105,903 95,990 103,972
Property, plant and equipment 81,968 73,331 85,001
Deferred tax asset 18,155 15,745 18,181
Financial Assets 8,000 8,000 8,000
Total non-current assets 214,026 193,066 215,154
Current assets :
Inventories 30,358 23,767 28,498
Trade and other receivables 31,683 25,838 30,868
Cash and cash equivalents 8 5,465 4,311 4,957
Total current assets 67,506 53,916 64,323
Total assets 281,532 246,982 279,477
Current liabilities :
Borrowings 8 (5,778) (3,344) (7,652)
Trade and other payables (34,030) (33,083) (36,939)
Provisions for other liabilities and charges 9 (1,544) (1,351) (1,421)
Total current liabilities (41,352) (37,778) (46,012)
Non-current liabilities :
Borrowings 8 (41,549) (34,553) (36,854)
Provisions for other liabilities and charges 9 (1,455) (2,778) (2,167)
Total non-current liabilities (43,004) (37,331) (39,021)
Total liabilities (84,356) (75,109) (85,033)
Net assets 197,176 171,873 194,444
Equity attributable to shareholders :
Share capital 10 6,830 6,723 6,755
Share premium 52,735 50,609 51,081
Retained earnings 96,773 80,136 89,476
Other reserves 37,644 31,564 43,975
193,982 169,032 191,287
Non-controlling Interest 3,194 2,841 3,157
Total equity 197,176 171,873 194,444
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited (All figures £'000s) Share capital Share premium Retained earnings Exchange rate reserve Other reserves Non-controlling interests Total equity
Balance as at 1 January 2017 6,755 51,081 89,476 31,712 12,263 3,157 194,444
Profit for the period - - 7,297 - - 25 7,322
Foreign exchange - - - (7,533) - 12 (7,521)
Total comprehensive income - - 7,297 (7,533) - 37 (199)
Issues of ordinary shares including employee share schemes 75 1,654 - - 1,202 - 2,931
Total transactions with owners 75 1,654 - - 1,202 - 2,931
Balance as at 30 June 2017 6,830 52,735 96,773 24,179 13,465 3,194 197,176
Unaudited (All figures £'000s) Share capital Share premium Retained earnings Exchange rate reserve Other reserves Non-controlling interests Total equity
Balance as at 1 January 2016 6,655 49,600 70,200 7,925 10,221 2,433 147,034
Profit for the period - 9,936 - - 92 10,028
Foreign exchange - - - 12,397 - 316 12,713
Total comprehensive income/(expense) - - 9,936 12,397 - 408 22,741
Issues of ordinary shares including employee share schemes 68 1,009 - - 1,021 - 2,098
Total transactions with owners 68 1,009 - - 1,021 - 2,098
Balance as at 30 June 2016 6,723 50,609 80,136 20,322 11,242 2,841 171,873
Audited (All figures £'000s) Share capital Share premium Retained earnings Exchange rate reserve Other reserves Non-controlling interests Total equity
Balance at 1 January 2016 6,655 49,600 70,200 7,925 10,221 2,433 147,034
Profit for the year - - 19,276 - - 164 19,440
Foreign exchange - - - 23,787 - 560 24,347
Total comprehensive income - - 19,276 23,787 - 724 43,787
Issues of ordinary shares including employee share schemes 100 1,481 - - 2,042 - 3,623
Total transactions with owners 100 1,481 - - 2,042 - 3,623
Balance at 31 December 2016 6,755 51,081 89,476 31,712 12,263 3,157 194,444
6 months to 6 months to 12 months to
CONSOLIDATED CASH FLOW STATEMENT 30 Jun 2017 30 Jun 2016 31 Dec 2016
(All figures £'000s) Unaudited Unaudited Audited
Cash flows from operating activities :
Adjusted cash inflow from operations 11,877 13,010 24,281
Cash impact of adjustments 5 (682) (605) (1,818)
Cash inflow from operations 7 11,195 12,405 22,463
Net interest paid (1,043) (723) (1,489)
Income tax paid (946) (684) (839)
Net cash generated from operating activities 9,206 10,998 20,135
Cash flows from investing activities :
Acquisition deferred consideration for Kopin Wireless - (10,650) (11,250)
Investment in intangible fixed assets (9,604) (3,539) (8,104)
Purchase of property, plant and equipment (5,763) (4,065) (10,956)
Net cash used in investing activities (15,367) (18,254) (30,310)
Cash flows from financing activities :
Issues of ordinary share capital 989 74 578
Repayment of borrowings (9,395) (1,765) (3,341)
Increase in borrowings 15,239 8,269 12,623
Net cash generated from financing activities 6,833 6,578 9,860
672 (678) (315)
Cash and cash equivalents at the beginning of the period 4,957 4,644 4,644
Exchange (losses)/gains on cash and cash equivalents (164) 345 628
Cash and cash equivalents at the end of the period 8 5,465 4,311 4,957
1 BASIS OF PREPARATION
These interim results have been prepared under the historical cost convention
and in accordance with International Financial Reporting Standards ("IFRS")
and interpretations in issue at 30 June 2017.
The interim results were approved by the Board of Directors and the Audit
Committee on 30 August 2017. The interim results do not constitute statutory
accounts within the meaning of section 434 of the Companies Act 2006 and have
not been audited. Comparative figures in the interim results for the year
ended 31 December 2016 have been taken from the published audited statutory
financial statements. All other periods presented are unaudited. Statutory
accounts for the year ended 31 December 2016 were approved by the Board of
Directors on 21 March 2017 and were delivered to the Registrar of Companies.
The report of the auditors on those accounts was unqualified, did not contain
an emphasis of matter paragraph and did not contain any statement under
section 498 of the Companies Act 2006.
IQE plc is a public limited company incorporated in the United Kingdom under
the Companies Act 2006. The Company is domiciled in the United Kingdom and is
quoted on the Alternative Investment Market (AIM).
As permitted these interim results for the half-year ended 30 June 2017 have
been prepared in accordance with UK AIM rules and IAS 34, 'Interim financial
reporting' as adopted by the European Union. These interim financial results
should be read in conjunction with the annual financial statements for the
year ended 31 December 2016, which have been prepared in accordance with IFRSs
as adopted by the European Union. The accounting policies applied are
consistent with those of the annual financial statements for the year ended 31
December 2016, as described in those annual financial statements.
The financial information contained in these interim results has been reviewed
by the Company's auditor in accordance with ISRE 2410 however this does not
constitute an audit.
Having considered the Group's forecasts the Directors have formed a judgment
that there is a reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future. For this
reason the Directors continue to adopt the going concern basis in preparing
the condensed consolidated financial information.
2 ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of the annual
financial statements for the year ended 31 December 2016, as described in
those financial statements on pages 78 to 82.
Recent accounting developments
In preparing the condensed consolidated half-yearly financial information the
Group has adopted the following Standards, amendments and interpretations
which are effective for 2017 and will be adopted for the year ended 31
December 2017:
* Amendment to IFRS 12 "Disclosure of interests in other entities' clarifying
scope.
* Amendments to clarify the classification and measurement of share-based
payment transactions
* IAS Amendments to IAS 7, "Statement of cash flows" on disclosure initiative.
* Amendments to IAS 12,'Income taxes' on Recognition of deferred tax assets
for unrealised losses.
The adoption of these standards and amendments has not had a material impact
on the interim financial information.
The following new standards and amendments to standards and interpretations
have been issued but are not yet endorsed for annual periods beginning after 1
January 2017 (noted below), and have not been adopted in preparing the
condensed consolidated half-yearly financial information.
* Annual improvements 2014-2016 cycle
* Amendments to clarify the classification and measurement of share-based
payment transactions
* Amendment to IFRS 2, 'Share based payments' to clarify the classification
and measurement of certain share based payment transactions
* IFRS 15 'Revenue from contracts with customers'
* IFRS 9 'Financial instruments'
* IFRS 16 'Leases'
* IFRS 17 'Insurance contracts'
* Amendment to IAS 28 'Investments in associates and joint ventures' to
clarify certain fair value measurements
* Amendment to IAS 40 'Investment property' to clarify transfers or property,
to, or from, investment property
Financial Instruments
The carrying value of cash, trade and other receivables, other equity
instruments, trade and other payables and borrowings also represent their
estimated fair values. There are no material differences between carrying
value and fair value at 30 June 2017.
Additional disclosure of the basis of measurement and policies in respect of
financial instruments are described on pages 102 to 105 of our 2016 Annual
Report and remain unchanged at 30 June 2017.
Estimates
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates.
In preparing these condensed interim financial statements, the significant
judgements made by management in applying the group's accounting policies and
the key sources of estimation uncertainty were the same as those that applied
to the consolidated financial statements for the year ended 31 December 2016.
Impairment
No Impairment charges have been recognised in the period to 30 June 2017.
3 PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties impacting the Group are described on
pages 28 to 31 of our 2016 Annual Report and remain unchanged at 30 June 2017.
They include: competition, technological change, financial liquidity, natural
disasters, retention of key employees, business interruption - supply chain,
customer concentration and legislative compliance.
4. SEGMENTAL INFORMATION
6 Months to 30 June 2017 Unaudited 6 Months to 30 June 2016 Unaudited 12 Months to 31 Dec 2016 Audited
£'000 £'000 £'000
Revenue
Wireless 47,257 43,228 91,291
Photonics 15,867 10,705 22,792
Infra Red 5,594 4,689 10,560
CMOS++ 702 871 1,406
Total Segment Revenue 69,420 59,493 126,049
License income from sales to joint ventures 950 3,517 6,658
Total Revenue 70,370 63,010 132,707
Adjusted operating profit
Wireless 7,298 6,741 13,040
Photonics 6,451 4,549 9,254
Infra Red 1,360 1,034 2,651
CMOS++ (977) (1,368) (1,576)
Segment adjusted operating profit 14,132 10,956 23,369
Central corporate costs (4,531) (3,691) (7,908)
Profit from license income from sales to joint ventures 950 3,517 6,658
Adjusted operating profit 10,551 10,782 22,119
Non-cash accounting charges (2,805) (1,752) (3,560)
Net reduction in contingent deferred consideration - 2,163 2,340
Restructuring and reorganisation - - (378)
Finance costs (990) (721) (1,489)
Profit before tax 6,756 10,472 19,032
The segmental disclosure for the 6 months to 30 June 2016 and the 12 months to
31 December 2016 has been restated to separately disclose central costs
following reorganisation of the Group's functions. Central corporate costs
include all head office and other corporate related support functions.
5 ADJUSTED PROFIT MEASURES
The group's results are reported after a number of imputed non-cash charges
and non-recurring items. Therefore, we have provided additional information
to aid an understanding of the group's performance.
Adjustments to profit (All figures £'000s) 6 months to 30 Jun 2017 Unaudited 6 months to 30 Jun 2016 Unaudited 12 months to 31 Dec 2016 Audited
Non-cash accounting charges (2,805) (1,752) (3,560)
Gain on release of contingent deferred consideration - 2,163 2,340
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