IQE plc : Full Year 2012 Results
(Thomson Reuters ONE) -
Group transformed by three strategic transactions - well positioned to exploit
leading position in growing markets
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 2012.
Financial highlights
* Revenues up 17% to £88.0m (2011: £75.3m)
* Record second half performance
* H2 sales up 45% to £53.7m (2011 H2: £37.0m)
* H2 EBITDA up 56% to £12.2m (2011 H2: £7.8m) EBITDA up 18% to £16.4m (2011:
£14.0m)
* Adjusted(*) pre-tax profit up 5% to £8.6m from £8.2m (reported £6.1m)
* Adjusted(*) EPS of 1.59p (2011: 1.86p) and basic EPS of 1.16p (2011: 1.62p)
* CAPEX of £13.1m (2011: £17.4m) marks completion of two year capacity
expansion programme
* Proforma(*) cash generated from operating activities of £13.2m, up 27% (down
54% to £4.1m on a statutory basis)
* Adjustments to profits and EPS reflect non-cash charges for share based
payments, non-cash acquisition related charges and exceptional items (see note
3). Proforma cash generation reflects presentation had the acquisition been
cash settled as detailed in the financial review.
Operational highlights
* Completed three strategic transactions involving Solar Junction Corporation
("Solar Junction"), RF Micro Devices epitaxy division ("RFMD") and the
epiwafer manufacturing business of Kopin Corporation ("Kopin Wireless")
since beginning of 2012:
* Provide commanding platform for continued strong growth
* Significantly reduce market risk and short term volatility
* Strengthen leading position in manufacture and supply of advanced
compound semiconductors
* Provide further economies of scale and opportunities for cost savings
* Excellent progress on qualification programmes:
* In production with five customers on advanced wireless BiHEMT products
* Photonics (optoelectronics) business transitioning into volume
production
* 2012 CPV solar milestones achieved on schedule; qualifications on track
for production revenues in H2 2013
* Completed two-year major capacity expansion programme
* Expanded product portfolio to benefit from wider global adoption of compound
semiconductor technologies
Dr Drew Nelson, IQE Chief Executive, said:
"IQE has been transformed over the last 14 months.
"Three major transactions, the completion of our capacity expansion programme
and the achievement of a number of significant qualifications in both wireless
and photonics (optoelectronics) have laid the foundations for accelerated growth
in 2013 and beyond.
"Financially, our record second half performance in 2012 has provided a glimpse
of what's to come. Furthermore, the strengthening of our risk mitigation
strategy reduces the potential for short-term customer demand volatility.
"The road ahead has never been clearer. The advanced properties of compound
semiconductors are central to addressing the challenges and performance
expectations facing the electronics industry. This is a matter of fundamental
physics as the next wave of growth for the electronics industry will be enabled
by combining the properties of advanced compound semiconductors with the cost
advantages of silicon. This is already beginning to happen and will accelerate
in the next few years.
"As IQE is at the forefront of this trend, we are increasingly confident that
the Group is well positioned for strong growth in 2013 and beyond.
"Therefore our focus now is on delivery. The current financial year has started
well, in line with the Board's expectations, with the momentum seen in the
second half of 2012 continuing."
Contacts:
IQE plc +44 (0) 29 2083 9400
Drew Nelson
Phil Rasmussen
Chris Meadows
Espirito Santo Investment Bank + 44 (0) 20 7456 9191
Richard Crawley
James Staveley
Canaccord Genuity + 44 (0) 20 7050 6500
Simon Bridges
Cameron Duncan
College Hill +44 (0) 20 7457 2020
Adrian Duffield
Kay Larsen
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 (CD,
DVD, BluRay), 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.
Strategic overview
IQE is the global leader in the design and production of advanced compound
semiconductor materials. Compound semiconductors deliver levels of performance
in wireless communications, photonics (light applications) and high speed
processing, which traditional silicon semiconductors cannot deliver. It
reflects the fundamental properties of the advanced materials used.
Compound semiconductors
Compound semiconductors lie at the heart of several major advances in technology
that have transformed the way we live, including:
* fibre optic technology which has revolutionized telecommunications and
spawned the internet;
* wireless communication and the smartphone revolution;
* LEDs for lighting; and
* sensor technology.
This shift in technology has only just begun. It will continue at an increasing
pace, driven by a small number of macro level trends:
* high-speed connectivity;
* sustainable clean energy generation and the efficient use of energy;
* the explosion of personal consumer devices for enhanced lifestyle; and
* the increased sophistication and performance of security related systems.
This is already evident in the emergence of multiple new markets for compound
semiconductors as more is demanded from technology. From solar power, power
switching and lighting to gesture recognition, laser projection, and optical
interconnects (USB), and even to microprocessors, the level of investment in
technologies which rely on compound semiconductors continues to advance
rapidly.
IQE's position and opportunity
The semiconductor industry is passing through an inflection point and by virtue
of the technology leadership that IQE has built over its 25 year history, the
Group is uniquely positioned to lead the revolution that is taking place.
IQE's vision is to be the global number one provider of advanced semiconductor
materials. The strategy is to use technology leadership and scale to deliver
the performance, cost points and security of supply required for mass market
adoption of its products.
The Group is delivering on this strategy. IQE has established a clear
leadership position in wireless communications, with an estimated market share
of between 50-60 %. This is reflected in the sales trend. With the exception
of the fall-out from the global economic collapse in 2009, the Group has grown
sales and EBITDA every year since 2004, representing a compound annual growth in
sales of 24.4% over eight years.
The Group made strong strategic progress since the beginning of 2012, including:
· successful completion of three highly strategic deals which have
strengthened the Group's technology leadership and scale, whilst reducing risk
through the diversification of markets and customers
· delivered strong operational performance including:
o Successful conclusion of its major capacity expansion programme;
o Achieved all 2012 milestones for CPV solar, and remain on track for
volume production in the second half of 2013 as originally planned; and
o Completed multiple qualifications in wireless and photonics
(optoelectronics).
· delivery of a record second half financial performance.
Current trading and outlook
IQE is now the clear technology and market leader in the supply of wafers to the
wireless market, with an estimated 50% to 60% share. The benefit of the three
key deals will increasingly be reflected in the Group's performance going
forward.
The Group is also beginning to see the rewards of its investment programme in
advanced wireless technology over the last two years and is in initial
production with a number of chip companies on advanced BiHEMT technology.
As anticipated, the Group's photonics (optoelectronics) business is
transitioning towards high volume applications. IQE has started to ship
advanced VCSEL materials for optical communications applications, including data
centre applications. The Group remains on track to transition to production for
a range of other applications, including solar power (CPV), in the second half
of 2013.
IQE continues to develop new products at the leading edge of technology such as
compound semiconductors on silicon integrated circuits, which in due course will
revolutionise the electronics marketplace.
The focus in 2013 is on delivery. IQE will access the significant efficiencies
and synergies that the three deals bring to the Group and leverage the
investment in product qualifications in order to deliver strong organic growth
in its core markets.
The current financial year has started well, in line with the Board's
expectations, with the momentum seen in the second half of 2012 continuing.
Overall IQE is well positioned to deliver strong growth in the current year and
beyond, based on its premier position to supply its advanced technologies in
growing global markets.
Strategic transactions
During the last 14 months the Group has completed three strategic transactions
in order to provide a significantly enhanced platform for growth and to
significantly reduce operational risk.
IQE is now the leading global supplier of advanced semiconductor wafers, using
crystal growth technology (epitaxy) to manufacture and supply bespoke
semiconductor wafers ('epiwafers') to major global chip manufacturing companies.
The strategic value of the RFMD acquisition was clearly demonstrated in the last
quarter of 2012. It protected the Group from further swings in market share
between chip companies. In particular, higher than anticipated volumes with
RFMD mitigated the impact of a destocking elsewhere, which was similar to that
experienced a year earlier.
The acquisition of Kopin Wireless at the beginning of the current financial year
has brought with it a significant share of business with Skyworks Solutions,
which has filled the gap in the risk mitigation strategy.
Solar Junction investment and exclusive supply agreement
In February 2012, IQE announced an investment in, and an exclusive wafer supply
agreement with the leading edge Concentrated PhotoVoltaic (CPV) cell developer
and manufacturer Solar Junction Corporation. The investment significantly
accelerated IQE's strategy to become a leading global supplier of CPV wafers for
the solar power markets.
The deal confirmed IQE as Solar Junction's strategic and exclusive epitaxy
partner, a move that has enabled Solar Junction to benefit from IQE's strong
materials intellectual property and expertise in high volume epiwafer
manufacturing. IQE secured a partnership for developing CPV technology with
Solar Junction with exclusive access to the company's ongoing extensive R&D
programme. Following the deal, IQE owns a 9% share of Solar Junction.
RF Micro Devices epitaxy division acquisition and exclusive supply agreement
In June 2012, IQE acquired the entire in-house MBE epiwafer manufacturing unit
of RFMD, a global leader in the design and manufacture of high performance RF
components and compound semiconductor technologies. The deal also included a
long-term wafer supply agreement for exclusive provision of all of RFMD's MBE
wafers and for provision of a majority of RFMD's MOCVD wafer requirements.
The acquisition included a fully furnished epi manufacturing plant, a fully
fitted clean room of over 90,000 sq.ft, 16 MBE manufacturing systems and
equipment, all housed in a 135,000 sq.ft. stand-alone building in Greensboro,
North Carolina. The 16 operational MBE tools will be partly deployed towards
servicing anticipated future CPV solar demand, creating a powerful position in
CPV market growth.
The deal involved no upfront cash outlay for the transfer of assets, resulting
in no IQE shareholder dilution. In exchange for the transfer of assets, the
parties entered into a long-term wafer supply agreement with a minimum purchase
commitment of $55m over the first two years. IQE will supply all MBE wafer
requirements and a majority of RFMD's MOCVD wafer requirements under a
discounted pricing arrangement.
Kopin Wireless acquisition
In January 2013, IQE acquired the compound semiconductor epiwafer manufacturing
business of Kopin Corporation for total consideration of $75 million in cash of
which $15 million is payable in cash on the third anniversary of completion.
The acquired wireless division is the leading global manufacturer of
heterojunction bipolar transistor (HBT) materials that are used in power
amplifiers, a key wireless component in mobile devices. These are produced using
Metal Organic Chemical Vapour Deposition (MOCVD) epitaxial wafer technology.
The acquisition of Kopin Wireless builds on IQE's strategic developments in
2012 to further extend IQE's leadership in wireless industry supply and deliver
a market leading position in MOCVD HBTs.
The transaction was a notable part of IQE's risk mitigation strategy, adding
Skyworks as a major customer and increasing IQE's wireless market share.
Skyworks' current contract with Kopin Wireless runs until the end of 2013 and
guarantees a significant proportion of Skyworks' business.
Additionally, the move extends IQE's global manufacturing footprint with the
addition of a Taiwan manufacturing facility, providing a strong position to
access the growing Asian semiconductor market.
Integration of acquisitions
IQE has successfully and seamlessly integrated newly acquired businesses into
the Group over a number of years. This was further demonstrated in the second
half of 2012, with the successful integration of the RFMD business. Post-
acquisition this unit has seamlessly and successfully met significant levels of
customer demand over and above expectations.
Work on integrating the former Kopin Wireless operations in North America and
Taiwan is progressing on schedule. The newly expanded global footprint and the
increase in the scale of the Group's wireless business is expected to yield
significant cost synergies from 2014 onwards of at least £7m per annum.
Financial review
The Group enjoyed a very strong second half and delivered record full year sales
and EBITDA despite the poor first quarter.
Revenues grew 17% year on year from £75.3m to £88.0m driven by increased sales
volumes. The acquisition contributed £20m to sales.
Group EBITDA was up 18% to £16.4m (2011: £14.0m).
As anticipated, sales and profits were much more heavily skewed to the second
half than normal, reflecting the impact of the destocking in the first quarter
and the benefit of the RFMD acquisition on trading in H2. Sales and EBITDA in
the second half were £53.7m (2011 H2: £37.0m) and £12.2m (2011 H2: £7.9m)
respectively.
Gross profit increased to £18.5m from £18.2m. Whilst contribution margins have
remained stable, the benefit of the sales growth has been partly offset by
higher depreciation and the overhead associated with the facility acquired from
RFMD.
Selling, general and administration expenses increased by £0.7m to £11.5m (2011:
£10.8m). This increase largely reflects one-off costs of £0.6m related to the
three transactions.
Adjusted operating profit, before the one-off £0.6m transaction costs, increased
from £7.4m to £7.6m.
Interest cost of £0.9m (2011: £0.5m) included £0.3m of notional interest
relating to the discounting of long term balances arising on acquisition (2011:
£nil).
Adjusted pre-tax profit was up 5% to £8.6m from £8.2m. Adjusted pretax profit
excludes non-cash financing charges relating to discounting of long term
acquisition balances (£0.3m), exceptional charges of (£0.6m) charges relating to
the amortisation of intangibles arising on acquisition (£0.3m) and share based
payments (£1.4m). Reported pretax profit was £6.1m (2011: £6.9m).
The income tax credit of £0.5m was lower than the £1.5m tax credit in 2011,
which included a £1.0m non-cash deferred tax credit. Tax receipts of £0.5m in
2012 relate to R&D tax credits (2011: £0.5m). The Group has sufficient tax
losses available to shield future tax payable of up to £31.2m.
Adjusted earnings per share were 1.59p (2011: 1.86p). Basic earnings per share
were 1.16p (2011: 1.62p).
Adjusted (see note 3) retained profit was £9.1m (2011: £9.7m), including a £4m
contribution from the acquisition. Reported retained profit was £6.6m (2011:
8.4m).
The Board will not be recommending the payment of a dividend.
Cash generated from operating activities was £4.8m (2011: £10.3m). Cash
generated from operating activities assuming cash settlement of acquisition of
£13.2m (see below).
Deferred consideration paid of £7.0m (2011: £1.1m) primarily related to the
final balances for the Galaxy acquisition in 2010. In addition, the Group
invested £3.2m for a 9% equity stake in Solar Junction.
Capital expenditure of £11.6m (2011: £15.5m) marked the completion of a major
multi-year capital expansion programme. Capital expenditure will now return to
maintenance levels.
Investment in product development of £4.0m (2011: £3.7m) primarily reflects
investment in new products to access new and emerging markets.
Proceeds from new equity issued was £11.4m (2011: £0.6m). This primarily
reflects the issue of £10.5m of new equity to finance the investment in Solar
Junction and related expenditures.
Net debt, was in line with the Board's expectations at the end of December 2012
was £15.5m (2011: £3.9m).
Acquisition
As detailed in note 6, the purchase agreement provided that the consideration
for the acquisition is settled via a contractually agreed price discount on
product sales to the vendor until 2016. Accordingly, the total consideration
payable is entirely contingent on future sales, and has been estimated at £54.6
million based on the expected future volumes and price discounts. The revenue
on these product sales is recognised at their full market value but billed net
of the contractual discount, hence the operating cash flow is inherently lower
than the operating profit during the discount period. The value of the discount
in 2012 was £8.4m (2011 : nil).
If the purchase agreement had provided for the sales to be billed and settled at
full market value, and for the purchase consideration to be paid to the vendor
in cash ("Gross basis"), then the operating cash generated from the trade would
have been reported at the higher value, and the purchase consideration paid
would have been classified as an investing activity. Assuming no other changes
to the terms of trade (including volumes, timing and pricing) then under the
Gross basis there would be no impact on the Consolidated Balance Sheet or Income
Statement, however the cash flow presentation would have been impacted as
follows:
£'000 As currently reported Impact Gross
basis
Net cash generated from operating 4,777 8,379 13,156
activities
Net cash used in investing (26,159) (8,379) (34,538)
activities
Operating review
Productive capacity
The Group's capacity expansion programme implemented in 2011 and 2012 has been
completed on time and on budget. IQE now has the spare capacity and multi-site
supply to provide its customers with confidence in its ability to meet their
growth needs and surges in demand. The Group's capabilities have been further
strengthened by the spare capacity that came with the acquisitions of the RFMD
business and Kopin Wireless businesses in June 2012 and January 2013.
Process innovation
As part of the Group's constant improvement strategy, IQE has demonstrated
process innovation to increase production efficiencies, resulting in both
throughput and quality improvements. These technology improvement programmes
will be rolled out across the customer base over time, providing both capacity
and margin benefits.
Equipment upgrades
Maintaining the fleet of high specification production tools at a state-of-the-
art standard is a key part of the Group's strategy to push technology boundaries
in parallel with achieving cost down targets. IQE has made continued progress
during 2012 in its programme of tool maintenance and upgrades. The Group
continues to innovate its planned maintenance cycles, and is actively engaged in
a tool upgrade programme to maintain its competitive edge.
Best practice sharing
IQE has been particularly successful in this regard, with an impressive cross
fertilization of technologies, know-how and ideas across the Group. This has
been recognized by the Group's customers who see the collaboration of the world
leading material scientists as a compelling benefit and competitive advantage of
IQE as the technology leader in the industry.
CPV milestones
The Group achieved all the 2012 milestones set out at the time of the Solar
Junction investment in February 2012. Two dedicated tools have been installed
and commissioned, and the process transfer completed. IQE is now engaged with
end customer qualifications and anticipates revenues to commence in the second
half of 2013 as originally planned.
Qualifications
The successful qualification of IQE's BiHEMT technology is a particularly good
example of the Group's qualification capabilities. IQE is now qualified and in
production with five wireless chip companies for this very advanced wireless
material. IQE expects sales of these products to move from strength to strength
as the industry seeks to address the increasing demands of 4G communication.
In the optoelectronics market, IQE is seeing the transition of several R&D
programmes into production, particularly with VCSEL technology and fiber optic
communications. Specifically, it is now in production with multiple customers
for data centre applications.
The pipeline remains full with qualifications in progress for multiple new
applications including advanced silicon for wireless applications, advanced
VCSELs for active optical cables, gesture recognition, finger navigation and a
variety of other consumer and industrial applications.
Markets
IQE's markets are driven by the advanced properties of compound semiconductors:
* the wireless market - reflecting their superior wireless communication
properties;
* the photonics market - reflecting their ability to efficiently emit and
detect light; and
* electronics - reflecting that they operate at much higher speeds and
with lower power consumption
Wireless
The wireless market, which accounted for 79% of the Group's sales in 2012 (2011:
73%), covers electronic devices that communicate wirelessly. This includes, but
is not limited to, mobile phones, smartphones, mobile networks, wifi, smart
metering, satellite navigation, and a plethora of other connected devices.
The wireless communications market has grown rapidly in recent years, reflecting
the increasing adoption of wireless technology, coupled with the need for an
increased compound semiconductor content to support greater sophistication of
mobile devices.
More than 1.75 billion mobile handsets were sold in 2012, of which over 670
million were smartphones that carry significantly more compound semiconductor
materials. Smartphone shipments are expected to show further growth in the
coming years, driven by new features, apps, social networking, entertainment and
location based services.
High-speed connectivity and added functionality drive the requirement for the
advanced properties offered by compound semiconductor epiwafers. The global
roll-out of wireless broadband networks such as 4G/LTE devices increasingly rely
on higher levels of compound semiconductor content.
Shipments of smartphone devices represented 38% of total handset shipments in
2012 compared with 32% in 2011. Globally, smartphone penetration is estimated to
represent only 18% of the total handset market in terms of subscribers,
indicating significant growth potential. Future drivers for smartphone sales
include near field communications for contactless payments, and augmented
reality for enhanced location based services.
The migration to new wifi standards is another major driver for RF components.
The introduction of small "base stations" in the form of picocells and
femtocells will drive demand for more wireless chips. In addition, the new
802.11ac wifi standard will operate at 5GHz rather than the 2.6GHz currently
used. The higher frequency, which will greatly increase the range and
reliability of wifi networks, will further raise the demand for compound
semiconductor based RF devices.
Wireless chip companies are expected to show around 15% CAGR over the coming
years. This growth will be driven by the need for more radio frequency
functionality and greater complexity in wireless circuitry but will be partly
mitigated by improved efficiencies and a drive towards reduced component
footprints.
Photonics (optoelectronics)
The photonics market accounted for 20% of the Group's sales in 2012 (2011:
25%), and relates to applications which involve the emission or detection of
light. IQE segments the photonics market into: emitters and detectors, Infrared,
Solar (CPV), and Lighting (LEDs).
Emitters and detectors
This encompasses a wide range of applications including optical interconnects,
laser projectors, optical storage, cosmetic applications, gesture recognition
and finger navigation:
* Optical interconnects
Higher data transfer rates demanded within data centres as well as consumer
applications such as high-definition imaging and video streaming, require high-
speed data transfer rates for faster communications between devices.
Optical interconnects offer significantly higher-speed data transfers over much
longer distances than their copper counterparts and are certain to replace
existing cable standards such as USB and HDMI, as these traditional cables
struggle to meet the increasing demands for data transfer.
This is a mass market opportunity, where demand for USB cables alone is around
three billion units a year. Compound semiconductor technology that enables
optical interconnects include Vertical Cavity Surface Emitting Lasers (VCSELs).
VCSELs are an advanced laser technology geared to mass production and low cost.
IQE is the market and technology leader for VCSEL products, with world record
data speeds in excess of 40GBs already demonstrated.
* Laser projectors
Conventional projection technologies utilise incandescent or halogen lamps as
their light sources. Such devices are power hungry, physically bulky, have
relatively short lifetimes and require focusing optics which can limit the image
quality and flexibility. The emergence of lasers in each of the primary colours
(red, green and blue) enables a low cost, high quality laser projection solution
which can be miniaturized and does not require focusing optics. This technology
is called pico projection.
Early pico projector technologies utilise LEDs for the light source but the next
generation of devices will incorporate miniature laser projection units.
* Optical storage
The commercialization of IQE's gallium nitride (GaN) photonic technology will
also provide the Group with access to the rapidly growing market for high-speed,
high-density optical storage (Blu-ray). Industry analysts predict growth rates
in this market of c. 55-60%.
* Cosmetic applications
There are exciting new applications of compound semiconductor technology in the
billion dollar cosmetics market. IQE is working with a number of customers to
develop advanced laser technology for cosmetic applications such as laser hair
removal, wrinkle treatment, skin rejuvenation, acne and psoriasis treatments.
* Gesture recognition
Gesture recognition represents the ability of electronic devices to recognise
hand and body gestures and movements in order to control any device. The
advanced properties of compound semiconductor epiwafers are a key component in
gesture recognition devices which made their debut with the launch of
Microsoft's Kinect gaming console.
The potential applications for this technology extend far beyond gaming, from
medical applications, disability aids, remote controls, to sign language
recognition, and more. It has far reaching implications for how humans will
interface with technology in the near future.
* Finger navigation
Finger navigation is closely coupled with gesture recognition in terms of how
humans will interface with machines in the future. After their emergence via
RIM's Blackberry devices, the use of lasers and optical sensors for precise
control of miniature track-pads is also likely to penetrate areas such as remote
control units, cameras and other consumer devices over the coming years.
Infrared (sensor technology)
IQE is the clear market leader in advanced compound semiconductor products for
use in a range of infrared and heat sensing applications.
The sensitivity of current heat sensors enable a monochrome image so that
applications such as night vision devices can only see in tones of green and
black. The new antimonide materials allow greater sensitivity so that different
shades and colours can be distinguished, effectively producing full colour night
vision images.
The improved sensitivity is useful for search and rescue operations and the full
colour night vision capability has major military potential in terms of enabling
effective identification of personnel and equipment in low or zero visibility
conditions.
IQE is actively engaged in a number of collaborative programmes along with
leading industry players and government agencies in the development and supply
of infrared materials based on antimonide materials.
Solar (CPV)
Solar cells utilising compound semiconductors (called CPV or Concentrated
PhotoVoltaics) provide by far the most efficient solution by using multiple
layers of finely tuned materials to absorb sunlight across a wider range of
wavelengths.
As a result, the efficiency of this material is already in excess of 44%, with a
roadmap to increase this to well beyond 50%.
This compares with 12% to 18% efficiency from silicon solar panels, while thin
film technology is typically around 10% to 15% efficient. There is very little
scope to improve the efficiency of these technologies due to the fundamental
properties of the materials used.
A further advantage of compound semiconductors is their tolerance of higher
temperatures. This means the cost of CPV systems is also reduced by using
lenses which intensify sunlight and thereby reduce the amount of semiconductor
required.
CPV has now reached price parity with fossil fuels and other alternative energy
sources in high sunlight regions. It is considered to be at an inflection
point, with industry analysts forecasting 175% compound annual growth rates for
CPV installations, which are expected to grow to over 1.0GW of generating
capacity by 2015, representing an epiwafer market opportunity of over $200m.
Solar Junction holds the world record for solar cell efficiency at 44.5%. IQE's
investment in Solar Junction also gives the Group exclusive long-term
manufacturing rights over its IP, which includes a technology roadmap to design
solar cells with efficiencies in excess of 50%.
Solid state lighting (LEDs)
LEDs are in the process of completely revolutionising the lighting market and by
2020 it is estimated that over 95% of all artificial light will be LED based.
LEDs are high performance, low cost, green alternatives to incandescent light
bulbs.
Global concerns about climate change and the Earth's dwindling natural resources
continues to be a priority for governments worldwide. Significant new policies
and legislation continue to be introduced to promote the use of renewable and
highly efficient energy devices.
Already, many countries have introduced wide-ranging legislation to
progressively ban incandescent lighting with 2012 being a key milestone for
eradicating this form of lighting altogether. Alternative low energy lighting is
unpopular because of perceptions of low quality lighting and on-going issues
with heavy metal content including mercury.
Solid state lighting is widely viewed as the only credible solution to replace
the incandescent light bulb. Efficient energy consumption will remain a key
driver in the development and adoption of this technology, but the critical
success factor is reducing cost and improving the ambience of these units.
High quality gallium nitride provides the route map to achieving this, which
will revolutionise residential and commercial lighting around the planet over
the coming years.
Electronics
The electronics market combines the advanced properties of compound
semiconductors with the low cost of silicon. IQE segments the electronics market
into power control and advanced materials.
Power control
Gallium nitride (GaN) is a compound semiconductor that offers a diverse range of
RF, photonic and electronic properties.
Of particular interest is the material's ability to cope with high voltages,
high temperatures and high power which makes it an ideal candidate for power
control systems. These are growing in demand, driven by alternative energy
sources such as solar, wind and wave power, and also the adoption of
electrically driven transportation.
It is estimated that more than 10% of all electricity is ultimately lost due to
conversion inefficiencies, as energy is switched from generation, to grid, and
through to consumption. The scale of this loss exceeds the world's entire supply
of renewable energy generation.
The power transformers used in electronic devices, such as laptop power
supplies, provide a vivid example of this phenomenon by the virtue of the heat
energy they generate as electricity is lost.
GaN offers performance and efficiency which are orders of magnitude better than
the silicon technology which dominates power switching technology today.
Indeed, this technology has the potential to eliminate up to 90% of the energy
lost through switching.
Advanced materials
IQE has developed a powerful range of advanced, engineered wafers such as
germanium-on-insulator (GeOI), germanium-on-silicon (GeOSi) and silicon-on-
sapphire (SOS), which offer a high performance and low cost solution for next
generation microprocessors, ultra-high speed/high density flash memory and MEMS
devices such as motion sensors.
IQE has established a powerful position in these advanced technologies, working
with some of the biggest names in the industry, which is reflected in a number
of joint patents awarded in conjunction with Intel for the production of
compound semiconductor materials on silicon substrates. IQE believes the
combination of high performance compound semiconductors for both its optical
properties and ultra-high speed capabilities is an inevitable technology shift
in the coming years.
The intellectual property that the Group is developing in this field has the
potential to revolutionise the semiconductor world and in so doing create
significant long-term value to IQE stakeholders.
The wireless communications market has grown rapidly in recent years reflecting
the increasing adoption of wireless technology, coupled with the need for an
increased compound semiconductor content to support the greater sophistication
of mobile devices.
Dr Drew Nelson OBE
President & Chief Executive Officer
20 March 2013
Consolidated income statement for the year ended 31 December 2012
H2 2012 H2 2011 2012 2011
£'000 £'000 £'000 £'000
Note unaudited unaudited audited audited
--------------------------------------------------------------------------------
Revenue 2 53,685 37,014 87,961 75,318
Cost of sales (40,687) (27,249) (69,491) (57,142)
--------------------------------------------------------------------------------
Gross profit 12,998 9,765 18,470 18,176
Selling, general and administrative (6,175) (5,400) (11,456) (10,803)
expenses
+------------------------------------------------------------------------------+
|Operating profit before exceptional 7,221 4,365 7,584 7,373 |
|items |
| |
|Exceptional items (398) - (570) - |
+------------------------------------------------------------------------------+
Operating profit 2 6,823 4,365 7,014 7,373
Finance costs (604) (289) (886) (481)
--------------------------------------------------------------------------------
Profit before tax 6,219 4,076 6,128 6,892
Tax 310 1,266 503 1,551
--------------------------------------------------------------------------------
Profit for the year attributable to 6,529 5,342 6,631 8,443
equity shareholders
--------------------------------------------------------------------------------
Adjusted earnings per share 3 1.46p 1.15p 1.59p 1.86p
Basic earnings per share 3 1.14p 1.02p 1.16p 1.62p
Adjusted diluted earnings per share 3 1.39p 1.09p 1.51p 1.74p
Diluted earnings per share 3 1.08p 0.96p 1.10p 1.51p
--------------------------------------------------------------------------------
EBITDA (Earnings before interest, taxes, depreciation, amortisation, share based
payments and exceptional items.) is calculated as follows:
2012 2011
£'000 £'000
------------------------------------------------------------------------
Profit attributable to equity shareholders 6,631 8,443
Taxes (503) (1,551)
Share based payments 1,360 1,284
Exceptional items 570 -
Net finance costs 886 481
Depreciation of tangible fixed assets 5,998 4,175
Amortisation of intangible fixed assets 1,495 1,123
------------------------------------------------------------------------
EBITDA 16,437 13,955
------------------------------------------------------------------------
Consolidated statement of comprehensive income for the year ended 31 December
2012
2012 2011
£'000 £'000
audited audited
-------------------------------------------------------------------------------
Profit for the year 6,631 8,443
Currency translation differences on foreign currency net (2,497) 432
investments
Foreign exchange hedges - (598)
-------------------------------------------------------------------------------
Total comprehensive income for the year 4,134 8,277
-------------------------------------------------------------------------------
Consolidated statement of changes in equity for the year ended 31 December 2012
Share Share Retained Exchange Other Total
capital premium earnings rate reserves equity
reserve
£'000 £'000 £'000 £'000 £'000 £'000
audited audited audited audited audited audited
-------------------------------------------------------------------------------
Balance at 1 5,251 22,122 36,118 5,272 3,987 72,750
January 2012
-------------------------------------------------------------------------------
Comprehensive
income
Profit for the - - 6,631 - - 6,631
year
Foreign - - - (2,497) - (2,497)
exchange
translation
differences
-------------------------------------------------------------------------------
Total - - 6,631 (2,497) - 4,134
comprehensive
income
Transactions
with owners
Employee share - - - - 1,360 1,360
option scheme
Issues of 631 11,323 - - - 11,954
ordinary shares
-------------------------------------------------------------------------------
Total 631 11,323 - - 1,360 13,314
transactions
with owners
-------------------------------------------------------------------------------
Balance at 31 5,882 33,445 42,749 2,775 5,347 90,198
December 2012
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Balance at 1 January 2011 5,153 21,237 28,019 4,840 3,025 62,274
-------------------------------------------------------------------------------
Comprehensive income
Profit for the year - - 8,443 - - 8,443
Foreign exchange translation - - - 432 - 432
differences
Foreign exchange hedges - - - - (598) (598)
-------------------------------------------------------------------------------
Total comprehensive income - - 8,443 432 (598) 8,277
Transactions with owners
Employee share option scheme - - (344) - 1,284 940
Other issues of ordinary shares 98 885 - - 276 1,259
-------------------------------------------------------------------------------
Total transactions with owners 98 885 (344) - 1,560 2,199
-------------------------------------------------------------------------------
Balance at 31 December 2011 5,251 22,122 36,118 5,272 3,987 72,750
-------------------------------------------------------------------------------
Consolidated balance sheet as at 31 December 2012
2012 2011
Note £'000 £'000
audited audited
-------------------------------------------------------------
Non-current assets:
Intangible assets 54,165 32,706
Property, plant and equipment 62,320 37,348
Investments 3,205 -
Deferred tax asset 14,549 1,876
-------------------------------------------------------------
Total non-current assets 134,239 71,930
-------------------------------------------------------------
Current assets:
Inventories 18,351 15,122
Trade and other receivables 19,186 14,338
Cash and cash equivalents 5 2,773 3,233
-------------------------------------------------------------
Total current assets 40,310 32,693
-------------------------------------------------------------
Total assets 174,549 104,623
-------------------------------------------------------------
Current liabilities:
Borrowings 5 (2,428) (49)
Trade and other payables (31,709) (23,157)
-------------------------------------------------------------
Total current liabilities (34,137) (23,206)
-------------------------------------------------------------
Non-current liabilities:
Borrowings 5 (15,828) (7,105)
Other payables (34,386) (1,562)
-------------------------------------------------------------
Total non-current liabilities (50,214) (8,667)
-------------------------------------------------------------
Total liabilities (84,351) (31,873)
-------------------------------------------------------------
Net assets 90,198 72,750
-------------------------------------------------------------
Shareholders' equity:
Share capital 5,882 5,251
Share premium 33,445 22,122
Retained earnings 42,749 36,118
Other reserves 8,122 9,259
-------------------------------------------------------------
Total equity 90,198 72,750
-------------------------------------------------------------
Consolidated cash flow statement for the year ended 31 December 2012
2012 2011
Note £'000 £'000
audited audited
---------------------------------------------------------------------------
Cash flows from operating activities:
Cash inflow from operations 4 4,109 10,823
Net interest paid (616) (515)
Income tax received 1,284 13
---------------------------------------------------------------------------
Net cash generated from operating activities 4,777 10,321
---------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of subsidiaries (7,043) (1,134)
Investment in Solar Junction Corporation (3,205) -
Development expenditure (4,042) (3,666)
Investment in other intangible fixed assets (307) (328)
Purchase of property, plant and equipment (11,562) (15,517)
Proceeds from sale of property, plant and equipment - 90
---------------------------------------------------------------------------
Net cash used in investing activities (26,159) (20,555)
---------------------------------------------------------------------------
Cash flows from financing activities:
Issues of ordinary share capital 11,445 616
Loans and leases repaid (1,383) (6,933)
Loans and leases received 10,877 7,267
---------------------------------------------------------------------------
Net cash generated from financing activities 20,939 950
---------------------------------------------------------------------------
Net decrease in cash and cash equivalents (443) (9,284)
Cash and cash equivalents at 1 January 3,233 12,507
Exchange gains on cash and cash equivalents (17) 10
---------------------------------------------------------------------------
Cash and cash equivalents at 31 December 5 2,773 3,233
---------------------------------------------------------------------------
NOTES TO THE RESULTS
1. Basis of preparation
These results have been prepared under the historical cost convention and in
accordance with International Financial Reporting Standards ("IFRS") as adopted
by the European Union and interpretations in issue at 31 December 2012.
The preliminary results were approved by the Board of Directors and the Audit
Committee on 19 March 2013. These results do not constitute statutory accounts
within the meaning of the Companies Act 2006. All figures are taken from the
2012 audited annual accounts unless denoted as 'unaudited'. Comparative figures
in the results for the year ended 31 December 2011 have been taken from the
2011 audited annual accounts.
These results will be announced to all shareholders on the London Stock Exchange
and published on the Group's website on 20 March 2013. Copies will be available
to members of the public upon application to the Finance Director at Pascal
Close, Cardiff, CF3 0LW.
2. Segmental analysis
The Group considers its three key market areas of wireless, photonics and
electronics to be its primary reporting segments, based on the reports reviewed
by the board of directors that are used to make strategic decisions.
Revenues by business segment : 2012 2011
£'000 £'000
audited audited
--------------------------------------------------------------------
Wireless 68,962 55,156
Photonics 18,049 18,551
Electronics 950 1,611
--------------------------------------------------------------------
Total revenue 87,961 75,318
--------------------------------------------------------------------
EBITDA by business segment :
Wireless 12,929 10,718
Photonics 3,732 3,409
Electronics (224) (172)
--------------------------------------------------------------------
Total EBITDA 16,437 13,955
--------------------------------------------------------------------
Operating profit/(loss) by business segment :
Wireless 5,610 5,864
Photonics 1,940 2,057
Electronics (536) (548)
--------------------------------------------------------------------
Total operating profit 7,014 7,373
--------------------------------------------------------------------
3. 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. Specifically, the non-cash accounting charges
eliminated are:
* financing charges relating to discounting of long term acquisition balances;
* amortisation of intangibles arising on acquisition;
* share based payments; and
* exceptional items.
2012 2011
£'000 £'000
audited audited
------------------------------------------------------------------------------
Profit attributable to ordinary shareholders 6,631 8,443
Exceptional items 570
Discounting of long term acquisition related balances 269 -
Amortisation of acquired intangibles 258 -
Share based payments 1,360 1,284
------------------------------------------------------------------------------
Adjusted profit attributable to ordinary shareholders 9,088 9,727
------------------------------------------------------------------------------
2012 2011
Number Number
------------------------------------------------------------------------------
Weighted average number of ordinary shares 571,972,538 522,386,930
Dilutive share options 29,715,164 37,008,723
------------------------------------------------------------------------------
Adjusted weighted average number of ordinary shares 601,687,701 559,395,653
------------------------------------------------------------------------------
Adjusted earnings per share 1.59p 1.86p
Earnings per share 1.16p 1.62p
Adjusted diluted earnings per share 1.51p 1.74p
Diluted earnings per share 1.10p 1.51p
------------------------------------------------------------------------------
4. Cash generated from operations
2012 2011
The Group £'000 £'000
audited audited
-------------------------------------------------------------------------------
Operating profit 7,014 7,373
Depreciation of property, plant and equipment 5,998 4,175
Amortisation of intangible assets 1,495 1,123
Gain on sale of property, plant and equipment - (68)
Contingent deferred consideration (settled through contractual (8,379) -
discounts)
Share based payments 1,360 1,284
-------------------------------------------------------------------------------
Cash inflow from operations before changes in working capital 7,488 13,887
Increase in inventories (3,030) (3,087)
(Increase)/decrease in trade and other receivables (5,924) 2,033
Increase/(decrease) in trade and other pa
Unternehmensinformation / Kurzprofil:
Datum: 20.03.2013 - 08:00 Uhr
Sprache: Deutsch
News-ID 241229
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contact information:
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