Interim Results
(Thomson Reuters ONE) - IQE plcSolid financial performance despite economic crisis; smartphonesdriving recoveryIQE plc (AIM: IQE, the "Group"), the leading global supplier ofadvanced wafer products and wafer services to the semiconductorindustry, announces its Interim Results for the half year ended 30June 2009.FINANCIAL HIGHLIGHTS- Sales of £21.4m (H1 2008: £30.2m)- Gross profit of £3.8m (H1 2008: £4.3m)- EBITDA of £1.9m (H1 2008: £3.6m before exceptional charges of£1.6m).- Operating loss of £0.8m (H1 2008: profit £1.6m before exceptionalcharges of ?£1.6m)- Cash inflow from operating activities of £0.1m (H1 2008: inflow£2.8m)- Loss per share of 0.31 pence (H1 2008: 0.19 pence profit per sharebefore exceptionals)- Net debt of £18.9m, better than expectations reflecting strong cashmanagementBUSINESS HIGHLIGHTS- Sharp increase in orders from May 2009 as destocking began to reachits conclusion- Continued strength in smartphone and advanced wireless shipments(e.g. notebooks) despite global recession.- Management actions in Q4 2008 to restructure the business andreduce costs have underpinned a solid H1 performance.- Opportunities taken during the downturn to capture market share,attract new talent, and drive operational efficiencies.- Further evidence of trend towards outsourcing as customers seek tocontrol capital and operating expenditure.TRADING OUTLOOK- Trading has returned to pre-recession levels in Q3 2009,positioning the Group for a strong second half performance.- Outperformance of smartphone market likely to accelerate inrecovery.- Significant progress in high-growth emerging markets of solar andsolid state lighting. IQE's industry-leading CPV solar cell productsgaining market share, contributing to H2 sales.Dr Drew Nelson, IQE Chief Executive, commenting on the results said:"IQE is in a strong position, having taken decisive action to cutcosts and restructure for growth. Our core smartphone market hasrecovered quickly and is now growing rapidly as phones become moreconnected and multi-functional, demanding ever more of our products.Furthermore, we have significant opportunities ahead of us in theemerging solar cell and solid state lighting markets."Even at the lowest point of the destocking cycle, IQE remainedEBITDA positive, demonstrating the effectiveness of our restructuringand the resilience of our business. Now that trading has recovered,our high level of operational gearing should produce a strong secondhalf with substantial free cash flow generation."Contacts:IQE plc (+44 29 2083 9400)Drew NelsonPhil RasmussenChris Meadows College Hill (+44 20 7457 2020)Adrian DuffieldCarl FranklinNoble & Company Limited (+44 20 7763 2200)John Llewellyn-LloydSam ReynoldsNOTE TO EDITORSIQE is the leading global supplier of advanced semiconductor wafers,with products that cover a diverse range of applications, supportedby an innovative, outsourced foundry services portfolio that allowsthe Group to provide a 'one stop shop' for the wafer needs of theworld's leading semiconductor manufacturers.IQE uses advanced crystal growth technology (epitaxy) to manufactureand supply bespoke semiconductor wafers ('epi-wafers') to the majorchip manufacturing companies, who then use these wafers to make thechips which form the key components of virtually all high technologysystems. IQE is unique in being able to supply wafers using all ofthe leading crystal growth technology platforms.IQE's products are found in many leading-edge consumer,communication, computing and industrial applications, including acomplete range of wafer products for the wireless industry. Ourtechnology is an integral part of mobile handsets, particularlysmartphones, wireless infrastructure, Wi-Fi, WiMAX, base stations,GPS, and satellite communications, optical communications, opticalstorage (CD, DVD), laser optical mouse, laser printers &photocopiers, thermal imagers, leading-edge medical products, barcodereaders, ultra high brightness LEDs, a variety of advanced siliconbased systems and high-efficiency concentrator photovoltaic (CPV)solar cells.The manufacturers of these chips are increasingly seeking tooutsource wafer production to specialist foundries such as IQE inorder to reduce overall wafer costs and accelerate time to market.The Group is also able to lever its global purchasing volumes toreduce the cost of raw materials. In this way IQE's outsourcedservices, provide compelling benefits in terms of flexibility andpredictability of cost, thereby significantly reducing operatingrisk.IQE also provides bespoke R&D services to deliver customisedmaterials for specific applications and offers specialist technicalstaff to manufacture to specification either at its own facilities oron the customer's own sites.IQE operates six manufacturing facilities located in Cardiff (two)and Milton Keynes in the UK; in Bethlehem, Pennsylvania and Somerset,New Jersey in the USA; and Singapore. The Group also has 11 salesoffices located in major economic centres worldwide.INTERIM RESULTS 20091. OVERVIEWIQE has a proven track record of more than 20 years as aworld-leading supplier of advanced wafers to the semiconductorindustry. The group has demonstrated its ability to withstand tougheconomic cycles and the combination of robust strategy and earlymanagement action was decisive in steering the business successfullythrough the global economic downturn that began during the secondhalf of 2008.A severe slowdown in sales started towards the end of 2008 andcontinued into early 2009 as customers aggressively destocked tominimise their risks during a period of significant economicuncertainty. Evidence of an end to the destocking appeared towardsthe end of the first quarter, with orders in the second quarterpicking up sharply.Now, in the third quarter of 2009, the Group is confident that ordershave returned to the higher levels seen in 2008.IQE's strategy is to focus on high-growth, high-volume markets.Despite the global economic slowdown, the smartphone and 3G segmentsof the handset market have proven to be robust. Indeed, they areshowing signs of higher-than-anticipated growth as economies emergefrom the recession and consumers opt for more multifunctionalhandsets. Their reliance on GaAs devices for the advanced mobilefeatures means that the growth rate for IQE's high-speed wirelesscomponents continues to outstrip the overall growth in demand formobile handsets.The Group has developed a unique set of competitive advantages toprovide customers with world-leading epitaxial wafer foundryservices. By delivering these advantages both consistently andglobally, and through its strong operational performance, IQE hasbecome a leader in its field.Despite the economic turmoil, IQE has announced a number ofsignificant contract wins including some strategically important R&Dcontracts with DARPA and TriQuint. The Group has also bucked theindustry trend by strengthening its team with a number ofhigh-profile senior appointments during the downturn.2. RESULTSRevenues of £21.4m (H1 2008: £30.2m) reflected a challenging firstquarter in which destocking continued from the downturn of late 2008.However, sales picked up strongly towards the end of the first halfas destocking ended and manufacturing began to accelerate to previouslevels. The reduction in sales volumes was in part offset by a weakerpound.However, gross margins of 18% remained in line with the prior year(before exceptional items) thanks to significant reductions in labourand overhead costs, combined with a more favourable sales mix. Thisdemonstrates a strong degree of resilience in a highly leveragedbusiness model.Selling, general and administrative expenses remained firmly undercontrol, but increased from £4.3m in H1 2008 to £4.6m in H1 2009 as aresult of foreign currency translation.EBITDA remained positive throughout the half year, even at the lowestpoint of the cycle in January. Nevertheless, the reduction in salesinevitably resulted in lower profitability, with EBITDA of £1.9m (H12008: £3.6m, before exceptional items of £1.6m). The Group reportedan operating loss of £0.8m, compared with a profit of £1.6m in H12008.Interest payments fell from £0.7m to £0.5m.The retained loss for the period was £1.4m (H1 2008: £0.9m retainedprofit before exceptionals), representing 0.31 pence loss per share(H1 2008: 0.19 pence profit per share before exceptionals).The Group had no tax charge during the period, reflecting the benefitof the substantial tax losses at its disposal. These tax losses willenable IQE to shelter up to £100 million of future taxable profits.The cash inflow from operations was £0.1m (H1 2008: £2.8m inflow),reflecting a £1.7m absorption of cash into working capital during thefirst half of 2009 as trading activity recovered from the destocking.Capital expenditure was controlled tightly at just £0.7m (H1 2008:£3.4m) which included £0.3m to complete capital projects begun in2008.Net debt of £18.9m (H1 2008: £15.8m) was lower than expected, leavingmore than £5.0 million of funding headroom. With strong growth in Q3,the Group expects strong free cash flow generation and the reductionof net debt during the second half.3. STRATEGYIQE continues to focus on fast-growing, large-volume technologies andin particular high-speed wireless communications and advancedoptoelectronics. The Group continues to develop advanced solar celltechnology, high-efficiency solid-state light sources, advancedlasers and ultra-high-speed microprocessor and memory-chip materialstechnologies for these large-volume emerging markets.IQE has established itself as a clear world leader by offering itscustomers a unique set of advantages, including:- a complete range of products covering all major applications;- global multi-site production capabilities in the primarymanufacturing platforms to allow efficient capacity planning and fordisaster scenario contingency;- maintenance of a broad contact base and global presence with accessto all the key global markets;- delivery of benefits from economies of scale including purchasingpower and research and development efficiencies;- sharing of best practices and innovation across the group todeliver improved operating and cost efficiencies; and- provision of surge capacity to meet the expected growth in demandin the mobile device sector and other high-volume activities.This strategy has continued to deliver robust results despite theglobal economic downturn and will continue to deliver on current andnext-generation products. In addition, IQE is able to lever itssubstantial manufacturing capacity to deliver tangible benefits tocustomers, shareholders and other stakeholders.4. PRODUCTS AND MARKETSIQE's product roadmap and strategy continues to be driven by four keymarket dynamics, all of which have high-growth, high-volumeprospects:- The acceleration in the adoption of advanced, high-speed mobilecommunications, including 3G, WiFi, GPS and other wirelesstechnologies. As mobile technologies continue to advance at anenormous pace with new features constantly emerging, the role ofadvanced compound semiconductor materials such as GaAs has becomecritical in enabling high-speed data processing whilst maintaininglow levels of power consumption. IQE's products are critical in thedrive to 3G and beyond, along with the need for backward networkcompatibility. They enable the speed and power to accommodatefeatures such as high-resolution imaging, video, high-speed wirelessdata access, VoIP and satellite navigation. Today's high-speeddevices contain many more GaAs components than previous generations.- The ubiquity of applications for high-volume semiconductor lasers,including HD DVD, laser mouse, laser projection, gaming and officeand industrial applications. In particular, laser projection isviewed as one of the most exciting applications of this technology,with first-generation projectors already being incorporated intomobile handsets and cameras.- The drive for clean, efficient and sustainable energy sources(solar cells), and highly efficient light sources (LEDs) in order toreduce the impact of global warming, reliance on fossil fuels andprovide a much cleaner environment. Compound semiconductors areplaying a critical role and IQE is involved in leading-edgedevelopment of materials for these applications, including solar-celltechnologies that are achieving record levels of energy conversion.- The continuing need for higher-speed, more powerful microprocessorsand higher-speed, ultra-high-density memories. This is driving thedemand for new materials solutions based on silicon substratesincluding the incorporation of compound semiconductors directly ontosilicon substrates, as demonstrated by the recent release of newengineered substrates such as Germanium on Insulator (GeOI) fornext-generation integrated circuits and devices. IQE has establishedpowerful positions in both technologies, working with some of thebiggest names in the industry.The wireless market currently provides the group with high-volumesales and the expectation of continued high growth. However, theother markets are undergoing rapid development and offer furthernear-term, high-growth potential and product diversity.5. TRADING OUTLOOKIQE's markets continue to prove resilient to the global economicslowdown, as demonstrated by the return of strong customer demand andindustry analysts' reports on the strength of 3G handset, smartphoneand advanced wireless system sales.The growth in demand for IQE's products is largely being driven bythe increasing content of GaAs within mobile devices, which reflectsthe rapid adoption of 3G and smartphone technology to meet thegrowing demand for mobile features such as email, internet browsingand video streaming. 3G smartphone handset sales are expected todouble from 131 million in 2008 to more than 300 million by 2012(Park Associates; July 2009).As economies emerge from the global recession, there have been anumber of statements from leading semiconductor companies indicatingstrengthening commitments towards outsourcing, as businesses seek tocut capital and operational costs.The continued increase in sales volumes during Q3 supports theoutlook for the second half remaining strong. This positive outlook,despite the continuing backdrop of global economic uncertainty,reflects the Group's powerful positioning in its high-growth markets,principally in wireless communications, including 3G and feature-richsmartphones.In addition, IQE continues to innovate with excellent progress in newproduct development such as CPV solar cells, where customers areachieving record efficiencies using IQE materials. This marketcontinues to develop rapidly, addressing the need for utility-scaledeployment of efficient solar cell technologies.Further progress is also being made in cutting-edge technologies foremerging and fast-growing, large-volume markets such as advancedlasers, high-speed microprocessor and memory devices, ultra-low powerLED products and next-generation electronic materials, asdemonstrated by the recent release of new engineered substrates suchas Germanium on Insulator (GeOI) for next-generation integratedcircuits and devices.The continued successful implementation of the Group's strategy,combined with strong operational performance during an extremelytough economic period, give the Board confidence in both the shortterm and long term growth prospects of the business. IQE remains oncourse to deliver significant growth in sales during the second halfof 2009 and beyond.Dr Drew NelsonPresident and CEO2nd September 2009. 6 months to 6 months to 12 months toCONSOLIDATED INCOME 30 Jun 2009 30 Jun 2008 31 Dec 2008STATEMENT(All figures £'000s) Note Unaudited Unaudited AuditedRevenue 21,421 30,178 60,485Cost of sales (17,614) (25,903) (51,898)Gross profit 3,807 4,275 8,587Gross profit before 3,807 5,503 11,755exceptional itemsExceptional items 3 - (1,228) (3,168)Selling, general and (4,640) (4,264) (8,518)administrative expensesOperating (loss) / profit (833) 11 69Operating (loss) / profit (833) 1,579 4,000before exceptional itemsExceptional items 3 - (1,568) (3,931)Finance income - 20 26Finance costs (528) (740) (1,480)Loss for the period (1,361) (709) (1,385)attributable to equityshareholdersPre exceptional (loss) / 4 (0.31) 0.19 0.59earnings pence per shareLoss pence per share 4 (0.31) (0.16) (0.32)Diluted loss pence per 4 (0.31) (0.16) (0.32)shareEarnings before interest, tax, depreciation and amortisation(EBITDA) have been calculated as follows:Loss for the period (1,361) (709) (1,385)attributable to equityshareholdersShare based payments 359 434 884Exceptional items - 1,568 3,931Net interest payable 528 720 1,454Depreciation of tangible 2,045 1,382 3,076fixed assetsAmortisation of intangible 338 205 447fixed assetsEBITDA 1,909 3,600 8,407CONSOLIDATED STATEMENT OF 6 months to 6 months to 12 months toCOMPREHENSIVE INCOME 30 Jun 2009 30 Jun 2008 31 Dec 2008(All figures £'000s) Unaudited Unaudited AuditedLoss for the period (1,361) (709) (1,385)Cash flow hedges 213 - -Currency translation differenceson foreign currency net (4,483) 241 7,723investmentsTotal comprehensive income for (5,631) (468) 6,338the period As At As At As AtCONSOLIDATED BALANCE SHEET 30 Jun 2009 30 Jun 2008 31 Dec 2008(All figures £'000s) Unaudited Unaudited AuditedNon-current assets :Intangible assets 14,348 12,856 14,675Property, plant and equipment 21,469 19,703 25,626Total non-current assets 35,817 32,559 40,301Current assets :Inventories 10,291 8,829 11,262Trade and other receivables 10,835 12,534 11,671Cash and cash equivalents - 1,646 -Total current assets 21,126 23,009 22,933Total assets 56,943 55,568 63.234Current liabilities :Borrowings (10,937) (6,254) (8,090)Trade and other payables (12,903) (14,208) (14,798)Total current liabilities (23,840) (20,462) (22,888)Non-current liabilities :Borrowings (8,059) (11,142) (10,045)Long term creditors - (829) -Deferred income (64) (102) (83)Total non-current liabilities (8,123) (12,073) (10,128)Total liabilities (31,963) (32,535) (33,016)Net assets 24,980 23,033 30,218Shareholders' equity :Ordinary shares 4,361 4,324 4,333Share premium 336 172,281 124Other reserves 14,338 (422) 18,455Profit and loss account 5,945 (153,150) 7,306Total shareholders' equity 24,980 23,033 30,218 6 months to 6 months to 12 months toCONSOLIDATED CASH FLOW STATEMENT 30 Jun 2009 30 Jun 2008 31 Dec 2008(All figures £'000s) Unaudited Unaudited AuditedCash flows from operatingactivities :Cash inflow from operations 6 95 2,758 7,461Interest received - 20 26Interest paid (559) (475) (1,531)Net cash inflow/(outflow) from (464) 2,303 5,956operating activitiesCash flows from investingactivities :Development expenditure (916) (786) (1,520)Investment in other intangible - (100) (134)fixed assetsPurchase of property, plant and (916) (2,605) (6,361)equipmentProceeds from sale of tangible - - 179fixed assetsNet cash used in investing (1,832) (3,491) (7,836)activitiesCash flows from financingactivities :Issues of ordinary share 240 107 208capitalLoans and leases (244) 3,738 1,755(repaid)/receivedNet cash (used in)/generated from (4) 3,845 1,963financing activitiesNet (decrease)/increase in cash (2,300) 2,657 83and cash equivalentsCash and cash equivalents at the (928) (1,011) (1,011)beginning of the periodCash and cash equivalents at 7 (3,228) 1,646 (928)the end of the period1 BASIS OF PREPARATIONThese interim results have been prepared under the historical costconvention and in accordance with International Financial ReportingStandards ("IFRS") and interpretations in issue at 30 June 2009.The interim results were approved by the Board of Directors and theAudit Committee on 01 September 2009. The interim results do notconstitute statutory accounts within the meaning of the Companies Act1985 and have not been audited. Comparative figures in the interimresults for the year ended 31 December 2008 have been taken from thepublished audited statutory financial statements. All other periodspresented are unaudited. 6 months 6 months to 12 months to to2 SEGMENTAL INFORMATION 30 Jun 30 Jun 2008 31 Dec 2009 2008(All figures £'000s) Unaudited Unaudited AuditedRevenue by businesssegment :Wireless 16,289 23,646 48,490Optoelectronics 4,593 5,278 10,169Electronics 539 1,254 1,826Total revenue 21,421 30,178 60,485Operating (loss)/profit by business segment before exceptionalitems:Wireless (201) 3,091 7,356Optoelectronics (437) (893) (1,999)Electronics (195) (619) (1,357)Total operating (loss)/profit (833) 1,579 4,000before exceptional itemsOperating (loss)/profit by business segment:Wireless (201) 1,523 4,381Optoelectronics (437) (893) (2,645)Electronics (195) (619) (1,667)Total operating (loss)/profit (833) 11 69 6 months to 6 months to 12 months to3 EXCEPTIONAL ITEMS 30 Jun 2009 30 Jun 2008 31 Dec 2008(All figures £'000s) Unaudited Unaudited AuditedExceptional items comprise :Relocation costs - 1,568 2,486Group restructuring - - 1,445 - 1,568 3,931The relocation costs in 2008 related to the one-off costs incurred inrelocating the Singapore operation to a new state-of-the-artfacility. The relocation was completed in November 2008.During the fourth quarter of 2008 the Group carried out arestructuring of its activities and operations to reduce itsoperating costs. This involved a 16% reduction in headcount inaddition to a streamlining of certain manufacturing activities. As aresult the Group incurred an exceptional charge of £1,445,000.4 LOSS PER SHARE 6 months to 6 months to 12 months to 30 Jun 2009 30 Jun 2008 31 Dec 2008 Unaudited Unaudited AuditedResults in £'000s:(Loss)/profit for the period (1,361) 859 2,546(before exceptional items)Loss for the period attributable (1,361) (709) (1,385)to ordinary shareholdersNumber of shares:Weighted average number of 434,131,613 431,500,695 432,207,766ordinary shares(Loss)/profit pence per share (0.31) 0.19 0.59(before exceptional items)Loss pence per share (0.31) (0.16) (0.32)Diluted loss pence per share (0.31) (0.16) (0.32)Basic profit/(loss) per share is calculated by dividing the lossattributable to ordinary shareholders by the weighted average numberof ordinary shares during the period. Diluted loss per share iscalculated by adjusting the weighted average number of ordinaryshares in issue on the assumption of conversion of all dilutivepotential ordinary shares.The group incurred losses in the period and, as such, options andwarrants that may be converted would be considered anti dilutive,since they would reduce the loss per share.5 STATEMENT OF CHANGES IN 6 months to 6 months to 12 months to SHAREHOLDERS' EQUITY 30 Jun 2009 30 Jun 2008 31 Dec 2008(All figures £'000s) Unaudited Unaudited AuditedLoss for the period attributable (1,361) (709) (1,385)to equity shareholdersCash flow hedges 213 - -Net exchange differences offset (4,483) 241 7,723in reservesTotal comprehensive income (5,631) (468) 6,338Share option costs credited to 153 434 747reservesShares issued net of issue costs 240 107 173 (5,238) 73 7,258Shareholders' equity at start of 30,218 22,960 22,960periodShareholders' equity at end of 24,980 23,033 30,218period 6 months to 6 months to 12 months to6 CASH GENERATED FROM OPERATIONS 30 Jun 2009 30 Jun 2008 31 Dec 2008(All figures £'000s) Unaudited Unaudited AuditedOperating (loss)/profit (833) 11 69Depreciation of tangible assets 2,045 1,382 3,076Amortisation of intangible assets 338 205 447(Gain)/loss on sale of tangible (103) - 6assetsGovernment grants released (19) (19) (39)Non cash exceptional costs - 961 2,866Non cash share based payment costs 359 434 884Cash from operations before changes 1,787 2,974 7,309in working capital(Increase) in inventories (132) (1,186) (1,426)(Increase)/decrease in trade and (581) (1,935) 1,618other receivables(Decrease)/increase in trade and (979) 2,905 (40)other payablesCash inflow generated from 95 2,758 7,461operations As At As At As At7 ANALYSIS OF NET DEBT 30 Jun 2009 30 Jun 2008 31 Dec 2008(All figures £'000s) Unaudited Unaudited AuditedCash at bank and in hand - 1,646 -Overdraft (3,228) - (928)Total cash and cash equivalents (3,228) 1,646 (928)Loans due after one year (8,016) (11,073) (9,961)Loans due within one year (7,653) (6,211) (7,098)Finance leases due after one year (43) (69) (84)Finance leases due within one (56) (43) (64)yearTotal borrowings (15,768) (17,396) (17,207)Net debt (18,996) (15,750) (18,135)---END OF MESSAGE---This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 02.09.2009 - 08:01 Uhr
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