IQE plc : IQE plc : Full Year 2012 Results
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.
oRevenues up 17% to £88.0m (2011: £75.3m)
oRecord second half performance
+H2 sales up 45% to £53.7m (2011 H2: £37.0m)
oH2 EBITDA up 56% to £12.2m (2011 H2: £7.8m) EBITDA up 18% to £16.4m (2011:
oAdjusted^* pre-tax profit up 5% to £8.6m from £8.2m (reported £6.1m)
oAdjusted^* EPS of 1.59p (2011: 1.86p) and basic EPS of 1.16p (2011: 1.62p)
oCAPEX of £13.1m (2011: £17.4m) marks completion of two year capacity
oProforma^* 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.
oCompleted 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:
oProvide commanding platform for continued strong growth
oSignificantly reduce market risk and short term volatility
oStrengthen leading position in manufacture and supply of advanced
oProvide further economies of scale and opportunities for cost savings
oExcellent progress on qualification programmes:
oIn production with five customers on advanced wireless BiHEMT
oPhotonics (optoelectronics) business transitioning into volume
o2012 CPV solar milestones achieved on schedule; qualifications on
track for production revenues in H2 2013
oCompleted two-year major capacity expansion programme
oExpanded 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
"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."
IQE plc +44 (0) 29 2083 9400
Espirito Santo Investment Bank + 44 (0) 20 7456 9191
Canaccord Genuity + 44 (0) 20 7050 6500
College Hill +44 (0) 20 7457 2020
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
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
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.
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
Compound semiconductors lie at the heart of several major advances in
technology that have transformed the way we live, including:
ofibre optic technology which has revolutionized telecommunications and
spawned the internet;
owireless communication and the smartphone revolution;
oLEDs for lighting; and
This shift in technology has only just begun. It will continue at an
increasing pace, driven by a small number of macro level trends:
osustainable clean energy generation and the efficient use of energy;
othe explosion of personal consumer devices for enhanced lifestyle; and
othe 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
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
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,
· 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
o Achieved all 2012 milestones for CPV solar, and remain on
track for volume production in the second half of 2013 as originally planned;
o Completed multiple qualifications in wireless and photonics
· 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
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.
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
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
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.
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)
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
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
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:
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
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).
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
Net cash generated from operating 4,777 8,379 13,156
Net cash used in investing (26,159) (8,379) (34,538)
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.
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.
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
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.
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.
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
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.
IQE's markets are driven by the advanced properties of compound
othe wireless market - reflecting their superior wireless communication
othe photonics market - reflecting their ability to efficiently emit and
detect light; and
oelectronics - reflecting that they operate at much higher speeds and
with lower power consumption
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
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
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:
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 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.
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.
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%.
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
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 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
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
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 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
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
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
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
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.
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.
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.
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
Note £'000 £'000 £'000 £'000
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)
Operating profit before exceptional 7,221 4,365 7,584 7,373
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
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:
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
Profit for the year 6,631 8,443
Currency translation differences on foreign currency net (2,497) 432
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
Share Share Retained Exchange Other Total
capital premium earnings rate reserves equity
£'000 £'000 £'000 £'000 £'000 £'000
audited audited audited audited audited audited
Balance at 1 January 5,251 22,122 36,118 5,272 3,987 72,750
Profit for the year - - 6,631 - - 6,631
Foreign exchange - - - (2,497) - (2,497)
Total comprehensive - - 6,631 (2,497) - 4,134
Employee share option - - - - 1,360 1,360
Issues of ordinary 631 11,323 - - - 11,954
Total transactions 631 11,323 - - 1,360 13,314
Balance at 31 December 5,882 33,445 42,749 2,775 5,347 90,198
Balance at 1 January 2011 5,153 21,237 28,019 4,840 3,025 62,274
Profit for the year - - 8,443 - - 8,443
Foreign exchange translation - - - 432 - 432
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
Note 2012 2011
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
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
Borrowings 5 (2,428) (49)
Trade and other payables (31,709) (23,157)
Total current liabilities (34,137) (23,206)
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
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
Note 2012 2011
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
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
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
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
ofinancing charges relating to discounting of long term acquisition
oamortisation of intangibles arising on acquisition;
oshare based payments; and
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
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
The Group £'000 £'000
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) -
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 payables 5,575 (2,010)
Cash inflow from operations 4,109 10,823
5. Analysis of net funds/debt
At 1 Cash Other At 31
January flow non-cash December
2012 £'000 movements 2012
£'000 audited £'000 £'000
audited audited audited
Cash and cash equivalents 3,233 (443) (17) 2,773
Loans due after one year (7,087) (7,855) 848 (14,094)
Loans due within one year - (1,687) - (1,687)
Finance leases due after one year (18) 18 (1,734) (1,734)
Finance leases due within one year (49) 30 (722) (741)
Total borrowings (7,154) (9,494) (1,608) (18,256)
Net debt (3,921) (9,937) (1,625) (15,483)
Cash and cash equivalents at 31 December 2012 comprised balances held in
instant access bank accounts.
Non-cash movements include the drawdown of a finance lease and foreign
exchange movements on US dollar borrowings.
6. Business combination
On 11 June 2012 the Group acquired the in-house epitaxy operation of RFMD, a
leading wireless chip manufacturer. Under the terms of this trade and assets
deal, the Group acquired the leasehold production facility, the production
equipment and related inventories; assumed employment of the workforce; and
entered into a long term supply contract. The consideration for the
acquisition is being settled entirely via a contractually agreed price
discount on future product sales to the vendor until 2016.
The comparison of book value to fair value is summarised as follows:
Book value Adjustment Fair value
£'000 £'000 £'000
audited audited audited
Intangible assets - 3,116 3,116
Property plant and equipment 17,400 2,600 20,000
Inventory 1,001 - 1,001
Deferred tax asset - 13,187 13,187
Goodwill - 18,287 18,287
Total contingent deferred consideration 18,401 37,190 55,591
The fair value of the intangible assets represents the estimated fair value of
the supply contract, and has been assessed based on an imputed royalty stream
to recover the estimated cost of product development and qualifications to
which the contract relates.
The fair value of the property plant and equipment has been estimated on a
depreciated replacement cost basis, using internal and external cost data.
Inventory has been recognised at the lower of cost and net realisable value.
Deferred tax has been recognised in respect of temporary timing differences
between the accounting and tax treatments for the assets and liabilities
Goodwill reflects items not separately recognisable under IFRS, and largely
reflects financial and operational synergies of the enlarged group including
improved economies of scale and equipment utilisation.
The fair value of the consideration has been estimated based on expected
future sales volumes and price discounts. Sales are recorded at their fair
value, but billed at the contractually agreed discounted rate. The discount on
each sales transaction is accounted for as a reduction in the contingent
deferred consideration balance. As a guide to the sensitivity of this
estimate, if actual volumes were 5% lower than the estimated future volumes
then the total consideration would reduce by approximately £2.8m.
The fair values for intangibles assets and consideration are provisional fair
values, and as long term balances have been discounted at discount rate of 1%.
Acquisition related costs of £0.1m have been charged to administration
expenses in the consolidated income statement for the year ended 31 December
Prior to acquisition this business was part of a larger internal manufacturing
process, and therefore a separate trading account is not available. Post
acquisition this business unit contributed revenue of £20m, and profit after
tax of £4m to the Consolidated Income Statement. Management believes that it
would be impracticable to extrapolate a trading result for a full year 2012
due to the impact of changes in inventory levels in the supply chain.
7. Post balance sheet event
On 15 January 2013, IQE plc completed the acquisition of the Kopin Wireless,
the compound semiconductor epiwafer manufacturing business of Kopin
Corporation ("Kopin"), a NASDAQ listed entity.
The consideration for the acquisition was $75m, of which $60m was paid in cash
on completion, and $15m falls payable in January 2016.
The assets acquired were the trade and assets of Kopin Wireless' US domiciled
business, which operates from a long leasehold premises located in
Massachusetts USA; and its 90% equity stake in its Taiwanese subsidiary
(KTC), which operates from a freehold premises in Hsinchu Taiwan.
This acquisition brings a number of strategic advantages to IQE, including :
oa HBT business to complement IQE's existing pHEMT business;
ogreater customer diversity to help mitigate against the impact of changes
in market share between customers;
oexpands IQE's Asian footprint, providing improved access to the growing
oimproved economies of scale; and
oproviding access to significant expected cost synergies.
The upfront consideration of $60 million was part financed by $40 million of
acquisition finance provided by HSBC. The balance was financed from the
proceeds of a placing of 56,900,961 new ordinary shares at 29.00p. The
deferred consideration of $15 million will be settled through future cash
This announcement is distributed by Thomson Reuters on behalf of Thomson
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other
applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of
information contained therein.
Source: IQE plc via Thomson Reuters ONE
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