TIDMIQE
IQE plc
("IQE" or the "Group")
2019 HALF YEAR RESULTS
Performance in line with half-year guidance and full year guidance
reiterated
Strategic and operational progress to ensure business is well-positioned
for future growth
Cardiff, UK 3 September 2019: IQE plc (AIM: IQE) the leading supplier of
advanced wafer products and material solutions to the semiconductor
industry, announces its results for the six months ended 30(th) June
2019.
FINANCIAL HIGHLIGHTS
H1 2019 H1 2018
GBP'm* GBP'm*
REVENUE 66.7 73.4
ADJUSTED EBITDA*** 7.4 13.5
OPERATING (LOSS) / PROFIT (3.1) 6.6
ADJUSTED OPERATING (LOSS) / PROFIT (1.9) 7.6
REPORTED (LOSS) / PROFIT BEFORE TAX (3.7) 6.6
REPORTED (LOSS) / PROFIT AFTER TAX (10.7) 4.2
DILUTED EPS (1.38p) 0.50p
ADJUSTED DILUTED EPS (1.29p) 0.76p
CASH GENERATED FROM OPERATIONS 4.0 7.6
CAPITAL INVESTMENT (PP&E) 19.1 19.4
NET (DEBT) / FUNDS** (0.8) 40.6
* All figures GBP'm excluding adjusted diluted EPS
** Net (debt) / funds excludes IFRS16 lease liabilities (see note 4.5)
Adjusted Measures: The Directors believe that the adjusted measures
provide a more useful comparison of business trends and performance.
Adjusted measures exclude exceptional items, share based payments and
non-cash acquisition accounting charges as detailed in note 7. The
following highlights of the first half results is based on these
adjusted profit measures, unless otherwise stated.
-- Revenue of GBP66.7m (H1 2018: GBP73.4m) is 9% down year on year, impacted
by a weak smartphone handset market and reductions in demand in the
context of a technology market slowdown, international trade tensions and
fall in demand from a major InP laser customer.
-- Adjusted operating loss of GBP1.9m (H1 2018: profit GBP7.6m) reflects
negative operating leverage from a cost base scaled for volume which
includes an increase in depreciation and amortisation of GBP2.4m
resulting from the investment in capacity.
-- Negative EPS of 1.29p due to the operating loss plus a one-off non-cash
deferred US tax charge resulting from a shift in the balance of future
projected manufacturing between the US and UK / Asia.
-- Cash generated from operations of GBP4.0m (H1 2018: GBP7.6m) reduced due
to lower trading volumes. Additional asset financing facility agreed post
half year-end.
Dr Drew Nelson, Chief Executive Officer of IQE, said:
"I am pleased that IQE has delivered results which are in line with the
trading update from June this year and to reiterate our full-year
guidance, despite a number of challenging market conditions facing our
industry in the first half of 2019.
"We remain confident in IQE's ability to adapt to global supply chain
shifts and have made significant strategic and operational progress with
our global expansion projects. This includes completing the
infrastructure phase at our Mega Foundry in Newport, South Wales as well
as the capacity expansion in Taiwan and Massachusetts, US.
These investments in the Group's global manufacturing footprint, coupled
with IQE's unique breadth of compound semiconductor materials experience
and IP portfolio, position the Group well for future growth and margin
expansion as volumes increase, driven by the growth opportunities in 5G
and connected devices."
OPERATIONAL HIGHLIGHTS
-- Major Investment Programme substantially completed:
-- Infrastructure phase at Mega Foundry in Newport, South Wales now
finished with ten tools installed and optionality to add up to 90
more
-- Capacity in Taiwan has been increased by 40%, enabling growth in
revenues with Asian supply chains
-- Investment in GaN capacity in Massachusetts to capitalise on
forthcoming 5G infrastructure deployments
-- Newport Mega-Foundry Commencement of Production:
-- First mass production order from IQE's leading VCSEL customer
-- Extensive product qualifications ongoing with twelve other chip
customers across broad supply chains
-- Commencement of production, post half year-end, with a second
customer, serving Android supply chains.
-- Signature of a contract extension, post half year end, with one of
its largest VCSEL customers, running through to the end of 2021.
In addition, two other existing contracts have also been extended
with several other new contracts anticipated.
-- 5G Product Development:
-- Continued strong results in the development of Filters and
Switches for 5G, based on IQE's patented cREO technology, with
customer engagement for commercialisation proceeding well
-- Introduction of a Full Service Distributed Feedback (DFB) Laser
for high-speed datacoms using Nano-Imprint Lithography
-- New management structure implemented to support growth ambitions and
scalability of operations:
-- Dr Drew Nelson, Chief Executive Officer (CEO)
-- Tim Pullen, Chief Financial Officer (CFO)
-- Dr Rodney Pelzel as Executive VP, Global Innovation (CTO)
-- Keith Anderson as Executive VP, Global Operations (COO)
-- Dr Wayne Johnson as Executive VP, Global Business Development,
Wireless and Emerging Products
-- Dr Mark Furlong as Executive VP, Global Business Development,
Photonics and InfraRed
-- Development of the IQE Board
-- Appointment of Phil Smith CBE, as Chairman
-- Appointment of Carol Chesney, FCA, as Non-Executive Director and
Chair of the Audit Committee
-- Post half year end increase to available credit facilities
-- GBP30m asset financing facility in place, increasing total
available facilities to GBP57m (GBP12m drawn down at 30th June
2019)
CURRENT TRADING AND FULL YEAR OUTLOOK
Outlook and guidance remain in line with the trading update from June
21st, 2019.
Three key factors affect IQE's revenue outlook for 2019
1. Continued uncertainty related to the geo-political landscape, the effects
on global technology markets and, in particular,the confidence for supply
chains to rebuild inventory;
2. The market for smartphone handsets in the second half of 2019;
3. The speed of formation of new Asian supply chains, the associated product
qualifications and volumes of initial orders.
Balancing these factors, full year revenue guidance of GBP140m to
GBP160m is reiterated.
Segmental revenue guidance is reiterated on a like-for-like basis, but
restated to reflect a change in allocation methodology based on (i) the
newly implemented business unit structure upon the formation of the
Executive Management Board and (ii) certain revenues pertaining to a
specific site which has shared production, being reclassified between
segments due to an allocation methodology change (USD constant
currency):
Previous Segmentation Revised Segmentation Previous Segmentation Revised Segmentation
FY18 Revenue GBPm FY18 Revenue GBPm FY19 YoY FY19 YoY
---------- --------------------- -------------------- --------------------- --------------------
Wireless 97.8 87.9 -20% to -25% decline -25% to -30% decline
---------- --------------------- -------------------- --------------------- --------------------
Photonics 43.8 66.8 <30% growth <30% growth
---------- --------------------- -------------------- --------------------- --------------------
Infrared 13.1 N/A c15% growth N/A
---------- --------------------- -------------------- --------------------- --------------------
Second half revenues are expected to represent between 52% and 58% of
full year revenues. As such, given the additional contribution against a
largely fixed cost base, a return to adjusted operating profitability is
expected in H2. This will be strengthened by cost management actions
that support the strategic direction of the Group.
EBITDA margins will remain low in FY19 as the utilisation of facilities
remains low versus capacity and a high number of product qualifications
continue. Full year adjusted operating profit margin guidance, whereby
IQE expects to remain profitable in 2019 but with adjusted operating
profit margin significantly below the original FY19 guidance of over 10%,
is reiterated.
With the infrastructure phase of the capital investment programme
substantially complete in H1, full year capex guidance of GBP30m to
GBP40m is reiterated. The range relates to the timing of the decision to
invest in further tools at either Newport or Taiwan, which is
discretionary depending on prevailing market conditions. The Group has
sufficient installed capacity to underpin significant revenue growth.
CONTACTS:
IQE plc
+44 (0) 29 2083 9400
Drew Nelson
Tim Pullen
Peel Hunt LLP (Nomad and Joint Broker)
+44 (0) 20 7418 8900
Edward Knight
Nick Prowting
Citigroup Global Markets Limited (Joint Broker)
+44 (0) 20 7986 4000
Christopher Wren
Peter Catterall
Headland Consultancy (Financial PR)
+ 44 (0) 20 38054822
Andy Rivett-Carnac: +44 (0) 7968 997 365
Chloe Francklin: +44 (0) 7834 974 624
ABOUT IQE
https://www.globenewswire.com/Tracker?data=uEvGnOzn20iaySA-qkXqZzyaBwHDfHhFXlBslpMrB6yevRa5JixIh9IcTnzgqwFhw1xkHftg7jvpE4lRe0HS9sQG9_pVMuCAPGsSbLqL4wGTlwS-ksJz9MKZ1GEJSftGgY7oJzxFn-lqooC4CiwGPkAsdZr4mj1PNC_-8wAjR5C4OPjvQZfSXYvoS6wLzZ_Dy4FrDIGty3bhwI4Q5eSWPnQdkDEWCflfqgyQjjA625E=
http://iqep.com
IQE is the leading global supplier of advanced compound semiconductor
wafers that enable a diverse range of applications across:
-- handset devices
-- global telecoms infrastructure
-- connected devices
-- 3D sensing
The macro trends of 5G and connected devices are expected to drive
significant growth for compound semiconductors over the coming years.
As a scaled global epitaxy wafer manufacturer, IQE is uniquely
positioned in this market which has high barriers to entry. IQE supplies
the whole market and is agnostic to the winners and losers at chip and
OEM level. By leveraging the Group's intellectual property portfolio
including know-how and patents, it produces epitaxy wafers of superior
quality, yield and unit economics.
IQE is headquartered in Cardiff UK, with c. 650 employees, and is listed
on the AIM stock Exchange in London.
Consolidated Income Statement 6 months to 6 months to 12 months to
30 Jun 2019 30 Jun 2018 31 Dec 2018
(All figures GBP'000s) Note Unaudited Unaudited Audited
------------------------------------------------------ ---- ------------- ------------- --------------
Revenue 66,720 73,396 156,291
Cost of sales (56,128) (57,279) (118,840)
------------------------------------------------------ ---- ------------- ------------- --------------
Gross profit 10,592 16,117 37,451
Other income and expenses - 1,648 1,097
Selling, general and administrative expenses (13,667) (11,163) (29,888)
Operating (loss) / profit (3,075) 6,602 8,660
Net finance (costs) / income (394) 46 87
Share of losses of joint ventures accounted for using
the equity method (254) - (2,000)
Adjusted (loss) / profit before income tax (2,623) 7,615 13,974
Adjustments 7 (1,100) (967) (7,227)
------------------------------------------------------ ---- ------------- ------------- --------------
(Loss) / Profit before income tax (3,723) 6,648 6,747
Taxation (6,926) (2,485) (5,558)
------------------------------------------------------ ---- ------------- ------------- --------------
(Loss) / Profit for the period (10,649) 4,163 1,189
------------------------------------------------------------ ------------- ------------- --------------
(Loss) / Profit attributable to:
Equity shareholders (10,805) 4,023 966
Non-controlling interests 156 140 223
------------------------------------------------------------ ------------- ------------- --------------
(10,649) 4,163 1,189
------------------------------------------------------------ ------------- ------------- --------------
(Loss) / earnings per share attributable to owners
of the parent during the period
Basic (loss) / earnings per share 9 (1.38) 0.53p 0.13p
Diluted (loss) / earnings per share 9 (1.38) 0.50p 0.12p
------------------------------------------------------------ ------------- ------------- --------------
Adjusted basic and diluted earnings per share are presented in Note 9.
All items included in the (loss) / profit for the period relate to
continuing operations.
Consolidated statement of comprehensive income 6 months to 6 months to 12 months to
30 Jun 2019 30 Jun 2018 31 Dec 2018
(All figures GBP'000s) Unaudited Unaudited Audited
----------------------------------------------------- ------------- ------------- --------------
(Loss) / Profit for the period (10,649) 4,163 1,189
Currency translation differences on foreign currency
net investments* (741) 3,028 11,140
----------------------------------------------------- ------------- ------------- --------------
Total comprehensive (expense) / income for the period (11,390) 7,191 12,329
----------------------------------------------------- ------------- ------------- --------------
Total comprehensive (expense) / income attributable
to:
Equity shareholders (11,507) 7,063 12,010
Non-controlling interest 117 128 319
----------------------------------------------------- ------------- ------------- --------------
(11,390) 7,191 12,329
----------------------------------------------------- ------------- ------------- --------------
* Balance might subsequently be reclassified to the income statement
when it becomes realised.
Consolidated Balance Sheet As At As At As At
30 Jun 2019 30 Jun 2018 31 Dec 2018
(All figures GBP'000s) Note Unaudited Unaudited Audited
--------------------------------- ---- ----------- ----------- -----------
Non-current assets
Intangible assets 123,328 116,607 121,775
Fixed asset investments 75 75 75
Property, plant and equipment 136,628 107,494 124,445
Right of use assets 40,990 - -
Lease receivable 1,408 - -
Deferred tax assets 7,095 15,372 13,244
Financial assets 8,085 7,776 7,937
--------------------------------- ---- ----------- ----------- -----------
Total non-current assets 317,609 247,324 267,476
--------------------------------- ---- ----------- ----------- -----------
Current assets
Inventories 37,277 35,433 35,709
Trade and other receivables 37,313 40,590 38,015
Lease receivable 588 - -
Cash and cash equivalents 11 11,173 40,634 20,807
--------------------------------- ---- ----------- ----------- -----------
Total current assets 86,351 116,657 94,531
--------------------------------- ---- ----------- ----------- -----------
Total assets 403,960 363,981 362,007
--------------------------------- ---- ----------- ----------- -----------
Current liabilities
Trade and other payables (43,039) (61,056) (45,908)
Lease liabilities 11 (2,897) - -
Current tax liabilities (1,242) (405) (431)
Provisions for other liabilities
and charges 12 - (1,477) (2,554)
--------------------------------- ---- ----------- ----------- -----------
Total current liabilities (47,178) (62,938) (48,893)
--------------------------------- ---- ----------- ----------- -----------
Non-current liabilities
Borrowings 11 (12,008) - -
Lease liabilities 11 (46,375) - -
Provisions for other liabilities
and charges 12 - - (3,836)
--------------------------------- ---- ----------- ----------- -----------
Total non-current liabilities (58,383) - (3,836)
--------------------------------- ---- ----------- ----------- -----------
Total liabilities (105,561) (62,938) (52,729)
--------------------------------- ---- ----------- ----------- -----------
Net assets 298,399 301,043 309,278
--------------------------------- ---- ----------- ----------- -----------
Equity attributable to
shareholders of the parent
Share capital 13 7,913 7,608 7,767
Share premium 151,592 147,318 151,147
Retained earnings 88,494 102,356 99,299
Other reserves 46,735 40,404 47,517
--------------------------------- ---- ----------- ----------- -----------
294,734 297,686 305,730
Non-controlling Interest 3,665 3,357 3,548
--------------------------------- ---- ----------- ----------- -----------
Total equity 298,399 301,043 309,278
--------------------------------- ---- ----------- ----------- -----------
Consolidated Statement of Changes in Equity
Exchange
Unaudited Share Share Retained rate Other Non-controlling Total
(All figures GBP'000s) capital premium earnings reserve reserves interests equity
At 1 January 2019 7,767 151,147 99,299 31,113 16,404 3,548 309,278
------------------------ ------- ------- -------- -------- -------- --------------- --------
(Loss) / Profit for the
period - - (10,805) - - 156 (10,649)
Other comprehensive
expense for the year - - - (702) - (39) (741)
Total comprehensive
(expense) / income - - (10,805) (702) - 117 (11,390)
Share based payments - - - - 12 - 12
Tax relating to share
options - - - - (60) - (60)
Proceeds from shares
issued 146 445 - - (32) - 559
------------------------ ------- ------- -------- -------- -------- --------------- --------
Total transactions with
owners 146 445 - - (80) - 511
At 30 June 2019 7,913 151,592 88,494 30,411 16,324 3,665 298,399
------------------------ ------- ------- -------- -------- -------- --------------- --------
Exchange
Unaudited Share Share Retained rate Other Non-controlling Total
(All figures GBP'000s) capital premium earnings reserve reserves interests equity
At 1 January 2018 7,560 145,927 98,333 20,069 16,061 3,229 291,179
------------------------ ------- ------- -------- -------- -------- --------------- --------
Profit for the period - - 4,023 - - 140 4,163
Other comprehensive
income for the year - - - 3,040 - (12) 3,028
Total comprehensive
income - - 4,023 3,040 - 128 7,191
Share based payments - - - - 2,586 - 2,586
Tax relating to share
options - - - - (455) - (455)
Proceeds from shares
issued 48 1,391 - - (897) - 542
------------------------ ------- ------- -------- -------- -------- --------------- --------
Total transactions with
owners 48 1,391 - - 1,234 - 2,673
At 30 June 2018 7,608 147,318 102,356 23,109 17,295 3,357 301,043
------------------------ ------- ------- -------- -------- -------- --------------- --------
Exchange
Audited Share Share Retained rate Other Non-controlling Total
(All figures GBP'000s) capital premium earnings reserve reserves interests equity
At 1 January 2018 7,560 145,927 98,333 20,069 16,061 3,229 291,179
------------------------ ------- ------- -------- -------- -------- --------------- -------
Profit for the year - - 966 - - 223 1,189
Other comprehensive
income for the year - - - 11,044 - 96 11,140
Total comprehensive
income - - 966 11,044 - 319 12,329
Share based payments - - - - 1,826 - 1,826
Tax relating to share
options - - - - (437) - (437)
Proceeds from shares
issued 207 5,220 - - (1,046) - 4,381
------------------------ ------- ------- -------- -------- -------- --------------- -------
Total transactions with
owners 207 5,220 - - 343 - 5,770
At 31 December 2018 7,767 151,147 99,299 31,113 16,404 3,548 309,278
------------------------ ------- ------- -------- -------- -------- --------------- -------
Consolidated Cash Flow Statement 6 months to 6 months to 12 months to
30 Jun 2019 30 Jun 2018 31 Dec 2018
(All figures GBP'000s) Note Unaudited Unaudited Audited
---------------------------------------- ----------- ------------- ------------- --------------
Cash flows from operating activities
----------------------------------------- ---------- ------------- ------------- --------------
Adjusted cash inflow from operations 6,677 8,303 16,982
Cash impact of adjustments 7 (2,694) (723) 6
----------------------------------------- ---------- ------------- ------------- --------------
Cash generated from operations 10 3,983 7,580 16,988
Net interest (paid)/received (195) 1 (66)
Income tax paid (101) (232) (665)
----------------------------------------- ---------- ------------- ------------- --------------
Net cash generated from operating activities 3,687 7,349 16,257
----------------------------------------------------- ------------- ------------- --------------
Cash flows from investing activities
Purchase of property, plant and equipment (19,048) (6,292) (30,375)
Purchase of intangible assets (940) (317) (1,550)
Capitalised development expenditure (4,752) (6,372) (10,437)
Net cash used in investing activities (24,740) (12,981) (42,362)
----------------------------------------- ---------- ------------- ------------- --------------
Cash flows from financing activities
Proceeds from issuance of ordinary shares 559 542 813
Proceeds from borrowings 12,060 - -
Transaction costs related to loans and
borrowings (161) - -
Payment of lease liabilities (1,035) - -
----------------------------------------- ---------- ------------- ------------- --------------
Net cash generated from financing activities 11,423 542 813
----------------------------------------------------- ------------- ------------- --------------
Net decrease in cash and cash equivalents (9,630) (5,090) (25,292)
Cash and cash equivalents at the beginning of the
period 20,807 45,612 45,612
Exchange (losses) / gains on cash and
cash equivalents (4) 112 487
----------------------------------------- ---------- ------------- ------------- --------------
Cash and cash equivalents at the end of
the period 11 11,173 40,634 20,807
----------------------------------------- ---------- ------------- ------------- --------------
1. REPORTING ENTITY
IQE plc is a public limited company incorporated in the United Kingdom
under the Companies Act 2006. The Company is domiciled in the United
Kingdom and is quoted on the Alternative Investment Market (AIM).
These condensed consolidated interim financial statements ('interim
financial statements') as at and for the six months ended 30 June 2019
comprise the Company and its Subsidiaries (together referred to as 'the
Group'). The principal activities of the Group are the development,
manufacture and sale of advanced semiconductor materials.
1. BASIS OF PREPARATION
These interim financial statements have been prepared in accordance with
IAS 34 'Interim Financial Reporting', and should be read in conjunction
with the Group's last annual consolidated financial statements as at and
for the year ended 31 December 2018 which were approved by the Board of
Directors on 20 March 2019 and have been delivered to the Registrar of
Companies. The report of the auditors on those financial statements was
unqualified, did not contain an emphasis of matter paragraph and did not
contain any statement under section 498 of the Companies Act 2006.
The interim financial statements do not include all of the information
required for a complete set of IFRS financial statements and do not
constitute statutory accounts within the meaning of section 434 of the
Companies Act 2006. However, selected explanatory notes are included to
explain events and transactions that are significant to an understanding
of the changes in the Group's financial position and performance since
the last annual financial statements.
This is the first set of the Group's financial statements where IFRS 16,
'Leases' has been applied. Changes to significant accounting policies
are described in Note 4.
Comparative information in the interim financial statements as at and
for the year ended 31 December 2018 has been taken from the published
audited financial statements as at and for the year ended 31 December
2018. All other periods presented are unaudited.
The Company's auditor in accordance with ISRE 2410 has reviewed the
financial information contained in these interim financial statements.
This review does not constitute an audit.
The Board of Directors and the Audit Committee approved the interim
financial statements on 3 September 2019.
1. USE OF JUDGEMENTS AND ESTIMATES
In preparing these interim financial statements, management has made
judgements and estimates that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and
expense. Actual results may differ from these estimates.
The significant judgements made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty were
the same as those described in the last annual financial statements
except as follows:
-- New significant judgements and key sources of estimation uncertainty
related to the application of IFRS 16, which are described in Note 4; and
-- Changes in estimates associated with the recognition of deferred tax
assets.
Deferred Tax Assets
Deferred tax assets are only recognised to the extent that it is
probable that future taxable profits will be available against which
deductible temporary differences can be utilised. This necessitates an
assessment of future trading forecasts, capital expenditure and the
utilisation of tax losses for each relevant tax jurisdiction where the
Group operates.
At 31 December 2018, the Group recognised deferred tax assets in
relation to historical losses at its operations in the United States of
America ('US'). Recognition of the deferred tax asset was based on an
assessment of future cash flow forecasts and the associated
profitability of the US operations.
Increased international trade tension and resultant shifts in the
balance of future forecast manufacturing between the Group's global
operations has resulted in current period changes to estimated forecast
future cash flows and associated recognition of deferred tax assets
relating to the Group's US operations (see note 8).
1. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of the annual
financial statements for the year ended 31 December 2018, as described
in note 2 of those financial statements, except for the impact of the
implementation of IFRS 16 'Leases'.
4.1 Recent accounting developments
In preparing the interim financial statements, the Group has adopted the
following Standards, amendments and interpretations, which are effective
for 2019 and will be adopted in the financial statements for the year
ended 31 December 2019:
-- IFRS 16 'Leases'.
-- Amendments to IAS 19 'Employee Benefits' which clarifies the accounting
for defined benefit plan amendments, curtailments and settlements.
-- Amendment to IAS 28 'Investments in associates and joint ventures' which
clarifies the accounting for long-term interests in an associate or joint
venture, which in substance form part of the net investment in the
associate or joint venture, but to which equity accounting is not
applied.
-- Amendments to IFRS 10 'Consolidated financial statements' and IAS 28
'Investments in associates and joint ventures' which clarifies the
accounting treatment for sales or contribution of assets between an
investor and its associates or joint ventures.
-- Interpretation 23 'Uncertainty over Income Tax Treatments' which explains
how to recognise and measure deferred and current income tax assets and
liabilities where there is uncertainty over a tax treatment.
The adoption of these standards and amendments has not had a material
impact on the interim financial statements, except for IFRS 16,
'Leases'.
4.2 Change in accounting policy -- IFRS 16 'Leases'
IFRS 16 'Leases' addresses the definition of a lease, the recognition
and measurement of leases and establishes principles for reporting
useful information to users of financial statements about the leasing
activities of both lessees and lessors. A key change arising from IFRS
16 is that most operating leases will be accounted for on balance sheet
for lessees. The standard replaces IAS 17 'Leases', IFRIC 4 'Determining
whether an arrangement contains a lease', SIC-15 'Operating leases --
Incentives' and SIC-17 'Evaluating the substance of transactions
involving the legal form of a lease' and is effective for annual periods
beginning on or after 1 January 2019.
4.3 Change in accounting policy - IFRS 16 'Leases' -
Transition
The Group currently leases a number of assets principally relating to
property, including its newly constructed Newport facility as well as
leasing property, plant and equipment from its joint venture, Compound
Semiconductor Centre Limited.
The group has implemented the requirements of IFRS 16 'Leases' from 1
January 2019 using the modified retrospective approach applying the
following practical expedients on a lease-by-lease basis to its
portfolio of leases:
-- Application of a single discount rate to the portfolio of property and
plant leases that are deemed to have reasonably similar characteristics;
-- Adjustment on transition to the right of use asset value associated with
the leased Singapore manufacturing facility by the amount of the
previously recognised onerous lease provision as an alternative to
performing an impairment review;
-- Application of recognition and measurement exemptions for all leases
where the lease term ends within 12 months or fewer of the date of
initial application with those leases accounted for as short-term leases;
-- Application of hindsight in applying the new standard to determine the
lease term where lease contracts contain options to extend or terminate
the lease; and
-- Exclusion of any initial direct costs in the measurement of the right of
use asset.
4.4 Change in accounting policy IFRS 16 'Leases' -
Accounting policy
The Group recognises a right-of-use asset and a lease liability at the
lease commencement date. The right-of-use asset is initially measured at
cost, and subsequently at cost less any accumulated depreciation and
impairment losses, and adjusted for certain remeasurements of the lease
liability.
The lease liability is initially measured at the present value of the
lease payments that are not paid at the commencement date, discounted
using the interest rate implicit in the lease or, if that rate cannot be
readily determined, the Group's incremental borrowing rate. Generally,
the Group uses its incremental borrowing rate as the discount rate.
The lease liability is subsequently increased by the interest cost on
the lease liability and decreased by lease payments made. It is
remeasured when there is a change in future lease payments arising from
a change in an index or rate, or as appropriate, changes in the
assessment of whether a purchase or extension option is reasonably
certain to be exercised or a termination option is reasonably certain
not to be exercised.
1. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
4.4 Change in accounting policy IFRS 16 'Leases' -
Accounting policy (continued)
The Group has applied judgement to determine the lease term for some
lease contracts in which as lessee there includes a renewal option. The
assessment of whether the Group is reasonably certain to exercise such
options impacts the lease term, which affects the amount of lease
liabilities and right-of-use assets recognised.
4.5 Change in accounting policy -- IFRS 16 'Leases' -
Implementation impact
Implementation of IFRS 16 'Leases' requires the Group to recognise new
right of use assets and lease liabilities for certain operating leases
that principally relate to the Group's manufacturing facilities. The
nature of expenses related to these leases has changed in the six months
ended 30 June 2019 because the Group now recognises a depreciation
charge for the right of use assets and an interest expense on lease
liabilities. Previously, for non-variable lease expenses, the Group
recognised operating lease costs on a straight-line basis over the lease
term and recognised assets and liabilities only to the extent that there
was a timing difference between actual lease payments and the expense
recognised.
The implementation of IFRS 16 at 1 January 2019, which had no impact on
total net assets or cash, is summarised in the narrative and table set
out below:
Non-Current Assets
-- Increase in non-current assets of GBP40,545k to reflect the recognition
of right of use lease assets (net of the previously recognised Singapore
onerous lease of GBP5,256k);
-- Increase in non-current assets of GBP1,645k to reflect the recognition of
non-current lease receivables associated with sub-let property;
-- Decrease in property, plant and equipment and corresponding increase in
right of use assets of GBP2,178k to reflect the reclassification of
previously capitalised Newport foundry rent free period costs during the
asset commissioning phase;
Non-Current Liabilities
-- Increase in non-current liabilities of GBP48,116k to reflect the
non-current recognition of lease liabilities associated with the right of
use lease assets;
-- Decrease in non-current provisions of GBP3,836k to reflect
reclassification of the non-current element of the previously recognised
Singapore onerous lease to right of use lease assets
Current Assets and Liabilities
-- Increase in current assets of GBP588k to reflect the recognition of lease
receivables associated with sub-let property due within one year;
-- Increase in current liabilities of GBP2,097k to reflect the recognition
of lease liabilities associated with the right of use lease assets
payable within one year;
-- Decrease in provisions due within one year of GBP1,420k to reflect
reclassification of the current element of the previously recognised
Singapore onerous lease to right of use lease assets; and
-- Decrease in trade and other payables of GBP2,178k to reflect
reclassification of deferred Newport foundry rent-free period costs to
lease liabilities.
1. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
4.5 Change in accounting policy -- IFRS 16 'Leases' --
Implementation impact (continued)
Impact on the condensed consolidated balance sheet
as at Reported Right of Lease Lease Working Onerous
1 January 2019 2018 use asset Receivable liability capital lease 1 January 2019
---------------------------------------------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------------- ---------- ----------- ------------ ----------- --------- --------- ----------------
Intangible assets 121,775 - - - - - 121,775
Fixed asset investments 75 - - - - - 75
Property, plant & equipment 124,445 - - - (2,178) - 122,267
Right of use lease assets - 45,801 - - 2,178 (5,256) 42,723
Lease receivable - - 1,645 - - - 1,645
Deferred tax assets 13,244 - - - - - 13,244
Financial assets 7,937 - - - - - 7,937
--------------------------------------------------- ---------- ----------- ------------ ----------- --------- --------- ----------------
Non-current assets 267,476 45,801 1,645 - - (5,256) 309,666
Inventories 35,709 - - - - - 35,709
Trade and other receivables 38,015 - - - - - 38,015
Lease receivable - - 588 - - - 588
Cash and cash equivalents 20,807 - - - - - 20,807
--------------------------------------------------- ---------- ----------- ------------ ----------- --------- --------- ----------------
Current assets 94,531 - 588 - - - 95,119
--------------------------------------------------- ---------- ----------- ------------ ----------- --------- --------- ----------------
Total assets 362,007 45,801 2,233 - - (5,256) 404,785
--------------------------------------------------- ---------- ----------- ------------ ----------- --------- --------- ----------------
Trade and other payables (45,908) - - - 2,178 - (43,730)
Current tax liabilities (431) - - - - - (431)
Provisions (2,554) - - - - 1,420 (1,134)
Lease liabilities - - - (2,097) - - (2,097)
--------------------------------------------------- ---------- ----------- ------------ ----------- --------- --------- ----------------
Current liabilities (48,893) - - (2,097) 2,178 1,420 (47,392)
Provisions (3,836) - - - - 3,836 -
Lease liabilities - - - (48,115) - - (48,115)
--------------------------------------------------- ---------- ----------- ------------ ----------- --------- --------- ----------------
Non-current liabilities (3,836) - - (48,115) - 3,836 (48,115)
--------------------------------------------------- ---------- ----------- ------------ ----------- --------- --------- ----------------
Total liabilities (52,729) - - (50,212) 2,178 5,256 (95,507)
--------------------------------------------------- ---------- ----------- ------------ ----------- --------- --------- ----------------
Net assets 309,278 45,801 2,233 (50,212) 2,178 - 309,278
--------------------------------------------------- ---------- ----------- ------------ ----------- --------- --------- ----------------
1. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
4.2 Change in accounting policy -- IFRS 16 'Leases'
(continued)
4.6 Critical accounting judgements and key sources of
estimation uncertainty - IFRS 16 'Leases'
(a) Critical accounting judgements in applying IFRS 16 'Leases'
Joint Ventures -- Right to use assets
The Group established CSC with its joint venture partner as a centre of
excellence for the development and commercialisation of advanced
compound semiconductor wafer products.
On establishment of the joint venture, the Group contributed assets as
part of its initial investment and entered into an agreement with the
joint venture that conveys to the Group the right to use the assets of
the joint venture for a minimum five-year period. This agreement, which
contains rights attaching to the use of the joint venture's assets,
meets the definition of a lease. The variable nature of the lease
payments, which are directly linked to the actual usage of the assets,
have been excluded from the measurement of right of use assets and lease
liabilities with the variable lease costs recognised in operating
expenses in the income statement as incurred.
(b) Critical accounting estimates and key sources of estimation
uncertainty
Valuation of lease liabilities and right of use assets
The application of IFRS 16 requires the Group to make judgments that
affect the valuation of the lease liabilities and the valuation of
right-of-use assets that includes determining the contracts in scope of
IFRS 16, determining the contract term and determining the interest rate
used for discounting of future cash flows.
The lease term determined by the Group generally comprises the
non-cancellable period of lease contracts, periods covered by an option
to extend the lease if the Group is reasonably certain to exercise that
option and periods covered by an option to terminate the lease if the
Group is reasonably certain not to exercise that option. Exercise of
extension options, principally existing in the Group's property leases
are assumed to be reasonably certain, except for the Group's Newport
facility where it has been assumed that it is reasonably certain that
the Group will exercise its buy-out option at the end of the initial
lease term. The same term applied to the length of the lease contract
has been applied to the useful economic life of right-of-use assets.
The present value of the lease payments applicable to the Group's
portfolio of property and plant leases has been determined using a
discount rate that represents the Group's incremental rate of borrowing,
assessed as 2.25% - 2.65% depending on the lease characteristics.
1. PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties affecting the Group are set out in
the Strategic Report in the 2018 Annual report and financial statements
and remain unchanged at 30 June 2019.
The principal risks and uncertainties include competition, technological
change, market conditions, health, safety and environment, human
resourcing, natural disasters, financial liquidity, business
interruption (supply chain), customer concentration, legal compliance,
loss of intellectual property, information technology failure and tax
compliance.
1. SEGMENTAL INFORMATION
6 Months to 30 June 2018 12 Months to 31 Dec 2018
6 Months to 30 June 2019 Unaudited Audited
Unaudited Restated Restated
Revenue GBP'000 GBP'000 GBP'000
Wireless 30,147 42,481 87,862
Photonics 35,483 30,081 66,807
CMOS++ 1,090 834 1,622
Revenue 66,720 73,396 156,291
----------------------------------------------------- -------------------------- -------------------------- --------------------------
Adjusted operating (loss) / profit
Wireless 3,256 8,522 16,548
Photonics 1,540 4,370 10,239
CMOS++ (533) (791) (1,295)
Central corporate costs (6,141) (4,487) (9,452)
Adjusted operating (loss) / profit (1,878) 7,614 16,040
Adjusted items (1,197) (1,012) (7,380)
----------------------------------------------------- -------------------------- -------------------------- --------------------------
Operating (loss) / profit (3,075) 6,602 8,660
Share of losses of joint venture accounted for using
the equity method (254) - (2,000)
Finance (costs)/income (394) 46 87
(Loss) / Profit before tax (3,723) 6,648 6,747
----------------------------------------------------- -------------------------- -------------------------- --------------------------
Segmental information has been restated to reflect changes in the
Group's operating and reporting structure following the establishment of
an Executive Management Board that has consolidated responsibility for
the Group's primary markets and operating segments under the leadership
of an Executive VP, Global Business Development, Wireless and Emerging
Products and an Executive VP, Global Business Development, Photonics &
Infrared.
As part of this change, certain revenues and associated costs pertaining
to a specific site, which has shared production, have also been
reclassified between segments to reflect a change in allocation
methodology.
Restatement of the operating segments has had no impact on consolidated
(loss) / profit, net assets or cash.
1. ADJUSTED PROFIT MEASURES
The Group's results report certain financial measures after a number of
adjusted items that are not defined or recognised under IFRS including
adjusted operating profit, adjusted profit before income tax and
adjusted earnings per share. The Directors believe that the adjusted
profit measures provide a more useful comparison of business trends and
performance and allow management and other stakeholders to better
compare the performance of the Group between the current and prior year,
excluding the effects of certain non-cash charges and one-off or
non-operational items. The Group uses these adjusted profit measures for
internal planning, budgeting, reporting and assessment of the
performance of the business.
The tables below show the adjustments made to arrive at the adjusted
profit measures and the impact on the Group's reported financial
performance.
6 months to 30 Jun 2019 6 months to 30 Jun 2018 2018
Adjusted Adjusted Reported Adjusted Adjusted Reported Adjusted Adjusted Reported
GBP'000s Results Items Results Results Items Results Results Items Results
---------- ---------- ---------- ----------------------- ---------- ---------- ----------------------- ---------- ---------- ----------
Revenue 66,720 - 66,720 73,396 - 73,396 156,291 - 156,291
Cost of
sales (56,083) (45) (56,128) (56,279) (1,000) (57,279) (119,536) 696 (118,840)
---------- ---------- ---------- ----------------------- ---------- ---------- ----------------------- ---------- ---------- ----------
Gross
profit 10,637 (45) 10,592 17,117 (1,000) 16,117 36,755 696 37,451
Other
income - - - - 1,648 1,648 - 1,097 1,097
SG&A (12,515) (1,152) (13,667) (9,503) (1,660) (11,163) (20,715) (9,173) (29,888)
Profit on
disposal
of PPE - - - - - - - - -
---------- ---------- ---------- ----------------------- ---------- ---------- ----------------------- ---------- ---------- ----------
Operating
(loss) /
profit (1,878) (1,197) (3,075) 7,614 (1,012) 6,602 16,040 (7,380) 8,660
Share of
JV
losses (254) - (254) - - - (2,000) - (2,000)
Finance
costs (491) 97 (394) 1 45 46 (66) 153 87
---------- ---------- ---------- ----------------------- ---------- ---------- ----------------------- ---------- ---------- ----------
(Loss) /
Profit
before
tax (2,623) (1,100) (3,723) 7,615 (967) 6,648 13,974 (7,227) 6,747
Taxation (7,291) 365 (6,926) (1,369) (1,116) (2,485) (2,745) (2,813) (5,558)
(Loss) /
Profit
for the
period (9,914) (735) (10,649) 6,246 (2,083) 4,163 11,229 (10,040) 1,189
---------- ---------- ---------- ----------------------- ---------- ---------- ----------------------- ---------- ---------- ----------
6 months to 30 Jun 2019 6 months to 30 Jun 2018 2018
Pre tax Tax Reported Pre tax Tax Reported Pre tax Tax Reported
GBP'000s Adjustment Impact Results Adjustment Impact Results Adjustment Impact Results
-------------- ---------- ------ ----------------------- ---------- ------- ----------------------- ---------- ------- ----------
Share based
payments (135) 182 47 (1,500) (1,317) (2,817) 1,044 (3,607) (2,563)
Amortisation
of acquired
intangibles (266) 56 (210) (252) 45 (207) (518) 109 (409)
Restructuring (223) 47 (176) - - - (3,337) 701 (2,636)
Insurance
income - - - 1,648 - 1,648 1,097 (197) 900
Patent dispute
legal fees (573) 109 (464) (908) 164 (744) (1,262) 227 (1,035)
Onerous
property
lease - - - - - - (4,404) - (4,404)
Discounting 97 (29) 68 45 (8) 37 153 (46) 107
Total (1,100) 365 (735) (967) (1,116) (2,083) (7,227) (2,813) (10,040)
-------------- ---------- ------ ----------------------- ---------- ------- ----------------------- ---------- ------- ----------
1. ADJUSTED PROFIT MEASURES (CONTINUED)
The nature of the adjusted items is as follows:
-- Share based payments -- The charge recorded in accordance with IFRS 2
'share based payment' of which GBP0.1m (H1 2018: GBP1.0m, FY18 income
GBP0.7m) has been classified within cost of sales in gross profit and
GBP0.05m (H1 2018: GBP0.5m, FY18 income GBP0.3m) in selling, general and
administrative expenses within operating profit.
-- Amortisation of acquired intangibles arising in respect of fair value
exercises associated with previous corporate acquisitions -- The charge
of GBP0.3m (H1 2018: GBP0.3m, FY18 GBP0.5m) has been classified as
selling, general and administrative expenses within operating profit and
is non-cash.
-- Restructuring -- The charge of GBP0.2m (H1 2018: GBPnil, FY18: GBP3.3m)
relates to the closure of the Group's manufacturing facility in New
Jersey, USA and the transfer of the associated trade and assets to the
Group's manufacturing facility in Massachusetts, USA. The charge
comprises cash costs of GBP0.2m (H1 2018: GBPnil, FY18 GBP1.1m) relating
to severance and reactor decommissioning and non-cash asset impairment
costs of GBPnil (H1 2018: GBPnil, FY18: GBP2.2m) that have been
classified as selling, general and administrative expenses within
operating profit. Cash costs defrayed in the period total GBP1.3m (H1
2018: GBPnil, FY18: GBPnil).
-- Insurance income -- The income in the prior periods (H1 2018: GBP1.7m,
FY18: GBP1.1m) relates to the net insurance proceeds received following
the death of the Chief Financial Officer, Phillip Rasmussen, in April
2018. Obligations payable to Phillip Rasmussen's estate and fees
associated with the recruitment of Phillip Rasmussen's successor (H1
2018: GBP0.4m, FY18: GBP1.0m) were netted off the gross insurance
proceeds (H1 2018: GBP2.1m, FY18: GBP2.1m). The net insurance proceeds
received were classified as other income within operating profit. Cash
costs defrayed in the period total GBPnil (H1 2018: GBP1.7m income, FY18:
GBP1.5m income).
-- Patent dispute legal costs -- The charge relates to legal fees incurred
in respect of a patent dispute defence. Costs of GBP0.6m (H1 2018:
GBP0.9m, FY18: GBP1.3m) (2017: GBPnil) have been classified within
selling, general and administrative expenses within operating profit.
Cash costs defrayed in the period total GBP0.7m (H1 2018: GBPnil, FY18:
GBPnil).
-- Onerous property lease -- The charge of GBPnil (H1 2018: GBPnil, FY18:
GBP4.4m) relates to an increase in the provision for an onerous property
lease that was originally made in 2014 following the restructuring of the
Group's operations in Singapore. The increase in the provision made in
2018 for unused and unlet space at the manufacturing site extended the
provision to the end of the lease obligation in 2022. The extension of
the onerous lease provision resulted in a charge of GBP4.4m that was
classified within selling, general and administrative expenses within
operating profit. Cash costs associated with the annual rental for the
unused and unlet space total GBP0.7m (H1 2018: GBP0.7m, FY18: GBP1.5m).
The group has implemented the requirements of IFRS 16 'Leases' from 1
January 2019 with the Singapore property lease accounted for on balance
sheet from this date. IFRS 16 'Leases' has been implemented using the
modified retrospective approach applying the practical expedient that
allows on transition an adjustment to the value of the right of use
asset by the amount of any previously recognised onerous lease provision
as an alternative to performing an impairment review. The adoption of
this practical expedient results in the reclassification of the lease
provision as part of the net value of the right of use asset in the
Group's balance sheet from 1 January 2019 (see note 4).
-- Discounting -- This relates to the unwinding of the discounting on long
term financial assets of GBP0.1m (H1 2018: GBP0.1m, FY18: GBP0.3m) and
the unwinding of discounting on long term financial liabilities of GBPnil
(H1 2018: GBP0.1m, FY18 GBP0.1m) and has been classified as finance costs
within profit before tax.
1. ADJUSTED PROFIT MEASURES (CONTINUED)
Adjusted EBITDA (adjusted earnings before interest, tax, depreciation
and amortisation) has been calculated as follows:
6 months to 6 months to 12 months to
30 June 2019 30 June 2018 31 Dec 2018
(All figures GBP'000s) Unaudited Unaudited Audited
---------------------------------- ------------- ------------- ------------
(Loss) / Profit attributable to
equity shareholders (10,805) 4,023 966
Non-controlling interest 156 140 223
Finance costs/(income) 394 (46) (87)
Tax 6,926 2,485 5,558
Depreciation of property, plant
and equipment 4,761 3,162 6,773
Depreciation of right of use
assets 1,025 - -
Amortisation of intangible fixed
assets 3,981 2,944 6,109
Share based payments 135 1,500 (1,044)
Adjusted Items 796 (740) 7,906
---------------------------------- ------------- ------------- ------------
Restructuring 223 - 3,337
Insurance income - (1,648) (1,097)
Patent dispute legal costs 573 908 1,262
Onerous property lease - - 4,404
---------------------------------- ------------- ------------- ------------
Adjusted EBITDA 7,369 13,468 26,404
---------------------------------- ------------- ------------- ------------
1. TAXATION
The Group's consolidated effective tax rate for the six months ended 30
June 2019 was 186.0% (H1 2018: 37.4%, 2018: 82.4%). The effective tax
rate differs from the theoretical amount that would arise from applying
the standard corporation tax in the UK of 19.0% (H1 FY18: 19%, FY18:
19.0%) principally due to the following factors:
-- The current geo-political context affecting the markets in which IQE
operates has resulted in a shift in the balance of projected
manufacturing production and hence profits between the US and rest of the
world. As a result, lower utilisation of US deferred tax assets is
projected in coming years. This in-turn has resulted in a partial
reversal of the previously recognised US deferred tax assets with a
combined tax impact of GBP8m.
-- The Group's results report certain financial measures after a number of
adjusted items with a tax impact of GBP0.4m as detailed in note 7.
1. (LOSS) / EARNINGS PER SHARE
6 months to 6 months to 12 months to
30 June 2019 30 June 2018 31 Dec 2018
(All figures GBP'000s) Unaudited Unaudited Audited
(Loss) / Profit attributable to ordinary
shareholders (10,805) 4,023 966
Adjustments to profit after tax (note 7) 735 2,083 10,040
Adjusted (loss) / profit attributable to ordinary
shareholders (10,070) 6,106 11,006
-------------------------------------------------- ------------- ------------- ------------
Number of shares:
Weighted average number of ordinary shares 780,640,261 756,614,361 761,750,145
Dilutive share options 24,149,201 51,197,646 37,072,892
-------------------------------------------------- ------------- ------------- ------------
804,789,462 807,812,007 798,823,037
-------------------------------------------------- ------------- ------------- ------------
Adjusted basic (loss) / earnings per share (1.29p) 0.81p 1.44p
Basic (loss) / earnings per share (1.38p) 0.53p 0.13p
Adjusted diluted (loss) / earnings per share (1.29p) 0.76p 1.38p
Diluted (loss) / earnings per share (1.38p) 0.50p 0.12p
Basic (loss)/earnings per share is calculated by dividing the
(loss)/profit attributable to ordinary shareholders by the weighted
average number of ordinary shares during the period.
Diluted (loss)/earnings per share is calculated by dividing the
(loss)/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 period. 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.
1. CASH GENERATED FROM OPERATIONS
6 months to 6 months to 12 months to
30 June 2019 30 June 2018 31 Dec 2018
(All figures GBP'000s) Unaudited Unaudited Audited
------------------------------------------------------ ------------- ------------- ------------
(Loss)/Profit before tax (3,723) 6,648 6,747
Finance costs/(income) 394 (46) (87)
Depreciation of property, plant and equipment 4,761 3,162 6,773
Depreciation of right of use assets 1,025 - -
Amortisation of intangible assets 3,981 2,944 6,109
Impairment of property, plant and equipment - - 1,651
Non cash provision movements - - 5,495
Share based payments 135 1,500 (1,044)
------------------------------------------------------ ------------- ------------- ------------
Cash inflow from operations before changes in working
capital 6,573 14,208 25,644
Increase in inventories (1,605) (2,058) (1,387)
Decrease / (increase) in trade and other receivables 439 (4,772) (4,032)
(Decrease) / increase in trade and other payables (1,424) 202 (3,237)
------------------------------------------------------ ------------- ------------- ------------
Cash inflow from operations 3,983 7,580 16,988
------------------------------------------------------ ------------- ------------- ------------
1. ANALYSIS OF NET FUNDS / (DEBT)
6 months to 6 months to 12 months to
30 June 2019 30 June 2018 31 Dec 2018
(All figures GBP'000s) Unaudited Unaudited Audited
------------------------------ ------------- ------------- ------------
Bank borrowings due after one
year (12,008) - -
Bank borrowings due within one
year - - -
Lease liabilities due after
one year (46,375) - -
Lease liabilities due within
one year (2,897) - -
------------------------------ ------------- ------------- ------------
Total borrowings (61,280) - -
Cash and cash equivalents 11,173 40,634 20,807
------------------------------ ------------- ------------- ------------
Net (debt) / funds (50,107) 40,634 20,807
------------------------------ ------------- ------------- ------------
Bank borrowings relate to amounts drawn down on the Group's GBP27.3m
(US$35.0m) multi-currency revolving credit facility, provided by HSBC.
The facility is secured over the assets of IQE plc and certain
subsidiary companies and has a three-year term with an interest margin
of between 1.45% and 1.95% per annum over LIBOR.
Cash and cash equivalents comprise balances held in instant access bank
accounts and other short-term deposits
with a maturity of less than 3 months.
1. PROVISIONS FOR OTHER LIABILITIES AND CHARGES
6 months to 6 months to 12 months to
30 June 2019 30 June 2018 31 Dec 2018
(All figures GBP'000s) Unaudited Unaudited Audited
---------------------------------- ------------- ------------- ------------
As at 1 January 6,390 2,200 2,200
Charged to the income statement 223 - 5,495
Utilised during the period (1,357) (723) (1,539)
Transferred to right of use asset (5,256) - -
Foreign exchange - - 234
---------------------------------- ------------- ------------- ------------
As at 30 June / 31 December - 1,477 6,390
---------------------------------- ------------- ------------- ------------
Provisions for other liabilities and charges consists of an onerous
lease provision of GBPnil (H1 2018: GBP1,477,000, 2018: GBP5,256,000)
and a restructuring provision of GBPnil (H1 2018: GBPnil, 2018:
GBP1,134,000).
During 2014, as part of the re-organisation and rationalisation of the
Group's operations the Group restructured its activities in Singapore
and established with its joint venture partners the Compound
Semiconductor Development Centre. The Group sub-lets space at its
Singapore manufacturing facility to its joint venture and established an
onerous lease provision for vacant space at the property following the
re-organisation. The provision for unused and unlet space at the
manufacturing site was reassessed in 2018 and extended to the end of the
lease obligation in 2022 given the low level of interest from external
parties to sublet the residual unused space. The onerous lease provision
has been reclassified from 1 January 2019 as an adjustment to the right
of use asset relating to the Group's leased Singapore manufacturing
facility on implementation of IFRS 16'Leases' (see note 4).
The restructuring provision relates to costs associated with the closure
of the Group's manufacturing facility in New Jersey, USA and the
transfer of the trade and assets to the Group's manufacturing facility
in Massachusetts, USA. The provision principally comprised severance and
reactor decommissioning costs and has been fully utilised during 2019.
1. SHARE CAPITAL
6 months to 6 months to 12 months to
30 June 2019 30 June 2018 31 Dec 2018
Number of shares Unaudited Unaudited Audited
--------------------------------- ------------- ------------- ------------
As at 1 January 776,699,681 756,050,549 756,050,549
Employee share schemes 14,596,208 4,749,808 16,386,876
Translucent equity consideration - - 4,262,256
--------------------------------- ------------- ------------- ------------
As at 30 June / 31 December 791,295,889 760,800,357 776,699,681
--------------------------------- ------------- ------------- ------------
6 months to 6 months to 12 months to
30 June 2019 30 June 2018 31 Dec 2018
(All figures GBP'000s) Unaudited Unaudited Audited
--------------------------------- ------------- ------------- ------------
As at 1 January 7,767 7,561 7,561
Employee share schemes 146 47 164
Translucent equity consideration - - 42
--------------------------------- ------------- ------------- ------------
As at 30 June / 31 December 7,913 7,608 7,767
--------------------------------- ------------- ------------- ------------
1. RELATED PARTY TRANSACTIONS
Transactions with Joint Ventures
Compound Semiconductor Development Centre Private Limited ('CSDC')
The Group established CSDC with its joint venture partners as a centre
of excellence for the development and commercialisation of advanced
compound semiconductor wafer products in Asia and on its formation, CSDC
entered into an agreement to license certain intellectual property and
plant and equipment from the Group.
The activities of CSDC include research and development into advanced
compound semiconductor wafer products and the provision of contract
manufacturing services for compound semiconductor wafers to a subsidiary
of the IQE plc Group, MBE Technology Pte Limited.
CSDC operates from space within the Group's manufacturing facility in
Singapore. During the period the Group sub-let space at its
manufacturing facility to CSDC for GBP297,000 (H1 2018: GBP268,000,
2018: GBP565,000) at a rental cost per square foot equivalent to the
cost paid by the Group on the head lease associated with the property.
Intellectual property and equipment is licensed to CSDC and wafer
products are procured from CSDC at prices mutually agreed by the Group
and its joint venture partners, WIN Semiconductors Corp, Nangyang
Technological University and four representatives of the University. The
Group recognised no license revenue in the period (H1 2018: GBPnil,
2018: GBPnil) and purchased advanced compound semiconductor wafer
products from CSDC for GBP2,596,000 (H1 2018: GBP2,395,000, 2018:
GBP4,429,000).
During the period payments of GBP254,000 (H1 2018: GBPnil, 2018:
GBP2,000,000) have been made on behalf of CSDC which in accordance with
the Group's accounting policy has been recognised in the income
statement as the Group's share of losses in CSDC exceeds the carrying
value of its investment.
Compound Semiconductor Centre Limited ('CSC')
The Group established CSC with its joint venture partner as a centre of
excellence for the development and commercialisation of advanced
compound semiconductor wafer products in Europe and on its formation,
the Group contributed assets to the joint venture valued at
GBP12,000,000 as part of its initial investment.
The activities of CSC include research and development into advanced
compound semiconductor wafer products, the provision of contract
manufacturing services for compound semiconductor wafers to certain
subsidiaries within the IQE plc Group and the provision of compound
semiconductor manufacturing services to other third parties.
CSC operates from its manufacturing facilities in Cardiff, United
Kingdom and leases certain additional administrative building space from
the Group. During the period the CSC leased this space from the Group
for GBP57,500 (H1 2018 GBP57,500, 2018: GBP115,000) and procured certain
administrative support services from the Group for GBP117,500 (H1 2018:
GBP117,500, 2018: GBP235,000). As part of the administrative support
services provided to CSC the Group procured goods and services,
recharged to CSC at cost, totalling GBP2,235,135 (H1 2018: GBP1,893,060,
2018: GBP3,130,000).
CSC granted the Group the right to use its assets following its
formation for a minimum five-year period. Costs associated with the
right to use the CSC's assets are treated by the Group as operating
lease costs (see note 4) and are charged by the CSC at a price which
reflects the CSC's cash cost of production (including direct labour,
materials and site costs) but excludes any related depreciation or
amortisation of the CSC's property, plant and equipment and intangible
assets respectively under the terms of the joint venture agreement
between the parties. Costs associated with the right to use the CSC's
assets totalled GBP3,464,000 (H1 2018: GBP3,407,000, 2018: GBP6,655,000)
in the period.
At 30 June 2019 an amount of GBP233,700 (H1 2018: GBP188,342 2018:
GBP586,000) was owed from the CSC.
In the Groups balance sheet 'A' Preference Shares with a nominal value
of GBP8,800,000 (H1 2018: GBP8,800,000, 2018: GBP8,800,000) are included
in financial assets at an amortised cost of GBP8,085,000 (H1 2018:
GBP7,776,000, 2018: GBP7,937,000) and the Group has a shareholder loan
of GBP238,500 (H1 2018: GBP235,500, 2018: GBP237,000) due from CSC.
1. POST BALANCE SHEET EVENTS
On 29 August 2019, the Company agreed a new GBP30,000,000 Asset Finance
Loan facility, provided by HSBC, which is secured over the assets of
certain IQE subsidiary companies. The facility has a five year term and
an interest margin of 1.65% per annum over base rate on any drawn
balances.
(END) Dow Jones Newswires
September 03, 2019 02:00 ET (06:00 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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