IQE plc
(�IQE or the Group)
2020 FULL YEAR RESULTS
Cardiff, UK
25 March 2021
Record revenue of £178m underpinned by the start of the 5G mega-cycle
IQE plc (AIM: IQE), the leading supplier of advanced wafer products and material solutions to the semiconductor industry, announces its full year results for the year ended 31 December 2020.
2020 Financials
| FY 2020 £m* | FY 2019 £m* | Change (%) | |
| Revenue | 178.0 | 140.0 | 27.1 |
| Adjusted EBITDA | 30.1 | 16.2 | 85.8 |
| Operating loss | (5.5) | (18.8) | |
| Adjusted operating profit/loss | 5.4 | (4.7) | |
| Reported loss after tax | (2.9) | (35.1) | |
| Adjusted diluted EPS(p) | 0.29p | (2.46p) | |
| Net cash generated from operations | 35.5 | 8.9 | 298.9 |
| Adjusted cash flow from operations | 36.3 | 16.5 | 120.0 |
| Capital investment (PP&E) | 5.0 | 31.9 | (84.3) |
| Net cash/(debt)** | 1.9 | (16.0) |
* All figures £m excluding adjusted diluted EPS.
** Net (debt) / funds excludes IFRS16 lease liabilities.
Adjusted Measures: The Directors believe that the adjusted measures provide a more useful comparison of business trends and performance. Adjusted measures exclude certain non-cash items, non-operational items and significant infrequent items that would distort period on period comparability. The following highlights of the full year results is based on these adjusted profit measures, unless otherwise stated.
Financial Summary
Strategic and Operational Highlights
Dr Drew Nelson, Chief Executive Officer of IQE, said:
2020 was a year unlike any other and Id like to extend my thanks to all of our staff who have shown their commitment and resilience in rising to the challenges we faced. Despite the global uncertainty that we encountered, the strength and diversification of our business enabled us to deliver record revenues of £178m, representing a 27% year-on-year increase.
At the same time, we have made positive progress against our strategy and recorded strong growth across our Wireless and Photonics divisions, despite the external pressures.
This progress, combined with the return to a cash positive position and the range of unique materials solutions for high performance devices in our development pipeline, ensures we are well placed to maintain our leadership position as the 5G mega-cycle gathers pace in the coming years.
Current trading and H1 2021 outlook
After a consistently strong year in 2020 across IQEs broad portfolio of products, trading has continued positively in 2021. In particular, revenues for Wireless GaAs epiwafers are strong as a result of continued 5G handset market penetration and increased GaAs content. In addition, demand for 3D sensing, advanced sensing applications and communications products continues to remain positive.
IQE is well positioned for further 5G related GaN on SiC growth over the multi-year replacement cycle. In the first half of FY21, revenues of GaN on SiC are expected to be lower than in H1 FY20 amid lower market estimates for mMIMO deployment in Asia. Beyond the near term, the opportunities for this and other GaN on Si technologies are very strong as global roll outs of 5G gather pace.
The Group is experiencing a foreign exchange headwind in FY 21 on a reported basis, as the Groups revenues are predominantly earned in USD but are reported in GBP.
The Group expects revenue and Adjusted EBITDA in the first half of 2021 to be similar to H1 FY20 on a constant currency basis.
Capital expenditure on PP&E for FY21 is expected to be in the range of £20m to £30m as the Group resumes investment in capacity for specific growth platforms, including three new reactors for Taiwan to underpin further growth in FY22. Capitalisation of development costs are expected to be in the range of £7m to £10m for the full year as the Group continues to invest in future products to meet anticipated growing demand for compound semiconductors driven by the macro trends of 5G and connected devices.
Contacts:
IQE plc
+44 (0) 29 2083 9400
Drew Nelson
Tim Pullen
Amy Barlow
Peel Hunt LLP (Nomad and Joint Broker)
+44 (0) 20 7418 8900
Edward Knight
Paul Gillam
Nick Prowting
Citigroup Global Markets Limited (Joint Broker)
+44 (0) 20 7986 4000
Christopher Wren
Peter Catterall
Headland Consultancy (Financial PR)
Andy Rivett-Carnac: +44 (0) 7968 997 365
Chloe Francklin: +44 (0)78 3497 4624
Glossary
| GaAs | Gallium Arsenide |
| GaN | Gallium Nitride |
| mMIMO | Massive MIMO (Multiple-Input, Multiple Output) |
| SiC | Silicon Carbide |
| VCSEL | Vertical Cavity Surface Emitting Laser |
ABOUT IQE
http://iqep.com
IQE is the leading global supplier of advanced compound semiconductor wafers and materials solutions that enable a diverse range of applications across:
As a scaled global epitaxy wafer manufacturer, IQE is uniquely positioned in a market which has high barriers to entry. IQE supplies the whole market and is agnostic as to the winners and losers at chip and OEM level. By leveraging the Groups 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 across nine manufacturing locations in the UK, US, Taiwan and Singapore, and is listed on the AIM Stock Exchange in London.
Financial Review
The Group reports financial performance in accordance with International Financial Reporting Standards adopted by the European Union (IFRS) and provides disclosure of additional alternative non IFRS GAAP performance measures to provide further understanding of financial performance. Details of the alternative performance measures used by the Group including a reconciliation to reported IFRS GAAP performance measures is set out in note 5 to the financial statements.
On 11 March 2020, the World Health Organisation declared the outbreak of a coronavirus (COVID-19) a pandemic. The COVID-19 outbreak created uncertainty in global economies and posed a number of initial risks and uncertainties in the markets in which the Group operates although ultimately these have not adversely impacted financial performance during the year with strong global growth trends in compound semiconductor markets continuing and the Group experiencing little or no disruption to its manufacturing operations as a result of the pandemic.
The Groups trading has remained resilient throughout the year with significant growth experienced in a number of markets that has resulted in the delivery of record revenue of £178.0m (2019: £140.0m) with strong growth experienced in each of the Groups primary business segments.
The Groups Wireless business segment represents the largest proportion of the Groups revenue accounting for 52.9% (2019: 48.7%) of total wafer sales with Photonics representing 45.8% (2019: 49.8%) and CMOSS++ representing 1.2% (2019: 1.5%).
Wireless wafer revenues increased 38.2% to £94.2m (2019: £68.2m). The increase in Wireless revenue primarily reflects increased demand for GaAs wafers for 5G handset power amplifiers fuelled by growing end market demand for 5G ready smartphones, increased demand for GaN on SiC wafers for 5G infrastructure related to initial deployments of 5G base stations and demand for high performance GaN on SiC wafers for advanced RF applications.
Photonics wafer revenues were up 17.0% to £81.6m (2019: £69.8m) with the Group experiencing consistently high demand for GaAs VCSEL wafers for 3D sensing applications throughout the year and continuing strong demand for high performance GaSb wafers for advanced sensing applications.
Gross profit increased from £21.4m to £33.2m. The increase in gross profit reflects a combination of higher trading volumes and an improvement in overall gross profit margin percentage to 18.6% (2019: 15.3%) as the Group has benefited from greater capacity utilisation in the current year. Adjusted gross profit, which excludes the charge for share based payments, increased from £20.9m to £33.3m with a gross margin improvement from 14.9% to 18.7%.
Selling, general and administrative (SG&A) expenses decreased from £36.3m to £34.7m. Adjusted SG&A, which excludes adjustments for share based payments, restructuring costs, patent dispute legal costs and certain non-current asset impairments increased from £25.8m to £27.8m primarily reflecting an increase in investment in corporate functions and employee headcount as the Group continues to grow.
Restructuring costs totalling £0.16m (2019: £0.81m) relate to employee retention bonuses associated with the announced closure of the Groups manufacturing facility in Pennsylvania (US). Restructuring costs in 2019 related to site-specific employee related restructuring and final costs associated with the closure of the Groups manufacturing facility in New Jersey (US).
Patent dispute income of £1.7m (2019: £4.3m cost) relates to a settlement agreement associated with legal costs incurred by the Group that has been negotiated with the plaintiff following the previously announced arbitration panel ruling in favour of the Group. Patent dispute income also includes insurance income received from the Groups insurers in relation to relevant costs incurred as part of the dispute partially offset by actual legal costs incurred during the period.
Impairment of intangibles of £6.5m (2019: £3.8m) relates to the write-down in value of the Groups non-filter related cREO patent and development costs following the refocus of resource and investment into cREO filter related development activities. The onerous contract provision of £1.8m (2019: £nil), which is linked to the commercial applications of the cREO technology and represents the cost of minimum guaranteed future royalty payments related to the historical acquisition of the technology from Translucent Inc. that are payable in the period prior to the expected commercial exploitation of the cREO filter technology.
Operating loss improved from £18.8m in 2019 to a current year loss of £5.5m. Reflecting the adjustments noted above, adjusted operating loss of £4.7m in 2019 improved significantly in 2020 with a return to profitability and an adjusted operating profit of £5.4m. The segmental analysis in note 3 reflects the adjusted operating margins for the primary segments (before central corporate support costs). Wireless adjusted operating margins and photonics operating margins improved from 9.7% and 1.9% in 2019 to 12.1% and 11.1% in 2020, primarily reflecting increases in volume and increased utilisation of manufacturing capacity.
The credit of £3.8m (2019: £4.7m charge) associated with the Groups share of losses in its joint venture, Compound Semiconductor Centre Limited, reflects the reversal of previously recognised losses as part of the application of the loss absorption requirement of IAS28.38 following an equal and opposite increase in the level of impairment loss associated with the Groups preference share debt due from CSC. The loss absorption credit of £3.8m recorded in share of losses in joint venture and the increased impairment charge of £3.8m relating to the preference share financial asset recorded as an impairment loss on financial assets has no net impact on the Groups loss for the year.
Finance costs increased to £2.2m from £1.5m in 2019 reflecting a combination of the Groups utilisation of its bank borrowing facilities and the unwind of discounting associated with lease liabilities.
The tax credit of £1.0m (2019: £10.2m charge) reflects an effective tax rate of ~25% with the credit principally arising as a result of the recognition of deferred tax assets for certain current year UK trading losses. The tax charge of £10.2m in 2019 primarily reflected increased deferred tax charges relating to the partial reversal of previously recognised US deferred tax assets. A forecast shift in the balance of the Groups projected manufacturing production, a position that remains unchanged in the current year, resulted in a shift in forecast profits between the US and rest of the world. The forecast shift in manufacturing and profitability in the US has restricted the Groups ability to recognise deferred tax assets for historical US trading losses and in 2019 resulted in the partial reversal of previously recognised US deferred tax assets with a tax impact of ~£9.6m. The effective tax rate of 21% (2019: 10%) applicable to the tax charge of £1.5m (2019: £1.8m) on adjusted items is reflective of applicable statutory tax rates.
The reduction in the loss for the year to £2.9m (2019: £35.1m) reflects a combination of significant growth in the wireless and photonics business segments, improved profitability within both business segments and a reduction in the impact of adjusted non-cash and other non-operational items which at an adjusted level, has resulted in a return to profitability, with an adjusted profit for the year of £2.7m (2019: £19.0m loss).
Basic and diluted loss per share has improved from a loss per share of 4.51p to a loss of 0.41p in the current year with adjusted basic earnings per share of 0.29p (2019: 2.46p loss) and adjusted diluted earnings per share of 0.29p (2019: 2.46p loss) reflecting the Groups return to profitability at the adjusted profit level.
Cash generated from operating activities increased significantly in the year to £33.3m (2019: £8.1m) reflecting the Groups positive underlying trading performance and careful management of working capital. This increase in cash generation combined with a reduction in capital expenditure and technology development costs has reduced cash expenditure on investing activities from £41.8m to £11.8m and resulted in a significant strengthening in the Groups balance sheet position with a full year net funds position of £1.9m (excluding lease liabilities) compared to a net debt position of £156.0m (excluding lease liabilities) in 2019.
Cash expenditure as part of investing activities includes £1.4m of cash cost associated with the acquisition of the minority interest in the Groups Taiwanese subsidiary, IQE Taiwan ROC. On 5 October 2020, the group acquired the remaining 9.82% of issued shares held by third party minority shareholders in its subsidiary, IQE Taiwan ROC, taking its equity ownership from 90.18% to 100.00%. The acquisition was affected using a statutory share swap arrangement under Taiwans Business Mergers and Acquisition Law with the final total consideration payable to be determined by the Taiwan Court. Consideration paid to date consists of £1.4m which has been settled via the issuance of 2,606,689 ordinary shares in IQE plc and cash consideration of £1.4m which for a minority of selling shareholders is subject to adjustment dependent upon a price determined by the Taiwan Court.
Equity shareholder funds totals £260.4m (2019: £270.4m) with the movement from 2019 primarily reflecting the loss for the year, the impact of the acquisition of the Taiwanese minority interest and adverse foreign exchange differences arising on the retranslation of net investments in overseas subsidiaries.
Financial Summary
|
| 2020 | 2019 |
| Revenue
| 178,016 | 140,015 |
| Adjusted EBITDA (see below)
| 30,101 | 16,246 |
| Operating (loss) / profit | ||
| ·Adjusted* | 5,386 | (4,676) |
| ·Reported
| (5,517) | (18,802) |
| (Loss) / profit after tax | ||
| ·Adjusted* | 2,702 | (19,010) |
| ·Reported
| (2,893) | (35,128) |
| Net cash flow from operations | ||
| Before adjustments (note 4) | 36,324 | 16,530 |
| Reported
| 35,457 | 8,948 |
| Free cash flow** | ||
| Before exceptional cash flows | 23,566 | (25,445) |
| Reported
| 22,699 | (33,027) |
| Net (debt)/cash excluding lease liabilities*** | 1,923 | (15,970) |
| Equity shareholders funds
| 260,435 | 266,593 |
| Basic EPS adjusted**** | 0.29p | (2.46p) |
| Basic EPS unadjusted | (0.41p) | (4.51p) |
| Diluted EPS adjusted**** | 0.29p | (2.46p) |
| Diluted EPS unadjusted | (0.41p) | (4.51p) |
Consolidated income statement for the year ended 31 December 2020
| 2020 | 2019 | ||
| Revenue | 178,016 | 140,015 | |
| Cost of sales | (144,866) | (118,631) | |
| Gross profit | 33,150 | 21,384 | |
| Selling, general and administrative expenses | (34,697) | (36,297) | |
| Impairment loss on financial assets | (3,788) | (4,134) | |
| Profit on disposal of property, plant and equipment | (182) | 245 | |
| Operating loss | (5,517) | (18,802) | |
| Finance costs | (2,165) | (1,458) | |
| Reversal / share of losses of joint ventures accounted for using the equity method | 3,788 | (4,688) | |
| Adjusted profit / (loss) before income tax | 3,221 | (7,019) | |
| Adjustments | (7,115) | (17,929) | |
| Loss before income tax | (3,894) | (24,948) | |
| Taxation | 1,001 | (10,180) | |
| Loss for the year | (2,893) | (35,128) | |
| Loss attributable to: | |||
| Equity shareholders | (3,271) | (35,473) | |
| Non-controlling interest | 378 | 345 | |
| (2,893) | (35,128) | ||
| Loss per share attributable to owners of the parent during the year | |||
| Basic loss per share | (0.41p) | (4.51p) | |
| Diluted loss earnings per share | (0.41p) | (4.51p) | |
Adjusted basic and diluted loss per share are presented in note 5.
All items included in the loss for the year relate to continuing operations.
Non-controlling interest relates to minority shareholder interests in the Groups subsidiary, IQE Taiwan ROC, prior to the acquisition of the minority shareholding on 5 October 2020.
Consolidated statement of comprehensive income for the year ended 31 December 2020
| 2020 | 2019 | ||
| Loss for the year | (2,893) | (35,128) | |
| Exchange differences on translation of foreign operations* | (6,104) | (3,654) | |
| Total comprehensive expense for the year | (8,997) | (38,782) | |
| Total comprehensive expense attributable to: | |||
| Equity shareholders | (9,482) | (39,084) | |
| Non-controlling interest | 485 | 302 | |
| (8,997) | (38,782) |
* Items that may be subsequently be reclassified to profit or loss.
Items in the statement above are disclosed net of tax.
Consolidated balance sheet as at 31 December 2020
| 2020 £000 | 2019 £000 | ||
| Non-current assets | |||
| Intangible assets | 105,772 | 118,456 | |
| Fixed asset investments | – | 75 | |
| Property, plant and equipment | 126,229 | 136,482 | |
| Right of use assets | 37,339 | 39,355 | |
| Deferred tax assets | 7,821 | 5,679 | |
| Other financial assets | – | – | |
| Total non-current assets | 277,161 | 300,047 | |
| Current assets | |||
| Inventories | 30,887 | 30,668 | |
| Trade and other receivables | 38,575 | 33,065 | |
| Cash and cash equivalents | 24,663 | 8,800 | |
| Total current assets | 94,125 | 72,533 | |
| Total assets | 371,286 | 372,580 | |
| Current liabilities | |||
| Trade and other payables | (35,605) | (26,367) | |
| Current tax liabilities | (1,426) | (1,162) | |
| Bank borrowings | (6,201) | (2,034) | |
| Lease liabilities | (4,798) | (3,083) | |
| Provisions for other liabilities and charges | (515) | – | |
| Total current liabilities | (48,545) | (32,646) | |
| Non-current liabilities | |||
| Bank borrowings | (16,539) | (22,736) | |
| Lease liabilities | (42,226) | (44,895) | |
| Deferred tax liabilities | (2,054) | (1,860) | |
| Provisions for other liabilities and charges | (1,487) | – | |
| Total non-current liabilities | (62,306) | (69,491) | |
| Total liabilities | (110,851) | (102,137) | |
| Net assets | 260,435 | 270,443 | |
| Equity attributable to the shareholders of the parent | |||
| Share capital | 8,004 | 7,961 | |
| Share premium | 154,185 | 152,385 | |
| Retained earnings | 62,089 | 63,826 | |
| Exchange rate reserve | 21,291 | 27,502 | |
| Other reserves | 14,866 | 14,919 | |
| 260,435 | 266,593 | ||
| Non-controlling interest | – | 3,850 | |
| Total equity | 260,435 | 270,443 |
Consolidated statement of changes in equity for the year ended 31 December 2020
| Share capital | Share premium | Retained earnings | Exchange Rate reserve | Other reserves | Non-controlling interests | Total equity | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| At 1 January 2020 | 7,961 | 152,385 | 63,826 | 27,502 | 14,919 | 3,850 | 270,443 |
| Comprehensive expense | |||||||
| (Loss) / profit for the year | – | – | (3,271) | – | – | 378 | (2,893) |
| Other comprehensive expense for the year | – | – | – | (6,211) | – | 107 | (6,104) |
| Total comprehensive expense for the year | – | – | (3,271) | (6,211) | – | 485 | (8,997) |
| Transactions with owners | |||||||
| Share based payments | – | – | – | – | 55 | – | 55 |
| Tax relating to share options | – | – | – | – | 57 | – | 57 |
| Proceeds from shares issued | 17 | 388 | – | – | (165) | – | 240 |
| Acquisition of non-controlling interest | 26 | 1,412 | 1,534 | – | – | (4,335) | (1,363) |
| Total transactions with owners | 43 | 1,800 | 1,534 | – | (53) | (4,335) | (1,011) |
| At 31 December 2020 | 8,004 | 154,185 | 62,089 | 21,291 | 14,866 | – | 260,435 |
| Share capital | Share premium | Retained earnings | Exchange rate reserve | Other reserves | Non-controlling interests | Total equity | ||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | ||
| At 1 January 2019 | 7,767 | 151,147 | 99,299 | 31,113 | 16,404 | 3,548 | 309,278 | |
| Comprehensive expense | ||||||||
| (Loss) / profit for the year | – | – | (35,473) | – | – | 345 | (35,128) | |
| Other comprehensive expense for the year | – | – | – | (3,611) | – | (43) | (3,654) | |
| Total comprehensive expense for the year | – | – | (35,473) | (3,611) | – | 302 | (38,782) | |
| Transactions with owners | ||||||||
| Share based payments | – | – | – | – | (641) | – | (641) | |
| Tax relating to share options | – | – | – | – | (124) | – | (124) | |
| Proceeds from shares issued | 194 | 1,238 | – | – | (720) | – | 712 | |
| Total transactions with owners | 194 | 1,238 | – | – | (1,485) | – | (53) | |
| At 31 December 2019 | 7,961 | 152,385 | 63,826 | 27,502 | 14,919 | 3,850 | 270,443 | |
Other reserves relates to share based payments.
Consolidated cash flow statement for the year ended 31 December 2020
| 2020 £000 | 2019 £000 | ||
| Cash flows from operating activities | |||
| Adjusted cash inflow from operations | 36,324 | 16,530 | |
| Cash impact of adjustments | (867) | (7,582) | |
| Cash generated from operations | 35,457 | 8,948 | |
| Net interest paid | (1,142) | (671) | |
| Income tax paid | (993) | (151) | |
| Net cash generated from operating activities | 33,322 | 8,126 | |
| Cash flows from investing activities | |||
| Purchase of property, plant and equipment | (4,993) | (31,864) | |
| Purchase of intangible assets | (731) | (1,806) | |
| Capitalised development expenditure | (4,678) | (8,427) | |
| Proceeds from disposal of property, plant and equipment | – | 263 | |
| Acquisition of minority interest | (1,363) | – | |
| Acquisition of subsidiary, net of cash acquired | – | 10 | |
| Net cash used in investing activities | (11,765) | (41,824) | |
| Cash flows from financing activities | |||
| Proceeds from issuance of ordinary shares | 240 | 712 | |
| Proceeds from borrowings | 5,000 | 41,895 | |
| Repayment of borrowings | (7,030) | (17,125) | |
| Payment of lease liabilities | (3,764) | (3,651) | |
| Net cash (used) / generated from financing activities | (5,554) | 21,831 | |
| Net increase / (decrease) in cash and cash equivalents | 16,003 | (11,867) | |
| Cash and cash equivalents at 1 January | 8,800 | 20,807 | |
| Exchange losses on cash and cash equivalents | (140) | (140) | |
| Cash and cash equivalents at 31 December | 24,663 | 8,800 |
Notes to the financial statements for the year ended 31 December 2020
1. General information
IQE plc (the company) and its subsidiaries (together the Group) develop, manufacture and sell advanced semiconductor materials. The Group has manufacturing facilities in Europe, United States of America and Asia and sells to customers located globally.
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). The address of the Companys registered office is Pascal Close, St Mellons, Cardiff, CF3 0LW.
2.1 Basis of preparation
The financial information set out in the announcement does not constitute the Group’s statutory accounts for the year ended 31 December 2020 or 31 December 2019. Statutory accounts for 2019 have been delivered to the registrar of companies, and those for 2020 will be delivered in due course. The auditor has reported on those accounts and their report was (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under section 498 (2) or (3) of the Companies Act 2006.
The financial statements have been prepared and approved by the directors in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 (Adopted IFRSs). The financial statements have been prepared under the historical cost convention except where fair value measurement is required by IFRS the accounting policies have been consistently applied to all years presented.
2.2 Going concern
The Group made a loss of £2,893,000 (2019: £35,128,000 loss) but had an increase in cash and cash equivalents of £15,863,000 (2019: £12,007,000 decrease) for the year ended 31 December 2020.
On 11 March 2020, the World Health Organisation declared the outbreak of a coronavirus (COVID-19) a pandemic. The COVID-19 outbreak continues to create uncertainty in global economies and the markets in which the Group operates which pose risks to the Groups continuity of business operations, demand for its products and its forecast future financial performance given current world health and global economic conditions. The following matters have been considered by the directors in determining the appropriateness of the going concern basis of preparation in the financial statements:
The Group meets its day-to-day working capital and other cash requirements through its bank facilities and available cash. The Groups cash flow forecasts and projections, in conjunction with the level of assessed covenant headroom on the Groups committed bank facilities show that the Group and the Company have adequate cash resources to continue operating and to meet its liabilities as they fall due for the assessed period to 31 December 2022, such that the directors consider it appropriate to adopt the going concern basis of accounting in preparing the consolidated financial statement.
The following new standards, amendments and interpretations have been adopted by the Group for the first time for the financial year beginning on 1 January 2020:
The adoption of these standards, amendments and interpretations has not had a material impact on the financial statements of the Group or parent company.
(b) New standards, amendments and interpretations issued but not effective and not adopted early
A number of new standards, amendments to standards and interpretations which are set out below are effective for annual periods beginning after 1 January 2020 and have not been applied in preparing these consolidated financial statements.
The Directors anticipate that at the time of this report none of the new standards, amendments to standards and interpretations are expected to have a material effect on the financial statements of the Group or parent company.
3. Segmental analysis
3.1 Description of segments and principal activities
The Chief Operating Decision Maker is defined as the Executive Management Board. The Executive Management Board, consisting of the Chief Executive Officer, Chief Financial Officer, Chief Operations Officer, Chief Technology Officer, Executive VP Global Business Development, Wireless and Emerging Products and Executive VP Global Business Development, Photonics & Infrared consider the groups performance from a product perspective and have identified three primary reportable segments:
The Executive Management Board primarily use revenue and a measure of adjusted operating profit to assess the performance of the operating segments. Measures of total assets and liabilities for each reportable segment are not reported to the Executive Management Board and therefore have not been disclosed.
| 2020 | 2019 | ||||||
| Revenue | £000 | £000 | |||||
| Wireless | 94,193 | 68,166 | |||||
| Photonics | 81,627 | 69,758 | |||||
| CMOS++ | 2,196 | 2,091 | |||||
| Revenue | 178,016 | 140,015 | |||||
| Adjusted operating profit / (loss) | |||||||
| Wireless | 11,393 | 6,590 | |||||
| Photonics | 9,080 | 1,324 | |||||
| CMOS++ | (714) | (1,304) | |||||
| Central corporate costs | (14,373) | (11,286) | |||||
| Adjusted operating profit / (loss) | 5,386 | (4,676) | |||||
| Adjusted items (see note 4) | (10,903) | (14,126) | |||||
| Operating loss | (5,517) | (18,802) | |||||
| Reversal / share of losses of joint venture accounted for using the equity method | 3,788 | (4,688) | |||||
| Finance costs | (2,165) | (1,458) | |||||
| Loss before tax | (3,894) | (24,948) | |||||
4. Adjusted profit measures
The Groups 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, non-operational items and significant infrequent items that would distort period on period comparability. 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 Groups reported financial performance.
| 2020 | 2019 | ||||||
| Adjusted Results £000 | Adjusted Items £000 | Reported Results £000 | Adjusted Results £000 | Adjusted Items £000 | Reported Results £000 | ||
| Revenue | 178,016 | – | 178,016 | 140,015 | – | 140,015 | |
| Cost of sales | (144,689) | (177) | (144,866) | (119,145) | 514 | (118,631) | |
| Gross profit | 33,327 | (177) | 33,150 | 20,870 | 514 | 21,384 | |
| Other income | – | – | – | – | – | – | |
| SG&A | (27,759) | (6,938) | (34,697) | (25,791) | (10,506) | (36,297) | |
| Impairment loss on financial assets | – | (3,788) | (3,788) | – | (4,134) | (4,134) | |
| Profit on disposal of PPE | (182) | – | (182) | 245 | – | 245 | |
| Operating profit / (loss) | 5,386 | (10,903) | (5,517) | (4,676) | (14,126) | (18,802) | |
| Reversal / share of JV losses | – | 3,788 | 3,788 | (737) | (3,951) | (4,688) | |
| Finance costs | (2,165) | – | (2,165) | (1,606) | 148 | (1,458) | |
| Profit / (loss) before tax | 3,221 | (7,115) | (3,894) | (7,019) | (17,929) | (24,948) | |
| Taxation | (519) | 1,520 | 1,001 | (11,991) | 1,811 | (10,180) | |
| Profit / (loss) for the period | 2,702 | (5,595) | (2,893) | (19,010) | (16,118) | (35,128) | |
| 2020 | 2019 | |||||
| Pre-tax Adjustment £000 | Tax Impact £000 | Adjusted Results £000 | Pre-tax Adjustment £000 | Tax Impact £000 | Adjusted Results £000 | |
| Share based payments | (265) | 210 | (55) | 771 | 133 | 904 |
| Amortisation of acquired intangibles | – | – | – | (385) | 81 | (304) |
| Restructuring | (162) | 39 | (123) | (813) | 164 | (649) |
| Patent dispute legal fees | 1,689 | (321) | 1,368 | (4,308) | 775 | (3,533) |
| Impairment intangibles | (6,537) | 1,242 | (5,295) | (3,805) | 685 | (3,120) |
| Onerous contract | (1,840) | 350 | (1,490) | – | – | – |
| Impairment ROU asset | – | – | – | (1,623) | – | (1,623) |
| Impairment financial assets | (3,788) | – | (3,788) | (4,134) | – | (4,134) |
| Share of JV losses financial asset | 3,788 | – | 3,788 | (3,951) | – | (3,951) |
| CSDC acquisition – negative goodwill | – | – | – | 171 | – | 171 |
| Discounting | – | – | – | 148 | (27) | 121 |
| Total | (7,115) | 1,520 | (5,595) | (17,929) | 1,811 | (16,118) |
The nature of the adjusted items is as follows:
The 2019 charge of £813,000 relates to the closure of the Groups manufacturing facility in New Jersey, USA at a cost of £226,000 and site-specific restructuring and employee severance costs of £587,000. The charge was classified as selling, general and administrative expenses within operating loss. Cash costs of £1,947,000 related to severance and reactor decommissioning costs of £1,360,000 associated with the closure of the New Jersey site and cash costs of £587,000 associated with site specific employee severance costs.
The cash impact of adjusted items in the consolidated cash flow statement represents the cash costs defrayed in 2020 in respect of patent dispute legal costs, net of insurance income received in respect of patent legal costs totalling £867,000.
Adjusted EBITDA (adjusted earnings before interest, tax, depreciation and amortisation) is calculated as follows:
| 2020 £000 | 2019 £000 | |||||
| Loss attributable to equity shareholders | (3,271) | (35,473) | ||||
| Non-controlling interest | 378 | 345 | ||||
| Finance costs | 2,165 | 1,458 | ||||
| Tax | (1,001) | 10,180 | ||||
| Depreciation of property, plant and equipment | 12,983 | 10,477 | ||||
| Depreciation of right of use assets | 3,681 | 3,590 | ||||
| Amortisation of intangible fixed assets | 7,869 | 8,222 | ||||
| Loss/(profit) on disposal of PPE | 182 | (245) | ||||
| Share based payments | 265 | (771) | ||||
| Adjusted Items | 6,850 | 18,463 | ||||
| Restructuring | 162 | 813 | ||||
| Patent dispute settlement and legal costs | (1,689) | 4,308 | ||||
| Impairment of intangibles | 6,537 | 3,805 | ||||
| Onerous contract provision | 1,840 | – | ||||
| Impairment of right of use asset | – | 1,623 | ||||
| Impairment of financial asset | 3,788 | 4,134 | ||||
| Share of joint venture losses (financial asset) | (3,788) | 3,951 | ||||
| CSDC acquisition negative goodwill | – | (171) | ||||
| Adjusted EBITDA | 30,101 | 16,246 | ||||
5. Loss per share
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year.
Diluted loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of shares and the dilutive effect of in the money share options in issue. Share options are classified as in the money if their exercise price is lower than the average share price for the year. As required by IAS 33, this calculation assumes that the proceeds receivable from the exercise of in the money options would be used to purchase shares in the open market in order to reduce the number of new shares that would need to be issued.
The directors also present an adjusted earnings per share measure which eliminates certain adjusted items in order to provide a more meaningful measure of underlying profit. The adjustments are detailed in note 4.
|
| 2020 £000 | 2019 £000 |
| Loss attributable to ordinary shareholders | (3,271) | (35,473) |
| Adjustments to loss after tax (note 4) | 5,595 | 16,118 |
| Adjusted profit / (loss) attributable to ordinary shareholders | 2,324 | (19,355) |
| 2020 Number | 2019 Number | |
| Weighted average number of ordinary shares | 797,228,579 | 787,175,574 |
| Dilutive share options | 11,395,298 | 13,562,165 |
| Adjusted weighted average number of ordinary shares | 808,623,877 | 800,737,739 |
| Adjusted basic loss per share | 0.29p | (2.46p) |
| Basic loss per share | (0.41p) | (4.51p) |
| Adjusted diluted loss per share | 0.29p | (2.46p) |
| Diluted loss per share | (0.41p) | (4.51p) |
6. Cash generated from operations
| Group | 2020 £000 | 2019 £000 |
| Loss before tax | (3,894) | (24,948) |
| Finance costs | 2,165 | 1,458 |
| Depreciation of property, plant and equipment | 12,983 | 10,477 |
| Depreciation of right of use assets | 3,681 | 3,590 |
| Amortisation of intangible assets | 7,869 | 8,222 |
| Impairment of intangible assets | 6,537 | 3,805 |
| Impairment of right of use assets | – | 1,623 |
| Impairment of financial assets | 3,788 | 4,134 |
| Share of joint venture | (3,788) | 3,951 |
| Inventory write downs (note 17) | 3,025 | 3,219 |
| Loss / (profit) on disposal of fixed assets | 182 | (245) |
| CSDC acquisition negative goodwill | – | (171) |
| Non-cash provision movements | 2,002 | – |
| Share based payments | 265 | (771) |
| Cash inflow from operations before changes in working capital | 34,815 | 14,344 |
| (Increase) / decrease in inventories | (4,128) | 2,184 |
| (Increase) / decrease in trade and other receivables | (7,151) | 4,130 |
| Increase / (decrease) in trade and other payables | 11,921 | (11,710) |
| Cash inflow from operations | 35,457 | 8,948 |
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