IQE plc
(�IQE or the Group)
2021 FULL YEAR RESULTS
Cardiff, UK
29 March 2022
Strong operational progress in 2021
Strategic realignment a priority for 2022
IQE plc (AIM: IQE, “IQE” or the “Group”), the leading supplier of compound semiconductor wafer products and advanced material solutions to the global semiconductor industry, announces its results for the full year ended 31 December 2021.
Americo Lemos, Chief Executive Officer of IQE, said:
In my first few months I have been very impressed by the quality of IQEs people, technology and customers. As the only global outsourced epitaxy provider and a leader in our field, IQE is uniquely placed to capitalise on major technological trends while navigating a challenging external environment.
To secure this growth, we must first build a commercial engine that is orientated to our end markets, focussed on our customers and aligned with our technology innovation. My vision is to grow IQE through multiple strategic and long-term customer relationships. We will be developing this strategy more fully during 2022 and I look forward to communicating further in due course.
FY 2021 Financials
| FY 2021 £m* | FY 2020 £m* | Change (%) | Constant currency change (%) | |
| Revenue | 154.1 | 178.0 | (13%) | (7%) |
| Adjusted EBITDA** | 18.7 | 30.1 | (38%) | (17%) |
| Operating loss | (20.0) | (5.5) | ||
| Adjusted operating (loss) / profit | (6.5) | 5.4 | ||
| Reported loss after tax | (31.0) | (2.9) | ||
| Net cash flow from operations | 18.9 | 35.5 | (47%) | |
| Adjusted cash flow from operations | 17.9 | 36.3 | (51%) | |
| Capital investment (PP&E) | 15.1 | 5.0 | 201% | |
| Net debt / (cash***) | (5.8) | 1.9 | ||
| Diluted EPS (p) | (3.87p) | (0.41p) | ||
| Adjusted diluted EPS (p) | (2.41p) | 0.29p |
* All figures £m excluding diluted and adjusted diluted EPS.
** Adjusted Measures: Alternative performance measures are disclosed separately after a number of adjusted non-cash, one-off or non-operational items where it is deemed necessary by the Directors to do so to provide further understanding of the financial performance of the Group. Adjusted items are material items of income or expense that have been shown separately due to the significance of their nature or amount as detailed in note 4.
*** Net debt excludes IFRS16 lease liabilities.
The following highlights of the full year results are based on these adjusted profit measures, unless otherwise stated.
Operational Highlights
Strategic perspectives and Outlook
Looking ahead, the Group is completing a full review of strategy under new CEO, Americo Lemos. The refreshed strategy for the Group will be completed and communicated in H2 and will be focussed on the key principles of:
Operations remain resilient in 2022 to the challenging macro-economic and geopolitical backdrop. The Group continues to monitor and work to mitigate potential headwinds in global semiconductor supply chains.
In 2022 the Group will focus on building a platform for growth to deliver further progress in 2023 and beyond. The Group is confident this refreshed strategy will enable a multi-year cycle of growth, driven by the macro trends of 5G, IoT and the Metaverse, as the global economy and semiconductor markets recover from current risks and disruption.
Overall, the Group expects to grow revenues by a low single digit % in 2022 (at constant currency), with growth weighted towards H2. At this level, the Group anticipates a similar adjusted EBITDA margin % to 2021 (at constant currency). Capital expenditure of £10-15m is expected on PP&E and £6-8m on capitalised intangibles relating to development costs and IT transformation.
Group Trading Performance
Group revenue for FY 2021 was down 13% to £154.1m (FY 2020: £178.0m). The Group experienced a FX headwind of c.£10.6m affecting GBP revenue on a reported basis, with the majority of revenues being earned in USD. On a constant currency basis, Group revenue was down 7% at £165m, in line with the November 2021 trading update of £164m.
Wireless revenue of £83.2m (FY 2020: £94.2m) was down 12% year-on-year on a reported basis and down 6% on a constant currency basis. Strong growth in demand for wafers used in 5G handsets and WiFi 6 routers, resulted in an increase of 19% year-on-year for Wireless GaAs. This growth was offset by a reduction in demand for GaN wafers used in 5G infrastructure, with revenue down by 49% year-on-year. After a strong performance for GaN in 2020 resulting from the initial wave of 5G mMIMO base station deployments, particularly in Asia, delays to further global deployments were experienced in 2021. A multi-year replacement cycle is still anticipated for 5G infrastructure, including strong anticipated GaN content.
Photonics revenue of £68.1m (FY 2020: £81.6m) was down 17% year-on-year on a reported basis and down 11% on a constant currency basis. VCSEL revenue for 3D sensing applications was down by 19% as a result of smaller chip sizes. The Group maintained strong market share in its key supply chain and remains well positioned for future product evolutions. Delays were experienced in certain aerospace and security orders, with Infrared revenues down 8% year-on-year. This represents a change in phasing, with no anticipated loss of market share. InP and other revenues were up by 16%, predominantly due to strength in datacom and telecom markets as well as new growth areas of sensing.
CMOS++ revenue of £2.8m (FY 2020: £2.2m) was up by 28% year-on-year, adding scale to the Groups Si epitaxy operation which is important to the integration of compound semiconductors on silicon.
Group Adjusted EBITDA of £18.7m (FY 2020: £30.1m) on a reported basis is equivalent to £25.0m on a constant currency basis. The constant currency EBITDA margin of 15% was in line with the November 2021 trading update of c.15% margin. The year-on-year fall in margin is predominantly related to the Groups operational gearing. The Group plans to improve its profitability going forward through a global site optimisation programme and growing margins by achieving higher volumes and hence economies of scale at its strategic site locations.
A Reported Operating Loss of £20.0m (FY 2020: (£5.5m)) is derived as a result of the trading performance and a number of one-off exceptional items (see below), with an adjusted operating loss of £6.5m (FY 2020: £5.4m profit).
Net cashflow from operations of £18.9m (FY 2020: £35.5m) representing 96% conversion of Adjusted EBITDA, resulting in a net debt position (excluding lease liabilities) of £5.8m as at 31 December 2021 (FY 2020: net cash of £1.9m). The Group renewed a $35m revolving credit facility with HSBC in December 2021 and had a cash position as at 31 December 2021 of £10.8m.
Capital expenditure of £15.1m on PP&E (FY 2020: £5.0m) in line with the November trading update of £14-17m, focussed on the deployment of additional tools to meet growing demand for 5G handset and WiFi 6 products in Taiwan. The Group continues to invest in research and development with technology capitalisation of £3.3m of intangible assets (FY 2020: £5.4m).
Adjustments to Reported Items
In order to focus the business, longer term developments such as cREO® and Photonic Quasi Crystal are being de-prioritised in the short term to focus our development programmes on market driven solutions. IQE will retain the technology, capability and IP enabling redeployment if and when appropriate.
Exceptional restructuring costs of £3.7m have been recognised in respect of site closures that are part of the Groups global site optimisation programme.
The Group has also recognised a non-cash Share Based Payments charge of £1.7m (FY 2020: £0.3m) and CEO transition costs of £0.7m (FY 2020: £nil). Excluding these exceptional charges totalling £13.5m, the Group has recorded an Adjusted Operating Loss in FY 2021 of £6.5m (FY 2020: £5.4m profit).
Results Presentation
IQE will present the FY 2021 Results via webcast at 9:00am UK time today, 29 March 2022. If you would like to view this webcast, please register by using the below link and following the instructions:
https://webcasting.brrmedia.co.uk/broadcast/62335d781c349d634ccb28b7
Contacts:
IQE plc
+44 (0) 29 2083 9400
Americo Lemos
Tim Pullen
Amy Barlow
Peel Hunt LLP (Nomad and Joint Broker)
+44 (0) 20 7418 8900
Edward Knight
Paul Gillam
James Smith
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
Marta Parry-Jones: +44 (0) 7884742400
Financial Review
The Group reports financial performance in conformity with UK adopted international accounting standards (UK adopted 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 are set out in note 4.
The Group has experienced strong year on year growth in demand for wireless GaAs wafers (~20%) used in 5G handset power amplifiers and Wifi 6 routers in 2021. This is part of a multi-year replacement cycle driven by a macro technological trend. This has been offset by a reduction in demand for wireless GaN wafers (~50%) for 5G infrastructure due to a slowdown in massive MIMO deployments, particularly in Asia, when compared to 2020 and a reduction in VCSEL 3D sensing revenues (~20%). In combination with foreign exchange headwinds on a reported basis, this has resulted in a reduction in revenue of ~13.4% to £154,096,000 (2020: £178,016,000) which is equivalent to ~£165,000,000 at constant currency, which represents a ~7.3% underlying year-on-year reduction.
The Groups Wireless business segment represents the largest proportion of the Groups revenue accounting for 54.0% (2020: 52.9%) of total wafer sales with Photonics representing 44.2% (2020: 45.9%) and CMOSS++ representing 1.8% (2020: 1.2%).
Wireless wafer revenues decreased 11.6% (5.5% at constant currency) to £83,217,000 (2020: £94,193,000). The decrease in wireless wafer revenues reflects a significant decline in wireless GaN epi-wafer sales that has only partially been offset by increased sales of wireless GaAs epi-wafers for 5G and WiFi 6. Demand for wireless GaN epi-wafers has been weak due to end-market dynamics, including significantly lower levels of massive MIMO base station deployments in Asia and the slow rate of deployments in Western markets. GaN epi-wafers remain an essential material for 5G infrastructure and demand is expected to recover over the multi-year deployment cycle. Demand for wireless GaAs epi-wafers has continued to grow in 2021 despite some softening of demand in Q4, driven by 5G penetration of the smartphone handset market and WiFi 6, a dynamic which has resulted in high utilisation of manufacturing capacity at the Groups Taiwan facility, where the Group has invested in eight new and refurbished tools which are currently being commissioned to support further growth in wireless GaAs epi-wafer demand in 2022 and beyond.
Photonics wafer revenues decreased 16.6% (10.4% at constant currency) to £68,067,000 (2020: £81,627,000). The decrease in photonics wafer revenues reflects lower demand for VCSELs used in 3D sensing which has primarily arisen from a combination of chip design changes and softening in smartphone supply chains towards the end of 2021 and as a result of lower other photonic product sales linked to a combination of factors including the re-phasing of certain defence and security orders associated with large programmes into 2022 and the slower introduction of sales of certain new products.
Statutory gross profit decreased from £33,150,000 to £17,644,000. The decrease in gross profit reflects a combination of lower trading volumes and a reduction in overall gross profit margin percentage to 11.5% (2020: 18.6%) as the Group has experienced a reduction in utilisation of manufacturing capacity at some of its sites, in the current year. Adjusted gross profit, which excludes the charge for share based payments, decreased from £33,327,000 to £18,771,000 with a decline in gross margin from 18.7% to 12.2%.
Selling, general and administrative (SG&A) expenses increased from £34,697,000 to £37,699,000. Adjusted SG&A, which excludes adjustments for share based payments, restructuring costs, Chief Executive Officer recruitment costs and certain non-current asset impairments decreased from £27,759,000 to £25,302,000. Decreases in adjusted SG&A primarily reflect certain employee related cost savings and reductions in certain other areas of corporate expenditure that have been required commensurate with the decline in current year revenue.
As part of the Groups global footprint optimisation plan restructuring costs totalling £3,681,000 (2020: £162,000) have been incurred relating to costs associated with the announced closures of the Groups manufacturing facilities in Singapore and Pennsylvania, USA. Within the restructuring costs are £3,020,000 (2020: £nil) relating to a combination of site decommissioning and employee related costs in Singapore and £661,000 (2020: £162,000) relating to employee related costs in Pennsylvania, USA. These site closures are part of the Groups global footprint optimisation plan.
Chief Executive Officer recruitment costs of £741,000 (2020: £nil) include settlement costs and legal fees of £318,000 associated with the transition of the former Chief Executive Officer to a non-executive role and external recruitment fees of £423,000.
Impairment of intangibles of £7,411,000 (2020: £6,537,000) relates to the write-down in value of the Groups cREO filter technology development cost and patent assets totalling £4,693,000 (2020: £nil) and the impairment of Photonic quasi crystal technology related development costs and patent assets totalling £2,718,000 (2020: £nil) where the Group has taken the decision to pause development related activities given the current lack of visibility over the timeline to commercialisation of each of the technologies.
A reported operating loss of £19,978,000 has been incurred (2020: Loss of £5,517,000). Reflecting the adjustments noted above, an adjusted operating loss of £6,454,000 in 2021 compares to an adjusted operating profit of £5,386,000 in 2020 with the loss in 2021 principally reflecting the impact of the decline in year-on-year revenue. The segmental analysis in note 4 reflects the adjusted operating margins for the primary segments (before central corporate support costs). Wireless adjusted operating margins and photonics operating margins declined from 12.1% and 11.1% in 2020 to 8.8% and 2.6% in 2021, primarily reflecting reductions in volume and the associated under- utilisation of certain manufacturing capacity.
Finance costs have remained broadly consistent year-on-year at £2,213,000 (2020: £2,165,000) and reflect £905,000 (2020: £949,000) of bank and other interest costs primarily related to the Groups HSBC Bank plc asset finance facility and the interest expense on lease liabilities of £1,308,000 (2020: £1,216,000).
The tax charge of £8,811,000 (2020: £1,001,000 credit) consists of a current tax charge of £1,124,000 (2020: £1,132,000) primarily relating to taxable profits generated by the Groups Taiwanese operations and a deferred tax charge of £7,687,000 (2020: £2,133,000 credit) which principally reflects the partial reversal and de-recognition of previously recognised UK and US tax losses. Deferred tax asset recognition has been restricted in the UK to reflect future forecast profitability, an assessment that includes the impact of the Groups consolidation and investment in central and functional roles in the UK whilst US deferred tax asset recognition has been restricted in the US to reflect lower future forecast profitability arising from a combination of the Groups consolidation of its US manufacturing operations and the continued shift in the balance of future forecast manufacturing and hence profits from the Groups US operations to its UK and Asian operation. The effective tax rate of 13.3% (2020: 21.4%) applicable to the tax charge of £1,803,000 (2020: £1,520,000) on adjusted items is less than the UK statutory tax rate of 19% primarily due to the non-recognition of deferred tax assets for current year UK, US and Singapore trading losses which include the adjusted Chief Executive Officer recruitment and Singapore and Pennsylvania site closure costs.
The increase in the loss for the year to £31,002,000 (2020: £2,893,000) reflects a combination of the decline in revenue in the wireless and photonics business segments, reduced profitability within both segments as the Group has experienced an increase in under-utilisation of manufacturing capacity and the impact of adjusted non-cash and other non-operational items which at an adjusted level, has reduced the loss to £19,281,000 (2020: £2,702,000 profit).
Basic and diluted loss per share has increased from a loss per share of 0.41p to a loss per share of 3.87p in the current year with adjusted basic loss per share of 2.41p (2020: 0.29p earnings) and adjusted diluted loss per share of 2.41p (2020: 0.29p earnings) reflecting the Groups loss at a statutory and adjusted profit level.
Cash generated from operations decreased in the year to £18,883,000 (2020: £35,457,000) reflecting the Groups reduced trading performance partially offset by strong management of working capital. The Group has continued to invest in growing capacity to meet demand with capital expenditure of £15,051,000 (2020: £4,993,000) principally focused in Taiwan to support future forecast growth in wireless GaAs epi-wafer demand, intangible asset expenditure of £345,000 (2020: £731,000) focused on a combination of intellectual property and the Groups multi-year strategic IT transformation programme and investment in targeted capitalised technology development of £2,994,000 (2020: £4,678,000).
The decrease in cash generated from operations, combined with investing activity cash costs of £18,305.000 (2020: £10,402,000), repayment of bank borrowings of £6,145,000 (2020: £7,030,000), repayment of lease liabilities (including interest) of £5,013,000 (2020: £3,764,000) and payment of the final cash costs of £1,792,000 (2020: £1,363,000) associated with the prior period acquisition of the minority interest in the Groups Taiwanese subsidiary, IQE Taiwan ROC have combined to reduce the Groups cash balances from £24,663,000 in 2020 to £10,791,000 in 2021 resulting in a full year net debt position of £5,804,000 (excluding lease liabilities) compared to a net funds position of £1,923,000 (excluding lease liabilities) in 2020.
Equity shareholder funds total £234,621,000 (2020: £260,435,000) with the movement from 2020 primarily reflecting the loss for the year, the impact of finalisation of the prior year acquisition of the Taiwanese minority interest and foreign exchange differences arising on the retranslation of net investments in overseas subsidiaries.
Financial Statements
Financial summary
| 2021 £000 | 2020 £000 | |
| Revenue | 154,096 | 178,016 |
| Adjusted EBITDA (see below) | 18,679 | 30,101 |
| Operating (loss)/profit | ||
| Adjusted* | (6,454) | 5,386 |
| Reported | (19,978) | (5,517) |
| (Loss)/profit after tax | ||
| Adjusted* | (19,281) | 2,702 |
| Reported | (31,002) | (2,893) |
| Net cash flow from operations | ||
| Before adjustments (note 5) | 17,940 | 36,324 |
| Reported | 18,883 | 35,457 |
| Free cash flow** | ||
| Before exceptional cash flows | (1,640) | 24,929 |
| Reported | (697) | 24,062 |
| Net (debt)/cash excluding lease liabilities*** | (5,804) | 1,923 |
| Equity shareholders funds | 234,621 | 260,435 |
| Basic EPS adjusted**** | (2.41p) | 0.29p |
| Basic EPS unadjusted | (3.87p) | (0.41p) |
| Diluted EPS adjusted**** | (2.41p) | 0.29p |
| Diluted EPS unadjusted | (3.87p) | (0.41p) |
* The adjusted performance measures for 2021 and 2020 are reconciled in note 4. The adjusted performance measures for 2017-2019 are reconciled in those financial statements.
** Free cash flow is defined as net cash flow outflow of £14,080,000 (2020: £16,003,000 inflow) before cash flows from financing activities of £11,170,000 (2020: £5,701,000) and net interest paid of £2,213,000 (2020: £2,358,000).
*** Net (debt)/cash is defined as cash less borrowings but excluding lease liabilities.
**** Adjusted EPS measures exclude the impact of certain non-cash charges, non-operational items and significant infrequent items that would distort period on period comparability (see note 5).
Consolidated income statement for the year ended 31 December 2021
| 2021 £000 | 2020 £000 | |
| Revenue | 154,096 | 178,016 |
| Cost of sales | (136,452) | (144,866) |
| Gross profit | 17,644 | 33,150 |
| Selling, general and administrative expenses | (37,699) | (34,697) |
| Impairment loss on financial assets | – | (3,788) |
| Profit on disposal of property, plant and equipment | 77 | (182) |
| Operating loss | (19,978) | (5,517) |
| Finance costs | (2,213) | (2,165) |
| Reversal/share of losses of joint ventures accounted for using the equity method | – | 3,788 |
| ?Adjusted (loss)/profit before income tax | (8,667) | 3,221 |
| ?Adjustments | (13,524) | (7,115) |
| Loss before income tax | (22,191) | (3,894) |
| Taxation | (8,811) | 1,001 |
| Loss for the year | (31,002) | (2,893) |
| Loss attributable to: | ||
| Equity shareholders | (31,002) | (3,271) |
| Non-controlling interest | – | 378 |
| (31,002) | (2,893) | |
| Loss per share attributable to owners of the parent during the year | ||
| Basic loss per share | (3.87p) | (0.41p) |
| Diluted loss earnings per share | (3.87p) | (0.41p) |
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.
The company has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the parent company profit and loss account.
Consolidated statement of comprehensive income for the year ended 31 December 2021
| 2021 £000 | 2020 £000 | |
| Loss for the year | (31,002) | (2,893) |
| Exchange differences on translation of foreign operations* | 4,744 | (6,104) |
| Total comprehensive expense for the year | (26,258) | (8,997) |
| Total comprehensive expense attributable to: | ||
| Equity shareholders | (26,258) | (9,482) |
| Non-controlling interest | – | 485 |
| (26,258) | (8,997) |
* 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 2021
| 2021 £000 | 2020 £000 | |
| Non-current assets | ||
| Intangible assets | 95,866 | 105,772 |
| Fixed asset investments | – | |
| Property, plant and equipment | 129,730 | 126,229 |
| Right of use assets | 44,267 | 37,339 |
| Deferred tax assets | – | 7,821 |
| Other financial assets | – | |
| Total non-current assets | 269,863 | 277,161 |
| Current assets | ||
| Inventories | 31,710 | 30,887 |
| Trade and other receivables | 38,860 | 38,575 |
| Cash and cash equivalents | 10,791 | 24,663 |
| Total current assets | 81,361 | 94,125 |
| Total assets | 351,224 | 371,286 |
| Current liabilities | ||
| Trade and other payables | (37,083) | (35,605) |
| Current tax liabilities | (1,342) | (1,426) |
| Bank borrowings | (6,230) | (6,201) |
| Lease liabilities | (4,694) | (4,798) |
| Provisions for other liabilities and charges | (3,686) | (515) |
| Total current liabilities | (53,035) | (48,545) |
| Non-current liabilities | ||
| Bank borrowings | (10,365) | (16,539) |
| Lease liabilities | (49,693) | (42,226) |
| Deferred tax liabilities | (2,060) | (2,054) |
| Provisions for other liabilities and charges | (1,450) | (1,487) |
| Total non-current liabilities | (63,568) | (62,306) |
| Total liabilities | (116,603) | (110,851) |
| Net assets | 234,621 | 260,435 |
| Equity attributable to the shareholders of the parent | ||
| Share capital | 8,036 | 8,004 |
| Share premium | 154,632 | 154,185 |
| Retained earnings | 29,295 | 62,089 |
| Exchange rate reserve | 26,035 | 21,291 |
| Other reserves | 16,623 | 14,866 |
| 234,621 | 260,435 | |
| Non-controlling interest | – | |
| Total equity | 234,621 | 260,435 |
Consolidated statement of changes in equity for the year ended 31 December 2021
| Share capital £000 | Share premium £000 | Retained earnings £000 | Exchange Rate reserve £000 | Other reserves £000 | Non-controlling interests £000 | Total equity £000 | |
| At 1 January 2021 | 8,004 | 154,185 | 62,089 | 21,291 | 14,866 | – | 260,435 |
| Comprehensive expense | |||||||
| Loss for the year | – | – | (31,002) | – | – | – | (31,002) |
| Other comprehensive income for the year | – | – | – | 4,744 | – | – | 4,744 |
| Total comprehensive expense for the year | – | – | (31,002) | 4,744 | – | – | (26,258) |
| Transactions with owners | |||||||
| Share based payments | – | – | – | – | 1,850 | – | 1,850 |
| Tax relating to share options | – | – | – | – | (93) | – | (93) |
| Proceeds from shares issued | 32 | 447 | – | – | – | – | 479 |
| Acquisition of non-controlling interest | – | – | (1,792) | – | – | – | (1,792) |
| Total transactions with owners | 32 | 447 | (1,792) | – | 1,757 | – | 444 |
| At 31 December 2021 | 8,036 | 154,632 | 29,295 | 26,035 | 16,623 | – | 234,621 |
| Share capital £000 | Share premium £000 | Retained earnings £000 | Exchange Rate reserve £000 | Other reserves £000 | Non-controlling interests £000 | Total equity £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 |
Other reserves relate to share based payments.
Consolidated cash flow statement for the year ended 31 December 2021
| 2021 £000 | Restated 2020 £000 | |
| Cash flows from operating activities | ||
| ?Adjusted cash inflow from operations | 17,940 | 36,324 |
| ?Cash impact of adjustments | 943 | (867) |
| Cash generated from operations | 18,883 | 35,457 |
| Net interest paid | (2,213) | (2,358) |
| Income tax paid | (1,275) | (993) |
| Net cash generated from operating activities | 15,395 | 32,106 |
| Cash flows from investing activities | ||
| Purchase of property, plant and equipment | (15,051) | (4,993) |
| Purchase of intangible assets | (345) | (731) |
| Capitalised development expenditure | (2,994) | (4,678) |
| Proceeds from disposal of property, plant and equipment | 85 | |
| Net cash used in investing activities | (18,305) | (10,402) |
| Cash flows from financing activities | ||
| Acquisition of minority interest | (1,792) | (1,363) |
| Proceeds from issuance of ordinary shares | 472 | 240 |
| Proceeds from borrowings | – | 5,000 |
| Repayment of borrowings | (6,145) | (7,030) |
| Payment of lease liabilities | (3,705) | (2,548) |
| Net cash used in financing activities | (11,170) | (5,701) |
| Net (decrease)/increase in cash and cash equivalents | (14,080) | 16,003 |
| Cash and cash equivalents at 1 January | 24,663 | 8,800 |
| Exchange losses on cash and cash equivalents | 208 | (140) |
| Cash and cash equivalents at 31 December | 10,791 | 24,663 |
The comparative financial information for 2020 has been restated to reclassify cash flows associated with Acquisition of minority interest from investing activities to financing activities and to reclassify interest lease cash flows from financing activities to net interest paid in cash generated from operating activities. The reclassifications have had no impact on net assets, loss after tax or total cash flow for 2020.
Notes to the financial statements for the year ended 31 December 2021
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. Significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented.
2.1 Basis of preparation
The financial statements have been prepared and approved by the directors in accordance with international accounting standards in conformity with UK adopted international accounting standards (UK adopted IFRS). The financial statements have been prepared under the historical cost convention except where fair value measurement is required by IFRS.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Groups accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.
2.2 Going concern
The Group made a loss of £31,002,000 (2020: £2,893,000 loss) and used £13,872,000 of cash and cash equivalents (2020: £15,863,000 generated) resulting in a net debt position (excluding lease liabilities) of £5,804,000 (2020: £1,923,000 net cash) as at 31 December 2021.
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 a period of at least 12 months from the date of approval of the financial statements, such that the directors consider it appropriate to adopt the going concern basis of accounting in preparing the consolidated financial statements.
2.3 Changes in accounting policy and disclosures
(a) New standards, amendments and interpretations.
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 2021:
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 2021 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, Executive VP Global Business Development, Photonics & Infrared and the Global Human Resources Director 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.
| Revenue | 2021 £000 | 2020 £000 |
| Wireless | 83,217 | 94,193 |
| Photonics | 68,067 | 81,627 |
| CMOS++ | 2,812 | 2,196 |
| Revenue | 154,096 | 178,016 |
| Adjusted operating (loss) / profit | ||
| Wireless | 7,305 | 11,393 |
| Photonics | 1,737 | 9,080 |
| CMOS++ | (586) | (714) |
| Central corporate costs | (14,910) | (14,373) |
| Adjusted operating (loss) / profit | (6,454) | 5,386 |
| Adjusted items (see note 4) | (13,524) | (10,903) |
| Operating loss | (19,978) | (5,517) |
| Reversal/share of losses of joint venture accounted for using the equity method | – | 3,788 |
| Finance costs | (2,213) | (2,165) |
| Loss before tax | (22,191) | (3,894) |
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 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.
| Adjusted Results £000 | Adjusted Items £000 | 2021 Reported Results £000 | Adjusted Results £000 | Adjusted Items £000 | 2020 Reported Results £000 | |
| Revenue | 154,096 | – | 154,096 | 178,016 | | 178,016 |
| Cost of sales | (135,325) | (1,127) | (136,452) | (144,689) | (177) | (144,866) |
| Gross profit | 18,771 | (1,127) | 17,644 | 33,327 | (177) | 33,150 |
| SG&A | (25,302) | (12,397) | (37,699) | (27,759) | (6,938) | (34,697) |
| Impairment loss on financial assets | – | – | – | | (3,788) | (3,788) |
| Profit on disposal of PPE | 77 | – | 77 | (182) | | (182) |
| Operating (loss)/profit | (6,454) | (13,524) | (19,978) | 5,386 | (10,903) | (5,517) |
| Reversal of JV losses | – | – | – | | 3,788 | 3,788 |
| Finance costs | (2,213) | – | (2,213) | (2,165) | | (2,165) |
| (Loss)/profit before tax | (8,667) | (13,524) | (22,191) | 3,221 | (7,115) | (3,894) |
| Taxation | (10,614) | 1,803 | (8,811) | (519) | 1,520 | 1,001 |
| (Loss)/profit for the period | (19,281) | (11,721) | (31,002) | 2,702 | (5,595) | (2,893) |
| Pre-tax Adjustment £000 | Tax Impact £000 | 2021 Adjusted Results £000 | Pre-tax Adjustment £000 | Tax Impact £000 | 2020 Adjusted Results £000 | |
| Share based payments | (1,691) | (13) | (1,704) | (265) | 210 | (55) |
| Chief Executive Officer Recruitment | (741) | – | (741) | – | – | – |
| Restructuring | (3,681) | – | (3,681) | (162) | 39 | (123) |
| Impairment intangibles | (7,411) | 1,816 | (5,595) | (6,537) | 1,242 | (5,295) |
| Onerous contract | – | – | – | (1,840) | 350 | (1,490) |
| Patent dispute legal fees | – | – | – | 1,689 | (321) | 1,368 |
| Impairment financial assets | – | – | – | (3,788) | | (3,788) |
| Share of JV losses financial asset | – | – | – | 3,788 | | 3,788 |
| Total | (13,524) | 1,803 | (11,721) | (7,115) | 1,520 | (5,595) |
The nature of the adjusted items is as follows:
| 2021 £000 | 2020 £000 | |
| Loss attributable to equity shareholders | (31,002) | (3,271) |
| Non-controlling interest | – | 378 |
| Finance costs | 2,213 | 2,165 |
| Tax | 8,811 | (1,001) |
| Depreciation of property, plant and equipment | 13,309 | 12,983 |
| Depreciation of right of use assets | 3,854 | 3,681 |
| Amortisation of intangible fixed assets | 8,047 | 7,869 |
| Loss/(profit) on disposal of PPE | (77) | 182 |
| Adjusted Items | 13,524 | 7,115 |
| Share based payments | 1,691 | 265 |
| Chief Executive Officer Recruitment | 741 | – |
| Restructuring | 3,681 | 162 |
| Impairment of intangibles | 7,411 | 6,537 |
| Patent dispute settlement and legal costs | – | (1,689) |
| Onerous contract provision | – | 1,840 |
| Impairment of financial asset | – | 3,788 |
| Share of joint venture losses (financial asset) | – | (3,788) |
| Adjusted EBITDA | 18,679 | 30,101 |
| Share based payments | (1,691) | (265) |
| Chief Executive Officer Recruitment | (741) | – |
| Restructuring | (3,681) | (162) |
| Patent dispute settlement and legal costs | – | 1,689 |
| Onerous contract provision | – | (1,840) |
| Impairment of financial asset | – | (3,788) |
| Share of joint venture losses (financial asset) | – | 3,788 |
| EBITDA | 12,566 | 29,523 |
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. The Directors believe that the adjusted earnings per share measure provides a useful comparison of 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 adjustments are detailed in note 5.
| 2021 £000 | 2020 £000 | |
| Loss attributable to ordinary shareholders | (31,002) | (3,271) |
| Adjustments to loss after tax (note 4) | 11,721 | 5,595 |
| Adjusted (loss)/profit attributable to ordinary shareholders | (19,281) | 2,324 |
| 2021 Number | 2020 Number | |
| Weighted average number of ordinary shares | 801,653,662 | 797,228,579 |
| Dilutive share options | 4,097,303 | 11,395,298 |
| Adjusted weighted average number of ordinary shares | 805,750,965 | 808,623,877 |
| Adjusted basic loss per share | (2.41p) | 0.29p |
| Basic loss per share | (3.87p) | (0.41p) |
| Adjusted diluted loss per share | (2.41p) | 0.29p |
| Diluted loss per share | (3.87p) | (0.41p) |
6. Cash generated from operations
| Group | 2021 £000 | 2020 £000 |
| Loss before tax | (22,191) | (3,894) |
| Finance costs | 2,213 | 2,165 |
| Depreciation of property, plant and equipment | 13,309 | 12,983 |
| Depreciation of right of use assets | 3,854 | 3,681 |
| Amortisation of intangible assets | 8,047 | 7,869 |
| Impairment of intangible assets | 7,411 | 6,537 |
| Impairment of PP&E | 74 | – |
| Impairment of financial assets | – | 3,788 |
| Share of joint venture | – | (3,788) |
| Inventory write downs (note 17) | 866 | 3,025 |
| Loss/(profit) on disposal of fixed assets | (77) | 182 |
| Non-cash provision movements | 3,617 | 2,002 |
| Share based payments | 1,691 | 265 |
| Cash inflow from operations before changes in working capital | 18,814 | 34,815 |
| (Increase)/decrease in inventories | (1,368) | (4,128) |
| Decrease/(increase) in trade and other receivables | 2,930 | (7,151) |
| (Decrease)/increase in trade and other payables | (1,493) | 11,921 |
| Cash inflow from operations | 18,883 | 35,457 |
The financial information set out above does not constitute the company’s statutory accounts for the years ended 31 December 2021 or 2020 but is derived from those accounts. Statutory accounts for 2020 have been delivered to the registrar of companies, and those for 2021 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
ABOUT IQE
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 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 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. 685 employees across nine manufacturing locations in the UK, US, Taiwan and Singapore, and is listed on the AIM Stock Exchange in London.
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