02 Sep 2008
IQE plc (AIM: IQE, the “Group”), the leading global
supplier of advanced wafer products and wafer services to
the semiconductor industry, announces its Interim Results
for the half year ended 30 June 2008.
FINANCIAL HIGHLIGHTS
- Sales up 27% to £30.2m (H1 2007: £23.7m)
- Gross profit up 42% to £5.5m (H1 2007: £3.9m)
- EBITDA profit up 135% to £3.6m before exceptional one-off relocation cost (H1 2007: £1.5m). High operational gearing delivers treble digit growth in EBITDA profit before exceptional item
- The exceptional cost of £1.6m (H1 2007: £nil) relates to the relocation of the Singapore facility. This relocation is progressing on plan and will be completed during the second half of 2008, at an estimated additional cost of £0.8m
- Operating profit of £1.6m before exceptional item (H1 2007: profit £0.1m), and £11,000 after exceptional item
- Cash inflow from operating activities of £3.4m before exceptional item (H1 2007: inflow £0.4m), and £2.8m after exceptional item
- Retained profit of £0.9m before exceptional item (H1 2007: retained loss £0.5m), and £0.7m retained loss after exceptional item
- Earnings per share of 0.19 pence before exceptional items (H1 2007: 0.12 pence loss per share), and 0.16 pence loss per share after exceptional item
BUSINESS HIGHLIGHTS
Rapid sales growth driven by continuing focus on high
speed wireless communications.
Wireless sales growth continues to outstrip growth in
mobile device sales due to increasing Gallium Arsenide
(‘GaAs’) content in 3G, smartphone and other high speed
wireless systems.
Singapore relocation on track, majority of the tools
already transferred and in production at new facility.
Successfully achieved without disruption to customers,
during a period of strong growth in demand.
Independent industry analyst, Strategy Analytics,
identifies IQE as the leading global supplier of GaAs
epitaxial wafers.
TRADING OUTLOOK
Trading in Q3 2008 continues in line with expectations.
Increasing demand for GaAs based products across a range
of technologies, including communications, office, solar
and solid state lighting.
Market conditions continuing to show robust demand for
GaAs based products for mobile devices, driven
principally by 3G and other high speed wireless
applications that require a greater density of GaAs
components per handset. Consequently, growth in GaAs
demand is significantly outstripping growth in the
overall handset and wireless communication markets.
IQE bringing new products to market including advanced
laser products, solar cells for efficient energy
generation and solid state lighting devices.
Dr Drew Nelson, IQE Chief Executive, commenting on the
results said:
“Our strong performance during the first half of 2008
reflects our robust strategy and focus on high growth
high volume markets. In particular the wireless
communications market, where 3G and “smartphone”
technology is being rapidly adopted to meet the growing
demand from users for advanced mobile features such as
email, internet browsing and video streaming.
“The relentless drive for higher performance mobile
devices and lower power consumption is only made
possible through the increasing use of GaAs based
products. This is driving a significant increase in the
GaAs content of mobile devices, and hence the rapidly
increasing demand for our products.
“In addition we have a range of new technologies that we
are currently in the process of bringing to market,
including high efficiency solar cells, ultra high
brightness LEDs for solid state lighting, advanced laser
products, and advanced microprocessor and memory
products.
“The Board remains confident that the strong markets for
our products as well as our high operational gearing
will ensure that we remain on course to deliver strong
growth in sales and profits for the full year.”
Contacts:
IQE plc (+44 29 2083 9400)
Drew Nelson
Phil Rasmussen
Chris Meadows
College Hill (+44 20 7457 2020)
Adrian Duffield
Jon Davies
Noble & Company Limited (+44 20 7763 2200)
John Llewellyn-Lloyd
Sam Reynolds
Panmure Gordon (UK) Limited (+44 20 7459 3600)
Aubrey Powell
Ashton Clanfield
NOTE TO EDITORS
IQE plc is this year celebrating its twentieth
anniversary as the leading global supplier of advanced
semiconductor wafers with products that cover a diverse
range of applications. It is able to provide a 'one stop
shop' for the wafer needs of the world's leading
compound semiconductor manufacturers, who in turn use
these wafers to make the chips which form the key
components of virtually every high technology system.
IQE has particular focus on the growing global wireless
sector for applications including; mobile handsets,
wireless infrastructure, Wi-Fi, WiMAX, base stations,
GPS and satellite communications; as well as for the
optical communication sector including; optical storage
(CD, DVD), laser optical mice, laser printers &
photocopiers, thermal imagers, leading-edge medical
products, bar-coding, high efficiency LEDs and advanced
solar cells.
The manufacturers of these chips are increasingly
seeking to outsource wafer production to specialist
foundries such as IQE in order to reduce overall wafer
costs and accelerate time to market. IQE is unique in
being able to supply wafers using all of the leading
crystal growth technology platforms including Metal
Organic Vapour Phase Epitaxy (MOVPE) and Molecular Beam
Epitaxy (MBE) and the Group is able to leverage its
global purchasing volumes to reduce the cost of raw
materials.
IQE also provides bespoke R&D services to deliver
customized materials for specific applications and
offers specialist technical staff to manufacture to
specification either at its own facilities or on the
customer's own sites. This is backed by a strategy of
duplicating each key product processes over multiple
sites to assure customers of security of supply as well
as provide compelling customer benefits in terms of
flexibility and predictability of cost, thereby
significantly reducing operating risk.
IQE operates six manufacturing facilities; two in
Cardiff and one in Milton Keynes in the UK; two more in
Bethlehem, Pennsylvania and Somerset, New Jersey in the
USA; and its most recent acquisition in Singapore. The
Group also has 11 sales offices located in major
economic centres worldwide.
INTERIM RESULTS 2008
1. OVERVIEW
IQE celebrates its twentieth anniversary during 2008,
demonstrating the Group’s ability to withstand difficult
economic cycles. IQE’s robust strategy and sound
execution is now delivering continued rapid growth in
sales and profits, and positions the business well to
continue this trend.
During the first half of 2008 IQE delivered rapid sales
growth, and treble digit growth in EBITDA, before the
one off exceptional costs relating to the Singapore
relocation. The powerful leverage of sales growth into
EBITDA growth clearly demonstrates the high operational
gearing developed by the Group.
The Singapore relocation is progressing according to
plan and without any disruption to customers. The
relocation will be completed during the second half of
2008 at a total expected cost of £2.4m.
IQE’s strategy is to focus on high growth, high volume
markets. The mobile communications market, which in the
past proved resilient to global economic slowdown,
continues to drive strong demand for IQE’s products. The
reliance on GaAs devices for advanced mobile features
means that the growth rate for IQE’s high speed wireless
components continues to exceed the growth in demand for
mobile handsets.
IQE has also developed a unique set of competitive
advantages to ensure that it provides a world leading
epitaxial wafer foundry service to its customers. By
delivering against these advantages and through strong
operational performance, IQE has achieved a market
leading position. This was independently corroborated by
Strategy Analytics in its research published in August
2008 which identifies IQE as the global market leader by
a considerable margin.
2. RESULTS
Strong growth in the wireless market contributed to the
27% increase in sales to £30.2m (H1 2007: £23.7m),
representing sequential growth of 14% compared to the
previous six months.
Gross profit increased by 42% to £5.5m reflecting the
strong dynamics within the business and the tight
control of costs in this rapid growth environment.
Selling, general and administrative expenses (“SG&A”)
were tightly controlled and, despite the jump in sales,
increased only marginally to £3.9m before exceptional
costs (H1 2007: £3.8m), equivalent to 13% of sales (H1
2007: 16%). The exceptional costs, which amounted to
£1.6m in the half year (H1 2007: £nil), relate to the
one-off costs incurred in relocating the Singapore
operation to a new state-of-the-art facility. This
project remains on track for completion during the
second half of 2008. The new facility will provide
considerable room for future expansion in a highly cost
effective manner.
EBITDA before exceptional costs increased by 135% to
£3.6m compared with the first half of 2007, clearly
demonstrating the powerful operational gearing of the
business model and the benefit of improved efficiencies.
Operating profit before exceptional item jumped to £1.6m
compared with £0.1m in the first half of 2007,
continuing the clear trend of increasingly profitable
trading.
Retained profit before exceptional item was £0.9m (H1
2007: £0.5m retained loss). This represents 0.19 pence
earnings per share (H1 2007: 0.12 pence loss per share).
After exceptional items the retained loss was £0.7m,
representing 0.17 pence loss per share.
The Group has not suffered a tax charge during the
period, which reflects the benefit of the substantial
tax losses at its disposal. These tax losses will enable
the Group to shelter up to £90 million of future taxable
profits.
The cash inflow from operations before exceptional items
was £3.4m, compared with £0.4m inflow in the first half
of 2007. This powerful conversion of EBITDA into cash
reflects the careful management of working capital in a
high growth environment. Overall working capital was
reduced by a £0.6m on a sales increase of £6.5m.
As planned, capital expenditure of £3.4m (H1 2007:
£4.0m) was directed at bringing additional capacity
on-line to address growing customer demand. The Group
also invested £0.8m (H1 2007: £0.7m) in developing and
bringing to market new customer products.
The Group negotiated new significantly increased banking
facilities with Lloyds TSB Corporate Markets for the
purpose of financing continued growth. With its current
facilities the Group now has £9.0m of working capital
facilities available. Cash on hand at the half year was
£1.6m (H1 2007: £1.3m).
Net debt of £15.7m (H1 2007: £10.4m) was lower than
expected as a result of strong working capital
management. With the additional capacity that is being
brought on-line in 2008, and the completion of the
Singapore relocation in the second half, the Group is
expecting strong free cash flow generation and the
reduction of net debt in 2009.
3. STRATEGY
IQE continues to focus on fast growing, large volume
technologies, and in particular, high speed wireless
communications and advanced opto electronics. In this
respect, the Group is actively engaged in developing
advanced solar cell technology, high efficiency solid
state light sources, advanced lasers and ultra high
speed microprocessor and memory chip materials
technology for these fast growing, large volume emerging
markets.
In order to provide customers with the most competitive
outsource wafer service globally, IQE has developed a
unique set of advantages, including:
- offering a complete range of products covering all major applications;
- offering global multi-site production capabilities in the primary manufacturing platforms to allow efficient capacity planning and for disaster scenario contingency;
- maintaining a broad contact base and global presence with access to all the key global markets;
- delivering benefits from economies of scale including purchasing power and research and development efficiencies;
- promoting the sharing of best practices and innovation across the group to deliver improved operating and cost efficiencies; and
- providing surge capacity to meet the expected growth in demand in the mobile device sector and other high volume activities.
This strategy has delivered tangible results in
the current generation of wireless products that
have dominated IQE’s output during 2008 and will
continue to deliver on current and next generation
products. In addition, IQE is also able to leverage
its large manufacturing capacity in order to deliver
tangible benefits to customers, shareholders and
other stakeholders.
4. PRODUCTS AND MARKETS
IQE’s product roadmap and strategy continues to be
driven by four key market dynamics, all of which
have high growth, high volume prospects:
The increasing adoption of high speed mobile
communications, including 3G, WiFi, WiMAX, WiBro,
GPS and other wireless technologies . As mobile
technologies continue to advance at an enormous pace
with new features constantly emerging, the role of
advanced compound semiconductor materials such as
GaAs has become critical in enabling high speed data
processing whilst maintaining low levels of power
consumption. IQE’s products are absolutely critical
in the drive to 3G and beyond, along with the need
for backward compatibility and the speed and power
to accommodate features such as high resolution
imaging, video, high speed wireless data access,
VoIP and satellite navigation. Each high speed
communication device now contains multiple numbers
of GaAs components compared with earlier
generations, creating a powerful demand driver for
GaAs components and wafers which far outstrips the
growth of the overall communications market which is
in excess of 10% pa.
The ubiquity of applications for high volume
semiconductor lasers, including HD DVD, laser mouse,
laser projection, gaming and office and industrial
applications. In particular, laser projection is
viewed as one of the most exciting applications of
this technology, eventually being incorporated into
mobile handsets.
The accelerating drive for clean, efficient and
sustainable energy sources (solar cells), and highly
efficient light sources (LEDs) in order to reduce
the impact on global warming, reliance on fossil
fuels and provide a much cleaner environment.
Compound semiconductors are playing a critical role,
and IQE is involved in leading edge development for
these applications, having achieved world leading
results through its partners for solar cell
efficiencies.
The continuing need for higher speed, more powerful
microprocessors and higher speed, ultra high density
memories. This is driving the demand for new
materials solutions based on silicon substrates
including the incorporation of compound
semiconductors directly onto silicon substrates. IQE
has established powerful positions in both
technologies, working with some of the biggest names
in the industry.
Each of these markets has very powerful growth
potential, with wireless being the current key
driver.
5. TRADING OUTLOOK
IQE’s markets continue to prove resilient to the
global economic slowdown, as demonstrated by strong
customer demand and echoed by recent market comments
on the strength of 3G handset and smartphone sales.
The growth in demand for IQE’s products is largely
being driven by the increasing content of GaAs
within mobile devices, which reflects the rapid
adoption of 3G and “smartphone” technology to meet
the growing demand from users for advanced mobile
features such as email, internet browsing and video
streaming. 3G handset sales currently represent
around 12% of the general market but are forecast to
grow 52% in 2008 (Gartner; August 2008).
In addition, IQE continues to innovate and is
working with a number of customers in developing
cutting edge technologies in key emerging fast
growing, large volume markets, including solar power
generation, high efficiency solid state light
sources, advanced lasers, and advanced micro
processor and memory products. The Group continues
to make good progress in these areas and is on track
in bringing these products to market in the near
term.
The Group’s diverse customer base and multi-channel
supply strategy ensure a high level of resilience to
changes in the market landscape within its supply
chain.
The successful implementation of the Group’s
strategy, combined with a strong operational gearing
give the Board confidence in both the short term and
long term growth prospects of the business. The
Group remains on course to deliver strong growth in
both sales and profits for the full year.
Dr Drew Nelson
President and CEO
2nd September 2008.
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