PUR.L Regulatory News (PUR)

7 October 2014 

PURE WAFER PLC

("Pure Wafer" or "the Company")

Final Results for the year ended 30 June 2014

Profit before tax up 22%; Net cash of $1.5m at year-end;

Strong trading momentum maintained; Positive Outlook; Payment of Maiden Final Dividend;

Pure Wafer, one of the leading global providers of high quality silicon wafer reclaim services to many of the world's largest semiconductor manufacturers and foundries, today announces final results for the year ended 30 June 2014.

Commenting on the results, Chairman Peter Harrington said:

"I am delighted to announce continued improvement in the profitability of the Company and a further strengthening of the Balance Sheet. Continued and sustained strong cash generation has enabled Pure Wafer to invest in additional 300mm wafer capacity, introduce further technology advancements and further reduce debt, finishing the year with a net cash balance of $1.5million, representing a turnaround of more than $3.0 million since June 2013.

"With the Company's strong trading momentum maintained and a positive industry outlook, the Board is also recommending the payment of a maiden final dividend."

HIGHLIGHTS

Financial Highlights

· Group revenues of $35.9m (2013: $37.0m);

· Wafer reclaim revenues of $35.7m (2013:$36.1m);

· Operating profit (before exceptional items) of $3.9m (2013: $3.1m);

· Pre-tax profit of $3.6m (2013: $3.0m);

· Net cash generated from operating activities of $5.5m (2013: $5.1m);

· Net cash at year-end of $1.5m (2013: Net debt of $1.6m);

· Recommended final dividend of 0.43 pence (0.70 cents) per share;

Operational Highlights

· Capital investment of $3.6million during the year;

· Programme to increase 300mm capacity by up to 40% successfully implemented;

· Sales volumes increased 2% year-on-year (300mm equivalent);

· Record levels of productivity at both Swansea and Prescott facilities;

· Continued tight cost control and monitoring through engineering led activities; to effectively manage unit cost

CEO Richard Howells, commenting on current trading and prospects added:

"Demand for our wafer reclaim services has remained strong since the year-end, especially from Asia and the large foundry sector and we are confident that these levels of demand will continue throughout the current financial year. With the semiconductor market expected to continue its growth profile through to 2017 and beyond, and with Pure Wafer having additional 300mm capacity and leading-edge technology in place, the Board firmly believes that the Company is well placed for continued future growth."

Enquiries:

Chairman's statement

Introduction

The year to 30 June 2014 has been another significant one for Pure Wafer, and I am delighted to announce continued improvement in the profitability of the Company and a further strengthening of the balance sheet. As the semiconductor market continues to grow, Pure Wafer has cemented its position as one of the world's leading providers of specialist services to the global reclaim market.

With high levels of utilisation at both the Swansea and Prescott facilities, and with the market forecast to grow for the foreseeable future, a programme of increasing 300mm capacity was implemented during the year. I can confirm that this increased capacity is now fully operational and available to meet future growth in demand. During the year the Company also invested in leading-edge measuring equipment to ensure that Pure Wafer remains at the forefront of technology in line with customers' exacting expectations.

Continued and sustained strong cash generation has enabled Pure Wafer to invest in this additional capacity and further technology advancements, whilst continuing to reduce its level of debt, and has positioned the Company ready for the payment of a maiden dividend.

In January we reported that our competitors based in Japan were benefitting from favourable movements in the USD/YEN exchange rate, giving them a competitive advantage, which resulted in increased pricing pressure in the global wafer reclaim market. However, I am pleased to report that through increased customer engagement and a high level of customer satisfaction, this pressure has now stabilised. Furthermore, tight cost control, operational restructuring, and an improvement in process yields have helped to ensure no material impact on profitability.

The impact of exchange rate movements has been mitigated to some extent by the Company's forward currency purchasing policy. However, the strength of sterling during the year has resulted in an increase in the Company's sterling denominated cost base of approximately $0.2m for the year which otherwise would have contributed a commensurate amount to operating profits.

I am also pleased to report that, once again both manufacturing sites in Swansea and Prescott have continued to run at record levels of productivity, which together with the continuing close management of costs, has resulted in Pure Wafer's cost per wafer running at an all-time low for the fifth successive year, providing continued confidence in the strength of the business going forward.

During the year Pure Wafer's solar business experienced a further reduction in revenues which was in line with the ongoing challenges faced by the UK Solar market. In response to this the solar business has been restructured to bring its cost base into line with anticipated revenues. The solar business now accounts for less than 1% of Group turnover, and is primarily focused on serving existing commercial and local authority clients and the provision of consultancy services. 

The key financial performance indicators monitored by the Board are as follows:

• Turnover (Group) $35.9m (2013: $37.0m)

• Turnover (Wafer reclaim) $35.7m (2013: $36.1m)

• Operating profit before exceptional items $3.9m (2013: $3.1m)

• Pre-tax profit $3.6m (2013: $3.0m)

• Net cash $1.5m (2013: net debt of $1.6m)

• Net cash generated from operating activities $5.5m (2013: $5.1m)

• Basic earnings per share 13.5c (2013: 14.4c*)

* Whilst earnings per share show a decrease against the comparative period this is the result of the following: In November 2012, the Company issued a total of 140,905,232 Ordinary Shares of 2 pence each following a successful Placing and Open Offer. The timing of this share issue within the year ended 30 June 2013 has had a significant impact on the calculation of the weighted average number of Ordinary Shares. Therefore the current earnings per share as stated above is lower than that for the comparative period. If this share issue had occurred at the beginning of the year ended 30 June 2013 then the earnings per share figures for the comparative period would have been circa 11.5c (basic) and 10.1c (diluted).

The Board is encouraged by the actions of management to ensure that the increased pricing pressure from our competitors based in Japan and the strength of sterling have not had a material impact on the Company's profitability. This is reflected in the key financial indicators reported above, which highlight a substantial improvement in the Group's cash position. From net debt of $1.6m at 30 June 2013, the Group moved to net cash of $1.5m at 30 June 2014, at the same time investing $3.6m in capital expenditure.

Dividend

In light of the Board's confidence in the Company's improved financial position and its future prospects, I am pleased to announce that the Directors are recommending the payment of a maiden final dividend, subject to shareholders' approval, of 0.7 cents per share (0.43 pence per share at $1.6259:£1) and that payment will be made on 9 January 2015 to shareholders on the register as at 28 November 2014. The Board intends to adopt a progressive dividend policy for future years, based on financial performance, to include both an interim and a final dividend with an approximate one third, two thirds split.

Outlook

Industry analysts are forecasting continued growth through to 2017 and beyond, driven by internet-capable converging technologies and demand for mobile electronic devices. In particular demand continues to surge for tablet PCs and smartphones. This is expected to continue as global economies recover. Internet capable digital TV's have replaced 3D as the must have technology in 2014 and home appliances are being designed to interact via the internet. The "Internet of Things" is gaining momentum with no slowdown in sight.

Confidence in this sustainable growth means that our customers continue to invest heavily in additional capacity and technology advancements, giving rise to further wafer reclaim opportunities for Pure Wafer. With a lower cost of manufacture, and our own recent investment in increased 300mm capacity and technology advancements, Pure Wafer is well placed to take advantage of growth in the global market.

Since the year-end, demand for our wafer reclaim services has remained strong with additional opportunities for profitable growth especially from Asia and the large foundry sector. We are confident that these levels of demand will continue throughout this financial year and beyond. With continued focus on tight cost control the Board is confident that the Group will make further substantial progress in the current financial year.

Management

I would like to take this opportunity to thank all the management and staff of Pure Wafer for their commitment and support during a year in which productivity has reached record levels, volumes have continued to grow and a high level of cost control has been maintained. We have a dedicated and talented team of people driving the Company forward.

In March, following a comprehensive review, we announced, the Board had resolved to implement a senior management re-organisation as part of its strategy of succession planning to prepare the Company for its next phase of growth. I am pleased to report that this re-organisation has been completed in a controlled and well executed manner that resulted in a seamless transition on 1 July 2014 as follows:

· Due to a number of other business commitments Stephen Boyd has stepped down as Chairman, but remains on the Board as a non-executive director. I would like to thank Stephen on behalf of the Board for his significant contribution and steadfast leadership through some very challenging times for the business. We are delighted that Stephen has agreed to remain on the Board as his experience and expertise will be invaluable as the Company looks to the future.

· I am very excited to have taken up the position of Non-Executive Chairman, in order to lead the Board and oversee the implementation of a strategy to ensure the continued growth and success of the Company, which will also maximise the value and returns to shareholders.

· Richard Howells has been appointed Chief Executive Officer, having previously served as Chief Financial Officer. During his time as Chief Financial Officer, Richard was instrumental to the success of a number of projects that substantially strengthened the Company's capital base, transformed the Group's cash position and returned it to pre-tax profitability.

· Huw Lewis joined the Board and has been appointed Chief Financial Officer. Huw has some excellent experience within the technology industry and in the financial structuring and management of international companies which will be highly beneficial as the Company enters an important growth phase.

Finally, I would like to thank all of our shareholders for their continued support of Pure Wafer.

Peter Harrington

Chairman

6 October 2013

Chief Executive's review

Operational Review

Due to high levels of utilisation at both Swansea and Prescott facilities, and with market growth forecast for the foreseeable future, a programme of increasing 300mm capacity by up to 40% was successfully implemented and completed during the second half of the year positioning Pure Wafer to take full advantage of expected future growth in demand. The second half of the year also saw the installation of new leading-edge measuring equipment to ensure that Pure Wafer remains at the forefront of technology advancements within our industry.

I am pleased to report that the investment in additional capacity and technology advancements was funded entirely from free cash flow, which was augmented by grant receipts from the Welsh Government. The Group's impressive cash generation has allowed capital investment of $3.6m to be undertaken, whilst at the same time reducing bank debt by $1.4m, enabling the Group to close out the year in a net cash positive position. I would like to thank the Welsh Government for their continued support of Pure Wafer and for encouraging companies to invest and grow in Wales.

The second half of the year also provided a number of challenges for the business due to increased pricing pressure emanating from our competitors based in Japan, and exchange rate movements impacting our sterling denominated cost base. The USD/GBP exchange rate during the year resulted in an increase in the Group's sterling denominated cost base of approximately $0.2m USD for the year. Thanks to the responsiveness and efforts of the management team and staff, the impact of these challenges on the profitability of the Group was minimized.

Once again our operational teams have met the challenges set by the industry with dedication and enthusiasm. I am pleased to report that we were able to reduce costs per wafer by an additional 1% compared with the prior financial year. This was achieved by building on cost reductions and benefits gained during prior periods, despite our major suppliers seeking to increase prices for the majority of our consumable items. These cost savings were in part a result of economies of scale, but were largely due to successful engineering initiatives to reduce consumables usage and costs within our processes, without affecting the quality of our product offering.

Wafer reclaim volume sales grew during the year, with 6% growth in our mature 200mm business compared to the prior year. 300mm volumes remained level compared to the prior year, albeit volumes were impacted in the second half due to increased pricing pressure experienced at the beginning of 2014. This pricing pressure has now stabilized, which supports our strategy of focusing on providing high levels of customer service and support through increased customer engagement and continual improvement of our product offering.

Record levels of productivity were once again achieved in both the Swansea and Prescott facilities. I would like to thank all of our employees throughout the Group for their hard work and commitment during the year, which has enabled Pure Wafer to consolidate its standing within the wafer reclaim industry whilst continuing to trade competitively during this period.

Highlights

• Sales Volumes have continued to grow 2% year-on-year (300mm equivalent)

- 200mm up by 6% when compared to the prior year

- 300mm volumes have remained level while we completed the installation of the increased capacity

• High levels of productivity, continued tight cost control and an operational restructuring have offset the impact of USD/GBP exchange rate movements and supplier price increases, resulting in a 1% reduction in cost per unit

• Record levels of productivity at both Swansea and Prescott sites

• Continued strong cash generation has enabled net debt to be significantly reduced, whilst at the same time helping to facilitate $3.6m of capital investment

Market

Consumers' desire for multifunctional mobile electronic devices and internet-capable technology continues to grow exponentially. As a result industry analysts are forecasting continued growth through to 2017 and beyond. Growth is not only being driven by an enduring demand for tablet PCs and smartphones, as the global economies recover, but also by new internet-capable technologies. The "Internet of Things" is gaining momentum and has resulted in the emergence of must-have internet capable TV's and home appliances that communicate via the internet. In response our customers continue to invest heavily in additional capacity and technology advancements, which is good news for Pure Wafer.

Solar pv

Trading in our solar business saw a further reduction in revenues during the year. This was in line with expectations given the well documented challenges faced by the UK Solar market. The solar business has been restructured to bring its cost base in line with anticipated revenues. Our solar business now accounts for less than 1% of Group turnover, and is primarily focused on existing commercial and local authority clients and the provision of consultancy services. 

Outlook

Demand for our wafer reclaim services has remained strong since the year-end, especially from Asia and the large foundry sector. We are confident that these levels of demand will continue throughout this current financial year. With the semiconductor market expected to continue its growth profile through to 2017 and beyond, and Pure Wafer having additional 300mm capacity and leading-edge technology available, the Board firmly believes that the Company is well placed for future growth.

Richard Howells

Chief Executive Officer

6 October 2014

Financial review

Reporting currency

We continue to report in US dollars, the currency of the industry we operate in. This alignment of functional currency and reporting currency allows us to produce financial statements that are clearer and more transparent without the need for the large and numerous adjustments required at the year end.

Revenue and Volumes

Overall revenues declined by 3% year on year from $37.0m to $35.9m driven by reduced revenue in the solar business, and pricing pressure in the wafer reclaim business.

Wafer reclaim

Volumes shipped based on 300mm equivalent wafers increased by 2% in the year. As a result of a change in sales mix and increased pricing pressure experienced in the second half of the year revenue was $35.7m, a decrease of 1% on last year (2013: $36.1m). An analysis of turnover by origin and destination can be found in note 3.

Solar pv

Revenue for the year was $0.3m, (2013: $0.8m); reflecting the impact that changes in the UK Government backed feed-in tariff continues to have on the market.

Gross profit

Gross profit decreased from $11.1m to $10.4m, a decrease of 6%, as a result of sales prices pressure and foreign exchange movements. Gross profit margin also decreased from 30% to 29% year on year.

Administrative expenses

Administrative expenses decreased from $8.0m to $6.5m reflecting a reduction in costs due to saving initiatives implemented, and lower depreciation and amortisation costs.

Operating profit

Operating profit, before exceptional items, has increased from $3.1m to $3.9m as a result of increased productivity, costs control and a reduction in administrative expenses.

During the current year the Group incurred exceptional redundancy costs of $0.3m as the business took steps to align its costs structure with market price pressure.

Cash generation

The Group finished the year in a net cash position of $1.5m, an increase of $3.1m from a net debt position of $1.6m at 30 June 2013. Net cash generated from operating activities increased from $5.1m in the year ended 30 June 2013 to $5.5m in the current year, an increase of 7% due to tight cost control and management of working capital.

Profit before tax

Profit before tax increased from a profit of $3.0m to a profit of $3.6m.

Foreign exchange

We continue to maintain as much of the cost base as possible in US Dollars in order to provide a natural hedge against the US Dollar revenue streams.

Taxation

During the year the Group submitted a claim in respect of qualifying Research and Development of $80,000 (2013: $75,000).

The Directors have taken the decision to recognise a deferred tax asset representing available losses carried forward based on current budget and forecasts as they are expected to be utilised within the foreseeable future. The value of the remaining unrecognised deferred tax asset relating to tax losses of the UK business at 30 June 2014 is $6.2m (2013: $7.0m). There are no unrecognized tax losses relating to the US business.

Funding arrangements

During the fiscal year ended 30 June 2013 the Company undertook a full restructure of its balance sheet following a successful placing and open offer. The new facilities consisted of a $5.6m term loan repayable in equal instalments over 4 years, and a $1.6m revolving credit facility which is available to be drawn down at any time during the 4 years for any capital expenditure requirements. These loans attract interest rates of 3% over Libor for all utilised funds. The Company has paid down the loan in line with the appropriate repayment schedule and currently has a loan balance of $3.6m, and is in a net cash position of $1.5m.

Huw Lewis

Chief Financial Officer

6 October 2014

Consolidated income statement

year ended 30 June 2014

Registered number 05289130

*On 27 November 2013, the Company completed a 1 for 10 share consolidation. As a result, earnings per share for the year ended 30 June 2013 have been recalculated for comparative purposes.

Consolidated statement of changes in equity

year ended 30 June 2014

.

Consolidated balance sheet

as at 30 June 2014

Consolidated statement of cash flows

Year ended 30 June 2014

Note to the Accounts

1. Publication of Non-Statutory Accounts

The financial information set out in this announcement does not comprise the Group`s statutory accounts for the years ended 30 June 2014 or 30 June 2013.

The financial information has been extracted from the statutory accounts of the Company for the year ended 30 June 2013 which have been delivered to the Registrar of Companies. The auditors` opinion on those accounts was unqualified and did not contain a statement under section 498 (2) or section 498 (3) Companies Act 2006 and did not include references to any matters to which the auditor drew attention by the way of emphasis.

The statutory accounts for the year ended 30 June 2014 will be finalised on the basis of the financial information presented by the directors in this announcement and will be delivered to the Registrar of Companies following the Company`s Annual General Meeting.

2. General information

Pure Wafer plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is Pure Wafer plc, Central Business Park, Swansea Vale, Swansea SA7 0AB.

Adoption of new and revised standards

The financial statements have been prepared in accordance with International Financial Reporting Standards "IFRSs" as adopted by the European Union as they apply to the financial statements of the Group for the year ended 30 June 2014 and applied in accordance with the Companies Act 2006. The financial statements have been prepared in accordance with the historical cost convention.

There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning 1 July 2013 that would be expected to have a material impact on the Group.

The following standards are mandatory for adoption as at 30 June 2014 (all were effective at 1 January 2013 unless otherwise stated) and have been adopted by Pure Wafer plc. The adoption of the standards and interpretations have had no material impact on the financial statements of Pure Wafer plc;

The following standards and relevant interpretation, which have not been applied in these financial statements, were in issue but were not yet effective for Pure Wafer plc, and have not been adopted early. The adoption of these standards and interpretations are not expected to have a material impact on the financial statements of Pure Wafer plc, in the period in which they will be applied.

2. General information (continued)

Restatement of prior year consolidated income statement

The consolidated income statement for the year ended 30 June 2013 has been restated to reflect the change in accounting treatment of certain employee related expenses, pensions and benefits. The impact of this adjustment is to transfer $1.0m of cost from administration expenses to cost of sales. This does not change the net assets or profit for the year ended 30 June 2013.

3. Business and geographical segments

Business and geographical segments are reported in a manner consistent with internal reporting provided to the Chief Operating Decision-Maker, which has been identified as the Executive Directors of the Pure Wafer plc Board.

The Group's activities and turnover primarily consist of the reclamation and reprocessing of silicon test wafers, in the UK and the US, for external customers. The Group is also involved in the design, manufacture and installation of photovoltaic systems in the UK.

For management purposes, the Group is organised into three operating divisions based on the geographical territory of origin. These divisions are the basis on which the Group reports its primary segment information.

Segment information is presented below:

Management information does not separately analyse the UK assets and liabilities between the UK wafer reclaim and UK solar businesses. Assets and liabilities of the solar business are not considered by management to be material in the overall context of the UK business.

3. Business and geographical segments (continued)

Management information does not separately analyse the UK assets and liabilities between the UK wafer reclaim and UK solar businesses. Assets and liabilities of the solar business are not considered by management to be material in the overall context of the UK business.

Analysis by-product

The revenue by-product variant was as follows:

Analysis by destination

The revenue by destination was as follows:

Within the wafer reclaim business are revenues from the Group's largest customer of $6.4m (2013: $4.6m). There are no other customers who represent more than 10% of the Group's total revenue.

4. Operating profit

5. Exceptional items

Items that are material either because of their size or their nature, or that are non-recurring are considered as exceptional items and are presented within the line items to which they best relate. During the year the following exceptional items have been recognised within the income statement:

As a result of price pressure from customers during the year ended 30 June 2014, the Group restructured its cost base to bring its cost structure in line with selling prices. As a consequence the work force was restructured resulting in redundancy costs of $0.2m (2013:$nil). No provision is held at the balance sheet date (2013: $nil).

On 27 November 2013 the company undertook a 10 for 1 share consolidation. Advisor's fees incurred in relation to this exercise were $32,000 (2013: $nil).

Funds from the successful placing and open offer, which was completed in November 2012, were utilised to repay asset funders Lloyds, GE and CIT in full and partially repay RBS and Citizens Bank. The remaining debt was refinanced with HSBC in January 2013. In repaying the asset funders and banks early the Company negotiated certain discounts and fee waivers, which resulted in a $0.6m credit to the income statement in the year ended 30 June 2013,

6. Profit per share

The calculation of the basic and diluted profit per share is based on the following data:

The warrants and shares held at 30 June 2013 have been restated to reflect the Ordinary shares of 2 pence each being consolidated into new Ordinary shares of 20 pence on 27 November 2013.

7. Interest-bearing loans and borrowings

Bank loans are shown net of Arrangement fees of $142,000 (2013: $192,000). Arrangement fees are offset against book value of loan and amortised over the term of the loan agreement.

Bank loans are repayable as follows:

8. Notes to the consolidated cash flow statement

9. Changes to estimates

During the year ended 30 June 2013 the Directors reviewed the remaining useful lives of all fixed assets, which resulted in a $2.3m reduction in depreciation and amortisation in that year.

Following the successful placing and open offer, which was completed during the year along with the new HSBC banking facilities, the Company now has increased funds available to invest in and maintain its property, plant and equipment. The Company's maintenance and repair policy is one of the key factors that determine the estimated life of plant and equipment and as a result of this change the remaining life of many assets has been extended. The amortisation of the grants relating to some of these assets also had to be amended in line with the revision of useful lives.

10. Share premium account

The High Court in London passed a Court Order on 27th June 2013 granting the cancellation of the Company's share premium account and the Court Order was duly registered by the Registrar of Companies on 28th June 2013. As a result the balance on the share premium account of $27.5m was cancelled and transferred to distributable reserves in the prior year.

11. Merger reserve

The Group's merger reserve arose on the acquisition of Pure Wafer International Limited in 2005, which involved a share for share exchange. During the year ending 30 June 2013 Pure Wafer International Limited also restructured its reserves, which resulted in its share premium account being cancelled and its share capital being reduced. The balance on the merger reserve of $58.8m has been cancelled and transferred to retained earnings in the prior year. There is no impact of this in the current year.

12. Deferred income tax/liabilities

The analysis of deferred tax assets and deferred tax liabilities is as follows:

The Board has taken the decision to recognise a deferred tax asset representing available losses carried forward based on current budget and forecasts as they are expected to be utilised within the foreseeable future.

The value of the remaining unrecognised deferred tax asset relating to tax losses of the UK business at 30 June 2014 is $6.2m (2013: $7.0m). There are no unrecgonised tax losses for the US business.

13. Share capital

The Ordinary shares held at 30 June 2013 have been restated to reflect the Ordinary shares of 2 pence each being consolidated into new Ordinary shares of 20 pence on 27 November 2013.

During the year the Company issued a total of 1,426,151 Ordinary Shares of 20 pence each for a cash consideration of $0.5m.

14. Annual Report and Annual General Meeting

The Annual Report will be will be posted to shareholders on or around 30 October 2014 and will be available from the Company`s website, www.purewafer.com, shortly thereafter. The notice of the Annual General Meeting of the Company will be posted at the same time, and will be held at 12.00 pm on 26 November 2014 at Pure Wafer plc, Central Business Park , Swansea Vale, Swansea SA7 0AB.