IFRS Transitional Stmnt - Amd
IQE PLC
15 August 2007
The following replaces the IFRS Transitional Statement released on the 14 August
at 7.00am under RNS number 0259C.
IQE plc
Transition to International Financial Reporting Standards
IQE plc ('the Group'), the leading global supplier of advanced wafer products
and wafer services to the semiconductor industry, will be reporting its
financial results in accordance with International Financial Reporting Standards
('IFRS') with effect from 1 January 2007. On 22 August 2007 the Group will
report its interim results for the six months ended 30 June 2007 under IFRS,
including the restated comparatives for the six months to 30 June 2006.
This statement presents and explains the conversion of the Group's results as
previously reported under UK Generally Accepted Accounting Principles ('UK
GAAP') onto an IFRS basis for the year ended 31 December 2006.
The key changes for the Group are:
• accounting for the two acquisitions in the second half of 2006,
which includes the separate recognition of intangibles that formed part of
goodwill under UK GAAP
• goodwill is no longer amortised
• the capitalisation of expenditure on the development of new or
significantly improved products and processes
The net impact of these changes for the year ended 31 December 2006 is a £0.3
million reduction in the Group's loss before taxation, and a reduction in the
basic loss per share from 1.21 pence to 1.14 pence.
Full details are set out in this announcement.
15 August 2007
Enquiries:
IQE plc
Phil Rasmussen, Chief Financial Officer 029 2083 9400
Noble & Company Limited
John Llewellyn-Lloyd / Sam Reynolds 020 7763 2200
College Hill
Adrian Duffield / Ben Way 020 7457 2020
Restatement of financial information for International Financial Reporting
Standards
1 Introduction
Following a European Union Regulation (IAS Regulation EC 1606/2002) issued in
June 2002, and AIM notice 22, IQE plc is required to prepare its consolidated
financial statements under International Financial Reporting Standards with
effect for the year ending 31 December 2007.
The financial statements for the year ended 31 December 2006 have been restated
under IFRS, adopting a 1 January 2006 transition date. This announcement
presents and explains the Group's results for the year ended 31 December 2006 as
converted from UK GAAP to IFRS.
The first results to be published under IFRS will be for the half year to 30
June 2007, which will be reported in an announcement to be issued on 22 August
2007.
The financial information contained in this report does not constitute statutory
accounts within the meaning of section 240 of the Companies Act 1985. The
comparative figures for the year ended 31 December 2006 prepared under IFRS and
shown in this report are unaudited. The consolidated statutory financial
statements of IQE plc for the year ended 31 December 2006 prepared under UK GAAP
have been filed with the Registrar of Companies. The auditors' report on those
financial statements was unqualified and did not contain any statement under
section 237 (2) or (3) of the Companies Act 1985.
2 Basis of preparation
EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidated
financial statements of the company, for the year ending 31 December 2007, be
prepared in accordance with International Financial Reporting Standards (IFRSs)
adopted for use in the EU ('adopted IFRSs').
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of IFRSs in issue that either are
endorsed by the EU and effective (or available for early adoption) or are
expected to be endorsed and effective (or available for early adoption) at 31
December 2007, the Group's first annual reporting date at which it is required
to use adopted IFRSs. Based on these adopted and unadopted IFRSs, the directors
have made assumptions about the accounting policies expected to be applied,
which are as set out in note 6, when the first annual IFRS financial statements
are prepared for the year ending 31 December 2007.
In addition, the adopted IFRSs that will be effective (or available for early
adoption) in the annual financial statements for the year ending 31 December
2007 are still subject to change and to additional interpretations and therefore
cannot be determined with certainty. Accordingly, the accounting policies for
that annual period will be determined finally only when the annual financial
statements are prepared for the year ending 31 December 2007.
3 Transition to IFRS - first time adoption
IFRS 1 'First Time Adoption of International Financial Reporting Standards' sets
out the procedures that the Group must follow when it adopts IFRS for the first
time as the basis for preparing its consolidated financial statements. The Group
is required to establish its accounting policies for the year ending 31 December
2007 and, in general, apply these retrospectively to determine the IFRS opening
balance sheet as at its date of transition, 1 January 2006. This standard
permits companies adopting IFRS for the first time to take certain exemptions
from the full requirements of IFRS during the transition period. As permitted
under the transitional provisions of IFRS1, the exemptions adopted by the Group
are set out below.
i) Share based payments
The Group has adopted the exemption to apply IFRS 2 ('Share Based Payments')
only to awards made after 7 November 2002 that had not vested by 1 January 2005.
This exemption is consistent with the previous policy adopted under UK GAAP.
ii) Business combinations
The Group has chosen not to restate business combinations completed prior to the
transition date on an IFRS basis.
iii) Financial Instruments
The Group has taken advantage of the exemptions in IAS 32 and IAS 39 enabling it
to apply these standards from 1 January 2007.
iv) Cumulative translation differences
Cumulative translation differences in respect of foreign operations have been
deemed to be nil at the date of transition.
4 Principal differences to UK GAAP
i) Business combinations
Acquisitions undertaken since 1 January 2006 have been restated in accordance
with IFRS 3 ('Business Combinations'). This has impacted the accounting adopted
in respect of the acquisition of IQE RF LLC in August 2006 and the acquisition
of MBE Technologies Pte Ltd in December 2006.
The main impact is the requirement to separately identify certain intangible
assets previously included within goodwill under UK GAAP. Therefore, the
estimated fair values of development projects have been separately recognised
and will be amortised over their estimated useful lives. The estimated fair
value of development projects acquired as part of the acquisitions is £2.2
million.
In addition, the fair value of the acquisition consideration has been
re-assessed under IFRS and adjusted for discounting and acquisition expenses,
resulting in a £0.2 million reduction in the fair value of consideration for the
acquisitions.
The remaining goodwill is no longer amortised. Therefore, the amortisation
charge in 2006 of £0.2 million has been reversed.
ii) Intangible assets
In accordance with IAS 38 ('Intangible Assets') the Group is required to
capitalise development expenditure incurred on projects which meet certain
criteria, including the projects' technical feasibility and likelihood that
future economic benefits will be obtained. The net book value of deferred
development costs as at 31 December 2006 was £0.3 million.
IAS 38 also requires computer software to be treated as an intangible asset.
This has resulted in a balance sheet reclassification from property, plant and
equipment to intangible assets at 31 December 2006 of £0.1m
iii) Employee benefits
In accordance with IAS 19 ('Employee Benefits') the Group is required to
recognise a liability for employees' unused entitlement to annual leave.
Therefore, an additional accrual amounting to £0.1m has been recognised at 31
December 2006.
5 Restatement of financial information under IFRS
The financial information set out below has been prepared on the basis of the
accounting policies set out in note 6. An explanation of the effects of
transition to IFRS is provided above in note 4.
i) Consolidated Income Statement for the year ended 31 December 2006
IAS 38 IAS 19
IFRS3 Business Intangible Employee
UK GAAP Combinations Assets Benefits IFRS
£'000 £'000 £'000 £'000 £'000
Revenue 32,421 32,421
Cost of sales (29,936) (58) (78) (30,072)
Gross margin 2,485 (58) (78) 2,349
Distribution costs (1,518) (1,518)
Administration expenses (4,944) 166 222 24 (4,532)
Operating loss (3,977) 108 144 24 (3,701)
Finance income 104 104
Finance costs (368) (25) (393)
Retained loss (4,241) 83 144 24 (3,990)
Loss per ordinary share (1.21) (1.14)
ii) Consolidated Balance Sheet as at 31 December 2006
IAS 38 IAS 19
UK GAAP IFRS3 Business Intangible Employee
£'000 Combinations Assets Benefits IFRS
£'000 £'000 £'000 £'000
Assets
Non-current assets
Goodwill 10,903 (2,303) 8,600
Intangible assets 2,172 323 2,495
Tangible assets 11,861 (58) 11,803
Total non-current assets 22,764 (131) 265 22,898
Current assets
Inventories 8,580 8,580
Trade and other 6,480 6,480
receivables
Cash and cash 4,071 4,071
equivalents
Total current assets 19,131 19,131
Liabilities
Current liabilities
Borrowings (2,755) (2,755)
Trade and other (8,161) 214 (93) (8,040)
liabilities
Total current (10,916) 214 (93) (10,795)
liabilities
Non-current liabilities
Borrowings (7,234) (7,234)
Other non-current (160) (160)
liabilities
Total non-current (7,394) (7,394)
liabilities
Net assets 23,585 83 265 (93) 23,840
Shareholders' equity
Ordinary shares 4,299 4,299
Share premium 172,030 172,030
Other reserves (910) (910)
Retained earnings (151,834) 83 265 (93) (151,579)
Total equity 23,585 83 265 (93) 23,840
iii) Consolidated Balance Sheet as at 31 December 2005
IAS 38 IAS 19
IFRS3 Business Intangible Employee
UK GAAP Combinations Assets Benefits IFRS
£'000 £'000 £'000 £'000 £'000
Assets
Non-current assets
Goodwill
Intangible assets 183 183
Tangible assets 8,816 (62) 8,754
Total non-current assets 8,816 121 8,937
Current assets
Inventories 4,312 4,312
Trade and other 3,404 3,404
receivables
Cash and cash equivalents 6,245 6,245
Total current assets 13,961 13,961
Liabilities
Current liabilities
Borrowings (1,739) (1,739)
Trade and other (4,616) (117) (4,733)
liabilities
Total current liabilities (6,355) (117) (6,472)
Non current liabilities
Borrowings (3,646) (3,646)
Other non-current (199) (199)
liabilities
Provisions (255) (255)
Total non-current (4,100) (4,100)
liabilities
Net assets 12,322 121 (117) 12,326
Shareholders' equity
Ordinary shares 3,163 3,163
Share premium 157,263 157,263
Other reserves (511) (511)
Retained earnings (147,593) 121 (117) (147,589)
Total equity 12,322 121 (117) 12,326
iv) Cash flow Statement
IFRS 3 IAS 38 IAS 19 IAS 7
Business Intangible Employee Cash Flow
UK GAAP Combinations Assets Benefits Statements IFRS
£'000 £'000 £'000 £'000 £'000 £'000
Cash flows from operating activities
Cash generated from operations (4,640) 222 (4,418)
Interest received 104 104
Interest paid (368) (368)
Net cash from operating activities (4,904) 222 (4,682)
Cash flows from investing activities
Purchase of subsidiary undertaking (11,227) (11,227)
Net cash acquired with subsidiary 1,023 1,023
undertaking
Development expenditure (222) (222)
Proceeds from sale of tangible fixed 251 251
assets
Purchase of tangible fixed assets (1,430) (1,430)
Proceeds from sale of short term 3,621 (3,621) 0
investments
Net cash used in investing activities (7,762) (222) (3,621) (11,605)
Cash flows from financing activities
Net proceeds from issue of ordinary 15,920 15,920
share capital
Loans paid (1,807) (1,807)
Net cash used in financing activities 14,113 14,113
Net increase/(decrease) in cash and 1,447 (3,621) (2,174)
cash equivalents
Cash and cash equivalents at 1 January 1,638 4,607 6,245
Highly liquid investments 986 (986)
Cash and cash equivalents at 31 December 4,071 986 4,071
The IAS 7 ('Cash flow Statements') adjustment of £3,621,000 reflects the
inclusion of highly liquid deposits within cash and cash equivalents as required
by IAS 7
6 IFRS Accounting Policies
The Group's accounting policies under IFRS are set out below.
Basis of preparation
This financial information has been prepared under the historical cost
convention and in accordance with International Financial Reporting Standards ('
IFRS') and interpretations expected to be in issue at 31 December 2007. The
principal accounting policies of the Group are stated below.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiary undertakings. Subsidiaries are all entities over
which the Group has the power to govern their financial and operating policies.
Subsidiaries are consolidated from the date on which control is transferred to
the Group and are de-consolidated from the date that control ceases.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The
cost of an acquisition is measured at the fair value of the consideration plus
costs directly attributable to the acquisition. The acquired identifiable
assets, liabilities and contingent liabilities are recognised at their fair
value at the date of acquisition.
Goodwill
Goodwill arising on an acquisition is recognised as an asset and initially
measured at cost, being the excess of the fair value of the consideration and
directly attributable costs over the fair value of the identifiable assets,
liabilities and contingent liabilities.
Goodwill is not amortised. However, it is reviewed annually for any indication
of potential impairment. Any impairment identified is immediately charged to
the Consolidated Income Statement. Subsequent reversals of impairment losses
for goodwill are not recognised.
Revenue recognition
Revenue represents the amounts receivable for goods and services provided in the
ordinary course of business net of value added tax and other sales related
taxes. Revenue is recognised when the risks and rewards of the underlying sale
have been transferred to the customer, and when collectability of the related
receivable is reasonably assured, which is usually on the delivery of the goods
or services supplied and accepted by the customer.
Research and development
Expenditure incurred on the development of new or substantially improved
products or processes is capitalised, provided that the related project
satisfies the criteria for capitalisation, including the project's technical
feasibility and likely commercial benefit. All other research and development
costs are expensed as incurred.
Capitalised development costs are amortised on a straight line basis over the
period during which the economic benefits are expected to be received. The
estimated remaining useful lives of development costs are reviewed at least on
an annual basis.
The carrying value of capitalised development costs is reviewed for potential
impairment at least annually. Any impairment identified is immediately charged
to the Consolidated Income Statement.
Tangible fixed assets
Tangible fixed assets are stated at cost less accumulated depreciation and any
provision for impairment. Cost comprises all costs that are directly
attributable to bringing the asset into working condition for its intended use.
Depreciation is calculated to write down the cost of fixed assets to their
residual values on a straight-line basis over the following estimated useful
economic lives:
Freehold buildings ..................................... 25 years
Leasehold improvements ................................. 5 to 27 years
Plant and machinery .................................... 5 to 15 years
Fixtures and fittings .................................. 4 to 5 years
No depreciation is provided on land or assets yet to be brought into use.
Impairment
Fixed assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of
an asset's fair value (less disposal costs) and value in use.
Value in use is based on the present value of the future cash flows relating to
the asset. For the purpose of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows (Cash
Generating Units).
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
comprises direct materials and, where applicable, direct labour costs and
attributable overheads that have been incurred in bringing the inventories to
their present location and condition.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, and call deposits
which have maturity of three months or less.
Provisions
Provisions are recognised when the Group has a legal or constructive obligation
as a result of a past event; it is probable that an outflow of resources will be
required to settle the obligation; and the amount can be reliably estimated.
Provisions are calculated based on management's best estimate of the expenditure
required to settle the obligation after due consideration of the risks and
uncertainties that surround the event.
Foreign currencies
Transactions in foreign currencies during the year are recorded at the rates of
exchange ruling at the date of the transaction. Monetary assets and liabilities
in foreign currencies are translated into sterling at the rates ruling at the
balance sheet date. All exchange differences are taken to the income statement.
The balance sheets of overseas subsidiaries are translated into sterling at the
closing rates of exchange at the balance sheet date, whilst the income
statements are translated into sterling at the average rate for the period. The
resulting translation differences are taken directly to reserves.
Foreign exchange gains and losses on the retranslation of foreign currency
borrowings that are used to finance overseas operations are accounted for on the
'net investment' basis and are recorded directly in reserves provided that the
hedge is 'effective' as defined in IAS 39 ('Financial Instruments : recognition
and measurement').
Pension costs
The Group operates defined contribution pension schemes. Contributions are
charged in the Consolidated Income Statement as they become payable in
accordance with the rules of the scheme.
Share based payment
Under the IQE plc Share Option Scheme, the scheme participants are eligible for
the grant of share options in the Company. These have vesting periods of
between one and four years and can be exercised within ten years from the date
of grant, subject to performance criteria relating to profitability and share
price growth. The fair value of the employee services received in exchange for
the grant of the options is recognised as an expense. The total amount to be
expensed over the vesting period is determined by reference to the fair value of
the options granted which is calculated using the Black-Scholes option pricing
model.
Under the IQE plc All Employee Share Ownership Plans, the scheme participants
are eligible for the grant of matching shares from the Company which are
equivalent to the number of partnership shares that the company purchases on
their behalf with their monthly contributions.
The matching shares have a three year vesting period. The Company issues its
own shares in the open market in order to meet its obligations under the share
incentive schemes. Shares held by the Employee Share Ownership Trust's are
shown as a deduction from shareholders' funds. The cost of employee share plans
is charged to Consolidated Income Statement using the quoted market price of
shares at the date of grant and credited to reserves under shares to be issued.
The charge is accrued over the vesting period of the shares to the extent that
they are projected to vest.
Taxation
Income tax on the profit or loss for the year comprises current and deferred
tax.
Current tax is the expected tax payable on the taxable income for the year using
rates substantially enacted at the balance sheet date, and any adjustments to
tax payable in respect of prior years.
Deferred tax is provided in full on temporary differences between the carrying
amounts of assets and liabilities in the financial statements and the amounts
used for taxation purposes. Deferred tax is calculated at the tax rates that are
expected to apply in the period when the liability is settled or the asset is
realised. Deferred tax assets are only recognised to the extent that it is
probable that future taxable profits will be utilised.
Tax is recognised in the Consolidated Income Statement except to the extent that
it relates to items recognised directly in equity, in which case it is
recognised in equity.
Government grants
Government grants receivable in connection with expenditure on tangible fixed
assets are accounted for as deferred income, which is credited to the
Consolidated Income Statement by instalments over the expected useful economic
life of the related assets on a basis consistent with the depreciation policy.
Revenue grants for the reimbursement of costs charged to the Consolidated Income
Statement are credited to the Consolidated Income Statement in the year in which
the costs are incurred.
Leases
Leases which transfer substantially all the risks and rewards of ownership of an
asset are treated as a finance lease. Assets held under finance lease are
capitalised at their fair value at the inception of the lease and depreciated
over the estimated useful economic life of the asset or lease term if shorter.
The finance charges are allocated to the Consolidated Income Statement in
proportion to the capital amount outstanding.
All other leases are classified as operating leases. Operating lease rentals are
charged to the Consolidated Income Statement in equal annual amounts over the
lease term.
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