Interim Results
IQE PLC
30 August 2006
For Immediate Release 30 August 2006
IQE plc
Interim Results for the Half Year Ended 30 June 2006
'Continuing Growth for 2006'
IQE plc (the Group), the leading global supplier of customised wafer products
and outsourced wafer services to the semiconductor industry, is pleased to
announce its Group Interim Results for the half year ended 30 June 2006.
KEY POINTS
• Half year revenues of £14.591m up 30.0% compared with sales of £11.225m
in H2/2005 and up 51.0% compared with sales of £9.665m in H1/2005
• Gross profit of £1.313m compared with gross loss of £0.194m in H2/2005
(gross profit of £1.543m after crediting exceptional items with no cash
impact of £1.737m) and gross loss of £0.599m in H1/2005
• Operating loss of £1.450m reduced by 50.9% compared with operating loss
of £2.956m in H2/2005 (operating loss of £1.219m after crediting exceptional
items with no cash impact of £1.737m) and operating loss of £3.110m in H1/
2005
• EBITDA loss of £0.768m, as calculated in the Consolidated Profit and
Loss Account, reduced by 68.8% compared with EBITDA loss of £2.463m in H2/
2005 and EBITDA loss of £ 2.043m in H1/2005 as a result of increased
revenues, tight cost control, cost reduction measures and continued
improvements in operational efficiencies
• EBITDA improvement of £1.695m compared with H2/2005 on revenue increase
of £3.366m demonstrates the high level of operational leverage of the G
roup's business model
• Net cash outflow from operating activities of £3.435m increased by 76.6%
compared with net cash outflow from operating activities of £1.945m in H2/
2005 and closing half year end cash at £1.193m (H2/2005: £6.245m) due mainly
to working capital increases as a result of strongly increasing revenues
• All markets for the Group's products showing solid, sustainable growth,
with the wireless marketplace particularly strong
• Won an additional two year extension of effective exclusivity to largest
outsource contract
• In August, the Group completed the acquisition of the Electronic
Materials Division of EMCORE Inc., making it the leading outsource supplier
of advanced wafers to the global semiconductor industry.
The 2005 results shown above have been restated for the adoption of FRS 20 where
applicable
Commenting on the results, Dr Drew Nelson, President and CEO, said
'As expected, the first half of 2006 has demonstrated continuing growth in all
key market sectors. We have continued to build on our reputation for technical
excellence and highly cost effective outsourcing as evidenced by the two year
extension of exclusivity to our largest outsource contract. With the recent
acquisition of EMD providing the Group with a complete portfolio of advanced
wafer products, we will take full advantage of the strong market conditions '
Contacts:
IQE plc :
Drew Nelson +44 (0)2920-839400
Stuart Hall +44 (0)2920-839400
Chris Meadows +44 (0)2920-839400
Buchanan Communications :
Tim Thompson/Nicola Cronk +44 (0)2074-665000
Noble and Company :
John Llewellyn-Lloyd + 44 (0)2077-632200
Graeme Bayley + 44 (0)2077-632200
PRELIMINARY RESULTS 2006
1. INTRODUCTION
The Group has earned a reputation as a world leading outsource supplier of
advanced wafer products and wafer foundry services to the semiconductor industry
and has continued to build on its leading position to secure new orders and
contracts during the last six months, including a two year extension of
effective exclusivity with one of its largest outsource customers. Key market
drivers for the Group's products continue to be leading-edge consumer,
communication and computing applications including mobile phones, satellite
navigation devices, personal computers, telecommunication networks, LED
technologies, PDAs, Optical storage (CD/DVD) systems, laser based components and
devices, and a wide variety of automotive, aerospace, industrial and medical
applications.
The Group's large investment in state-of-the-art manufacturing tools and
facilities over the last few years, coupled with the recent acquisition of the
EMD (IQE RF) business from EMCORE Inc, make it the only supplier worldwide able
to provide a full range of advanced epi-wafer products using all three leading
technology platforms (MOVPE, MBE and CVD) as well as providing a variety of
advanced substrates. In addition, the Group offers unique and innovative tailor
made outsourcing solutions to each customer, enabling considerable commercial
benefits to be realised. This makes the Group an ideal outsource partner to the
industry.
Market conditions for semiconductor products improved considerably over the last
twelve months and virtually all of the markets addressed by the Group's products
are showing considerable strength. This is particularly true of the wireless
marketplace and shows no signs of abating with the introduction of new wireless
technologies such as WiFi, Wireless LAN and WiMax.
2. OVERVIEW
Sales revenues increased strongly during the first half of 2006, up 30.0%
sequentially and up 51.0% year on year to £14.591m (H2/2005: £11.225m, H1/2005:
£9.665m). In addition to a number of contracts and qualifications that came to
fruition, a major outsource deal that was secured in November 2004 was extended
by a further two years, and additional contracts have been secured for products
from the Group's silicon division. Several other contracts are in various stages
of negotiation.
Average selling prices remained reasonably stable in each of the Group's
divisions during the first half year.
As reported in the pre-AGM trading statement, the weakening of the US dollar in
the latter part of H1/2006 has had an impact on our sales revenue, but the
impact on operating results is somewhat less than it would have been in the
past, because of the natural hedge provided by the higher percentage of the cost
base now being denominated in US dollars. Notwithstanding this, we continue to
control our costs very rigorously and implement new cost saving measures
wherever practicable.
The acquisition of EMCORE'S Electronic Materials Division announced following
the end of H1/2006 was approved by shareholders at an EGM held in Cardiff on 15
August and work is well underway to integrate the new facility into the Group.
The immediate impact of the acquisition is to place the Group as the leading
outsource materials supplier to the wireless sector and further enhances its
position as the leading supplier of advanced wafer products to the global
semiconductor marketplace.
3. RESULTS
The Group's operating results are detailed in the Consolidated Profit and Loss
Account and Consolidated Cash Flow Statement.
H1/2006 sales were £14.591m (H2/2005: £11.225m), which represented a 30.0%
increase compared with H2/2005 and a 51.0% increase compared with H1/2005 mainly
due to increased wafer shipments. The average dollar exchange rate worsened
slightly in H1/2006 to $1.7752/£ (H2/2005: $1.7591/£).
The Group achieved a gross profit in H1/2006 of £1.313m after exceptional
credits of £0.255m (H2/2005: gross profit £1.543m after exceptional credits of
£1.737m). The exceptional credit in H1/2006 related to the release of an onerous
lease provision which is no longer required. The exceptional credit in H2/2005
related to the write back of a trade accrual which the Directors no longer
considered a requirement.
Research and development costs in H1/2006 were £0.106m (H2/2005: £0.285m), which
represented 0.7% of sales (H2/2005: 2.5% of sales). All research and development
costs were focussed on only the most essential and cost effective programs and
were expensed in the period in line with the Group's accounting policy.
Selling, general and administration costs increased by £0.181m in the period to
£2.658m (H2/2005: £2.477m), which represented 18.2% of sales (H2/2005: 22.1%)
due to a foreign exchange loss of £0.210m (H2/2005: gain £0.117m).
EBITDA loss in H1/2006 was £0.768m (H2/2005: EBITDA loss £2.463m), which
represented a 68.8% improvement compared with H2/2005 and a 62.4% reduction
compared with H1/2005. In each case this was mainly due to increased revenues.
Cash management continued to be a priority for the Group throughout the period
with the focus firmly concentrated on reducing operating costs and carefully
managing working capital, which comprises stocks, debtors and creditors.
However, as a result of a 30.0% increase in revenues compared with H2/2005
coupled with an inventory build up at IQE Inc to service customers' managed
inventory requirements, working capital increased during the period by £2.756m
(H2/2005: reduction £0.369m) as shown in the Reconciliation of Operating Loss to
Net Cash Outflow from Operating Activities. This resulted in an operating cash
outflow for H1/2006 of £3.435m (H2/2005: outflow £1.945m).
Capital expenditure in H1/2006 was £1.337m (H2/2005: £0.570m) and mainly
comprised the purchase of an additional reactor at IQE Inc. Net of asset
disposals, capital expenditure totalled £0.817m (H2/2005 £0.570m).
Loan repayments in H1/2006 increased to £0.730m (H2/2005: £0.141m) as a result
of repayments on the fixed term loan of £3.000m which the Group borrowed from
its bankers shortly before the end of 2005. Total borrowings at the half year
end were £4.619m (H2/2005: £5.385m). Gross cash on hand at the half year end was
£1.193m (H2/2005: £6.245m) and net borrowings were £3.426m (H2/2005: net funds
£0.860m). As at the half year end, the Group had not drawn down any of its
overdraft facility from its bankers of £2.000m.
4. TRADING PROSPECTS
The Group entered 2006 with its largest order book for several years as a result
of strong market conditions and has continued to build on revenues, showing
further strong growth during the first half of 2006.
As previously reported, we are moving firmly into a situation in the market
where outsourcing is featuring more prominently in many companies' strategic
considerations because the semiconductor industry is now becoming capacity
constrained in several areas. We see this as an advantage to the Group as our
breadth of product range, large scale production capacity and economies of scale
are key considerations in attracting new business. We therefore look forward to
continued strong growth as the Group's capacity utilisation continues to
increase and the industry continues to expand.
The addition of the former EMD (IQE RF) of Emcore Inc adds to the Group's
portfolio of technology platforms and products and firmly establishes IQE as the
global leader in its field.
Dr Drew Nelson, OBE, FREng, D Eng
President and Chief Executive
IQE plc
29 August 2006
IQE GROUP
INTERIM RESULTS FOR 6 MONTHS TO 30 JUNE 2006 29-Aug-06
Restated Restated Restated
CONSOLIDATED PROFIT 6 mths to 6 mths to 6 mths to 12 mths to
AND LOSS ACCOUNT 30 Jun 2006 31 Dec 2005 30 Jun 2005 31 Dec 2005
(All figures GBP000s) Note Unaudited Unaudited Unaudited Audited
Turnover from Continuing
Operations 14,591 11,225 9,665 20,890
Cost of Sales (including
exceptional items) 2 (13,279) (9,682) (10,224) (19,905)
-------- -------- -------- --------
Gross Profit/(Loss) 1,313 1,543 (559) 984
Gross Profit/(Loss) % 9.0 13.7 (5.8) 4.7
Operating Expenses :
Distribution Expenses (700) (668) (870) (1,538)
Administrative Expenses :
Research/Development (106) (285) (215) (500)
Other Administrative Expenses (1,958) (1,809) (1,466) (3,275)
-------- -------- -------- --------
Administrative Expenses (2,063) (2,093) (1,681) (3,774)
-------- -------- -------- --------
Operating Expenses (2,763) (2,761) (2,551) (5,312)
-------- --------- -------- --------
-------- --------- -------- --------
Operating Loss from Continuing
Operations (1,450) (1,219) (3,110) (4,328)
Operating Loss % from Continuing
Operations (9.9) (10.9) (32.2) (20.7)
Interest (Paid)/Received (121) (21) 57 35
-------- -------- -------- --------
Loss on Ordinary Activities before
Taxation (1,571) (1,240) (3,053) (4,293)
Loss % (10.8) (11.0) (31.6) (20.6)
Current Taxation 0 (0) 0 (0)
Deferred Taxation 0 (0) 0 (0)
-------- -------- -------- --------
Retained Loss for the Period (1,571) (1,240) (3,053) (4,293)
-------- -------- -------- --------
Basic Loss Pence per Share 4 (0.50) (0.39) (0.97) (1.36)
Diluted Loss Pence per Share 4 (0.50) (0.39) (0.97) (1.36)
Earnings before Interest, Taxes,
Depreciation and Amortisation (EBITDA)
have been calculated as follows :
Loss for the Period (1,571) (1,240) (3,053) (4,293)
Interest Paid/(Received) 121 21 (57) (35)
Current and Deferred Taxation 0 0 0 0
Depreciation 682 492 1,067 1,559
Exceptional Items with No Cash Impact 0 (1,737) 0 (1,737)
-------- -------- -------- --------
Earnings before Interest/ Taxes
Depreciation and Amortisation (768) (2,463) (2,043) (4,506)
-------- -------- -------- --------
IQE GROUP
INTERIM RESULTS FOR 6 MONTHS TO 30 JUNE 2006 29-Aug-06
Restated Restated Restated
6 mths to 6 mths to 6 mths to 12 mths to
30 Jun 2006 31 Dec 2005 30 Jun 2005 31 Dec 2005
(All figures GBP000s) Unaudited Unaudited Unaudited Audited
CONSOLIDATED STATEMENT OF
TOTAL RECOGNISED LOSSES
Loss for the Period (1,571) (1,240) (3,053) (4,293)
Currency
Translation
Differences on
Foreign
Currency Net
Investments (313) 214 134 348
-------- -------- -------- --------
Total Recognised
Losses Relating to
the Period (1,885) (1,026) (2,919) (3,945)
-------- -------- -------- --------
MOVEMENT IN GROUP SHAREHOLDERS' FUNDS
Brought Forward
Balance 12,322 13,136 15,891 15,891
Share Option Costs
Credited to
Reserves 170 168 141 309
Shares Issued net
of Issue Costs 51 44 22 66
Foreign Exchange
Translation
Differences (313) 214 134 348
Loss Attributable
to Members of the
Group (1,571) (1,240) (3,053) (4,293)
-------- -------- -------- --------
Closing Balance 10,659 12,322 13,136 12,322
-------- -------- -------- --------
The comparatives have been restated for the adoption of FRS20 'Share Based
Payment' - see Note 3
IQE GROUP
INTERIM RESULTS FOR 6 MONTHS TO 30 JUNE 2006 29-Aug-06
Restated Restated Restated
As At As At As At As At
CONSOLIDATED BALANCE SHEET 30 Jun 31 Dec 30 Jun 31 Dec 2005
2006 2005 2005
(All figures GBP000s) Unaudited Unaudited Unaudited Audited
Fixed Assets 8,833 8,816 8,588 8,816
Current Assets :
Stocks 5,592 4,312 4,191 4,312
Debtors 4,973 3,404 3,388 3,404
Cash at Bank and in Hand 1,193 6,245 5,928 6,245
------- -------- -------- --------
Total Current Assets 11,758 13,961 13,507 13,961
Creditors -
Amounts
Falling Due
within One
Year (6,601) (6,355) (6,433) (6,355)
------- -------- -------- --------
Net Current
Assets 5,157 7,606 7,074 7,606
------- -------- -------- --------
Total Assets
less Current
Liabilities 13,991 16,422 15,662 16,422
Creditors - Amounts Falling
Due after More than One Year :
Deferred Income (179) (199) (218) (199)
Long Term Borrowings (3,152) (3,646) (2,042) (3,646)
------- -------- -------- --------
Total Creditors - Amounts
Falling Due after More than
One Year (3,331) (3,845) (2,260) (3,845)
Provision for
Liabilities
and Charges 0 (255) (266) (255)
------- -------- -------- --------
Net Assets 10,660 12,322 13,136 12,322
------- -------- -------- --------
Capital and Reserves :
Called-up Share Capital 3,169 3,163 3,159 3,163
Share Premium 157,314 157,263 157,216 157,263
Shares to be Issued 202 209 216 209
Investment in Own Shares (13) (13) (13) (13)
Merger Reserve (605) (605) (605) (605)
Profit and Loss Account (149,165) (147,594) (146,354) (147,594)
Exchange Rate Reserve (773) (460) (674) (460)
Other Reserves 530 359 191 359
------- -------- -------- --------
Total Equity
Shareholders'
Funds 10,660 12,322 13,136 12,322
------- -------- -------- --------
Approved by the Directors of IQE plc on 29 August 2006
IQE GROUP
INTERIM RESULTS FOR 6 MONTHS TO 30 JUNE 2006 29-Aug-06
6 mths to 6 mths to 6 mths to 12 mths to
CONSOLIDATED CASH FLOW STATEMENT 30 Jun 31 Dec 30 Jun 31 Dec 2005
2006 2005 2005
(All figures GBP000s) Unaudited Unaudited Unaudited Audited
--------- --------- --------- --------
Net Cash
Outflow from
Operating
Activities (3,435) (1,945) (3,118) (5,062)
Returns on Investment and Servicing of Finance :
Interest (Paid)/Received (121) (21) 57 35
Taxation :
UK and US corporation taxes 0 0 0 0
Capital Expenditure :
Payments to Acquire Fixed Assets (1,337) (570) (289) (859)
Proceeds from Sale of Fixed Assets 520 0 0 0
-------- -------- -------- --------
Net Cash
Outflow before
Management of
Liquid
Resources and
Financing (4,373) (2,536) (3,350) (5,886)
Management of
Liquid
Resources 4,601 70 4,137 4,207
-------- -------- -------- --------
228 (2,466) 787 (1,679)
Financing
Issues of Ordinary Share Capital 51 44 22 66
Loans (Repaid)/Received (730) 2,859 (116) 2,743
Leases Repaid 0 (50) (551) (601)
-------- -------- -------- --------
Net Cash (Outflow)/Inflow from Financing (679) 2,853 (645) 2,208
-------- -------- -------- --------
(Decrease)/Increase in Cash (450) 387 142 529
-------- -------- -------- --------
IQE GROUP
INTERIM RESULTS FOR 6 MONTHS TO 30 JUNE 2006 29-Aug-06
RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
6 mths to Restated Restated 12 mths to
6 mths to 6 mths to
30 Jun 31 Dec 30 Jun 31 Dec 2005
2006 2005 2005
(All figures GBP000s) Unaudited Unaudited Unaudited Audited
Operating Loss (1,450) (1,219) (3,110) (4,328)
Depreciation of Fixed Assets 682 492 1,067 1,559
(Gain)/Loss on Sale of Fixed
Assets (62) 1 0 1
Movement in Stocks (1,280) (121) (759) (880)
Movement in Debtors (1,569) (16) (784) (800)
Movement in Creditors 93 506 416 922
Exceptional Items 0 (1,737) 0 (1,737)
Government Grants Released (19) (19) (389) (409)
Government Grants Received 0 0 300 300
Non-Cash Share Option Costs 170 168 141 309
-------- -------- -------- --------
Net Cash Outflow from Operating
Activities (3,435) (1,945) (3,118) (5,062)
-------- -------- -------- --------
IQE GROUP
INTERIM RESULTS FOR 6 MONTHS TO 30 JUNE 2006 29-Aug-06
6 mths to 6 mths to 6 mths to 12 mths to
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/FUNDS 30 Jun 2006 31 Dec 2005 30 Jun 2005 31 Dec
2005
(All figures GBP000s) Unaudited Unaudited Unaudited
Audited
(Decrease)/Increase in
Cash (450) 387 142 530
Management of Liquid
Resources (4,601) (70) (4,137) (4,207)
Loans Repaid 730 141 116 257
Leases Repaid 0 50 551 601
-------- -------- -------- --------
Change in Net Funds
Resulting from Cash
Flows (4,321) 508 (3,328) (2,819)
New Loans 0 (3,000) 0 (3,000)
-------- -------- -------- --------
Movement in Net Funds (4,321) (2,492) (3,328) (5,819)
Opening Net Funds 860 3,387 6,763 6,763
Exchange Differences 36 (35) (48) (84)
-------- -------- -------- --------
Net (Debt)/Funds (3,426) 860 3,387 860
-------- -------- -------- --------
IQE GROUP
INTERIM RESULTS FOR 6 MONTHS TO 30 JUNE 2006 29-Aug-06
As At As At As At As At
ANALYSIS OF NET (DEBT)/FUNDS 30 Jun 2006 31 Dec 2005 30 Jun 31 Dec 2005
2005
(All figures GBP000s) Unaudited Unaudited Unaudited Audited
Cash at Bank and in Hand 1,187 1,638 1,251 1,638
Cash at Bank Accessible
between One and Seven Days 6 4,607 4,677 4,607
------- -------- -------- --------
Total Cash at Bank and in
Hand 1,193 6,245 5,928 6,245
Loans Due after more than
One Year (3,151) (3,646) (2,042) (3,646)
Loans Due within One Year (1,468) (1,739) (449) (1,739)
Leases Due within One Year 0 0 (50) 0
------- -------- -------- --------
Total Borrowings (4,619) (5,385) (2,541) (5,385)
------- -------- -------- --------
Net (Debt)/Funds (3,426) 860 3,387 860
------- -------- -------- --------
NOTES TO THE INTERIM RESULTS
1 ACCOUNTING POLICIES
Basis of preparation
The interim financial information has been prepared on the basis of the material accounting policies set out in
the 2005 Annual Report and Accounts as amended for the adoption of FRS 20 'Share Based Payment' (see Note 3 below). The
interim financial information was approved by the Board of Directors and Audit Committee on 29 August 2006. The
financial information set out above does not constitute statutory accounts within the meaning of the Companies Act
1985. Comparative figures in the financial statements for the year ended 31 December 2005, other than as adjusted for
the adoption of FRS 20, have been taken from the Group's audited statutory accounts on which PricewaterhouseCoopers LLP
expressed an unqualified opinion The results for the six months to 30 June 2006, 31 December 2005 and 30 June 2005 are
unaudited.
The interim results statement will be announced to all shareholders on the London Stock Exchange and published on
the Group's website on 30 August 2006. Copies will be available to members of the public upon application to the
Company Secretary at Pascal Close, Cypress Drive, St Mellons, Cardiff CF3 0EG.
Accounting convention
The financial information is prepared under the historical cost convention and in accordance with applicable UK
accounting standards, which have been applied on a consistent basis during the period under review except as detailed
in Note 3.
Basis of consolidation
The financial information consolidates the financial statements of the Company and all of its subsidiaries.
The acquisition of EPI Holdings Limited and IQE Inc (formerly Quantum Epitaxial Designs Inc) by IQE plc, a new
holding Company established for that purpose, on 16 May 1999 has been accounted for under merger accounting whereby the
financial information is disclosed as if the companies had always been part of the Group. The acquisition of IQE
(Europe) Limited (formerly Epitaxial Products International Limited) and its subsidiary Epitaxial Products Inc by EPI
Holdings Limited, a new Company established for that purpose, on 27 March 1996 and the acquisition of Wafer Technology
International Limited and its subsidiary Wafer Technology Limited on 22 November 2000 have been accounted for under
acquisition accounting, whereby these companies became part of the Group on the date of acquisition.
Turnover
Turnover represents amounts receivable for goods and services provided in the normal course of business net of
value added tax and other sales related taxes. Turnover is recognised on despatch of goods.
Tangible fixed assets
Tangible fixed assets are stated at cost less accumulated depreciation and provision for impairment. Cost
comprises all costs that are directly attributable to bringing the asset into working condition for its intended use,
as defined by Financial Reporting Standard Number 15. Depreciation has been calculated so as to write down the cost of
assets to their residual values over the following estimated useful economic lives. No depreciation is provided on land
or assets yet to be brought into use.
Freehold buildings 25 years
Short leasehold improvements 5/27 years
Plant and machinery 5/15 years
Fixtures and fittings 4/5 years
NOTES TO THE INTERIM RESULTS (cont)
Stocks
Stocks are stated at the lower of cost and net realisable value.
Research and development
Research and development expenditure is fully written off when incurred.
Foreign currencies
Transactions in foreign currencies during the period are recorded at the rates ruling at the dates of the
transactions. 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 profit and loss account. The balance sheets of IQE
Inc are translated into sterling at the closing rates of exchange for the period, while the profit and loss accounts
are translated into sterling at the average rates of exchange for the period. The resulting translation differences are
taken directly to reserves.
Pension costs
The Group operates defined contribution pension schemes. Contributions are charged in the profit and loss account as
they become payable in accordance with the rules of the schemes.
Government grants
Government grants receivable in connection with expenditure on tangible fixed assets are accounted for as deferred
income, which is credited to the profit and loss account 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
incurred are deducted from the costs to which they related, in the period in which the costs are incurred.
Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered)
using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance
sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay
less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Group's
taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses
in tax assessments in periods different from those in which they are recognised in the financial statements.
A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all
available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which
the future reversal of the underlying timing differences can be deducted.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing
differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the
balance sheet date. Deferred tax is measured on a non-discounted basis.
NOTES TO THE INTERIM RESULTS (cont)
Leases
Assets held under finance leases and hire purchase contracts are capitalised at their fair value on inception of the
leases and depreciated over the shorter of the period of the lease and the estimated useful economic lives of the
assets. The finance charges are allocated over the period of the lease in proportion to the capital amount outstanding
and are charged to the profit and loss account. Operating lease rentals are charged to the profit and loss account in
equal amounts over the lease term. Provision is made at the balance sheet date for the present value of future rentals
under operating leases on vacated properties.
Financial instruments
The only derivative instruments utilised by the Group are forward exchange contracts. The Group does not enter into
speculative derivative contracts. Forward exchange contracts are used for hedging purposes to alter the risk profile of
an existing underlying exposure of the Group in line with the Group's risk management policies.
6 mths to 6 mths to 6 mths to 12 mths to
30 Jun 2006 31 Dec 2005 30 Jun 2005 31 Dec 2005
2 EXCEPTIONAL ITEMS Unaudited Unaudited Unaudited Audited
GBP000s GBP000s GBP000s GBP000s
Exceptional items comprise :
Credited in cost of sales :
Trade accrual 0 (1,737) 0 (1,737)
Onerous lease provisions (255) 0 0 0
--------- --------- --------- ---------
Exceptional items (255) (1,737) 0 (1,737)
--------- --------- --------- ---------
The exceptional credit in H1/2006 of £0.255m relates to the onerous lease provision in respect of a vacant
property at IQE (Europe) Limited which has been released to the profit and loss account as the Group is no longer the
tenant. The exceptional credit in H2/2005 of £1.737m related to the release of a trade accrual which the Directors
considered to be no longer required.
3 SHARE BASED PAYMENT
The Group has adopted FRS 20 'Share Based Payment' during the current period. The adoption of this standard
represents a change in accounting policy, and the comparative figures for the six months ended 31 December 2005 and 30
June 2005 and the full year ended 31 December 2005 have been restated accordingly.
The adoption of FRS 20 has resulted in an increase in employee costs of £170,000 during the six months ended 30
June 2006, £168,000 during the six months ended 31 December 2005 and £141,000 during the six months ended 30 June 2005.
The impact for the full year ended 31 December 2005 is an increase in employee costs of £309,000.
The charges recognised under FRS 20 represent the fair value of share options awarded by the Group since 7
November 2002 over the estimated vesting periods of the respective options. The options have been valued using the
Black-Scholes option-pricing model.
NOTES TO THE INTERIM RESULTS (cont)
Restated Restated Restated
6 mths to 6 mths to 6 mths to 12 mths to
30 Jun 2006 31 Dec 2005 30 Jun 2005 31 Dec 2005
4 LOSS PER SHARE Unaudited Unaudited Unaudited Audited
Loss for the Period GBP000s (1,571) (1,240) (3,053) (4,293)
--------- --------- --------- ---------
Weighted Average Number of Ordinary Shares 316,526,137 315,976,014 315,813,351 315,976,014
Diluted Share Options 6,919,658 3,580,904 5,735,597 6,919,658
--------- --------- --------- ---------
Adjusted Weighted Average Number of Ordinary Shares 323,445,795 319,556,918 321,548,948 322,895,672
--------- --------- --------- ---------
Basic Loss Pence per Share (0.50) (0.39) (0.97) (1.36)
Diluted Loss Pence per Share (0.50) (0.39) (0.97) (1.36)
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted
average number of ordinary shares during the period. Diluted loss per share is calculated by adjusting the weighted
average number of ordinary shares in issue on the assumption of conversion of all dilutive potential ordinary shares.
FRS 22 requires the presentation of diluted Loss Pence per Share when a company could be called upon to issue
shares that would decrease net profit or increase net loss per share. For a loss-making company with outstanding share
options and warrants, net loss per share would only be increased by the exercise of the out of the money options and
warrants. Since it seems inappropriate to assume that option holders would act irrationally, no adjustment has been
made to diluted Loss Pence per Share for out of the money share options and warrants.
5 CONTINGENT LIABILITY
The Group has received a claim for approximately £1 million in respect of national insurance contributions in
relation to share options that were issued in 1999. Having sought legal opinion, the Board remains robust in its
opinion that the Group has meritorious defences to this claim. Accordingly, no provision has been made in these
accounts.
Independent review report to IQE Plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2006 which comprises a summarised profit and loss
account, a statement of total gains and losses, summarised balance sheet
information as at 30 June 2006, a summarised cash flow statement, comparative
figures and related notes. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The rules of the
Alternative Investment Market require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.
This interim report has been prepared in accordance with the basis set out in
Note 1.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
company and for no other purpose. We do not, in producing this report, accept or
assume responsibility for any other purpose or to any other person to whom this
report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Cardiff
29 August 2006
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