Preliminary Results

IQE PLC 28 March 2007 28 March 2007 IQE plc Revenues and gross profits jump as global wireless position strengthened IQE plc (AIM: IQE, 'the Group'), the leading global supplier of advanced wafer products and wafer services to the semiconductor industry, has announced its Preliminary Results for the year ended 31 December 2006. FINANCIAL HIGHLIGHTS â€¢ Revenues up 55.2% at Â£32.4m (2005: Â£20.9m) â€¢ Gross profit up Â£3.3m at Â£2.5m (2005: loss Â£0.8m) â€¢ EBITDA loss down 45.6% at Â£2.4m (2005: loss Â£4.5m) â€¢ Operating loss down 30.2% at Â£4.2m (2005: loss Â£6.1m) â€¢ Net cash outflow from operating activities Â£4.6m (2005: outflow Â£5.1m) â€¢ Closing year end cash Â£4.1m (2005: Â£6.2m) The results for 2005 have been restated for the adoption of FRS 20 where applicable. The financial highlights presented above exclude an exceptional gain in 2006 of Â£0.3m (2005: gain Â£1.7m). OPERATIONAL HIGHLIGHTS â€¢ Two major acquisitions completed â€¢ IQE established as the leading supplier of wafers to the global wireless communications industry, offering a complete range of products for wireless communication devices â€¢ Wafer volumes up 67.8% at 250,000 units (2005: 149,000 units) â€¢ Excellent prospects for further significant increases in revenues in 2007 Dr Drew Nelson, IQE Chief Executive, commenting on the results said: '2006 has been an exciting year for IQE with the completion of two key strategic acquisitions that significantly increase our global presence and product offering to the wireless communications industry. 'Following the acquisitions, wireless communications products now account for over 75% of our revenues and the Group is now the largest independent wafer supplier to the global wireless market. Our products are key to both current and future generations of wireless communications devices including mobile phones, PDAs, GPS, Wifi, WiMAX and laptop PC components. 'The mobile handset market continues to be the primary consumer of IQE's products with the handset upgrades being the fastest growing part of the sector. These tend to be higher speed, feature-rich, high-end products that use more GaAs materials for the added performance and functionality. 'During the year we achieved a significant increase in revenues, bringing the Group closer to achieving sustainable profitability in 2007. We believe the continuing growth in the end markets for our products, coupled with our strategic positioning in the wireless sector, place the Group in a good position to continue to grow strongly.' Contacts: IQE plc : Drew Nelson, President & Chief Executive Officer +44 (0)29 2083 9400 Phillip Rasmussen, Chief Finance Officer Chris Meadows, Investor Relations Executive Noble +44 (0) 20 7763 2200 John Llewellyn-Lloyd College Hill : Adrian Duffield/Ben Way +44 (0)20 7457 2020 NOTE TO EDITORS IQE is the leading global supplier of advanced semiconductor wafers, with products that cover the whole spectrum of wafer structures, supported by an innovative outsourced foundry services portfolio that allows the Group to provide a 'one stop shop' for the wafer needs of the world's leading semiconductor manufacturers. IQE uses advanced crystal growth technology (epitaxy) to manufacture and supply bespoke semiconductor wafers ('epi-wafers') to the major chip manufacturing companies, who then use these wafers to make the chips which form the key components of virtually all high technology systems. IQE is unique in being able to supply wafers using all of the leading crystal growth technology platforms. IQE's products are found in many leading-edge consumer, communication, computing and industrial applications, including a complete range of wafer products for the wireless industry, such as mobile handsets and wireless infrastructure, WiFi, WiMAX, base stations, GPS, and satellite communications; optical communications, optical storage (CD, DVD), laser optical mouse, laser printers & photocopiers, thermal imagers, leading-edge medical products, barcode, high efficiency LEDs and a variety of advanced silicon based systems. 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 also provides bespoke R&D services to deliver customised 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. The Group is also able to leverage its global purchasing volumes to reduce the cost of raw materials. In this way IQE's outsourced services, provide compelling benefits in terms of flexibility and predictability of cost, thereby significantly reducing operating risk. IQE employs around 320 people and operates six manufacturing facilities located in Cardiff (two) and Milton Keynes in the UK; in Bethlehem, Pennsylvania and Somerset, New Jersey in the USA; and Singapore. The Group also has nine sales offices located in major economic centres worldwide. PRELIMINARY RESULTS 2006 1. OVERVIEW IQE has firmly established itself as the leading supplier of advanced wafer products and wafer foundry services to the worldwide semiconductor industry. The Group has a global presence comprising six manufacturing sites worldwide and sales locations in all the major economic regions of the world. Customers include many of the world's largest chip manufacturers who use IQE's wafers to produce advanced chips and integrated circuits for a diverse range of current and next generation technology applications including all forms of wireless and satellite communication systems, (including mobile phones, PDAs, GPS, Wifi, WiMAX, laptops and networks), optical communications, optical storage (DVD, CD), industrial, office and medical lasers, imaging systems and solar power generation. 2. STRATEGY IQE has continued to strengthen its leading position within the rapidly growing wireless communication sector by the acquisition of two companies during the latter part of 2006. IQE RF in the USA was acquired on 19 August 2006 and MBE Technology in Singapore was acquired on 29 December 2006. The acquisitions in USA and Singapore enhance the Group's strategic positioning in the wireless communications sector, delivering a number of strategic advantages. These include: â€¢ providing customers with a complete range of wireless products for both current and future generations of high speed mobile internet and wireless communications systems; â€¢ providing customers with multi site capabilities in the primary manufacturing platforms (MBE and MOCVD); â€¢ broadening the Group's customer base, and providing greater access to the Far East markets; â€¢ delivering benefits from economies of scale including purchasing power and research and development efficiencies; â€¢ promoting the sharing of best practices and innovation to deliver improved operating and cost efficiencies; and â€¢ providing capacity to meet the expected growth in demand in the wireless communications sector. The Group also continues to make progress in the electronics and opto-electronic markets by developing and nurturing strategic partnerships with the key players in these markets. 3. RESULTS The results include IQE RF LLC which was acquired in August 2006. MBE Technology Pte Ltd was acquired on 29 December 2006 and its trading will be consolidated from the beginning of 2007 Revenues were Â£32.4m (2005: Â£20.9m) including sales from IQE RF of Â£5.5m (2005: Â£nil) representing a year on year increase of 55.2%. The average exchange rate for 2006 was unchanged at USD 1.82/GBP (2005: USD 1.82/GBP). The Group achieved a gross profit of Â£2.5m (2005: gross loss Â£0.8m before exceptional gain of Â£1.7m). The improvement in gross margin was driven by increased revenues and improved efficiencies together with gross margin of Â£1.2m (2005: Â£nil) generated by IQE RF since its acquisition. The exceptional gain in 2005 of Â£1.7m related to the write back of a trade accrual which the Directors no longer considered was required. The Group invested Â£0.6m (2005: Â£0.5m) in research and development which was expensed during the year and primarily reflects cross-qualification of products and processes between existing and acquired businesses. SG and A costs, comprising distribution and other administrative expenses, were Â£5.9m (2005: Â£4.8m) before an exceptional gain of Â£0.3m (2005: Â£nil) including SG and A costs at IQE RF of Â£0.3m (2005: Â£nil). In total, SG and A costs represented 18.3% of sales (2005: 23.0%). Goodwill amortisation of Â£0.2m (2005: Â£nil) related to IQE RF. The goodwill of Â£5.9m (2005: Â£nil) resulting from the acquisition of MBE Technology will be amortised from the beginning of 2007. The EBITDA loss was down 45.6% to Â£2.4m (2005: EBITDA loss Â£4.5m) before exceptional gains. Pre-tax loss was Â£4.2m, (2005: loss Â£4.3m) equivalent to a loss per share of 1.21 pence (2005: loss 1.36 pence). Cash management continues to be a priority for the Group. Working capital, excluding that acquired in IQE RF and MBE Technology, increased during the year by Â£2.9m (2005: increase Â£0.8m) and the increase was primarily driven by the increase in revenues. The operating cash outflow was Â£4.6m (2005: outflow Â£5.1m). Capital expenditure of Â£1.4m (2005: Â£0.9m) included the purchase of an additional reactor at IQE Inc which cost Â£0.8m (2005: Â£nil) and was part of a large outsource contract previously agreed. The Group acquired IQE RF and MBE Technology during the year. The total purchase price of the two companies was Â£16.7m (2005: Â£nil) including cash acquired in MBE Technology of Â£1.0m (2005: Â£nil). The Group made two share issues to provide funds for the two acquisitions and these, together with other minor share issues, raised Â£15.9m (2005: Â£0.1m) net of costs. Part of the purchase price of the companies included deferred payments of Â£5.5m (2005: Â£nil) which fall due to be repaid by January 2009. Loan and lease repayments during the year totalled Â£1.8m (2005: Â£0.9m), resulting in a net increase in total borrowings at the year end to Â£10.0m (2005: Â£5.4m). Gross cash on hand exiting 2006 was Â£4.1m (2005: Â£6.2m) and net debt was Â£5.9m (2005: net funds Â£0.9m). The Group also has access to overdraft facilities from its UK and Singapore bankers of Â£3.0m for working capital purposes 4. MARKETS AND OPERATIONS Wireless communications IQE manufactures leading-edge, high efficiency and low power consumption wafers for Radio Frequency (RF) components used in a wide range of wireless communications devices and systems including mobile handsets, PDAs, WiFi, WiMAX, base stations, satellite communications and personal computers. IQE's wireless communications products comprise high frequency switch components (pHEMTs), power amplifiers (HBTs) and advanced integrated components (BiFETs) for next generation devices. All of these key components can be manufactured at multiple sites using a choice of Molecular Beam Epitaxy (MBE) or Metal Organic Chemical Vapour Deposition (MOCVD) tools. The mobile handset market is the key driver for IQE's wireless business which makes up over 75% of the Group's revenues. A recent industry study has found that the upgrade mobile phone market is expected to significantly outstrip the ' first-time' handset market during 2007. The study also highlighted that the upgrade market was most likely to be dominated by the high speed, feature-rich, high-end mobile phones that use a higher proportion of GaAs products for increased performance and functionality. The multi-site production strategy, where identical wafers can be produced on at least two different locations, offers customers the key benefits of higher product yield (less product variation), higher capacity, lower costs and disaster scenario mitigation. Since the acquisition of the facilities in USA and Singapore, there has been a significant degree of reallocation and qualification of production facilities to optimise equipment utilisation and to release resources and capacity. This has enabled the Group to focus on new products such as BiFETs (integrated switch/ power amplifier) where IQE has a significant technological lead. This is a relatively new product offering that is creating very strong interest with volumes ramping up rapidly due to the significant increases in functionality that the BiFET brings to the HBT power amplifier, especially for high speed communication systems by integrating additional control components into a single device. All of the wireless businesses are performing well and, as volumes ramp up through 2007, spare capacity throughout the Group will be increasingly utilised. Optoelectronics IQE manufactures advanced materials with electronic and optical properties ranging from infra-red, through the visible range and into ultra-violet. These materials are used in a wide range of components from lighting and displays to audio, video and data storage as well as office, industrial and automotive applications and high efficiency solar cells. IQE's optoelectronic materials, which account for approximately 20% of the Group's revenues, provide the enabling technology for a wide range of applications including optical 'laser' mouse devices, laser printing and copying machines, CD, DVD and HD-DVD readers and writers, and optical-fibre communications systems. Optoelectronic materials can be manufactured at multiple sites across a choice of production platforms. Increasing demand for high-efficiency solar cells provide great opportunities for optical and photovoltaic materials over the coming years. Currently, the Group is making very good progress in developing high efficiency terrestrial solar cell materials, and is expecting to be in limited pilot production by the end of 2007. Electronics IQE manufactures enhanced properties for silicon based components to improve product efficiencies and increase operating frequencies whilst maintaining low power consumptions for existing silicon based chip technologies. IQE offers silicon-based epitaxial services to wafer fabrication plants worldwide, which account for approximately 5% of the Group's revenues. It has won a number of key outsourcing contracts to provide its core products and epi-wafer services and has established a strong position in strained silicon, which it is further developing as a strained silicon on insulator product (sSOI) which is likely to be a key offering for next generation silicon based electronic devices. The significance of this is that increased customer demand for higher performance electronic devices is prompting chip manufacturers to turn to materials solutions to push the limits of standard silicon and epitaxy based processes are the key to enhancing the performance of silicon. The business unit is rapidly filling capacity, and focussing on adding the higher value products as the production demand for these continues to increase. Substrates IQE also manufactures high-end substrate materials for advanced applications such as infra-red detectors and thermal imaging devices. Some of the substrates are used by other parts of the Group, particularly for optoelectronic products, but the majority of its substrate output is for external customers. 5. CURRENT TRADING OUTLOOK Two major acquisitions and strong market conditions have helped secure IQE's position as the leading global player in advanced wafer outsourcing. The primary growth driver remains the rapidly increasing demand for wireless mobile communications components around the world and the increasingly diverse use of wireless technologies to satisfy the insatiable demand for higher speed mobile communication systems. IQE's strategy has been to develop and acquire a complete range of technologies and products for this sector and to ensure that customers have cost effective access to capacity, technology, and dual site manufacturing to help grow their own businesses. A recent industry study highlighting the rapid growth in demand for high-end mobile handsets that use more GaAs materials for the added performance and functionality endorses the Board's strategy to focus on the wireless sector. Also announced today was IQE's success in securing new R&D contracts worth around $2.4m to add to the current contracts worth over $2.5m, ensuring the Group stays at the forefront of advanced wafer supply. In common with the rest of the wireless industry, trading for the first two months of 2007 has remained flat but orders and production upgrades have picked up strongly during the last few weeks. The market conditions for IQE's product offerings, coupled with the Group's strong position in the marketplace, provide a solid foundation for future growth. The Board remains confident about IQE's prospects. IQE PLC PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2006 CONSOLIDATED PROFIT AND LOSS ACCOUNT Restated Restated 6 months 6 months 12 months 12 months to to to to 31 Dec 31 Dec 31 Dec 31 Dec 2006 2005 2006 2005 Note3 Note3 (All figures GBP000s) Note Unaudited Unaudited Unaudited Unaudited Turnover from Continuing Operations 12,356 11,225 26,948 20,890 Turnover from Acquisitions 5,474 0 5,474 0 Turnover 17,830 11,225 32,421 20,890 Cost of Sales (Including Exceptional Gain) 2/3 (16,657) (9,682) (29,936) (19,905) Gross Profit 1,173 1,543 2,485 985 Gross Profit/(Loss) before Exceptional Gain 1,173 (194) 2,485 (752) Exceptional Gain 2 0 1,737 0 1,737 Gross Profit 1,173 1,543 2,485 985 Gross Profit % before Exceptional Gain 6.6 (1.7) 7.7 (3.6) Operating Expenses : Distribution Expenses (818) (668) (1,518) (1,538) Administrative Expenses (Including Exceptional Gain) (2,880) (2,094) (4,944) (3,774) Operating Loss from Continuing Operations (3,076) (1,219) (4,526) (4,327) Operating Profit from Acquisitions 550 0 550 0 Operating Loss before Exceptional Gain (2,526) (2,956) (4,231) (6,064) Exceptional Gain 2 0 1,737 255 1,737 Operating Loss (2,526) (1,219) (3,976) (4,327) Operating Loss % before Exceptional Gain (14.2) (26.3) (13.1) (29.0) Interest (Paid)/Received (144) (21) (264) 35 Retained Loss for the Period (2,670) (1,240) (4,241) (4,292) Basic Loss Pence per Share 4 (0.69) (0.39) (1.21) (1.36) Diluted Loss Pence per Share 4 (0.69) (0.39) (1.21) (1.36) Administrative Expenses comprise : Research/Development (511) (285) (616) (500) Goodwill Amortisation and Impairment (166) 0 (166) 0 Other Administrative Expenses (Including Exceptional Items) 2/3 (2,204) (1,809) (4,162) (3,274) Administrative Expenses (2,880) (2,094) (4,944) (3,774) Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA) has been calculated as follows : Loss for the Period (2,670) (1,240) (4,241) (4,292) Interest Paid/(Received) 144 21 264 (35) Depreciation of Fixed Assets 935 492 1,617 1,559 Reversal of Impairment of Fixed Assets 0 (1,737) 0 (1,737) Goodwill Amortisation 166 0 166 0 EBITDA (1,425) (2,463) (2,194) (4,505) The comparative figures for 2005 have been restated for the adoption of FRS20 'Share Based Payment' see Note 3 IQE PLC PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2006 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES AND RECONCILIATION OF MOVEMENT IN 6 months to Restated Restated SHAREHOLDERS' FUNDS 31 Dec 2006 6 months to 12 months to 12 months to 31 31 Dec 2005 31 Dec 2006 Dec 2005 Note3 Note3 (All figures GBP000s) Unaudited Unaudited Unaudited Unaudited CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Loss for the Period (2,670) (1,240) (4,241) (4,292) Currency Translation Differences on Foreign Currency Net Investments (603) 214 (916) 348 Total Recognised Losses Relating to the Period (3,272) (1,026) (5,157) (3,944) RECONCILIATION OF MOVEMENT IN GROUP SHAREHOLDERS' FUNDS Brought Forward Balance 10,660 13,136 12,322 15,891 Share Option Costs Credited to Reserves 330 168 501 309 Shares Issued net of Issue Costs 15,868 44 15,920 66 Foreign Exchange Translation Differences (604) 214 (917) 347 Loss Attributable to Members of the Group (2,670) (1,240) (4,241) (4,292) Closing Balance 23,585 12,322 23,585 12,322 The comparative figures for 2005 have been restated for the adoption of FRS20 'Share Based Payment' see Note 3 IQE PLC PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2006 Restated As At As At CONSOLIDATED BALANCE SHEET 31 Dec 2006 31 Dec 2005 Note3 (All figures GBP000s) Unaudited Unaudited Fixed Assets : Intangible Fixed Assets 10,903 0 Tangible Fixed Assets 11,861 8,816 Fixed Assets 22,765 8,816 Current Assets : Stocks 8,580 4,312 Debtors 6,480 3,404 Cash at Bank and in Hand 4,071 6,245 Total Current Assets 19,131 13,961 Creditors - Amounts Falling Due within One Year (10,916) (6,355) Net Current Assets 8,215 7,606 Total Assets less Current Liabilities 30,979 16,422 Creditors - Amounts Falling Due after More than One Year : Deferred Income (160) (199) Long Term Borrowings (7,234) (3,646) Total Creditors - Amounts Falling Due after More than (7,394) (3,845) One Year Provision for Liabilities and Charges 0 (255) Net Assets 23,585 12,322 Capital and Reserves : Called-up Share Capital 4,299 3,163 Share Premium 172,031 157,263 Shares to be Issued 223 209 Investment in Own Shares (12) (13) Merger Reserve (605) (605) Profit and Loss Account (151,835) (147,593) Exchange Rate Reserve (1,375) (460) Other Reserves 859 358 Total Equity Shareholders' Funds 23,585 12,322 The comparative figures for 2005 have been restated for the adoption of FRS20 'Share Based Payment' see Note 3 Approved by the Directors of IQE plc on 27 March 2007 IQE PLC PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2006 Restated Restated 6 months 6 months 12 months 12 months to to to to CONSOLIDATED CASH FLOW STATEMENT 31 Dec 31 Dec 31 Dec 31 Dec 2006 2005 2006 2005 Note3 Note3 (All figures GBP000s) Unaudited Unaudited Unaudited Unaudited Net Cash Outflow from Operating Activities (1,206) (1,945) (4,640) (5,062) Returns on Investment and Servicing of Finance : Interest (Paid)/Received (144) (21) (264) 35 Capital Expenditure : Payments to Acquire Fixed Assets (453) (570) (1,430) (859) Proceeds from Sale of Fixed Assets 91 0 251 0 Acquisitions : Payments to Acquire Subsidiaries (11,227) 0 (11,227) 0 Cash Acquired upon Acquisition of Subsidiaries 1,023 0 1,023 0 Net Cash Outflow before Management of Liquid Resources and Financing (11,916) (2,536) (16,288) (5,886) Management of Liquid Resources (980) 70 3,621 4,207 (12,896) (2,466) (12,667) (1,679) Financing : Issues of Ordinary Share Capital 15,868 44 15,920 66 Loans (Repaid)/Received (1,076) 2,859 (1,806) 2,743 Leases Repaid 0 (50) 0 (601) Net Cash Inflow from Financing 14,792 2,853 14,114 2,208 Increase in Cash 1,897 387 1,447 530 IQE PLC PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2006 RECONCILIATION OF OPERATING LOSS Restated Restated TO NET CASH OUTFLOW FROM 6 months to 12 months to OPERATING ACTIVITIES 6 months to 31 Dec 2005 12 months to 31 Dec 2005 31 Dec 2006 Note3 31 Dec 2006 Note3 (All figures GBP000s) Unaudited Unaudited Unaudited Unaudited Operating Loss (2,526) (1,219) (3,976) (4,327) Depreciation of Fixed Assets 935 492 1,617 1,559 Reversal of Impairment of Fixed Assets 0 (1,737) 0 (1,737) Amortisation of Goodwill 166 0 166 0 Loss/(Gain) on Sale of Fixed Assets 24 1 (38) 1 Movement in Stocks (256) (121) (1,536) (880) Movement in Debtors (361) (16) (1,930) (800) Movement in Creditors 502 506 595 921 Government Grants Released (19) (19) (39) (409) Government Grants Received 0 0 0 300 Non-Cash Share Option Costs 330 168 501 309 Net Cash Outflow from Operating Activities (1,206) (1,945) (4,640) (5,062) IQE PLC PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2006 Restated Restated RECONCILIATION OF NET CASH FLOW 6 months to 6 months to 12 months to 12 months to TO MOVEMENT IN NET (DEBT)/FUNDS 31 Dec 2006 31 Dec 2005 31 Dec 2006 31 Dec 2005 (All figures GBP000s) Unaudited Unaudited Unaudited Unaudited Increase in Cash 1,897 387 1,447 530 Management of Liquid Resources 980 (70) (3,621) (4,207) New Loans 0 (3,000) 0 (3,000) Loans Repaid 1,077 141 1,807 257 Leases Repaid 0 50 0 601 Change in Net Funds/(Debt) Resulting from Cash Flows 3,954 (2,492) (367) (5,819) Loans Acquired as a Result of Deferred Acquisition Considerations (5,456) 0 (5,456) 0 Loans/Leases Acquired upon Acquisition of Subsidiaries (1,087) 0 (1,087) 0 Movement in Net (Debt)/Funds (2,589) (2,492) (6,910) (5,819) Opening Net (Debt)/Funds (3,426) 3,387 860 6,763 Exchange Differences 97 (35) 132 (84) Net (Debt)/Funds (5,918) 860 (5,918) 860 Restated ANALYSIS OF NET (DEBT)/FUNDS As At As At 31 Dec 2006 31 Dec 2005 (All figures GBP000s) Unaudited Unaudited Cash at Bank and in Hand 3,085 1,638 Cash at Bank Accessible between One and Seven Days 986 4,607 Total Cash at Bank and in Hand 4,071 6,245 Loans Due after more than One Year (7,226) (3,646) Loans Due within One Year (2,731) (1,739) Finance Leases Due after more than One Year (8) 0 Finance Leases Due within One Year (24) 0 Total Borrowings (9,989) (5,385) Net (Debt)/Funds (5,918) 860 NOTES TO THE PRELIMINARY ANNOUNCEMENT 1 ACCOUNTING POLICIES Basis of preparation The preliminary 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 preliminary financial information was approved by the Board of Directors and Audit Committee on 27 March 2007. The preliminary 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 31 December 2006, 30 June 2006 and 31 December 2005 are unaudited. The preliminary results statement will be announced to all shareholders on the London Stock Exchange and published on the Group's website on 28 March 2007. 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 IQE RF LLC on 18 August 2006 and MBE Technology Pte Ltd on 29 December 2006 have been accounted for under acquisition accounting, whereby these companies became part of the Group on their respective dates of acquisition. Goodwill Goodwill is calculated as the excess of the fair value of the acquisition consideration over the fair value of the acquired entity's assets and liabilities. Goodwill arising on acquisition of subsidiaries is capitalised and amortised on a straight line basis over the Directors' estimated useful economic life of the goodwill. This is individually assessed for each acquisition but does not exceed ten years. 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 transfer of substantial risks and rewards. 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 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. NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued) 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 the overseas subsidiaries 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 to 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. 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. Share based payment The Group operates a share option scheme. 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. NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued) Restated Restated 6 months to 6 months to 12 months to 12 months to 31 Dec 2006 31 Dec 2005 31 Dec 2006 31 Dec 2005 2 EXCEPTIONAL GAINS Unaudited Unaudited Unaudited Unaudited GBP000s GBP000s GBP000s GBP000s Note3 Note3 Exceptional gains comprise : Credited in cost of sales : Trade accrual 0 (1,737) 0 (1,737) Credited in other administrative costs : Onerous lease provisions 0 0 (255) 0 Exceptional gains 0 (1,737) (255) (1,737) The exceptional credit of Â£255,000 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 2005 of Â£1,737,000 relates 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 2006. The adoption of this standard represents a change in accounting policy, and the comparative figures for the six months ended 31 December 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 Â£330,000 during the six months ended 31 December 2006 (six months ended 31 December 2005: Â£168,000). The impact for the full year is an increase in employee costs of Â£501,000 (2005: Â£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. Full details of the key assumptions used in this model will be included in the Annual Report. Restated Restated 6 months to 6 months to 12 months to 12 months to 31 Dec 2006 31 Dec 2005 31 Dec 2006 31 Dec 2005 4 LOSS PER SHARE Unaudited Unaudited Unaudited Unaudited Note3 Note3 Loss for the Period GBP000s (2,670) (1,240) (4,241) (4,292) Weighted Average Number of Ordinary 384,932,499 315,976,014 350,729,318 315,976,014 Shares Diluted Share Options 8,593,469 3,580,904 8,593,469 6,919,658 Adjusted Weighted Average Number of 393,525,968 319,556,918 359,322,787 322,895,672 Ordinary Shares Basic Loss Pence per Share (0.69) (0.39) (1.21) (1.36) Diluted Loss Pence per Share (0.69) (0.39) (1.21) (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. NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued) 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 received a claim in 2005 for approximately Â£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 the Preliminary Results. This information is provided by RNS The company news service from the London Stock Exchange

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