Final Results

IQE PLC
22 March 2005

22 March 2005



                                    IQE plc



            Preliminary Results for the Year Ended 31 December 2004



IQE plc (IQE), the leading global outsource supplier of customised epitaxial
wafers to the semiconductor industry, today announces its Group Preliminary
Results for the year ended 31 December 2004.



KEY POINTS



•  Full year revenue down 18.2% at £15.344m (2003: £18.753m) as the weak dollar, 
   selling price reductions and a weak third quarter impacted sales. In
   dollar terms, sales were down 8.5% at $27.907m (2003: $30.490m)



•  Wafer volumes increased by 27.3% to approximately 140,000 units (2003:
   110,000 units)



•  Despite lower revenues, the loss on ordinary activities before taxation
   was reduced by 25.9% to £10.104m (2003: £13.639m) as a result of tight cost
   control, cost reduction measures and continued improvement in operational
   efficiencies.



•  Operating cash outflow reduced by 9.9% at £9.096m (2003: £10.100m)



•  Closing year end cash at £9.923m (2003: £21.738m)



•  Operating cash breakeven run rate lowered to £25.800m revenue (2003:
   £41.400m) through continued improvements in operational efficiencies and
   substantial cost reduction programmes



•  Won major outsourcing contract worth approximately $25.000m over first two 
   years for RF wireless applications, production commenced in last few weeks
   of 2004



•  Positive customer feedback on strained silicon indicating substantial
   performance improvements, leading to patent applications on technology



•  Prospects very good for significantly increased revenue in 2005



Commenting on the results, Dr Drew Nelson, President and CEO, said



'After some setbacks in our main market sectors during quarter three, the last
few weeks of 2004 saw a significant upturn in business with the commencement of
a major outsource contract, increased demand for RF products driven by renewed
growth in the mobile handset marketplace, and the completion of some significant
qualifications.



The winning of a major outsource contract worth around $25.0m over the first two
years has enabled the Group to exit the year with its largest order book for
over twenty four months and an exit revenue run rate which will deliver
substantially improved revenues in 2005.  I am confident the Group can achieve
its key initial objective of ongoing monthly cash generation in the near future
with the outlook for 2005 being positive.'



Contacts:
IQE plc :
Drew Nelson                                                   [phone]
Stuart Hall                                                   [phone]
Chris Meadows                                                 [phone]
Buchanan Communications : Tim Thompson/Nicola Cronk           [phone]





PRELIMINARY RESULTS 2004





1. INTRODUCTION



IQE has built a powerful position as a world leading supplier of advanced wafer
products and wafer foundry services to the semiconductor industry. Our materials
are found at the very heart of many leading-edge consumer, communication and
computing applications including mobile handsets, PDAs, CD/DVD systems,
satellite navigation devices, and voice and data communications systems. We
provide bespoke wafers and manufacturing services in the form of atomically
engineered semiconductor wafers, which are built to yield precisely defined
electronic, optical and mechanical characteristics. Our materials are then
fabricated by our customers to make the advanced electronic and optoelectronic
components that drive virtually all of today's high-tech products and systems.



In addition, as established silicon technologies continue to be pushed to their
limits, the use of new, highly advanced materials systems is absolutely key in
enabling the major players to maintain their leading edge within this highly
competitive, global landscape. To this end, IQE is an ideal development and
production foundry partner.  Having invested heavily in large scale state of the
art manufacturing facilities and possessing a wealth of experience in advanced
semiconductor materials development, the Group holds a unique position as a
dedicated materials foundry covering the full range of semiconductor materials,
strongly supporting  the adoption of the outsourcing model.



2. OVERVIEW



Sales revenues increased at the start of the year but declined during the third
quarter before recovering again strongly towards the end of the year. The main
factors contributing to the decline in sales revenues were the weak dollar,
aggressive pricing reductions to encourage further outsourcing and weakness in
the optical component markets.  However, the Group was able to more than offset
the effect of lower revenues with increased operating efficiencies and a
significantly reduced cost base which reduced the Group's losses compared with
previous years. Capital expenditure and research and development costs remained
low, principally because much of the investment in state of the art facilities
and new product developments had already been incurred during previous periods.



Total shipments of III/V epiwafers, Si epiwafers and III/V substrates increased
by 27% to around 140,000 units compared with around 110,000 units the previous
year.



Major progress was made in winning new business, particularly in the fourth
quarter.  A major outsource deal was completed which is expected to be worth
approximately $25m over the first two years of the contract, with shipping of
production volumes commencing during the last few weeks of the fourth quarter.
In addition, a number of qualifications were successfully completed during 2004
and several others are due to be completed in the first half of 2005. As a
result, IQE is now formally qualified to supply key materials for a range of
optoelectronic components to manufacturers based in the Far East, and to a major
defence contractor in the US for RF components.  Several other key technical
milestones were achieved including highly encouraging device results on IQE's
proprietary strained silicon, achievement of the highest ever power output from
a Vertical Cavity Laser, and demonstration of the world's first four band
Quantum Well Integrated Photodetector (QWIP).




3. RESULTS



The Group's operating results are detailed in the Consolidated Profit and Loss
Account and Consolidated Cash Flow Statements.



H2/2004 sales were £7.316m (H1/2004: £8.028m), which represented an 8.9%
reduction compared with H1/2004. This was mainly due to the continuing weakness
in the US dollar, an intended reduction in average selling prices to encourage
further outsourcing, and a slower than expected recovery in some of the key
markets in which IQE operates. Revenues for the full year were £15.344m (2003:
£18.753m), which represented an 18.2% reduction compared with last year. The
average exchange rate for 2004 was 11.7% worse than the average rate for last
year at USD 1.8188/GBP (2003: USD 1.6280/GBP), which resulted in a significant
reduction in the Group's sales line by approx £1.800m.



The gross loss in H2/2004 was £1.885m (H1/2004: loss £1.928m) and was equivalent
to a gross loss of 17.5% (H1/2004: gross loss 24.0%). Gross loss for the full
year was 24.9% at £3.813m (2003: gross loss 17.5% at £3.278m). Adverse exchange
rates, sales price reductions and lower overall sales into key markets were the
main reasons for a worsening in the Group's gross margin performance.



Significant cost savings were made in respect of research and development
expenditure by focusing on only the most essential and cost effective programs.
H2/2004 research and development costs were £0.354m (H1/2004: £0.481m).
Research and development costs for the full year were £0.835m (2003: £1.839m),
which represented 5.4% of sales.  All research and development costs were
expensed in the period.



Savings were also made in respect of selling, general and administration costs,
which comprise distribution costs and other administrative expenses.  H2/2004
selling, general and administration costs were £2.494m (H1/2004: £3.209m), which
represented a 22.3% reduction compared with H1/2004.  This included exceptional
credits of £0.392m (H1/2004: exceptional charges £0.221m) in respect of the
release of an onerous lease provision and the cost of staff redundancies at IQE
Europe, IQE Inc and IQE Silicon.   Selling, general and administration costs for
the full year were £5.703m (2003: £8.299m), which included net exceptional
credits of £0.171m (2003: exceptional charges £0.828m).



As a result of the above, H2/2004 operating loss before exceptional credits of
£0.392m was £5.125m (H1/2004: £5.618m before exceptional charges of £0.221m),
which represented an 8.8% reduction compared with H1/2004.  The operating loss
for the full year before exceptional credits of £0.171m was £10.522m (2003: loss
£12.588m before exceptional charges of £0.828m).   The pre tax loss for the full
year was £10.104m (2003: pre tax loss £13.639m).



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 the Group's working capital.   However working capital, comprising
stocks, debtors and creditors, increased in H2/2004 by £0.866m (H1/2004:
increase £0.043m), which was mainly due to a reduction in creditors and the
release of provisions.  As a result, the operating cash outflow for H2/2004 was
£0.186m less than H1/2004 at £4.456m (H1/2004: outflow £4.642m).  The operating
cash outflow for the full year was £9.096m (2003: outflow £10.100m).



Capital expenditure continued to be restricted to essential items only and
totalled £0.214m in H2/2004 (H1/2004: £0.134m). Loan and lease repayments in H2/
2004 totalled £1.148m (H1/2004: £1.589m), which reduced total borrowings at the
end of the period to £3.160m (H1/2004: £4.346m).  Gross cash on hand at the end
of the period was £9.923m (H1/2004: £15.552m).


4. OPERATIONS



IQE Inc



IQE Inc had experienced a downturn in order volumes during the second and third
quarters of the year as three of its major customers supplying into the wireless
sector experienced unexpected declines in orders from a leading handset
manufacturer. As a result, revenues for the first part of the year were less
than originally expected. However, all three customers experienced an upturn
during the last two months of the year and this fed through to increased orders
and sales levels towards the end of the year and coincided with increased
production volumes due to the major outsourcing contract win that was announced
in November. In addition, several other qualifications were completed resulting
in significantly improved business conditions exiting 2004 which have continued
into 2005.



All operational metrics continued to improve throughout the year with the result
that the business unit was able to respond quickly and efficiently to the upturn
in production towards the year end.  Additionally, excellent technical progress
continued with development of the world's first four band quantum well infrared
detector (QWIP) camera, jointly with NASA's Jet Propulsion Lab, capable of
imaging through smog and other atmospheric interferences.   The Company is also
qualified as an approved supplier to a number of the world's top RF component
companies.



IQE (Europe) Limited



Major progress was made during the year in developing material for market
sectors into which IQE had previously made little penetration. Many of these new
markets were developed by successfully qualifying products and services for new
customers in the Far East for a range of consumer electronics products such as
CD/DVD players, DVD-RW systems, minidisks and ROMs. However, production volumes
were lower than expected in the second half of 2004 due to a general weakening
in demand across the board for consumer products.  Demand has since improved
again and, as a consequence, shipments at the end of 2004 and into 2005 have
picked up substantially.



Demand for optical materials from the Company's traditional communications
markets continued to be weak during the first three quarters of 2004 but the
Company remains qualified and holds 'preferred vendor status' for a wide range
of optical communications products, and orders have begun to increase since the
late summer.  Interest continued to grow in advanced devices such as VCSELs that
are used in short distance communications systems, sensing and imaging
applications, lasers, detectors and other optical communications devices, and
shortly after the year end the Company announced a technical breakthrough with
Sweden's Chalmers University in terms of world leading high power performance
output from IQE's VCSEL wafers.



IQE Silicon Compounds Limited



The profile of strained silicon continues to grow with the material taking on a
dominant position on the ITRS (international semiconductor technology roadmap).



In the first half of the year, IQE Silicon launched its new 20% SiGe product
targeting the sub 100nm technology node. The business unit's position was
further enhanced towards the end of the year when, following successfully filing
for patents, the Company announced its UltraSmooth Strained Silicon product that
had exhibited for the first time a significant enhancement in speed for both
nMOS and pMOS devices at sub 100nm technology nodes.



IQE's reputation as a leading player in strained silicon technology is undoubted
and whilst the timescales for adopting the material for mainstream silicon
devices depend upon other factors in the sector, IQE is poised to take a
dominant role when the transition to the new platform occurs.




IQE Silicon has also succeeded in growing its revenues from standard silicon
epitaxy processing as a result of increased sales and marketing activities.
Furthermore, the business has increased its overall market share, partly as a
result of a major competitor being acquired by a wafer fabrication business as
an in-house epi source.



Wafer Technology Limited



Total wafer shipments during 2004 were 22.9% up on 2003 and only 2.5% below the
previous highest annual total which was recorded in 2000.  The Company also
progressed a number of encouraging new qualifications which are expected to
generate further demand for its GaAs products throughout 2005.  In response to
customers' increasingly stringent quality demands, the Company has developed
significantly improved surface finish products across its product ranges, which
are currently being sampled to leading industry players and are expected to
contribute to revenue growth later this year.



The Board has accepted the resignation of Martin Lamb as Board Director of IQE
plc and Managing Director of Wafer Technology Limited, and he will leave the
Group on 29 April 2005. The management team at Wafer Technology has been
strengthened by the appointment of Dr A Johnson, who brings considerable
compound semiconductor industry experience to the Group.



5. TRADING PROSPECTS



The Group won a major outsourcing contract and experienced significant increases
in demand for the full range of its products in the latter part of the year. As
a result, the Group enters 2005 with its largest order book in the last two
years and is in an excellent position to face the increased levels of order
activity and capitalise on the improvements in productivity and operational
efficiencies that have been achieved during the past year.  The Board had
anticipated that EBITDA breakeven would be achieved by the year end, but this is
now expected to be accomplished within the next few months as sales levels
increase. Coupled with substantially reduced debt payments, this should enable
the Group to become cash generative in the near future.





Dr Drew Nelson

President and Chief Executive

IQE plc




RESULTS FOR 12 MONTHS TO 31 DECEMBER 2004

                                         6 months to  6 months to       6 months    12 months    12 months 
                                                                              to           to           to
CONSOLIDATED PROFIT AND LOSS             31 Dec 2004  30 Jun 2004         31 Dec  31 Dec 2004       31 Dec 
ACCOUNT                                                                     2003                      2003

(All figures GBP000s)              Note    Unaudited    Unaudited      Unaudited    Unaudited      Audited


Turnover from Continuing
Operations                                     7,316        8,028       8,697          15,344       18,753
Cost of Sales                                (9,201)      (9,956)    (10,412)        (19,157)     (22,031)

Gross Loss                                   (1,885)      (1,928)     (1,715)         (3,813)      (3,278)
Gross Loss %                                  (25.8)       (24.0)      (19.7)          (24.9)       (17.5)

Operating Expenses :
    Distribution Expenses                      (794)        (605)       (755)         (1,399)      (1,555)
    Administrative Expenses :
       Research/Development                    (354)        (481)       (668)           (835)      (1,839)
      Other Administrative
    Expenses (including
        exceptional items)          1,2      (1,700)      (2,604)     (3,683)         (4,304)      (6,744)

                                             (2,848)      (3,690)     (5,106)         (6,538)     (10,138)


Operating Loss before
exceptional items                            (5,125)      (5,397)     (6,299)        (10,522)     (12,588)
                                             

Other Operating Expenses :
    Exceptional items                 2          392        (221)       (522)             171        (828)


Operating Loss from Continuing
Operations                                   (4,733)      (5,618)     (6,821)        (10,351)     (13,416)
                                          
Operating Loss % from
Continuing Operations                         (64.7)       (70.0)      (78.4)          (67.5)       (71.5)
                                             

Interest Received/(Paid)                         136          111        (51)             247        (223)

Loss on Ordinary Activities
before Taxation                              (4,597)      (5,507)     (6,872)        (10,104)     (13,639)
Loss %                                        (62.8)       (68.6)      (79.0)          (65.9)       (72.7)

Current Taxation                                   0          (0)           0               0            0
Deferred Taxation                                  0          (0)           0               0            0

Retained Loss for the Period                 (4,597)      (5,507)     (6,872)        (10,104)     (13,639)


Basic Loss Pence/Share                3       (1.46)       (1.75)      (3.31)          (3.20)       (6.57)
Diluted Loss Pence/Share              3       (1.46)       (1.75)      (3.31)          (3.20)       (6.57)

Net Loss before Interest/ Taxes
/Depreciation and
Amortisation (EBITDA)                        (3,512)      (4,599)     (5,766)         (8,112)     (11,300)





                                                6 months  6 months to     6 months     12 months     12 months
    TOTAL RECOGNISED GAINS                            to                        to            to            to
    AND LOSSES AND MOVEMENT IN                    31 Dec  30 Jun 2004  31 Dec 2003   31 Dec 2004        31 Dec 
    SHAREHOLDERS' FUNDS                             2004                                                  2003

    (All figures GBP000s)                      Unaudited    Unaudited    Unaudited     Unaudited      Audited

    TOTAL RECOGNISED LOSSES

    Loss for the Period                          (4,597)      (5,507)   (6,872)         (10,104)     (13,639)
    Currency Translation Differences on Foreign
     Currency Net Investments                      (123)         (43)     (158)            (166)        (356)

    Total Recognised Losses relating to
    the Period                                   (4,720)      (5,550)   (7,030)         (10,270)     (13,995)
                                                 


    MOVEMENT IN SHAREHOLDERS' FUNDS

    Opening balance as previously
    reported                                      20,558       26,057    15,177           26,057       21,936

    Prior year adjustment                              0         (15)         0             (15)            0
    Shares Issued net of Issue Costs                  54           66    17,909              120       18,116
    Foreign Exchange Translation
    Differences                                    (123)         (43)     (158)            (166)        (356)
                                                  
    Movement in Other Reserves                         0            0         0                0            0
    Loss Attributable to Members of the
    Group                                        (4,597)      (5,507)   (6,872)         (10,104)     (13,639)
                                                 

    Closing balance                               15,892       20,558    26,056           15,892       26,057




    The adoption of UITF 38 has required changes in the method of accounting
    for ESOP shares which are now dealt with as a deduction from shareholders'
    funds.   As a result of this change in accounting policy, the comparatives
    have been restated as follows :



                                                              Investment in
                                                              Shareholders'
                                                 Own Shares           Funds
                                                                      
    31 December 2003 as previously reported              15          26,057
    Reclassification of own shares to
    shareholders funds                                 (15)            (15)
                                                      


    31 December 2003 restated                             0          26,042







                                                                 As At            As At          As At
CONSOLIDATED BALANCE SHEET                                      31 Dec           30 Jun         31 Dec
                                                                  2004             2004           2003
(All figures GBP000s)                                        Unaudited        Unaudited        Audited


Fixed Assets                                                     9,204           10,363         11,349

Current Assets :
    Stocks                                                       3,433            3,978          3,464
    Debtors                                                      2,604            2,356          2,439
    Cash at Bank and in Hand                          4          9,923           15,552         21,738

    Total Current Assets                                        15,960           21,886         27,641

Creditors Falling Due within One
Year                                                           (6,471)          (8,124)        (8,606)
                                                               

Net Current Assets                                               9,489           13,762         19,035

Total Assets less Current                                       
Liabilities                                                     18,693           24,125         30,384

Creditors Falling Due after more
than One Year :
    Deferred Income                                              (307)            (385)          (385)
    Long Term Borrowings                                       (2,150)          (2,387)        (3,056)

    Total Creditors Falling Due
    after more than One Year                                   (2,457)          (2,772)        (3,441)
                                                              

Provision for Liabilities and
Charges                                                          (344)            (793)          (901)
                                                                

Net Assets                                                      15,892           20,560         26,042


Capital and Reserves :
    Called-up Share Capital                                      3,157            3,154          3,151
    Share Premium                                              157,187          157,147        157,118
    Merger Reserve                                               (605)            (605)          (605)
    Profit and Loss Account                                  (143,251)        (138,654)      (133,147)
    Exchange Rate Reserve                                        (808)            (683)          (640)
    Investment in Own Shares                                      (13)             (15)           (15)
    Other Reserves                                                 225              216            180

Total Equity Shareholders' Funds                                15,892           20,560         26,042





Approved by the Directors of IQE plc on 21 March 2005


                                              6 months to  6 months to  6 months to     12 months    12 months 
                                                                                               to           to
CONSOLIDATED CASH FLOW STATEMENT              31 Dec 2004  30 Jun 2004  31 Dec 2003        31 Dec  31 Dec 2003
                                                                                             2004

(All figures GBP000s)                           Unaudited    Unaudited    Unaudited     Unaudited      Audited


Net Cash Outflow from Operating
Activities                                        (4,454)      (4,642)      (5,106)       (9,096)     (10,100)
                                                  

Returns on Investment and Servicing of
Finance :
    Interest Received/(Paid)                          136          111         (51)           247        (223)

Capital Expenditure :
    Payments to Acquire Fixed Assets
    less Leases                                     (214)        (134)        (149)         (348)        (234)
                                                   
    Proceeds from Sale of Fixed Assets                  0            0           58             0          134

Net Cash Outflow before Management of Liquid
Resources and Financing                           (4,532)      (4,665)      (5,248)       (9,197)     (10,423)
                                                  

Management of Liquid Resources                      5,065        6,921     (11,800)        11,986      (5,550)

                                                      533        2,256     (17,048)         2,789     (15,973)
Financing :
    Issues of Ordinary Share Capital                   53           67       17,909           120       18,116
    Repayment of Loans                              (157)        (202)        (100)         (359)        (978)
    Repayment of Leases                             (992)      (1,387)      (1,518)       (2,379)      (2,692)

    Net Cash (Outflow)/Inflow from
    Financing                                     (1,096)      (1,522)       16,291       (2,618)       14,446
                                                 

Increase/(Decrease) in Cash                         (563)          734        (757)           171      (1,526)







RECONCILIATION OF OPERATING LOSS TO       6 months to         6 months  6 months to    12 months     12 months 
NET CASH OUTFLOW FROM OPERATING                                     to                        to            to
ACTIVITIES                                31 Dec 2004           30 Jun  31 Dec 2003       31 Dec   31 Dec 2003
                                                                  2004                      2004

(All figures GBP000s)                       Unaudited        Unaudited    Unaudited    Unaudited       Audited


Operating Loss                                (4,733)          (5,618)      (6,821)     (10,351)      (13,416)

Depreciation of Fixed Assets                    1,221            1,019        1,056        2,240         2,118
Loss on Sale of Fixed Assets                       16                0           46           16            46
Movement in Stocks                                545            (514)          831           31         1,524
Movement in Debtors                             (248)               83          517        (165)         1,282
Movement in Creditors                         (1,177)              388        (668)        (789)       (1,587)
Government Grants Released                       (78)                0         (67)         (78)          (67)


Net Cash Outflow from Operating
Activities                                    (4,454)          (4,642)      (5,106)      (9,096)      (10,100)
                                              



                                          6 months to       6 months      6 months  12 months to 12 months to
RECONCILIATION OF NET CASH FLOW TO        31 Dec 2004             to            to   31 Dec 2004  31 Dec 2003
MOVEMENT IN NET FUNDS                                         30 Jun        31 Dec
                                                                2004          2003

(All figures GBP000s)                       Unaudited      Unaudited     Unaudited     Unaudited      Audited


Increase/(Decrease) in Cash                     (563)            736         (757)           171      (1,526)

Management of Liquid Resources                (5,065)        (6,921)        11,800      (11,986)        5,550
Loans Repaid                                      157            202           100           359          978
Leases Repaid                                     992          1,387         1,518         2,379        2,692

Change in Net Funds Resulting from
Cash Flows                                    (4,479)        (4,596)        12,661       (9,077)        7,694
                                              

Opening Net Funds                              11,206         15,776         3,045        15,776        7,959
Exchange Differences                               35             27            70            64          124

Closing Net Funds                               6,763         11,206        15,776         6,763       15,776










                                                                      As At         As At         As At
                                                                     31 Dec        30 Jun        31 Dec
ANALYSIS OF NET FUNDS                                                  2004          2004          2003

(All figures GBP000s)                                             Unaudited     Unaudited       Audited


Cash at Bank and in Hand                                              1,109         1,673           938
Cash at Bank Accessible between 1 and 7 Days                          8,814        13,879        20,800

Total Cash and Bank                                                   9,923        15,552        21,738

Loans Due after more than One Year                                  (2,150)       (2,308)       (2,451)
Loans Due within One Year                                             (409)         (446)         (531)
HP/Finance Leases Due after more than One Year                            0          (78)         (605)
HP/Finance Leases Due within One Year                                 (601)       (1,514)       (2,375)

Total                                                                 6,763        11,206        15,776









NOTES TO THE PRELIMINARY ANNOUNCEMENT



1   ACCOUNTING POLICIES



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.



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                                  5/10 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.



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.





Deferred taxation



Deferred tax is provided in full on timing differences that result in an
obligation at the balance sheet date to pay more tax, or a right to pay less
tax, at a future date at rates expected to apply when they crystallise based on
current tax rates and law.    Timing differences arise from the inclusion of
items of income and expenditure in tax computations in periods different from
those in which they are included in the financial statements.  Deferred tax is
not provided on timing differences arising from the revaluation of fixed assets
where there is no binding contract to dispose of those assets.    Deferred tax
assets are recognised to the extent that it is regarded as more likely than not
that they will be recovered.    Deferred tax assets and liabilities are not
discounted.



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.



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 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.




                                          6 months        6 months      6 months     12 months     12 months 
                                                to              to            to            to            to
  2 EXCEPTIONAL ITEMS                       31 Dec          30 Jun        31 Dec        31 Dec        31 Dec 
                                              2004            2004          2003          2004          2003

                                         Unaudited       Unaudited     Unaudited     Unaudited       Audited
    Exceptional items comprise
    GBP000s :
    Restructuring costs                          6             221           (6)           227           300
    Onerous lease provisions                 (398)               0           528         (398)           528

    Exceptional items                        (392)             221           522         (171)           828




Restructuring costs relate to the cost of staff redundancies as part of the
Group's cost reduction programme.

The exceptional credit of £398,000 (2003: charge £528,000) relates to the
onerous lease provision in respect of a vacant property at Wafer Technology
Limited.


                                        6 months      6 months         6 months        12 months     12 months
                                              to            to               to               to            to
                                          31 Dec        30 Jun           31 Dec           31 Dec        31 Dec
  3 LOSS PER SHARE                          2004          2004             2003             2004          2003

                                       Unaudited     Unaudited        Unaudited        Unaudited       Audited

    Retained Loss GBP000s                (4,597)       (5,507)          (6,872)         (10,104)      (13,639)

    Weighted Average Number of
    Ordinary Shares                  315,466,318   315,401,383      207,631,857      315,466,318   207,631,857
                                     
    Diluted Share Options              4,538,582     2,474,166        1,665,548        4,538,582     1,665,548
    Adjusted Weighted Average
    Number of Ordinary Shares        320,004,900   317,875,549      209,297,405      320,004,900   209,297,405
                                    
    Basic Loss Pence/Share                (1.46)        (1.75)           (3.31)           (3.20)        (6.57)
    Diluted Loss Pence/Share              (1.46)        (1.75)           (3.31)           (3.20)        (6.57)







Basic loss per share is calculated by dividing the earnings 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 14 requires the presentation of diluted LPS 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 LPS for
out of the money share options and warrants.





4  CASH AT BANK AND IN HAND



Cash at bank at 31 December 2004 included £1,202,000 (2003: £nil) which had been
placed on an interest bearing US dollar escrow account.  The funds are intended
to be used to purchase equipment from the counter party to the escrow account
during 2005.





5  STATUTORY ACCOUNTS



The financial information set out in this announcement does not constitute the
Company's statutory accounts for the years ended 31 December 2004 and 31
December 2003.   The financial information for the six months ended 31 December
2004 and 31 December 2003 is unaudited.   The financial information for the year
ended 31 December 2003 is derived from the Company's statutory accounts for the
year ended 31 December 2003 which have been delivered to the Registrar of
Companies.  The auditors reported on those accounts.  Their report was
unqualified and did not contain a statement under s237 (2) or (3) Companies Act
1985.



The financial information set out in this announcement, which was approved by
the Board of Directors and the Audit Committee on 21 March 2005, will be
announced to all shareholders on the London Stock Exchange and published on the
Company's website on 22 March 2005.   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.



The statutory accounts for the year ended 31 December 2004 will be finalised on
the basis of the financial information presented by the Directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the Company's Annual General Meeting.




                      This information is provided by RNS
            The company news service from the London Stock Exchange