Final Results

IQE PLC
20 March 2006


For Immediate Release                                         20 March 2006


                                    IQE plc

            Preliminary Results for the Year Ended 31 December 2005

                           '2005 major turning point'


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 Preliminary Results for the year ended 31 December 2005.



KEY POINTS


   • Full year revenues up 36.1% at £20.890m (2004: £15.344m). Revenues in US
    dollar terms up 36.5% at $38.103m (2004: $27.907m)

   • Wafer volumes increased by 6.4% to approximately 149,000 units (2004:
    140,000 units) whilst total wafer area shipped increased by 142% to 2.552m
    sq.inches (2004: 1.054m sq.inches)

   • Gross profit of £1.201m including exceptional credits of £1.737m (2004:
    gross loss £3.813m including exceptional items of £nil.)

   • Operating loss of £4.019m including exceptional credits of £1.737m
    (2004: operating loss £10.351m including exceptional credits of £0.171m.)

   • EBITDA loss, as calculated in the Consolidated Profit and Loss Account
    excluding exceptional non cash credits, reduced by 48.3% to £4.197m (2004:
    £8.111m) as a result of increased revenues, tight cost control, cost
    reduction measures and continued improvements in operational efficiencies

   • EBITDA improvement of £3.914m on revenue increase of £5.546m
    demonstrates the high level of operational leverage of the Group's business
    model

   • EBITDA breakeven achieved in last six weeks of 2005. Current annualised
    EBITDA breakeven revenue level at approximately £29.000m

   • Net cash outflow from operating activities reduced by 44.3% at £5.062m
    (2004: £9.097m) and closing year end cash at £6.245m (2004: £9.923m)

   • All markets for the Group's products now strengthening, with the
    wireless marketplace particularly strong

   • Major outsourcing contracts performing above expectations, the largest
    expected to contribute revenues of approximately $15.000m in 2006

   • Announcement in January 2006 of an additional major full outsourcing
    contract worth approximately $10.000m over five years. This contract is a
    direct result of accelerated qualification programs carried out during H2/
    2005 as are other similar contracts that are in negotiation.

   • Advanced R&D contracts expected to be worth over $2.000m in 2006 have
    also been secured since the year end

   • Excellent prospects for further significant increases in revenues in
    2006 supported by strong sequential revenue growth already achieved in Q1/
    2006


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


'As expected, 2005 has proved to be a major turning point for the Group. We
achieved a very significant increase in revenues compared with 2004 and the
return to profitability is clearly in sight. We believe the Group is well
positioned to take advantage of the strongly improving market conditions, and
has the ability to offer both technical capabilities and competitive pricing
across its diverse range of advances materials and technology platforms. We look
forward to 2006 and beyond with growing optimism.'


Contacts:

IQE plc :
Drew Nelson                                     [phone]
Stuart Hall                                     [phone]
Chris Meadows                                   [phone]

Buchanan Communications :
Tim Thompson/Nicola Cronk                       [phone]



PRELIMINARY RESULTS 2006


1. INTRODUCTION


The Group is widely recognised in its market sector as a world leading outsource
supplier of advanced wafer products and wafer foundry services to the
semiconductor industry. The diverse range of materials produced by each of the
Group's four divisions forms the enabling technology for many 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 its unique concentration of
world-class expertise and experience in semiconductor materials, 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
on an individual basis, enabling considerable commercial benefits to be realised
by each customer. This in turn 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, where handset sales grew by over 21% in 2005 to 817m units and
other wireless technologies such as WiFi, Wireless LAN and WiMax began to
increase significantly. Optoelectronic markets for consumer and industrial
applications also grew strongly, and this trend is set to continue throughout
2006 and beyond on the back of further exciting product launches such as the
laser-based optical mouse, high resolution photocopiers and printers coupled
with significant growth in optical communication markets.




2. OVERVIEW


Sales revenues increased strongly during 2005 to £20.890m (2004: £15.344m). A
number of contracts and qualifications come to fruition, including the major
outsource deal that was secured in November 2004, and further outsource
contracts have been secured, including a recently announced full outsource deal
for IQE Silicon worth $10.000m over 5 years which will improve revenue
visibility. Several others are in various stages of negotiation. Some of these
contract wins are a direct result of accelerated qualification progams that were
carried out during the second half of the year. A variety of smaller product
development opportunities were also secured, notably one with a major global
integrated circuit (IC) manufacturer for advanced materials for future potential
IC applications which has since been renewed for 2006 based on substantial
progress in 2005. These contracts are expected to be worth at least $2.000m in
2006. Other product qualifications continue to gather pace, with more and more
successful product lines achieving approved status with customers in North
America and the Far East.


Wafer shipments increased by 6.4% in 2005 to 149,000 units (2004: 140,000 units)
but, more importantly, wafer area shipped increased by 147% to a record 2.552m
sq.inches (2004: 1.054m sq.inches) because of a shift to larger wafer diameters.
Revenue growth was achieved at a capacity utilisation of less than 30% compared
with an EBITDA breakeven capacity utilisation of approximately 35%. Average
selling prices remained reasonably stable in each of the Group's divisions
during the year, reflecting a more balanced supply/demand and exchange rate
environment, which is expected to continue during 2006.



Excellent progress was also made in improving operational efficiencies during
the year, and supply chain and internal cost reduction focus continued to bear
down on the cost base, although some costs such as energy increases were
unavoidable.


Following a comprehensive annual re-assessment of the estimated remaining useful
life of fixed assets, the expected remaining economic lives of items of plant
and equipment at 31 December 2005 have been extended from an average three years
to an average eight years, which has the effect of reducing the depreciation
charge by £0.650m.


The annualised cash breakeven revenue run rate at the end of the year was
approximately £29.000m, around half the level of only two years ago. The Group
recorded a significant reduction in both EBITDA and post tax loss on the basis
of those revenue increases and cost reductions. In particular, the improvement
of £3.914m in EBITDA on a revenue increase of £5.546m clearly demonstrates the
very significant operational gearing of the Group's business model.





3. RESULTS


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


H2/2005 sales were £11.225m (H1/2005: £9.665m), which represented a 16.1%
increase compared with H1/2005 and was mainly due to increased wafer shipments
and a more advantageous dollar exchange rate in the second half. Revenues for
the full year were £20.890m (2004: £15.344m), which represented a 36.1% increase
compared with last year. The average exchange rate for 2005 was marginally worse
than the average rate for last year at USD 1.8240/GBP (2004: USD 1.8188/GBP).


The Group achieved a gross profit in H2/2005 of £1.661m after exceptional
credits of £1.737m (H1/2005: gross loss £0.460m after exceptional items of
£nil). The gross profit for the full year was £1.201m after exceptional credits
of £1.737m (2004: gross loss £3.813m after exceptional items of £nil). Increased
revenues and improved efficiencies were the main reasons for the improvement in
the Group's gross margin performance. The exceptional credit of £1.737m relates
to the write back of a trade accrual which the Directors no longer consider is
required.


H2/2005 research and development costs were £0.285m (H1/2005: £0.215m). Research
and development costs for the full year were £0.500m (2004: £0.835m), which
represented 2.4% of sales (2004: 5.4% of sales). All research and development
costs were focussed on only the most essential and cost effective programs and
were expensed in the period.


Savings were made in respect of selling, general and administration costs,
comprising distribution costs and other administrative expenses. Although H2/
2005 selling, general and administration costs were 5.7% up on H1/2005 at
£2.426m (H1/2005: £2.294m), full year costs were reduced by 17.2% to £4.720m
(2004: £5.703m).

Mainly as a result of incurring some one off rapid qualification costs in
respect of two customers in order to secure orders for 2006, H2/2005 EBITDA loss
was greater than H1/2005 at £2.295m (H1/2005: EBITDA loss £1.902m) despite the
revenue increase. EBITDA loss for the year was £4.197m (2004: EBITDA loss
£8.111m).


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. Mainly
as a result of a 36.1% increase in revenues compared with 2004, working capital
increased during the year by £0.758m (2004: increase £0.756m) as shown in the
Reconciliation of Operating Loss to Net Cash Outflow from Operating Activities.
The operating cash outflow for H2/2005 was £1.174m less than H1/2005 at £1.944m
(H1/2005: outflow £3.118m) and the operating cash outflow for the full year was
£5.062m (2004: outflow £9.097).


Capital expenditure continued to be restricted to essential items only and
totalled £0.570m in H2/2005 (H1/2005: £0.289m). Loan and lease repayments in H2/
2005 totalled £0.191m (H1/2005: £0.717m). Shortly before the year end, the Group
borrowed £3.000m from its bankers which increased total borrowings at the year
end to £5.385m (2004: £3.160m). As a result, gross cash on hand exiting 2005 was
£6.245m (2004: £9.923m) and net cash was £0.860m (2004: £6.763m). The Group also
has access to an overdraft facility from its bankers of £2.000m for working
capital purposes which has not yet been drawn down.





4. OPERATIONS


IQE Inc

IQE Inc, which specialises in wireless materials, entered 2005 with a large
order book resulting from the major outsourcing contract win towards the end of
2004. This was initially expected to be worth between $10.000m and $12.000m per
annum, but production demand increased steadily throughout the year and shows
every sign of continuing to ramp up through 2006 and beyond with an estimated
value in 2006 of $15.000m. A number of other customers and contracts have
increased their production demands on the company as evidenced by a 220%
increase in wafer area shipped to a total of 1.150m sq.inches during 2005.
Overall, the wireless marketplace continued to strengthen during the year and
indications from virtually all major accounts point to a buoyant year ahead as
wireless technology continues to permeate an increasing number of applications,
such as WiFi, Wireless LAN and WiMax.



IQE (Europe) Limited

IQE Europe, which specialises in opto-electronic materials, developed a number
of exciting opportunities during 2005. Driven by a range of new applications
from laser-based optical mouse products to holographic systems, the company
achieved a 38% increase in shipments to .047m sq.inches. The optical storage,
laser printing, industrial and short range communications markets all continue
to grow and steady increases were achieved throughout 2005. This trend is set to
continue in 2006. Coupled with an increasing fibre optics market, we expect this
company to continue to show significant progress during 2006.



IQE Silicon Compounds Limited

IQE Silicon maintains a high profile in the semiconductor world for its award
winning strained silicon product. The widespread adoption of this technology is
likely to occur over the next couple of years according to the International
Technology Roadmap for Semiconductors (ITRS). In addition, the company is making
major strides in servicing the needs of a number of tier one wafer fabs in terms
of standard silicon and SiGe epitaxy as demonstrated by the recent announcement
of a five year outsourcing contract win worth approximately $10.000m. Further
evidence of the company's growth is demonstrated by a 105% increase in shipments
to 1.340m sq.inches during 2005.



Wafer Technology Limited


The substrate marketplace continued to strengthen during 2005 as demand for
compound semiconductor wafers increased and the company ended the year with its
strongest order book for over three years. A number of technical developments,
including improved surface finishes on key products and the development of
improved quality, high margin products for infra-red sensing applications,
helped the company to exit 2005 on a positive note which we anticipate will
strengthen further during 2006.



5. TRADING PROSPECTS

The Group enters 2006 with its largest order book for several years as a result
of strong market conditions, the diversification of the Group's product ranges
and the capacity and cost base to offer customers a comprehensive and highly
cost effective wafer outsource service. This has resulted in significant market
share gains and the acquisition of several major outsource accounts, providing
significantly improved visibility of revenues. The powerful operational gearing
of the Group's business model should result in strong profitability growth as
revenues continue to increase.


The Group continues to win advanced R&D contracts, thereby setting the scene for
further growth in the future. As additional qualifications and contract wins are
achieved, improved capacity utilisation will help drive substantial shareholder
returns over the coming years. We have made a good start to the new year and
expect to achieve strong sequential revenue growth in Q1/2006 which we
anticipate will continue throughout the year and beyond. The Board remains
optimistic about the Group's prospects for a return to sustained ongoing cash
generation within the coming year and substantial profit growth in subsequent
years.



Dr Drew Nelson, OBE, FREng, D Eng
President and Chief Executive
IQE plc


20th March 2006





PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2005
CONSOLIDATED PROFIT AND LOSS
ACCOUNT

                                  6 months  6 months  6 months    12 months       12
                                  to        to        to                 to   months
                                                                                  to
                                  31 Dec    30 Jun    31 Dec         31 Dec   31 Dec
                                  2005      2005      2004             2005     2004

(All figures GBP000s)       Note  Unaudited Unaudited Unaudited   Unaudited  Audited

Turnover from
Continuing
Operations                         11,225     9,665     7,316      20,890   15,344

Cost of Sales
(including
exceptional
items)                             (9,564)  (10,125)   (9,201)    (19,689)  (19,157)

Gross
Profit/(Loss)                       1,661      (460)   (1,885)      1,201   (3,813)
Gross
Profit/(Loss)%                       14.8      (4.8)    (25.8)        5.7    (24.9)

Operating Expenses :
  Distribution Expenses              (668)     (870)     (794)     (1,538)  (1,399)
  Administrative Expenses :
     Research /Development           (285)     (215)     (354)       (500)    (835)
     Other Administrative  1,2     (1,758)   (1,424)   (1,700)     (3,182)  (4,304)
       Expenses (including
       exceptional items)

  Administrative                   (2,043)   (1,639)   (2,054)     (3,681)  (5,139)
     Expenses

  Operating Expenses               (2,711)   (2,509)   (2,848)     (5,219)  (6,538)

Operating Loss
from
Continuing
Operations                         (1,050)   (2,968)   (4,732)     (4,019)  (10,351)

Operating Loss
% from
Continuing
Operations                           (9.4)    (30.7)    (64.7)      (19.2)   (67.5)

Interest
Received/(Paid)                       (21)       57       135          35      246

Loss on
Ordinary
Activities
before
Taxation                           (1,072)   (2,912)   (4,597)     (3,983)  (10,104)

Loss %                               (9.5)    (30.1)    (62.8)      (19.1)   (65.9)

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

Retained Loss
for the Period                      (1,072)   (2,912)  (4,597)     (3,983)   (10,104)

Basic Loss
Pence per
Share                         3      (0.34)    (0.92)   (1.46)      (1.26)     (3.20)
Diluted Loss
Pence per
Share                         3      (0.34)    (0.92)   (1.46)      (1.26)     (3.20)



PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2005 (cont.)
CONSOLIDATED PROFIT AND LOSS
ACCOUNT

                                  6 months  6 months  6 months   12 months       12
                                        to        to        to          to   months
                                                                                 to
                                    31 Dec    30 Jun    31 Dec      31 Dec   31 Dec
                                      2005      2005      2004        2005     2004

(All figures GBP000s)       Note Unaudited Unaudited Unaudited   Unaudited  Audited

Earnings before Interest, Taxes, Depreciation and Amortisation
(EBITDA) have been calculated as follows:

Retained Loss
for the Period                    (1,072)   (2,912)   (4,597)     (3,983)  (10,104)

Interest
(Received)/Paid                       21       (57)     (135)        (35)    (246)

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

Depreciation                         492     1,067     1,221       1,559    2,240

Exceptional
Items with No
Cash Impact                       (1,737)        0         0      (1,737)       0

Goodwill                              (0)        0        (0)          0        0

Earnings
before
Interest/
Taxes/
Depreciation
and
Amortisation                      (2,295)   (1,902)   (3,511)     (4,197)  (8,111)

Note : Exceptional Items with cash impact of £nil (2004: £171,000 credit) have not
been adjusted in the above table.




PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2005 (cont.)
TOTAL RECOGNISED GAINS AND LOSSES AND MOVEMENT IN
SHAREHOLDERS' FUNDS

                                 6 months  6 months  6 months    12 months       12
                                       to        to        to           to   months
                                                                                 to
                                   31 Dec    30 Jun    31 Dec       31 Dec   31 Dec
                                     2005      2005      2004         2005     2004

(All figures GBP000s)           Unaudited Unaudited Unaudited    Unaudited  Audited

TOTAL RECOGNISED LOSSES

Loss for the
Period                           (1,072)   (2,912)   (4,597)      (3,983)  (10,104)

Currency Translation
Differences on Foreign Currency

Net Investments                     214       134      (125)         348     (168)

Total
Recognised
Losses
Relating to
the Period                         (858)   (2,778)   (4,722)      (3,635)  (10,272)



MOVEMENT IN SHAREHOLDERS' FUNDS

Opening Balance                  13,136    15,891    20,560       15,891   26,042

Shares Issued
net of Issue
Costs                                44        22        53           66      121

Foreign
Exchange
Translation
Differences                         214       134      (125)         348     (168)

Loss
Attributable
to Members of
the Group                        (1,072)   (2,912)   (4,597)      (3,983)  (10,104)

Closing Balance                  12,322    13,136    15,891       12,322   15,891





PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2005 (cont.)
CONSOLIDATED BALANCE SHEET

                                     As At     As At     As At       As At     As At
                                    31 Dec    30 Jun    31 Dec      31 Dec    31 Dec
                                      2005      2005      2004
                                                                      2005      2004
(All figures GBP000s)            Unaudited Unaudited   Audited   Unaudited   Audited

Fixed Assets                       8,816     8,588     9,204       8,816     9,204

Current Assets :
      Stocks                       4,312     4,191     3,433       4,312     3,433
      Debtors                      3,404     3,388     2,604       3,404     2,604
      Cash at Bank and in    4     6,245     5,928     9,923       6,245     9,923
      Hand

      Total Current Assets        13,961    13,507    15,959      13,961    15,959

Creditors
Falling Due
within One
Year                              (6,355)   (6,433)   (6,470)     (6,355)   (6,470)

Net Current
Assets                             7,606     7,074     9,490       7,606     9,490

Total Assets
less Current
Liabilities                       16,422    15,662    18,693      16,422    18,693

Creditors Falling Due after
more than One Year :
      Deferred Income               (199)     (218)     (308)       (199)     (308)
      Long Term Borrowings        (3,646)   (2,042)   (2,150)     (3,646)   (2,150)

      Total Creditors             (3,845)   (2,260)   (2,458)     (3,845)   (2,458)
      Falling Due after more
      than One Year

Provision for
Liabilities
and Charges                         (255)     (266)     (344)       (255)     (344)

Net Assets                        12,322    13,136    15,891      12,322    15,891

Capital and Reserves :
      Called-up Share              3,163     3,159     3,157       3,163     3,157
      Capital
      Share Premium              157,263   157,216   157,188     157,263   157,188
      Shares to be Issued            209       216       225         209       225
      Investment in Own              (13)      (13)      (14)        (13)      (14)
      Shares
      Merger Reserve                (605)     (605)     (605)       (605)     (605)
      Profit and Loss           (147,235) (146,163) (143,251)   (147,235) (143,251)
      Account
      Exchange Rate Reserve         (460)     (674)     (808)       (460)     (808)

Total Equity
Shareholders'
Funds                             12,322    13,136    15,891      12,322    15,891



Approved by the Directors of IQE plc on 19 March 2006



PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2005 (cont.)
CONSOLIDATED CASH FLOW
STATEMENT

                                 6 months  6 months  6 months   12 months       12
                                       to        to        to          to   months
                                                                                to
                                   31 Dec    30 Jun    31 Dec      31 Dec   31 Dec
                                     2005      2005      2004        2005     2004

(All figures GBP000s)           Unaudited Unaudited Unaudited   Unaudited  Audited

Net Cash
Outflow from
Operating
Activities                       (1,944)   (3,118)   (4,456)     (5,062)  (9,097)

Returns on Investment and
Servicing of Finance :
          Interest Received         (21)       57       135          35      246

Taxation :
          UK and US corporation       
          taxes                       0         0        (0)          0        0

Capital Expenditure :
          Payments to Acquire      
          Fixed Assets             (570)     (289)     (215)       (859)    (348)
          Proceeds from Sale of       
          Fixed Assets                0         0         0           0        0

Net Cash
Outflow before
Management of
Liquid
Resources and
Financing                        (2,536)   (3,350)   (4,536)     (5,885)  (9,199)

Management of
Liquid
Resources                            70     4,137     5,065       4,207   11,986

                                 (2,466)      787       529      (1,678)   2,787
Financing :
          Issues of Ordinary         
          Share Capital              44        22        53          66      121
          Loans Received/         
          (Repaid)                2,859      (116)     (157)      2,743     (359)
          Leases Repaid             (50)     (551)     (991)       (601)  (2,378)

          Net Cash Inflow/        
          (Outflow) from          2,853      (645)   (1,095)      2,208   (2,616)
          Financing

Increase/ (Decrease) in
Cash                                387       142      (566)        530      171





PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2005 (cont.)
RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES

                                 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
                                     2005      2005      2004        2005       2004

(All figures GBP000s)           Unaudited Unaudited Unaudited   Unaudited    Audited

Operating Loss                   (1,050)   (2,968)   (4,732)     (4,019)   (10,351)

Depreciation
of Fixed
Assets                              492     1,067     1,221       1,559      2,240

Loss on Sale
of Fixed
Assets                                1         0        17           1         17

Movement in
Stocks                             (121)     (759)      545        (880)        31

Movement in
Debtors                             (16)     (784)     (248)       (800)      (165)

Movement in
Creditors                           506       416      (789)        922       (622)

Exceptional
Items                            (1,737)       (0)     (392)     (1,737)      (171)

Government
Grants
Released                            (19)     (389)      (78)       (409)       (78)

Government
Grants
Received                              0       300         0         300          0

Net Cash
Outflow from
Operating
Activities                       (1,944)   (3,118)   (4,456)     (5,062)    (9,097)




PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2005 (cont.)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET
FUNDS

                                   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
                                       2005      2005      2004        2005       2004

(All figures GBP000s)             Unaudited Unaudited Unaudited   Unaudited    Audited

Increase/(Decr
ease) in Cash                         387       142      (566)        530        171

Management of
Liquid
Resources                             (70)   (4,137)   (5,065)     (4,207)   (11,986)
Loans Repaid                          141       116       157         257        359
Leases Repaid                          50       551       991         601      2,378

Change in Net
Funds
Resulting from
Cash Flows                            508    (3,328)   (4,483)     (2,819)    (9,078)

New Loans                          (3,000)       (0)       (0)     (3,000)        (0)

Movement in
Net Funds                          (2,492)   (3,328)   (4,483)     (5,819)    (9,078)

Opening Net
Funds                               3,387     6,763    11,206       6,763     15,776

Exchange
Differences                           (35)      (48)       39         (84)        64

Net Funds                             860     3,387     6,763         860      6,763





PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2005 (cont.)
ANALYSIS OF NET FUNDS

                                      As At     As At    As At        As At    As At
                                     31 Dec    30 Jun   31 Dec       31 Dec   31 Dec
                                       2005      2005     2004         2005     2004

(All figures GBP000s)             Unaudited Unaudited Audited     Unaudited Audited


Cash at Bank
and in Hand                         1,638     1,251    1,109        1,638    1,109

Cash at Bank
Accessible
between One
and Seven Days                      4,607     4,677    8,814        4,607    8,814

Total Cash at
Bank and in
Hand                                6,245     5,928    9,923        6,245    9,923

Loans Due
after more
than One Year                      (3,646)   (2,042)  (2,150)      (3,646)  (2,150)

Loans Due
within One
Year                               (1,739)     (449)    (409)      (1,739)    (409)

HP/Finance
Leases Due
after more
than One Year                           0         0        0            0        0

HP/Finance
Leases Due
within One
Year                                    0       (50)    (601)           0     (601)

Total
Borrowings                         (5,385)   (2,541)  (3,160)      (5,385)  (3,160)


Net Funds                             860     3,387    6,763          860    6,763





PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2005 (cont.)
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 2004 Annual Report and Accounts.
    The preliminary financial information was approved by the Board of Directors
    and Audit Committee on 19 March 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 2004 have been taken from the Group's audited statutory accounts
    on which Deloitte & Touche LLP expressed an unqualified opinion. The results
    for the six months to 31 December 2005, 30 June 2005 and 31 December 2004 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 20 March
    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.


    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




PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2005 (cont.)
NOTES TO THE PRELIMINARY ANNOUNCEMENT (cont.)

   Following a comprehensive annual re-assessment of the estimate remaining
   useful life of fixed assets, the expected remaining useful economic lives of
   items of plant and equipment at 31 December 2005 have been extended from an
   average of three years to eight years, which has had the effect of reducing
   the depreciation charge by £650,000.


   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.



PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2005 (cont.)
NOTES TO THE PRELIMINARY ANNOUNCEMENT (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.


2   EXCEPTIONAL ITEMS            6 months  6 months  6 months   12 months       12
                                       to        to        to          to   months
                                                                                to
                                   31 Dec    30 Jun    31 Dec      31 Dec   31 Dec
                                     2005      2005      2004        2005     2004
                                Unaudited Unaudited Unaudited   Unaudited  Audited
                                  GBP000s   GBP000s   GBP000s     GBP000s  GBP000s
    Exceptional items
    comprise :

    Charged in cost of sales :
    Trade accrual                (1,737)        0         0      (1,737)       0

    Charged in other
    administrative expenses :
    Restructuring costs               0         0         6           0      227
    Onerous lease provisions          0         0      (398)          0     (398)

    Exceptional items            (1,737)        0      (392)     (1,737)    (171)

    The exceptional credit in H2/2005 of £1,737,000 relates to the release of a
    trade accrual which the Directors no longer consider is required.
    
    The exceptional credit in H2/2004 of £398,000 relates to the release of an
    onerous lease provision in respect of a previously vacant property at Wafer
    Technology Limited.



PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2005 (cont.)
NOTES TO THE PRELIMINARY ANNOUNCEMENT (cont.)

3   LOSS PER SHARE     6 months to   6 months to   6 months to    12 months to  12 months to
                       31 Dec 2005   30 Jun 2005   31 Dec 2004     31 Dec 2005   31 Dec 2004
                         Unaudited     Unaudited     Unaudited       Unaudited       Audited

    Retained Loss         (1,072)       (2,912)       (4,597)         (3,983)      (10,104)
    GBP000s

    Goodwill                   
    amortisation
    and impairment             0            (0)            0              (0)           (0)

    Retained Loss         
    GBP000s               (1,072)       (2,912)       (4,597)         (3,983)      (10,104)


    Weighted         
    Average Number
    of Ordinary
    Shares           315,976,014   315,813,351   315,466,318     315,976,014   315,466,318
    Diluted Share      
    Options            3,580,904     5,735,597     4,538,582       3,580,904     4,538,582

    Adjusted         
    Weighted
    Average Number
    of Ordinary
    Shares           319,556,918   321,548,948   320,004,900     319,556,918   320,004,900

    Basic Loss             
    Pence per
    Share                  (0.34)        (0.92)        (1.46)          (1.26)        (3.20)
    Diluted Loss           
    Pence per
    Share                  (0.34)        (0.92)        (1.46)          (1.26)        (3.20)


    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 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 2005 includes £1,391,000 (31 December 2004: £1,212,000)
    which has 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 2006.




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