Interim Results
IQE PLC
20 August 2003
FOR IMMEDIATE RELEASE 20 AUGUST 2003
Embargoed until 7:00am
IQE plc
2nd Quarter and First Half Results 2003
IQE plc (IQE), the leading global outsource supplier of customised epitaxial
wafers to the semiconductor industry, presents its 2nd Quarter and First Half
Interim Results for the period ended 30 June 2003.
Key Points
- Q2 sales were £5.097m, 3% higher than the previous quarter (Q1/2003:
£4.959m). H1 sales were £10.056m, 16% lower than the same period last year
(H1/2002: £12.037m).
- Q2 operating loss before goodwill amortisation and operating exceptional
items was £2.869m (Q1/2003: £3.420m). H1 operating loss before goodwill
amortisation, exceptional items and non-recurring costs was £6.289m
(H1/2002: £10.380m) as shown in the Profit and Loss Analysis.
- Operating cash outflow for Q2 was 34% less than the previous quarter at
£1.989m (Q1/2003: £3.005m), due to clear focus on cost control and cash
flow management. H1 operating cash outflow was £4.994m (H1/ 2002:
£4.431m).
- Gross cash at the end of Q2 was £10.695m (Q1/2003: £13.497m).
Significant technology advances and increased customer qualification activity -
poised for increased production.
Commenting on the results, Dr Drew Nelson, President and CEO, said....... 'The
semiconductor industry has been in turmoil for the last two years with the
compound semiconductor segment of the industry experiencing its first ever
downturn. Our focus during those two years has changed from managing through a
time of exceptionally high growth to managing through a severely depressed
marketplace. There remains a lack of visibility in the sector as a whole, but
the last few months have seen an increase in interest in a number of key
technologies that are directly served by IQE and a steady increase in more
positive news from the sector.
The wireless business has witnessed increasing demand for product albeit at the
expense of reduced average selling prices. Encouragingly, we have been able to
largely offset the impact of this through a combination of greater production
efficiencies, lower operating costs and reduced raw materials prices. The
optoelectronics business has also seen some signs of recovery with an increasing
number of new products in qualification with major users. The substrate business
remains healthy and is growing, whilst interest in strained silicon, in which
IQE has significant expertise, continues to step up with the product featuring
as a key material on the 2002/3 International Technology Roadmap for
Semiconductors (ITRS)
IQE has established a leading position in this technology both by collaboration
with technology partner AmberWave and by developing its own stand-alone,
proprietary process. IQE's own process for producing strained silicon was
showcased at Semicon West in San Francisco in July and generated very
significant interest amongst potential customers. Samples are now available for
shipping and are already in qualification with a number of potential customers.
Several key industry players are currently seeking formal, long term supply
agreements with respect to this technology, and IQE believes it is the first
commercial epi-source for this material worldwide.
With an increasing number of qualifications across IQE's product ranges due to
complete later this year, we expect tangible signs of trading improvement to
become visible from the fourth quarter of this year onward. '
For further information please contact:
IQE plc: +44 29 2083 9400
Drew Nelson,
Stuart Hall
Chris Meadows
Buchanan Communications: +44 20 7466 5000
Tim Thomson/Nicky Cronk,
2nd QUARTER AND INTERIM RESULTS 2003
INTRODUCTION
Overview
IQE specialises in developing and producing highly advanced semiconductor
materials that are to be found at the very heart of a wide range of established
and emerging technologies. Materials produced by the Group operate at the
forefront of technology, typically in high speed electronics and optical systems
for a diverse range of devices including those used for data/audio/visual
storage, optical communications, wireless and RF devices and systems, and in an
increasing range of automotive, medical and industrial applications. The
epitaxial growth processes employed by the Group allow very precise films of
semiconductor materials to be atomically engineered to produce well-defined
electrical and optical characteristics. These processes are the key step in
producing established products such as amplifiers and switches used in mobile
communications applications (phones, PDAs, wireless connectivity), lasers and
LEDs used in a diverse range of optical technologies and are critical in
emerging products such as those based on nanotechnology and MEMS.
The semiconductor industry has been an extremely high growth industry during the
last 40 years despite its cyclical nature and this has been driven by continuous
technological innovation. That technological progress has been achieved through
increasingly complex design and continual miniaturisation. Now, however, the
industry has arrived at a critical point where we believe future developments
will be born out of advanced materials engineering and this is the key area of
IQE's expertise.
Marketplace
The depressed state of the industry following the boom of the late 1990s has
been well documented and IQE's business has suffered along with the rest of the
sector. However, during the first half of 2003 there have been signs of a
cautious but steady return to growth in demand for products and services in
which IQE's materials are deployed, with customers returning to IQE to resume
production, and engaging in many more qualification programmes, particularly in
the products detailed below.
Products
One of IQE's key strengths is the fact that it is prepared to work closely with
its customers from early prototype development through to 'mass customisation'.
This integration of IQE's materials into customers' products demands close
working relationships at many levels and absolute confidentiality is a key
feature of such relationships. The range of products in which IQE's materials
are used is diverse, but examples of newer technologies where IQE has developed
a leading edge technology position include:
Strained Silicon: Rapidly raising profile on semiconductor technology
roadmaps, strained silicon is the primary candidate,
along with Silicon on Insulator (SOI) as the next
generation materials for high speed electronic devices,
particularly for Mixed Signal Processing (MSP: Digital
& Analog) devices.
High Power Lasers: Semiconductor materials for high power, visible and
Infrared lasers. Until recently, gas filled lasers have
been used to generate the high intensities and high
powers needed for industrial applications such as
welding and cutting. The new generation of
Aluminium-free lasers in which IQE has achieved some
world-first results, allows semiconductor lasers to
match the power of traditional but bulky gas lasers.
IQE is currently the only epifoundry currently
providing these materials.
HBTs/PHEMTs: The key devices for wireless applications from mobile
phones to base stations. IQE is the major external
supplier of PHEMT wafers globally using MBE technology
and has a large production capability for advanced
InGaP HBTs by MOVPE. World record speeds of up to
450GHz have been achieved with transistors made from
IQE's indium phosphide (InP) HBT materials.
Metamorphics: Emerging as an important 'next generation' material for
cost effective, high speed applications, enabling the
enhanced properties of indium phosphide (InP) to be
produced on less expensive gallium arsenide (GaAs)
substrates including even more advanced technology for
GaAs on Silicon.
Lasers/VCSELs: Edge emitting and vertical cavity semiconductor lasers
operating from visible to the infrared wavelengths. For
use in data storage applications (CD/DVD), data and
telecommunications (optical fibre), medical (laser
surgery/cosmetic devices), industrial (laser pointers/
theodolites, etc) and laser printers.
QWIPs: Quantum Well Infrared Photodetectors used in high
definition, infrared imaging applications. Examples
include IR cameras for emergency services and space
exploration (eg NASA).
InSb/GaSb Substrates: Materials on which epitaxial layers are grown for ultra
high-speed and infrared detection. Market drivers
include thermal imaging cameras for security, rescue
and military applications, and for environmental
monitoring.
Industry Position
IQE has a proven track record in developing and producing advanced semiconductor
materials over the last 15 years. The industry in which it operates has been
through a tumultuous two years, but it remains a sector that has seen
unprecedented growth in the long term and is likely to continue to do so again.
IQE's business model within that industry is based on the trend towards
outsourcing and this has remained fundamentally unchanged throughout the Group's
history. The Directors firmly believe that the model itself is sound and that
IQE is uniquely positioned as the pre-eminent industry foundry for the
outsourcing of advanced semiconductor materials.
IQE's strategy is to increase market share through penetrating in-house services
by offering highly cost effective materials expertise and rapid access to new
and established technologies across a range of production platforms.
As demand for end user products recovers, IQE's Directors firmly believe that
the trend towards outsourcing will increase further, particularly as some of the
more mature products become commoditised and access to replacement technologies
becomes critical.
Since there are very significant barriers to entry both in terms of production
know how and capital investment, which is also encouraging in-house producers to
look externally, the Directors believe a significant shift to outsourcing is
gathering momentum in the industry which will significantly benefit IQE in the
future.
RESULTS
Q2 sales were £5.097m, a 3% increase over the preceding quarter which was mainly
as a result of further increases in sales of wireless materials. The gross loss
for Q2 was -11%, representing a further steady improvement over the previous two
quarters (Q1/2003: -20%, Q4/2002: -44%). As reported in the previous results,
sales price pressure remains a consideration but the effect of this has largely
been offset by the benefit of lower raw materials costs, which generally applied
across all product ranges within the Group.
Technical capability represents a primary competitive advantage In the fast
moving technology environment in which the Group operates. Research and
development costs in Q2/2003 were £0.513m, representing 10.0% of sales (Q2/2002:
£0.731m, 11.5% of sales). Significant progress was made in a number of key
areas, positioning IQE as a respected technological leader with 12 leading
research papers published during the first half of the year. H1/2003 research
and development costs were £1.172m representing 11.7% of sales (H1/2002:
£1.873m, 15.6% of sales). All research and development costs were expensed in
the quarter. Many research and development activities include partnerships with
leading, global blue-chip companies and these have resulted in a number of new
products achieving advanced stages of qualification for volume production,
including Al-free laser materials for high power, industrial lasers.
Q2 SG&A costs were slightly up on the previous quarter at £1.791m (Q1/2003:
£1.764m) but 37.8% lower than the same period last year (Q2/2002: £2.883m)
excluding non-recurring costs as shown in the Profit and Loss Analysis.
As a result of the above, the Group incurred an operating loss for Q2 before
goodwill amortisation and operating exceptional items of £2.869m (Q1/2003:
£3.420m). The operating loss for the quarter before tax was £2.967m (Q1/2003:
£3.801m).
The Group also reduced its operating cash outflow substantially in the quarter
to £1.989m, 34% less than the previous quarter (Q1/2003: outflow £3.005m). This
was as a direct result of continued focus on the reduction of operating costs
and careful management of working capital, in particular stock reduction.
Capital expenditure in the first half of 2003 was substantially reduced to
£.085m (H1/2002: £3.618m). Gross cash at the end of the quarter was £10.695m,
an overall reduction of £2.802m from the end of the previous quarter.
The reduced cost base puts IQE in the powerful position of recognised
technological leadership whilst being able to offer highly competitive pricing
to customers.
OPERATIONS
Significant progress has been made in respect of the strategic review that was
carried out in Q2/2002. Group headcount has been reduced from over 450 to 270
and considerable effort has been made to consolidate the Group's technical
position and cost competitiveness. The Group itself comprises four separate and
independent business units. There is a degree of synergy across all four
operations but little scope for consolidation between the units as the unique
technologies employed at each of the facilities is dependent both upon location
and operating platform.
IQE Inc
IQE Inc in the US has continued to see improvements to trading in the wireless
sector, although the strength of the recovery has been cautious with the
possibility of further consolidation within the sector amongst our customers
increasingly likely. Feedback from customers indicates that excess inventories
that had built up during 1999/2001 have been cleared throughout customer
channels and this is creating a renewed demand, particularly for materials used
in amplifiers and switches used in the mobile telecoms industry. IQE Inc is a
qualified supplier to several of the world's top RF component companies, and as
demand increases this business unit is likely to become cash generative in the
foreseeable future.
IQE Europe Ltd
Demand for optical materials remained weak during the first half of 2003,
although opportunities for sampling new products increased towards the end of
the second quarter as operational efficiencies and cost savings kicked in and
this allowed IQE to take an aggressive stance on pricing to compete with sources
in the Far East. Looking ahead, the company is now in a position where it has
low operating costs, high efficiencies, significant production capacity and
superior technological capabilities. Consequently, the Board believes that this
business unit is poised to reap the benefits from a number of new product
developments as they become qualified by major users towards the end of this
year and the first half of next year.
IQE Silicon Compounds Ltd
The growing number of articles in journals and the trade press regarding
strained silicon continues to raise the profile of this technology. It is a
material system that offers enhanced electronic characteristics over and above
those exhibited by silicon alone and, as such, it has the potential to become
the industry standard for high speed silicon applications such as
microprocessors and mixed signal processors (MSP). IQE has established a leading
position in this technology by both collaboration with technology partner
AmberWave and in developing its own stand-alone, proprietary process. IQE's own
process for producing strained silicon showcased at Semicon West in San
Francisco during July and generated very significant interest amongst potential
customers. Samples are now available for shipping and in qualification with a
number of key potential customers. Several leading industry players are
currently seeking formal, long term supply agreements as a means of securing
their position in this technology. IQE believes it is the first commercial
epi-source for the material worldwide and expects demand for this material to
begin accelerating during the coming quarters.
Wafer Technology Ltd
The second quarter saw a steadily increasing demand for both InP and GaAs
substrates, to the extent that it became necessary to recruit additional staff
to open capacity that had effectively been mothballed. Demand for the range of
narrow gap materials produced by the Company was also sustained resulting in a
sequential increase in revenue and improvements in operating cash flow to the
point of being virtually cash breakeven.
General
A further sign of the industry gaining momentum was signalled by an increase in
quality-related activities - in particular, customer quality audits related to
product qualification processes. All business units within the Group are
separately accredited with BSi to the ISO9000 standard. IQE Silicon Compounds is
accredited to the latest version of the standard at ISO9000:2000, with the
remaining sites expected to complete the transition by the end of this year.
Meanwhile, additional activities are underway to complete Environmental audits
with the aim of achieving accreditation to the Environmental Management
Standard; ISO14001. A substantial amount of work has already been completed,
with the IQE Silicon Compounds division planning to complete the accreditation
process during the first half of 2004.
TRADING PROSPECTS
Despite the current trading environment, the first half of the year has seen the
development of a number of major new opportunities for the Group, particularly
in terms of wireless products and in new technologies such as high power lasers,
metamorphic HEMTs and strained silicon substrates. IQE believes it is in a
unique position in terms of its new product offerings, but it is unlikely that
these products will have a major impact on the P&L during the third quarter
simply because the qualification periods and lead-in times for new products and
processes can be extremely slow and are strongly customer dependant.
Nevertheless, IQE has built a very competitive position to win this new business
and increase market share as the sector returns to a pattern of normal growth as
a direct result of IQE's diverse product portfolio, choice of production
platforms and significant 'world-class' technology leads.
During the industry recession, the Board has pursued a strategy of maintaining
the Group intact, despite obvious ongoing cash requirements, in the strong
belief that there exists substantial upside potential within the business as a
result of past investments in capacity and technology. As confidence returns,
new products are brought to market and more emphasis is placed on outsourcing,
we expect this potential to come to fruition. The Group is working with many of
the world's leading companies in each sector, and the Board is cautiously
optimistic that there will be an increasingly positive newsflow in the coming
quarters. Although cash outflows will continue this year and early next year,
the Board believes that the Group is well positioned to take advantage of the
opportunities that have been created to re-establish profitability and positive
operating cash flows.
Dr Drew Nelson
President and Chief Executive Officer
IQE plc
ACCOUNTS FOR 6 MONTHS TO 30 JUNE 2003
3 months to 3 months to 6 months to 6 months to 12 months to
PROFIT AND LOSS ACCOUNT Note 30 Jun 2003 30 Jun 2002 30 Jun 2003 30 Jun 2002 31 Dec 2002
(All figures GBP000s) unaudited unaudited unaudited unaudited Audited
Turnover 5,097 6,357 10,056 12,037 22,960
Cost of Sales (5,663) (20,191) (11,619) (27,086) (90,579)
Gross Profit/(Loss) (565) (13,834) (1,562) (15,049) (67,619)
Gross Profit/(Loss) % (11.1) (217.6) (15.5) (125.0) (294.5)
S G and A Costs including
Distribution
Research/Development (513) (731) (1,172) (1,873) (3,210)
Selling/General/Administration (1,791) (3,348) (3,555) (5,968) (10,401)
Operating Profit/(Loss) pre Goodwill/
Exceptionals
(2,869) (17,913) (6,289) (22,890) (81,230)
Operating Profit/(Loss) % pre
Goodwill/Exceptionals
(56.3) (281.8) (62.5) (190.2) (353.8)
Goodwill Written off 2 0 (33,866) (0) (34,302) (34,302)
Exceptional Items 3 (7) (545) (306) (890) (2,686)
Operating Profit/(Loss) post Goodwill
/Exceptionals (2,876) (52,324) (6,595) (58,082) (118,218)
Operating Profit/(Loss) % post
Goodwill/Exceptionals (56.4) (823.1) (65.6) (482.5) (514.9)
Interest Received/(Paid) (91) 24 (172) 12 (16)
Net Profit/(Loss) before Taxes (2,967) (52,300) (6,768) (58,071) (118,234)
Net Profit/(Loss) % (58.2) (822.7) (67.3) (482.4) (515.0)
Current Taxes 0 0 (0) (0) 0
Deferred Taxes 0 0 (0) (0) 1,217
Dividends 0 0 (0) (0) 0
Net Profit/(Loss) after Taxes (2,967) (52,300) (6,768) (58,071) (117,017)
Basic Earnings Pence/Share (1.58) (28.32) (3.60) (31.44) (63.08)
Basic Earnings Pence/Share excl
Goodwill (1.58) (9.98) (3.60) (12.87) (44.59)
Diluted Earnings Pence/Share 4 (1.58) (28.32) (3.60) (31.44) (63.08)
Diluted Earnings Pence/Share excl
Goodwill 4 (1.58) (9.98) (3.60) (12.87) (44.59)
Net Profit/(Loss) before Interest/
Taxes/
Depreciation and Amortization
(EBITDA) (2,347) (7,972) (5,534) (11,367) (19,537)
3 months 3 months 3 months 3 months 6 months 6 months 6 months 6 months
PROFIT AND LOSS to 30 Jun to 30 Jun to 30 Jun to 30 Jun to 30 Jun to 30 Jun to 30 Jun to 30 Jun
ACCOUNT ANALYSIS Note 2003 2002 2002 2002 2003 2002 2002 2002
non non
(All figures GBP000s) recurring recurring recurring total recurring recurring recurring total
Turnover 5,097 6,357 0 6,357 10,056 12,127 (90) 12,037
Cost of Sales (5,663) (8,236) (11,955) (20,191) (11,619) (15,131) (11,955) (27,086)
Gross Profit/(Loss) (565) (1,879) (11,955) (13,834) (1,562) (3,004) (12,045) (15,049)
Gross Profit/(Loss) % (11.1) (29.6) (217.6) (24.8) (125.0)
S G and A Costs
including Distribution
Research/Development (513) (731) 0 (731) (1,172) (1,873) 0 (1,873)
Selling/General/
Administration (1,791) (2,883) (465) (3,348) (3,555) (5,503) (465) (5,968)
Operating Profit/(Loss)
pre Goodwill/
Exceptionals (2,869) (5,493) (12,420) (17,913) (6,289) (10,380) (12,510) (22,890)
Operating Profit/(Loss)
% pre Goodwill/
Exceptionals (56.3) (86.4) (281.8) (85.6) (190.2)
Goodwill Written off 2 0 (455) (33,411) (33,866) (0) (891) (33,411) (34,302)
Exceptional Items 3 (7) (545) 0 (545) (306) (890) 0 (890)
Operating Profit/(Loss)
post Goodwill/
Exceptionals (2,876) (6,493) (45,831) (52,324) (6,595) (12,161) (45,921) (58,082)
Operating Profit/(Loss)
% post Goodwill/
Exceptionals (56.4) (102.1) (823.1) (100.3) (482.5)
Interest Received/ (91) 24 0 24 (172) 12 0 12
(Paid)
Net Profit/(Loss)
before Taxes (2,967) (6,469) (45,831) (52,300) (6,768) (12,150) (45,921) (58,071)
Net Profit/(Loss) % (58.2) (101.8) (822.7) (100.2) (482.4)
Current Taxes 0 0 0 0 0 0 (0) (0)
Deferred Taxes 0 0 0 0 0 0 (0) (0)
Dividends 0 0 0 0 0 0 (0) (0)
Net Profit/(Loss) after
Taxes (2,967) (6,469) (45,831) (52,300) (6,768) (12,150) (45,921) (58,071)
Basic Earnings Pence/ (1.58) (3.50) (28.32) (3.60) (6.58) (31.44)
Share
Basic Earnings Pence/ (1.58) (3.26) (9.98) (3.60) (6.10) (12.87)
Share excl Goodwill
Diluted Earnings Pence/ 4 (1.58) (3.50) (28.32) (3.60) (6.58) (31.44)
Share
Diluted Earnings Pence/ 4 (1.58) (3.26) (9.98) (3.60) (6.10) (12.87)
Share excl Goodwill
Net Profit/(Loss)
before Interest/Taxes/
Depreciation and
Amortization (EBITDA) (2,347) (4,144) (3,828) (7,972) (5,534) (7,449) (3,918) (11,367)
As At As At As At
BALANCE SHEET 30 Jun 2003 30 Jun 2002 31 Dec 2002
(All figures GBP000s) unaudited unaudited audited
Fixed Assets :
Intangible Fixed Assets 0 0 0
Tangible Fixed Assets 12,537 65,201 13,862
Investment in Own Shares 14 2 9
Capitalized Development Costs 0 0 0
Total Fixed Assets 12,551 65,203 13,871
Current Assets :
Stocks 4,295 6,981 4,988
Debtors 2,955 4,813 3,721
Cash and Bank 10,695 23,817 17,715
Total Current Assets 17,945 35,611 26,424
Creditors Falling Due within One Year (10,347) (10,841) (11,908)
Net Current Assets 7,598 24,771 14,516
Total Assets less Current Liabilities 20,149 89,974 28,387
Creditors Falling Due after One Year:
Deferred Income (452) (102) (452)
Long Term Borrowings (4,520) (6,984) (5,999)
Provision for Liabilities and Charges:
Deferred Taxes (0) (1,215) 0
Net Assets 15,177 81,673 21,936
Capital and Reserves :
Called Up Share Capital 1,885 1,853 1,871
Merger Reserve (605) (605) (605)
Share Premium Account 140,499 140,220 140,328
Shares to be Issued 155 70 133
Retained Earnings (126,275) (60,561) (119,507)
Other Reserves (482) 696 (284)
Total Equity Shareholders' Funds 15,177 81,673 21,936
Approved by the Directors of IQE plc on 19 August 2003
3 months to 3 months to 6 months to 6 months to 12 months to
CASH FLOW STATEMENT 30 Jun 2003 30 Jun 2002 30 Jun 2003 30 Jun 2002 31 Dec 2002
(All figures GBP000s) unaudited unaudited unaudited unaudited audited
Net Inflow/(Outflow) from (1,989) (1,112) (4,994) (4,431) (8,995)
Operations
Returns on Investment and Servicing Finance :
Disposals of Fixed Assets 76 0 76 0 0
Interest Received/(Paid) (91) 24 (172) 12 (16)
Capital Expenditures :
Purchases of Fixed Assets less
Leases Received (15) (2,252) (85) (3,618) (3,765)
Payments to Acquire Investments in
Subsidiaries 0 0 0 0 0
Capitalized Development Costs 0 0 (0) (0) 0
Dividends Received/(Paid) 0 0 0 0 0
Taxes Received/(Paid) 0 (58) 0 (58) (67)
Net Inflow/(Outflow) before (2,019) (3,398) (5,175) (8,096) (12,843)
Financing
Financing :
Issues of Ordinary Share 49 128 207 3,079 3,267
Capital
Loans Received/(Repaid) (253) (182) (878) (440) (662)
Leases (Repaid) (580) (648) (1,174) (1,257) (2,578)
Net Inflow/(Outflow) from Financing (784) (702) (1,845) 1,382 27
Increase/(Decrease) in Total Cash and (2,803) (4,100) (7,020) (6,714) (12,816)
Bank
Management of Cash at Bank Accessible
between 1 and 7 Days 3,000 4,500 6,250 6,500 12,250
Increase/(Decrease) in Cash and Bank Excluding
Cash at Bank Accessible between
1 and 7 Days 197 400 (770) (214) (566)
3 months 3 months 6 months 6 months 12 months
RECONCILIATION OF LOSS TO CASH INFLOW/(OUTFLOW) to 30 Jun to 30 Jun to 30 Jun to 30 Jun to 31 Dec
FROM OPERATIONS 2003 2002 2003 2002 2002
(All figures GBP000s) unaudited unaudited unaudited unaudited audited
Operating Loss post Goodwill/Exceptionals (2,876) (52,324) (6,595) (58,082) (118,218)
Depreciation Charged 529 10,486 1,061 12,413 64,379
Goodwill Written off 0 33,866 0 34,302 34,302
(Increase)/Decrease in Stocks 479 3,663 693 5,296 7,289
(Increase)/Decrease in Debtors 731 1,776 766 2,682 3,774
Increase/(Decrease) in Creditors (852) 1,461 (918) (970) (800)
Grants Released 0 140 0 108 (141)
Grants Received 0 (180) 0 (180) 420
Net Cash Inflow/(Outflow) from Operations (1,989) (1,112) (4,994) (4,431) (8,995)
RECONCILIATION OF NET CASH 3 months to 3 months to 6 months to 6 months to 12 months to
FLOW TO MOVEMENT IN FUNDS 30 Jun 2003 30 Jun 2002 30 Jun 2003 30 Jun 2002 31 Dec 2002
(All figures GBP000s) unaudited unaudited unaudited unaudited audited
Increase/(Decrease) in Cash (2,803) (4,100) (7,020) (6,714) (12,816)
Loans (Received)/Repaid 253 182 878 440 662
Leases Repaid 580 648 1,174 1,257 2,578
Change in Funds Resulting from Cash Flows (1,970) (3,270) (4,968) (5,017) (9,576)
New Finance Leases 0 (16) (0) (392) (389)
New Loans Non Cash 0 0 (0) (0) (1,315)
Net Movement (1,970) (3,286) (4,968) (5,409) (11,280)
Net Funds at Start 4,932 17,000 7,959 19,104 19,104
Exchange Differences Loans/Leases 83 (20) 54 (1) 135
Net Funds at Close 3,045 13,693 3,045 13,693 7,959
Analysis of Net Funds :
Cash in Hand and at Bank 1,695 2,817 1,695 2,817 2,465
Cash at Bank Accessible between
1 and 7 Days 9,000 21,000 9,000 21,000 15,250
Total Cash and Bank 10,695 23,817 10,695 23,817 17,715
Loans Due after One Year (2,714) (2,157) (2,714) (2,157) (3,049)
Loans Due within One Year (439) (976) (439) (976) (1,035)
HP/Finance Leases Due after One Year (1,805) (4,828) (1,805) (4,828) (2,950)
HP/Finance Leases Due within One
Year (2,692) (2,163) (2,692) (2,163) (2,722)
Total 3,045 13,693 3,045 13,693 7,959
NOTES TO THE ACCOUNTS
1 BASIS OF PREPARATION
The financial information is prepared under the historical cost convention
and in accordance with applicable accounting standards, which have been
applied on a consistent basis during the period under review. The
particular accounting policies adopted are described below :
* Turnover represents amounts invoiced, exclusive of value added tax
* Tangible fixed assets are stated at cost less accumulated depreciation
and any provisions 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 in the course of
construction, or on assets in periods of non-use where no physical or
technological deterioration occurs and the remaining useful economic life
is extended by the period of non-use.
Freehold buildings 25 years
Short leasehold improvements 5/27 years
Plant and machinery 5/10 years
Fixtures and fittings 4/5 years
Motor vehicles 4 years
* The financial information consolidates the financial statements of the
Company and all of its subsidiaries.
* Stocks are stated at the lower of cost and net realizable value.
* Research and development expenditure is fully written off when incurred
except where contracts of sufficient value exist or are likely to exist in
the foreseeable future, in which case it is written off over a two year
period commencing with the start of the contracts to which the costs
relate.
* Transactions in foreign currencies during the period are recorded in
sterling 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 direct to reserves.
* 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 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 crystallize
based on current tax rates and law. Timing differences arise from the
inclusion of items of income and expenditure in taxation computations in
periods different from those in which they are included in 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 recognized 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 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.
* Assets held under finance leases and hire purchase contracts are
capitalized 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.
* The only derivative instruments utilized 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 GOODWILL
The goodwill arising on the acquisition of Wafer Technology International
Limited and its subsidiary Wafer Technology Limited had been capitalized
and was being amortized over its useful life, which was considered by the
Directors to be 20 years. However, the Directors carried out an evaluation
of the investment during 2002 and, in the light of current market
conditions, considered that goodwill had lost its value. Accordingly, the
remaining value of goodwill was written off in full in the 2002 accounts.
3 EXCEPTIONAL ITEMS
Exceptional items comprise : 2003 2002
Restructuring costs £306K £0K
Legal fees £0K £890K
Restructuring costs relate to the cost of staff redundancies within
the Group as part of the Group's cost reduction program.
Legal fees related to a complaint lodged by IQE (Europe) against Rockwell
regarding a declaratory judgment that IQE Europe's processes did not
infringe a Rockwell-owned MOCVD patent which expired on 11 January 2000
plus claims for damages related to this matter. Rockwell counter-claimed,
alleging breaches of a licence agreement by IQE (Europe). The two parties
settled their dispute during 2002. Under the terms of the settlement, IQE
(Europe) paid Rockwell $500K and provided them with 300,000 shares in IQE
plc in return for their agreement that neither IQE (Europe) nor its
customers had infringed the MOCVD patent. A further $250K will be paid to
Rockwell during 2003 followed by a final payment of $250K during 2004.
The cost of the settlement was charged in full in the 2002 accounts.
4 EARNINGS PER SHARE
FRS 14 requires the presentation of diluted EPS 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,
net loss per share would only be increased by the exercise of the out of
the money options. Since it seems inappropriate to assume that options
holders would act irrationally, no adjustment has been made to diluted EPS
for out of the money share options.
INDEPENDENT REVIEW REPORT TO IQE PLC
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 June 2003, which comprise the profit and loss account,
the balance sheet, the cash flow statement and related notes 1 to 4. We have
read the other information contained in the interim report and considered
whether it contains any apparent mis-statements or material inconsistencies with
the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority, which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review, we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2003.
Deloitte & Touche LLP
Chartered Accountants
Cardiff
19 August, 2003
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