TIDMIQE
RNS Number : 0784M
IQE PLC
12 September 2023
IQE plc
Cardiff, UK
12 September 2023
Unaudited Results for the six months ended 30 June 2023
Investing for growth and managing costs to navigate temporary
industry downturn
IQE plc (AIM: IQE, "IQE" or the "Group"), the leading supplier
of compound semiconductor wafer products and advanced material
solutions to the global semiconductor industry , announces its
interim results for the six months ended 30 June 2023.
Revenue for the period was GBP52.0m with a reported operating
loss of GBP19.6m, an adjusted non-GAAP LBITDA of (GBP5.7m) and
adjusted net funds position of GBP5.3m.
Americo Lemos, Chief Executive Officer of IQE, commented:
"IQE has delivered H1 revenue in line with our revised market
guidance. In a challenging macro environment, we have taken
decisive action to manage costs and deliver immediate efficiencies
and longer-term margin benefits. We are accelerating our
diversification strategy with new customer designs in GaN Power
electronics and broadening our market penetration into the China
wireless market. By expanding our customer base across the breadth
of our product portfolio and ramping in strategic growth areas, we
are focused on improving future business performance."
H1 2023 Financial Results
H1 2023 H1 2022
GBP'm* GBP'm*
Revenue 52.0 86.2
Adjusted EBITDA** (5.7) 12.3
Operating loss (19.6) (7.4)
Adjusted operating loss** (17.5) (1.4)
Reported loss after tax (21.3) (8.3)
Diluted EPS (2.57p) (1.03p)
Adjusted diluted EPS** (2.30p) (0.36p)
Cash generated from operations 2.4 6.2
Adjusted cash from operations** 4.3 8.3
Capital Investment (PP&E) 5.2 3.8
Net funds / (debt)*** 5.3 (6.7)
* All figures GBP'm excluding diluted and adjusted diluted EPS.
** Adjusted Measures: Alternative performance measures are
disclosed separately after a number of non-cash charges,
non-operational items and significant infrequent items that would
distort period on period comparability . Adjusted items are
material items of income or expense that have been shown separately
due to the significance of their nature or amount as detailed in
note 8.
*** Net funds/debt excludes IFRS16 lease liabilities and fair
value gains/losses on derivative instruments.
The following highlights of the first half results are based on
these adjusted performance measures, unless otherwise stated.
Strategic Highlights
-- Commenced sampling for GaN Power with two new customers for 650 V devices
-- Design wins with multiple customers to deliver wireless
products to leading China cellular and Wi-Fi suppliers for growing
China and India smartphone market
-- Customer qualifications for high-speed data centre
applications, with next-generation VCSELs to enable and support
growth in the artificial intelligence (AI) markets
-- Customer sampling and qualification in progress to supply
automotive-grade LiDAR VCSELs for a major China-based customer
-- Production of second generation, high performance VCSELs used
in consumer mobile 3D Sensing applications for customers
-- Developing industry's first 150mm (6") Indium Phosphide (InP)
Photonics device platform, targeting customers in the Cloud/AI data
centre markets
-- Development of new laser materials technologies for a leading
handset manufacturer for next-generation longer-wavelength consumer
sensing applications
-- Development of 200mm (8") Red, Green and Blue (RGB) epitaxial
wafer products for microLED display qualification
-- Developing frameworks and processes to adopt and align with
the Task Force on Climate-Related Financial Disclosures (TCFD) with
first TCFD Statement published in the 2023 Annual Report and
Financial Statements
-- Developing emissions targets in accordance with the Science
Base Targets initiative (SBTi) with IQE on track to submit targets
within the 24 month commitment window
H1 2023 Financial Highlights
-- Revenue of GBP52.0m (H1 2022: GBP86.2m) down 39.7% on a
reported basis and 42.6% at constant currency
-- Wireless revenue of GBP22.4m (H1 2022: GBP46.6m) down 51.9%
on a reported basis, largely as a result of weakness in global
handset demand and supply chain inventory build
-- Photonics revenue of GBP28.0m (H1 2022: GBP38.5m) down 27.2%
on a reported basis, primarily as a result of softness in the
handset market and a slowdown in Asian telecoms infrastructure
programmes
-- CMOS++ revenue of GBP1.6m (H1 2022: GBP1.1m) up 43.1% on a
reported basis, due to growth in Silicon-based switches for power
control
-- Adjusted LBITDA of (GBP5.7m) (H1 2022: GBP12.3m EBITDA) down
146.5% on a reported basis, adversely impacted by a reduction in
sales and under-utilisation of capacity, particularly in the
Wireless business
-- Reported operating loss of GBP19.6m (H1 2022: GBP7.4m loss)
-- Adjusted cash inflow from operations of GBP4.3m (H1 2022:
GBP8.3m) benefitting from management of working capital
-- Total net cash capex and cash investment in intangibles of GBP8.5m (H1 2022: GBP7.6m)
-- GBP5.2m investment in PP&E capex (H1 2022: GBP3.8m)
prioritising high growth GaN power and display capacity as set out
at the time of the equity raise
-- Purchase of intangibles of GBP1.7m (H1 2022: GBP2.3m) primarily relates to ongoing systems transformation programme
-- Ongoing investment in R&D with GBP1.6m (H1 2022: GBP1.6m)
of development costs in the period focused on power electronics and
microLEDs
-- Adjusted net funds of GBP5.3m as at 30 June 2023 (net debt of
GBP15.2m as at 31 Dec 2022, net debt of GBP6.7m as at 30 June 2022)
with an undrawn Revolving Credit Facility of $35m (GBP27.3m)
available to the Group
-- Equity raise of GBP29.7m (net proceeds) completed in May in
order to strengthen the balance sheet and underpin strategic
investment
-- Cost optimisation
-- Optimised manufacturing plan for improved asset utilisation
-- Headcount reductions delivering c.10% in year savings, while
retaining key skills for growth with associated H1 2023
restructuring costs of GBP1.2m
-- Reduction in non-labour costs to deliver greater than 20% in year savings
-- Global site optimisation programme
-- US MBE operations consolidation within North Carolina site on
track to be completed by H1 2024
-- Ongoing review into global footprint optimisation to improve
operational efficiency and profitability
Current trading and outlook
The current temporary semiconductor industry downturn is
stabilising, with continued pockets of recovery expected in H2
2023, albeit more slowly than anticipated at the time of the FY
2022 results.
Improvement is expected in 2024 as the supply chain normalises
and customer demand recovers.
The Group anticipates double digit revenue growth in H2 2023
versus H1 2023, and expects to be profitable at an adjusted EBITDA
level for FY 2023.
Results Presentation
IQE will present its H1 2023 Results via webcast at 9:00am BST
today, Tuesday 12 September 2023. If you would like to view this
webcast, please register by using the below link and following the
instructions:
https://stream.brrmedia.co.uk/broadcast/64df6b6ae4c3ecf0bd56f5e4
Glossary
Term Definition
Artificial intelligence (AI) A simulation of human intelligence
in machines, including machines
which are programmed to mimic
human action or exhibit humanistic
traits such as learning or problem-solving
--------------------------------------------
GaN Gallium Nitride
--------------------------------------------
InP Indium Phosphide
--------------------------------------------
LiDAR Light detection and ranging
- a method for measuring distances
by illuminating the target with
a laser light
--------------------------------------------
MicroLED Emerging display technology
consisting of arrays of microscopic
light emitting diodes (LEDs)
--------------------------------------------
VCSEL Vertical Cavity Surface Emitting
Laser, an opto-electronic component
used in a variety
of applications
--------------------------------------------
Contacts:
IQE plc
+44 (0) 29 2083 9400
Americo Lemos
Neil Rummings
Amy Barlow
Peel Hunt (Nomad and Joint Broker)
+44 (0) 20 7418 8900
Paul Gillam
Richard Chambers
James Smith
Numis (Joint Broker)
+44 (0) 20 7260 1000
Simon Willis
Hugo Rubinstein
Iqra Amin
Headland Consultancy (Financial PR)
+ 44 (0) 20 38054822
Andy Rivett-Carnac: +44 (0) 7968 997 365
Chloe Francklin: +44 (0)78 3497 4624
ABOUT IQE
http://iqep.com
IQE is the leading global supplier of advanced compound
semiconductor wafers and materials solutions that enable a diverse
range of applications across:
-- Smart Connected Devices
-- Communications Infrastructure
-- Automotive and Industrial
-- Aerospace and Security
As a scaled global epitaxy wafer manufacturer, IQE is uniquely
positioned in this market which has high barriers to entry. IQE
supplies the global market and is enabling customers to innovate at
chip and OEM level. By leveraging the Group's intellectual property
portfolio including know-how and patents, it produces epitaxy
wafers of superior quality, yield and unit economics.
IQE is headquartered in Cardiff UK, with employees across eight
manufacturing locations in the UK, US and Taiwan, and is listed on
the AIM Stock Exchange in London.
Financial Review
Restated
6 months 6 months 12 months
to to to
30 Jun 30 Jun 31 Dec
Consolidated Income Statement 2023 2022 2022
(All figures GBP'000s) Note Unaudited Unaudited Audited
------------------------------------- ----- ----------- ---------- ------------
Revenue 7 52,016 86,198 167,494
Cost of sales (56,241) (71,845) (141,111)
------------------------------------- ----- ----------- ---------- ------------
Gross (loss)/profit (4,225) 14,353 26,383
Selling, general and administrative
expenses (16,404) (16,514) (31,211)
Impairment loss on intangible
assets - (3,363) (66,155)
Impairment reversal/(loss)
on trade receivables and contract
assets 355 - (2,300)
(Loss)/profit on disposal of
intangible assets and property,
plant and equipment - (590) 688
Other gains/(losses) 4 640 (1,317) (381)
Operating loss 7 (19,634) (7,431) (72,976)
Finance costs (1,832) (1,100) (2,427)
Adjusted loss before income
tax (19,291) (2,540) (5,984)
Adjustments 8 (2,175) (5,991) (69,419)
------------------------------------- ----- ----------- ---------- ------------
Loss before income tax 7 (21,466) (8,531) (75,403)
Taxation 141 279 862
------------------------------------- ----- ----------- ---------- ------------
Loss for the period (21,325) (8,252) (74,541)
-------------------------------------------- ----------- ---------- ------------
Loss attributable to:
Equity shareholders (21,325) (8,252) (74,541)
(21,325) (8,252) (74,541)
-------------------------------------------- ----------- ---------- ------------
Loss per share attributable to
owners of the parent during the
period
Basic loss per share 10 (2.57p) (1.03p) (9.27p)
Diluted loss per share 10 (2.57p) (1.03p) (9.27p)
-------------------------------------------- ----------- ---------- ------------
Adjusted basic and diluted earnings per share are presented in
Note 10.
All items included in the loss for the period relate to
continuing operations.
The comparative financial information for 6 months to 30 June
2022 has been restated to reclassify GBP3,363,000 from 'Selling,
general and administrative expenses' to 'Impairment loss on
intangible assets' in order to adopt a consistent presentation with
the audited financial statements for the year ended 31 December
2022. The reclassification has had no impact on net assets, cash
flows or loss after tax for the 6 months to 30 June 2022.
Consolidated statement of comprehensive 6 months 6 months 12 months
income to to to
30 Jun 30 Jun 31 Dec
2023 2022 2022
(All figures GBP'000s) Unaudited Unaudited Audited
----------------------------------------- ----------- ----------- ------------
Loss for the period (21,325) (8,252) (74,541)
Exchange differences on translation
of foreign operations* (7,682) 16,776 14,500
----------------------------------------- ----------- ----------- ------------
Total comprehensive (expense) /
income for the period (29,007) 8,524 (60,041)
----------------------------------------- ----------- ----------- ------------
Total comprehensive (expense) /
income attributable to:
Equity shareholders (29,007) 8,524 (60,041)
(29,007) 8,524 (60,041)
----------------------------------------- ----------- ----------- ------------
* Balance might subsequently be reclassified to the income
statement when it becomes realised.
Consolidated Balance Sheet
As At As At As At
30 Jun 30 Jun 31 Dec
2023 2022 2022
(All figures GBP'000s) Note Unaudited Unaudited Audited
--------------------------------------- ----- ---------- ---------- ----------
Non-current assets
Intangible assets 35,061 99,616 37,014
Property, plant and equipment 121,640 126,971 127,055
Right of use assets 38,918 43,350 41,432
Total non-current assets 195,619 269,937 205,501
--------------------------------------- ----- ---------- ---------- ----------
Current assets
Inventories 25,874 34,706 34,161
Trade and other receivables 36,996 53,246 44,828
Derivative financial instruments 12 259 - -
Cash and cash equivalents 12 12,314 15,390 11,620
--------------------------------------- ----- ---------- ---------- ----------
Total current assets 75,443 103,342 90,609
--------------------------------------- ----- ---------- ---------- ----------
Total assets 271,062 373,279 296,110
--------------------------------------- ----- ---------- ---------- ----------
Current liabilities
Trade and other payables (33,458) (44,016) (37,545)
Current tax liabilities (65) (1,230) (690)
Bank borrowings 12 (6,123) (14,912) (6,225)
Derivative financial instruments 12 - (1,327) (381)
Lease liabilities 12 (7,140) (5,287) (4,843)
Provisions for other liabilities
and charges (2,194) (3,803) (1,625)
Total current liabilities (48,980) (70,575) (51,309)
--------------------------------------- ----- ---------- ---------- ----------
Non-current liabilities
Bank borrowings 12 (845) (7,205) (20,643)
Lease liabilities 12 (42,826) (48,372) (46,026)
Provisions for other liabilities
and charges (710) (1,464) (1,065)
Deferred tax liabilities (1,291) (1,317) (2,007)
--------------------------------------- ----- ---------- ---------- ----------
Total non-current liabilities (45,672) (58,358) (69,741)
--------------------------------------- ----- ---------- ---------- ----------
Total liabilities (94,652) (128,933) (121,050)
--------------------------------------- ----- ---------- ---------- ----------
Net assets 176,410 244,346 175,060
--------------------------------------- ----- ---------- ---------- ----------
Equity attributable to shareholders
of the parent
Share capital 13 9,614 8,046 8,048
Share premium 155,825 154,675 154,720
Retained earnings (39,413) 21,043 (45,246)
Exchange rate reserve 32,853 42,811 40,535
Other reserves 17,531 17,771 17,003
--------------------------------------- ----- ---------- ---------- ----------
Total equity 176,410 244,346 175,060
--------------------------------------- ----- ---------- ---------- ----------
Consolidated Statement of Changes in Equity
Unaudited Share Share Retained Exchange Other Total
capital premium earnings rate reserve reserves equity
(All figures GBP'000s)
At 1 January 2023 8,048 154,720 (45,246) 40,535 17,003 175,060
--------------------------- -------- -------- --------- ------------- --------- --------
Loss for the period - - (21,325) - - (21,325)
Other comprehensive
expense for the period - - - (7,682) - (7,682)
Total comprehensive
expense - - (21,325) (7,682) - (29,007)
Share based payments - - - - 528 528
Proceeds from shares
issued (net of expenses) 1,566 1,105 - - 27,158 29,829
Transfer of merger reserve
to retained earnings
(see note 13) - - 27,158 - (27,158) -
Total transactions
with owners 1,566 1,105 27,158 - 528 30,357
At 30 June 2023 9,614 155,825 (39,413) 32,853 17,531 176,410
--------------------------- -------- -------- --------- ------------- --------- --------
Unaudited Share Share Retained Exchange Other Total
capital premium earnings rate reserve reserves equity
(All figures GBP'000s)
At 1 January 2022 8,036 154,632 29,295 26,035 16,623 234,621
--------------------------- -------- -------- --------- ------------- --------- --------
Loss for the period - - (8,252) - - (8,252)
Other comprehensive
income for the period - - - 16,776 - 16,776
Total comprehensive
(expense)/income - - (8,252) 16,776 - 8,524
Share based payments - - - - 1,148 1,148
Proceeds from shares
issued 10 43 - - - 53
--------------------------- -------- -------- --------- ------------- --------- --------
Total transactions
with owners 10 43 - - 1,148 1,201
At 30 June 2022 8,046 154,675 21,043 42,811 17,771 244,346
--------------------------- -------- -------- --------- ------------- --------- --------
Audited Share Share Retained Exchange Other Total
capital premium earnings rate reserve reserves equity
(All figures GBP'000s)
At 1 January 2022 8,036 154,632 29,295 26,035 16,623 234,621
------------------------ -------- -------- --------- ------------- --------- --------
Loss for the year - - (74,541) - - (74,541)
Other comprehensive
income for the year - - - 14,500 - 14,500
Total comprehensive
(expense)/income - - (74,541) 14,500 - (60,041)
Share based payments - - - - 289 289
Tax relating to share
options - - - - 91 91
Proceeds from shares
issued 12 88 - - - 100
Total transactions
with owners 12 88 - - 380 480
At 31 December 2022 8,048 154,720 (45,246) 40,535 17,003 175,060
------------------------ -------- -------- --------- ------------- --------- --------
Consolidated Cash Flow Statement 6 months 6 months 12 months
to to to
30 Jun 30 Jun 31 Dec
2023 2022 2022
(All figures GBP'000s) Note Unaudited Unaudited Audited
----------------------------------- ----------- ----------- ----------- ------------
Cash flows from operating activities
------------------------------------------- --- ----------- ----------- ------------
Adjusted cash inflow from operations 4,296 8,349 15,652
Cash impact of adjustments 8 (1,864) (2,173) (6,779)
------------------------------------------- --- ----------- ----------- ------------
Cash generated from operations 11 2,432 6,176 8,873
Net interest paid (1,565) (1,100) (2,154)
Income tax paid (726) (628) (775)
------------------------------------------- --- ----------- ----------- ------------
Net cash generated from operating
activities 141 4,448 5,944
------------------------------------------------ ----------- ----------- ------------
Cash flows from investing activities
Purchase of property, plant and equipment (5,183) (3,751) (9,438)
Purchase of intangible assets (1,681) (2,254) (4,699)
Capitalised development expenditure (1,590) (1,567) (3,795)
Proceeds from disposal of property,
plant and equipment 12 4,091 7,203
------------------------------------------------ ----------- ----------- ------------
Adjusted cash used in investing
activities (8,442) (7,572) (16,802)
Cash impact of adjustments - proceeds
from disposal of property, plant
and equipment and intangible assets 8 - 4,091 6,073
------------------------------------------- --- ----------- ----------- ------------
Net cash used in investing activities (8,442) (3,481) (10,729)
------------------------------------------- --- ----------- ----------- ------------
Cash flows from financing activities
Proceeds from issuance of ordinary
shares 31,219 53 100
Expenses associated with issue (1,390) - -
of ordinary shares
Proceeds from borrowings 5,833 7,856 15,814
Repayment of borrowings (25,302) (3,156) (6,256)
Payment of lease liabilities (748) (1,923) (4,926)
------------------------------------------- --- ----------- ----------- ------------
Net cash generated from financing
activities 9,612 2,830 4,732
------------------------------------------------ ----------- ----------- ------------
Net increase / (decrease) in cash
and cash equivalents 1,311 3,797 (53)
Cash and cash equivalents at the
beginning of the period 11,620 10,791 10,791
Exchange (losses) / gains on cash
and cash equivalents (617) 802 882
------------------------------------------- --- ----------- ----------- ------------
Cash and cash equivalents at
the end of the period 12 12,314 15,390 11,620
------------------------------------------- --- ----------- ----------- ------------
1. REPORTING ENTITY
IQE plc is a public limited company incorporated in the United
Kingdom under the Companies Act 2006. The Company is domiciled in
the United Kingdom and is quoted on the Alternative Investment
Market (AIM).
These condensed consolidated interim financial statements
('interim financial statements') as at and for the six months ended
30 June 2023 comprise the Company and its Subsidiaries (together
referred to as 'the Group'). The principal activities of the Group
are the development, manufacture and sale of advanced semiconductor
materials.
2. BASIS OF PREPARATION
These interim financial statements have been prepared in
accordance with IAS 34 'Interim Financial Reporting', and should be
read in conjunction with the Group's last annual consolidated
financial statements as at and for the year ended 31 December 2022
which were approved by the Board of Directors on 23 May 2023 and
have been delivered to the Registrar of Companies. The report of
the auditors on those financial statements was unqualified, did not
contain an emphasis of matter paragraph and did not contain any
statement under section 498 of the Companies Act 2006.
The interim financial statements do not include all of the
information required for a complete set of IFRS financial
statements and do not constitute statutory accounts within the
meaning of section 434 of the Companies Act 2006. However, selected
explanatory notes are included to explain events and transactions
that are significant to an understanding of the changes in the
Group's financial position and performance since the last annual
financial statements.
Comparative information in the interim financial statements as
at and for the year ended 31 December 2022 has been taken from the
published audited financial statements as at and for the year ended
31 December 2022. All other periods presented are unaudited.
The Board of Directors and the Audit Committee approved the
interim financial statements on 12 September 2023.
3. GOING CONCERN
The Group is currently experiencing weaker customer demand and a
reduction in customer orders and forecasts as a result of the
global semiconductor industry downturn. The current industry
downturn has presented a temporary but significant challenge to
sales volumes in the first half of 2023 with market softness
expected to extend into H2FY23 prior to an anticipated gradual
improvement in market dynamics and customer demand from Q4
2023.
The Directors have taken steps to strengthen the balance sheet
of the Group in order to mitigate the financial impact of the
current semiconductor market downturn. Actions taken include:
-- The successful refinancing of the Group's GBP27,300,000
($35,000,000) multi-currency revolving credit facility provided by
HSBC Bank plc on 16 May 2023. The tenor of the facility has been
extended to 1 May 2026 with quarterly leverage and interest cover
covenant tests applicable to the facility, commencing at December
2023
-- The successful GBP31,098,546 equity fund raise (net proceeds
of GBP29,708,392) completed on 18 May 2023 in order to ensure that
the Company can continue to invest to execute on its strategy, meet
its near-term liquidity requirements and deliver a sustainable
balance sheet position going forward
-- The implementation of cost management actions, including
staff redundancies, operational efficiencies and reductions in
areas of discretionary expenditure which are under the control of
the Directors
-- Deferral of capital and intangible asset expenditure under the control of the Directors
In the six months to 30 June 2023, reported revenue declined 40%
and the group made a loss for the period of GBP21,325,000 (H1 2022:
GBP8,252,000, FY22: GBP74,541,000) . The cash impact of the loss
for the period has been mitigated by a combination of the Group's
successful equity fund raise, careful working capital management
and the deferral of certain capital and intangible asset
expenditure resulting in an improvement in the Group's net funds
position (excluding lease liabilities and fair value gains/losses
on derivative instruments) to GBP5,346,000 (H1 2022: GBP6,727,000
net debt, FY22: GBP15,248,000 net debt) At 30 June 2023 the Group
had undrawn committed funding of GBP27,300,000 ($35,000,000)
available under the terms of its credit facilities.
In assessing the going concern basis of preparation the
Directors have reviewed financial projections to 31 December 2024
('the going concern assessment period'), containing both a 'base
case' and a 'severe but plausible downside case'. The review period
extends beyond the minimum required 12-month period from the date
of approval of the interim financial statements to protect against
the recovery in the semiconductor market occurring later than
forecast by the Directors.
Base Case
The base case is the Group's latest 2023 Board approved 2023 and
2024 forecasts. The base case incorporates the impact of current
market softness, weak customer demand and cost management actions
implemented by the Board.
The base case was prepared with the following key
assumptions:
-- Revenue for 2023 in line with current analyst consensus, with
a forecast return to year-on-year growth in 2024
-- Direct wafer product margins for 2023 and 2024 consistent with H1 2023
-- Labour inflation in 2024 in line with labour market norms
-- Cost inflation in 2024 operating and administrative costs in
line with the current inflationary environment
-- c.GBP14,000,000 of capital expenditure in 2023 and 2024 which
includes investment in Gallium Nitride (GaN) related manufacturing
capacity, enabling diversification into the high-growth power
electronics and advanced display (uLED) markets
In the base case the Group is forecast to maintain significant
levels of funding headroom throughout the going concern assessment
period and is forecast to comply with its leverage and interest
cover banking covenants throughout the going concern assessment
period. A mid-single digit GBPm net debt (excluding lease
liabilities and fair value gains/losses on derivatives) position is
forecast at the end of 2023 and a high-single digit GBPm net debt
position is forecast at the end of 2024.
Severe but plausible downside case
The severe but plausible downside case was prepared using the
following key assumptions:
-- Revenue is assumed at 17% down on the base case for Q4 2023
and 10% down on the base case for FY24 with a return to growth
deferred to Q2FY24.
-- In line with the revenue reduction in both years, there is a
reflective reduction in variable operating costs for 2023 and 2024
along with additional incremental cost savings that primarily
include idling of tools, labour savings and reductions in certain
non-manufacturing related discretionary expenditure that can be
controlled by the Directors
In the severe but plausible downside case the Group's liquidity
is reduced to mid-single digit GBPm at the end of 2023, increasing
to low teen GBPm at the end of 2024 and is forecast to comply with
its leverage and interest cover banking covenants throughout the
going concern assessment period. A mid-single digit GBPm net debt
(excluding lease liabilities and fair value gains/losses on
derivatives) position is forecast at the end of 2023 and a low teen
GBPm net debt position is forecast at the end of 2024.
4. USE OF JUDGEMENTS AND ESTIMATES
In preparing these interim financial statements, management has
made judgements and estimates that affect the application of
accounting policies and the reported amounts of assets,
liabilities, income and expense. Actual results may differ from
these estimates.
The significant judgements made by management in applying the
Group's accounting policies and the key sources of estimation
uncertainty were the same as those described in the last annual
financial statements except as follows:
Impairment of Cash Generating Units ('CGU')
At the end of each reporting period, the Group assesses whether
there is any indication of impairment of non-current assets
allocated to the Group's CGU's. Multiple production facilities and
production assets are included in a single CGU reflecting that
production can (and is) transferred between sites and production
assets for different operating segments to suit capacity planning
and operational efficiency. Given the interdependency of facilities
and production assets non-current assets are tested for impairment
by grouping operational sites and production assets into CGUs based
on type of production.
In the six months to 30 June 2023, the current industry downturn
has negatively impacted the Group's results with a loss for the
period of GBP21,325,000 and operating losses in each of its
Wireless and Photonics CGU's. As a result of this, non-current
assets allocated to the Wireless and Photonics CGUs have been
tested for impairment.
The recoverable amount of the CGUs has been determined based on
value in use calculations, using cash flow projections for a
five-year period plus a terminal value based upon a long-term
growth rate of 2% in line with The Bank of England's monetary
policy 2% inflation target.
Value in use calculations are based on the Group's latest Board
approved 2023 and 2024 forecast and five-year plan which has been
adjusted to exclude the impact of expansionary capital expenditure
and certain linked earnings and cash flows. Revenue assumptions in
year 1 reflect the impact of current market softness, a reduction
in customer demand, orders and forecasts, prior to an expected
improvement in market dynamics and customer demand in years 2 and
3. Revenue assumptions in the adjusted cash flow projections for
years 4 and 5 have typically been extrapolated from year 3 using
business segment growth rates that take account of industry trends
and external market research.
The calculation of the recoverable amount of each CGU in the
value in use calculations is highly sensitive to small changes in
the following key assumptions applied in the 2023 cash flow
forecast:
5 Year
Year Year Year
Year 1 Year 2 3 4 5 CAGR
% % % % % %
======================= =============== ================ ===== ===== ===== =======
Risk adjusted discount
rate 19.2% 19.2% 19.2% 19.2% 19.2% N/A
Latest 2023 Latest 2023
and 2024 Board and 2024 Board
Photonics revenue approved approved
growth rate forecast forecast 34.3% 17.3% 18.1% 12.3%
Latest 2023 Latest 2023
and 2024 Board and 2024 Board
Wireless revenue approved approved
growth rate forecast forecast 29.7% 31.3% 11.5% 12.5%
======================= =============== ================ ===== ===== ===== =======
Wireless CGU
The recoverable amount of the Wireless CGU of GBP89,086,000,
determined based on value in use calculations is greater than the
carrying amount (GBP82,833,000) of the associated intangible
assets, property, plant and equipment and right of use assets
allocated to the CGU such that no impairment of Wireless CGU assets
has been identified.
The Group has carried out a sensitivity analysis on the
impairment test for the Wireless CGU, using various reasonably
plausible scenarios focused on changes in business segment growth
rates, direct wafer product margins and changes in the discount
rate applied in the value in use calculations.
-- Growth rates in the value in use calculations take account of
continuing market demand for compound semiconductors and associated
technology advancement, driven by macro trends of 5G and connected
devices where 5G network infrastructure and 5G mobile handsets are
being enabled by next generation wireless compound semiconductor
material. If the aggregated compound annual revenue growth rate
used in the value in use calculations to determine the recoverable
amount was to decrease by 1.0%, the magnitude of the adverse impact
on the recoverable amount of Wireless CGU non-current assets would
be GBP11,267,000
-- If the discount rate used in the value in use calculations to
determine the recoverable amount was to increase by 0.5%, the
magnitude of the adverse impact on the recoverable amount of
Wireless CGU non-current assets would be GBP3,416,000.
Photonics CGU
The recoverable amount of the Photonics CGU of GBP137,515,000,
determined based on value in use calculations is greater than the
carrying amount (GBP136,870,000) of the associated intangible
assets, property, plant and equipment and right of use assets
allocated to the CGU such that no impairment of Photonics CGU
assets has been identified.
The Group has carried out a sensitivity analysis on the
impairment test for the Photonics CGU, using various reasonably
plausible scenarios focused on changes in business segment growth
rates, direct wafer product margins and changes in the discount
rate applied in the value in use calculations.
-- Growth rates in the value in use calculations take account of
continuing market demand for compound semiconductors and associated
technology advancement, driven by macro trends of 5G and connected
devices, and the increasing proliferation of 3D and advanced
sensing end user applications that require enabling compound
semiconductor material. If the aggregated compound annual revenue
growth rate used in the value in use calculations to determine the
recoverable amount was to decrease by 1.0%, the magnitude of the
adverse impact on the recoverable amount of Photonics CGU
non-current assets would be GBP19,732,000
-- If the discount rate used in the value in use calculations to
determine the recoverable amount was to increase by 0.5%, the
magnitude of the adverse impact on the recoverable amount of
Photonics CGU non-current assets would be GBP5,158,000.
5. MATERIAL ACCOUNTING POLICIES
The accounting policies applied in these interim financial
statements are the same as those applied in the Group's
consolidated financial statements as at and for the year ended 31
December 2022. A number of new standards are effective from 1
January 2023 but they do not have a material effect on the Group's
financial statements.
Recent accounting developments and the policy for recognising
and measuring income taxes in the interim period are described
below.
5.1 Recent accounting developments
In preparing the interim financial statements, the Group has
adopted the following Standards, amendments and interpretations,
which are effective for 2023 and will be adopted in the financial
statements for the year ended 31 December 2023:
-- IFRS 17 'Insurance contracts' which establishes the
principles for the recognition, measurement and presentation and
disclosure of insurance contracts and supersedes IFRS 4 'Insurance
contracts'.
-- Amendments to IAS 1 'Presentation of financial statements' on
classification of liabilities which is intended to clarify that
liabilities are classified as either current or non-current
depending upon the rights that exist at the end of the reporting
period and amendments to the disclosure of accounting policies will
require disclosure of material rather than significant accounting
policies.
-- Amendment to IAS 8 'Accounting policies, changes in
accounting estimates and errors' to introduce a new definition for
accounting estimates which clarifies that an accounting estimate is
a monetary amount in the financial statements that is subject to
measurement uncertainty.
-- Amendment to IAS 12 'Income taxes' to clarify the accounting
treatment for deferred tax on certain transactions with a narrowing
of the scope of the initial recognition exemption so that it does
not apply to transactions that give rise to equal and offsetting
temporary differences.
The adoption of these standards and amendments has not had a
material impact on the interim financial statements.
5.2 Income tax expense
Income tax expense is recognised at an amount determined by
multiplying the loss before tax for the interim reporting period by
management's best estimate of the weighted-average annual income
tax rate expected for the full financial year, adjusted for the tax
effect of certain items recognised in full in the interim period.
As such, the effective tax rate in the interim financial statements
may differ from management's estimate of the effective tax rate for
the annual financial statements.
6. PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties affecting the Group are
set out in the Strategic Report in the 2022 Annual report and
financial statements and remain unchanged at 30 June 2023.
The principal risks and uncertainties include health, safety and
environment, loss of key personnel, cybersecurity, infringement or
loss of intellectual property, legal and regulatory compliance,
changes in international export control laws, competition and/or
erosion of market opportunity, customer concentration, insufficient
cash or funding to underpin investment opportunities, the failure
of new products or technology to deliver expected levels of revenue
and profitability, disruption or inflation in global supply chains,
transformation of IT systems causing business disruption and
insufficient liquidity or cash funding to meet financial
obligations as they fall due.
7. SEGMENTAL INFORMATION
6 Months 6 Months 12 Months
to 30 June to 30 June to 31 Dec
2023 2022 2022
Revenue Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Wireless 22,438 46,629 76,016
Photonics 28,012 38,475 88,637
CMOS++ 1,566 1,094 2,841
Revenue 52,016 86,198 167,494
------------------------- ------------- ------------- ------------
Adjusted operating loss
Wireless (2,978) 5,533 4,705
Photonics (6,354) 1,899 11,162
CMOS++ (932) (704) (1,513)
Central corporate costs (7,195) (8,168) (17,911)
Adjusted operating loss (17,459) (1,440) (3,557)
Adjusted items
------------------------- ------------- ------------- ------------
Wireless (284) (943) (63,754)
Photonics (825) (3,883) (5,438)
CMOS++ (15) (7) (10)
Central corporate costs (1,051) (1,158) (217)
Operating loss (19,634) (7,431) (72,976)
Finance costs (1,832) (1,100) (2,427)
Loss before tax (21,466) (8,531) (75,403)
------------------------- ------------- ------------- ------------
8. ADJUSTED PERFORMANCE MEASURES
The Group's results report certain financial measures after a
number of adjusted items that are not defined or recognised under
IFRS including, adjusted earnings before interest, tax,
depreciation and amortisation, adjusted operating loss, adjusted
loss before income tax and adjusted losses per share. The Directors
believe that the adjusted performance measures provide a useful
comparison of business trends and performance and allow management
and other stakeholders to better compare the performance of the
Group between the current and prior year, excluding the effects of
certain non-cash charges, non-operational items and significant
infrequent items that would distort period on period comparability.
The Group uses these adjusted performance measures for internal
planning, budgeting, reporting and assessment of the performance of
the business. The tables below show the adjustments made to arrive
at the adjusted performance measures and the impact on the Group's
reported financial performance.
6 months Restated
to 30 Jun 6 months 2022
Adjusted Adjusted 2023 Adjusted Adjusted to 30 Jun Adjusted Adjusted Reported
Reported 2022
Reported
GBP'000s Results Items Results Results Items Results Results Items Results
---------------- --------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Revenue 52,016 - 52,016 86,198 - 86,198 167,494 - 167,494
Cost of sales (56,088) (153) (56,241) (71,475) (370) (71,845) (140,962) (149) (141,111)
---------------- --------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Gross
(loss)/profit (4,072) (153) (4,225) 14,723 (370) 14,353 26,532 (149) 26,383
Other
gains/(losses) 640 - 640 (1,317) - (1,317) (381) - (381)
SG&A (14,382) (2,022) (16,404) (14,252) (2,262) (16,514) (26,780) (4,431) (31,211)
Impairment of
intangibles - - - - (3,363) (3,363) - (66,155) (66,155)
Impairment
reversal/(loss)
of receivables 355 - 355 - - - (2,300) - (2,300)
(Loss)/profit
on disposal
of PPE - - - (594) 4 (590) (628) 1,316 688
---------------- --------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Operating loss (17,459) (2,175) (19,634) (1,440) (5,991) (7,431) (3,557) (69,419) (72,976)
Finance costs (1,832) - (1,832) (1,100) - (1,100) (2,427) - (2,427)
---------------- --------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Loss before
tax (19,291) (2,175) (21,466) (2,540) (5,991) (8,531) (5,984) (69,419) (75,403)
Taxation 141 - 141 (395) 674 279 64 798 862
--------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Loss for the
period (19,150) (2,175) (21,325) (2,935) (5,317) (8,252) (5,920) (68,621) (74,541)
---------------- --------- --------- --------- --------- --------- --------- ---------- ---------- ----------
6 months 6 months
to 30 Jun to 30 Jun 2022
Pre-tax Tax 2023 Pre-tax Tax 2022 Pre-tax Tax Reported
Reported Reported
GBP'000s Adjustment Impact Results Adjustment Impact Results Adjustment Impact Results
--------------------- ---------- ------ ---------- ---------- ------ ---------- ---------- ------ ----------
Share based
payments (460) - (460) (1,110) - (1,110) (223) (200) (423)
Share based
payments -
Chief Executive
Officer recruitment (6) - (6) (38) - (38) (109) - (109)
Chief Executive
Officer recruitment (147) - (147) (154) - (154) (96) - (96)
Chief Finance
Officer severance (326) - (326) - - - - - -
Impairment
- goodwill - - - - - - (62,716) - (62,716)
Impairment
-other intangibles - - - (3,363) 410 (2,953) (3,439) 724 (2,715)
Restructuring (1,236) - (1,236) (1,330) - (1,330) (4,152) - (4,152)
Restructuring
- profit on
disposal of
PPE - - - 4 264 268 1,316 274 1,590
Total (2,175) - (2,175) (5,991) 674 (5,317) (69,419) 798 (68,621)
--------------------- ---------- ------ ---------- ---------- ------ ---------- ---------- ------ ----------
The nature of the adjusted items is as follows:
Current period:
-- Share based payments - The charge recorded in accordance with
IFRS 2 'share based payment' of which GBP153,000 (H1 2022:
GBP370,000, FY22: GBP149,000) has been classified within cost of
sales in gross (loss)/profit and GBP307,000 (H1 2022: GBP740,000,
FY22: GBP74,000) in selling, general and administrative expenses
within operating loss.
-- Chief Executive Officer recruitment - The Chief Executive
Officer's starting bonus of GBP1,000,000, of which GBP200,000
relates to a share-based payment award and GBP800,000 relates to a
cash award is payable over the first three years of employment. The
charge of GBP153,000 (H1 2022: GBP192,000, FY22: GBP205,000)
includes share award and cash costs associated with the new Chief
Executive Officer's starting bonus of GBP153,000 (H2 2022:
GBP192,000, FY22: GBP435,000) and a credit of GBPnil (H1 2022:
GBPnil, FY22: GBP230,000) relating to external recruitment fees.
Cash costs defrayed in the period total GBP463,000 (H1 2022:
GBP582,000, FY22: GBP715,000).
-- Chief Finance Officer severance - The charge of GBP326,000
(H1 2022: GBPnil, FY22 GBPnil) consists of settlement costs and
legal fees in relation to the former Chief Financial Officer. Cash
costs defrayed in the period total GBP280,000 (H1 2022: GBPnil,
FY22: GBPnil).
-- Restructuring - The charge of GBP1,236,000 (H1 2022:
GBP1,330,000, FY22: GBP4,152,000) relates to restructuring costs
relating to labour cost reductions within the Group, the closure of
the Group's manufacturing facility in Pennsylvania, USA and the
closure of the Group's manufacturing facility in Singapore.
- Restructuring charges of GBP786,000 (H1 2022: GBPnil, FY22:
GBPnil) relate to employee related costs relating to labour cost
associated with employee redundancies across the Group (excluding
costs relating to facility closures separately disclosed). The
charge was classified as selling, general and administrative
expenses within operating loss. Cash costs defrayed in the period
total GBP786,000 (H1 2022: GBPnil, FY22: GBPnil).
- Restructuring charges of GBP450,000 (H1 2022: GBP323,000,
FY22: GBP1,136,000) relate to employee related costs relating to
the announced closure of the Group's manufacturing facility in
Pennsylvania, USA. The charge was classified as selling, general
and administrative expenses within operating loss. Cash costs
defrayed in the period total GBP186,000 (H1 2022: GBP131,000, FY22:
GBP606,000).
- Restructuring charges of GBPnil (H1 2022: GBP1,007,000, FY22:
GBP3,016,000) consist of employee related costs of GBPnil (H1 2022:
GBP148,000, FY22: GBP220,000), site decommissioning costs of GBPnil
(H1 2022: GBP859,000, FY22: GBP1,512,000), asset write downs of
GBPnil (H1 2022: GBPnil, FY22: GBP863,000) and asset transfer costs
of GBPnil (H1 2022: GBPnil, FY22: GBP421,000) relating to the
closure of the Group's manufacturing facility in Singapore. The
prior period charge was classified as selling, general and
administrative expenses within operating loss. Cash costs defrayed
in the period total GBP108,000 (H1 2022: GBP1,075,000, FY22:
GBP5,088,000).
Prior periods:
-- Restructuring profit on disposal of PPE - The profit on
disposal of PPE of GBPnil (H1 2022: GBP4,000, FY22: GBP1,316,000)
consists of the sale of assets in Singapore following the cessation
of trade and the sale of assets in North Carolina to facilitate the
consolidation of the Group's manufacturing operations from
Pennsylvania. Cash proceeds received in the period for the sale of
plant and equipment total GBPnil (H1 2022: GBP4,091,000, FY22:
GBP6,073,000).
-- Impairment of goodwill - The non-cash charge of GBPnil (H1
2022: GBPnil, FY22: GBP62,716,000) relates to impairment costs
associated with the Wireless CGU of GBPnil (H1 2022: GBPnil, FY22:
GBP62,382,000) and the Photonics CGU of GBPnil (H1 2022: GBPnil,
FY22: GBP334,000).
-- Impairment of other intangibles - The non-cash charge of
GBPnil (H1 2022: GBP3,363,000, FY22: GBP3,439,000) relates to the
impairment of distributed feedback laser technology development
costs where the Group has taken the decision to discontinue the
development and commercialisation of the technology.
The cash impact of adjusted items in the consolidated cash flow
statement represent costs associated with the recruitment of the
group's Chief Executive Officer (GBP463,000), the recruitment and
severance of the group's Chief Finance Officer (GBP280,000),
onerous contract royalty payments related to the Group's cREO(TM)
technology (GBP41,000), payment of employee related costs
associated with labour cost reductions within the Group
(GBP786,000), payment of employee related costs associated with the
announced closure of the Group's site in Pennsylvania (GBP186,000)
and payment of employee and site related decommissioning costs
associated with the closure of the Group's manufacturing facility
in Singapore (GBP108,000).
Adjusted EBITDA (adjusted earnings before interest, tax,
depreciation and amortisation) has been calculated as follows:
(All figures GBP'000s) 6 months to 6 months to 12 months to
30 June 2023 30 June 2022 31 Dec 2022
Unaudited Unaudited Audited
----------------------------------------------- -------------- -------------- -------------
Loss attributable to equity shareholders (21,325) (8,252) (74,541)
Finance costs 1,832 1,100 2,427
Tax (141) (279) (862)
Depreciation of property, plant and equipment 6,073 7,359 14,529
Depreciation of right of use assets 1,898 1,989 3,981
Amortisation of intangible fixed assets 3,750 3,831 7,784
Loss on disposal of PPE and intangibles* - 590 628
Adjusted Items 2,175 5,995 69,419
----------------------------------------------- -------------- -------------- -------------
Share based payments 460 1,110 223
Share based payments - CEO recruitment 6 38 109
CEO recruitment 147 154 96
CFO recruitment & severance 326 - -
Restructuring 1,236 1,330 4,152
Restructuring - profit on disposal of PPE - - (1,316)
Impairment of intangibles - 3,363 66,155
Adjusted EBITDA (5,738) 12,333 23,365
Share based payments (460) (1,110) (223)
Share based payments - CEO recruitment (6) (38) (109)
CEO recruitment (147) (154) (96)
CFO recruitment & severance (326) - -
Restructuring (1,236) (1,330) (4,152)
EBITDA (7,913) 9,701 18,785
----------------------------------------------- -------------- -------------- -------------
*Excludes the adjustment 'Restructuring - profit on disposal of
PPE' which is separately disclosed as part of the groups adjusted
items
9. TAXATION
The Group's consolidated effective tax rate for the six months
ended 30 June 2023 was 0.7% (H1 2022: 3.3%, FY22: 1.1%). The
effective tax rate differs from the theoretical amount that would
arise from applying the standard corporation tax in the UK of 19.0%
(H1 2022: 19.0%, FY22: 19.0%) principally due to non-recognition of
current year tax losses in the UK and USA.
10. LOSS PER SHARE
6 months 6 months 12 months
to to to
30 June 30 June 31 Dec
2023 2022 2022
(All figures GBP'000s) Unaudited Unaudited Audited
Loss attributable to ordinary shareholders (21,325) (8,252) (74,541)
Adjustments to loss after tax (note
8) 2,175 5,317 68,621
Adjusted loss attributable to ordinary
shareholders (19,150) (2,935) (5,920)
-------------------------------------------- ------------ ------------ ------------
Number of shares:
Weighted average number of ordinary
shares 830,940,409 804,236,241 804,466,357
Dilutive share options 4,621,705 7,369,508 8,797,413
-------------------------------------------- ------------ ------------ ------------
835,562,114 811,605,749 813,263,770
-------------------------------------------- ------------ ------------ ------------
Basic loss per share (2.57p) (1.03p) (9.27p)
Adjusted loss per share (2.30p) (0.36p) (0.74p)
Diluted loss per share (2.57p) (1.03p) (9.27p)
Adjusted diluted loss per share (2.30p) (0.36p) (0.74p)
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 dividing the loss
attributable to ordinary shareholders by the weighted average
number of shares and 'in the money' share options in issue. Share
options are classified as 'in the money' if their exercise price is
lower than the average share price for the period. As required by
IAS 33, this calculation assumes that the proceeds receivable from
the exercise of 'in the money' options would be used to purchase
shares in the open market in order to reduce the number of new
shares that would need to be issued.
11. CASH GENERATED FROM OPERATIONS
(All figures GBP'000s) 6 months 6 months 12 months
to to to
30 June 30 June 31 Dec
2023 2022 2022
Unaudited Unaudited Audited
-------------------------------------- ----------- ----------- ----------
Loss before tax (21,466) (8,531) (75,403)
Finance costs 1,832 1,100 2,427
Depreciation of property, plant
and equipment 6,073 7,359 14,529
Depreciation of right of use
assets 1,898 1,989 3,981
Amortisation of intangible assets 3,750 3,831 7,784
Impairment of intangible assets - 3,363 66,155
Inventory write downs 760 499 2,811
Loss/(profit) on disposal of
property, plant and equipment - 590 (688)
Movement on trade receivable
expected credit losses (355) - 2,300
Provision movements 404 (208) 3,049
Fair value (gain)/loss on derivative
financial instruments (640) 1,317 -
Share based payments 466 1,148 332
-------------------------------------- ----------- ----------- ----------
Cash inflow from operations
before changes in working capital (7,278) 12,457 27,277
Decrease/(increase) in inventories 5,946 (1,376) (2,904)
Decrease/(increase) in trade
and other receivables 7,185 (6,092) (5,534)
(Decrease)/increase in trade
and other payables (3,043) 1,187 (3,893)
Decrease in provisions (378) - (6,073)
-------------------------------------- ----------- ----------- ----------
Cash inflow from operations 2,432 6,176 8,873
-------------------------------------- ----------- ----------- ----------
12. ANALYSIS OF NET DEBT
(All figures GBP'000s)
6 months 6 months 12 months
to to to
30 June 30 June 31 Dec
2023 2022 2022
Unaudited Unaudited Audited
------------------------------------ ------------ ------------ ------------
Bank borrowings due after one
year (845) (7,205) (20,643)
Bank borrowings due within one
year (6,123) (14,912) (6,225)
Lease liabilities due after one
year (42,826) (48,372) (46,026)
Lease liabilities due within one
year (7,140) (5,287) (4,843)
------------------------------------ ------------ ------------ ------------
Total borrowings (56,934) (75,776) (77,737)
Fair value of derivative financial
instruments 259 (1,327) (381)
Cash and cash equivalents 12,314 15,390 11,620
------------------------------------ ------------ ------------ ------------
Net debt (44,361) (61,713) (66,498)
------------------------------------ ------------ ------------ ------------
On 17 May 2023, the Company refinanced its GBP27,300,000
($35,000,000) multi-currency revolving credit facility, provided by
HSBC Bank plc. The facility is secured on the assets of IQE plc and
its subsidiary companies with a committed term to 1 May 2026.
Interest on the facility is payable at a margin of between 2.50 and
3.50 per cent per annum over SONIA on any drawn balances and the
facility is subject to quarterly leverage and Interest cover
covenants tests which commence at 31 December 2023.
On 29 August 2019, the Company agreed a new GBP30,000,000 asset
finance facility, provided by HSBC Bank plc that is secured over
various plant and machinery assets. The facility has a five-year
term and an interest rate margin of 1.65% per annum over base rate
on any drawn balances.
Bank borrowings relate to amounts drawn down on the Group's
asset finance facility.
Cash and cash equivalents comprise balances held in instant
access bank accounts and other short-term deposits with a maturity
of less than 3 months.
13. SHARE CAPITAL
6 months 6 months 12 months
Number of shares to to to
30 June 30 June 31 Dec
2023 2022 2022
Unaudited Unaudited Audited
------------------------------------ ------------ ------------ ------------
As at 1 January 804,841,965 803,555,756 803,555,756
Employee share schemes 1,052,260 419,252 702,500
Placing 150,000,000 - -
Retail Offer 5,492,730 - -
Chief Executive Officer's starting
bonus - share award - 583,709 583,709
As at 30 June / 31 December 961,386,955 804,558,717 804,841,965
------------------------------------ ------------ ------------ ------------
6 months 6 months 12 months
(All figures GBP'000s) to to to
30 June 30 June 31 Dec
2023 2022 2022
Unaudited Unaudited Audited
----------------------------- ----------- ----------- ----------
As at 1 January 8,048 8,036 8,036
Employee share schemes 11 10 12
Placing 1,500 - -
Retail Offer 55 - -
As at 30 June / 31 December 9,614 8,046 8,048
----------------------------- ----------- ----------- ----------
On 17 May 2023, IQE plc raised funds by way of a Placing and a
Retail Offer to all existing shareholders. In each case these were
offered at an issue price of 20 pence per share (the 'Issue
Price'). The Placing utilised a cashbox structure and therefore the
premium on the ordinary shares and associated costs, in accordance
with section 612 of the Companies Act 2006, were initially
recognised within the merger reserve (incorporated within 'Other
reserves'). The investment in the newly incorporated subsidiary
utilised within the cashbox structure has been fully impaired in
the period and the merger reserve has subsequently been transferred
into retained earnings as it is determined to be distributable in
accordance with the Companies Act 2006. The Placing and Retail
Offer raised net funds of GBP29,708,000 from the issue of
155,492,730 ordinary shares.
14. RELATED PARTY TRANSACTIONS
Transactions with Joint Ventures
Compound Semiconductor Centre Limited ('CSC')
The Group established CSC with its joint venture partner as a
centre of excellence for the development and commercialisation of
advanced compound semiconductor wafer products in Europe and on its
formation, the Group contributed assets to the joint venture valued
at GBP12m as part of its initial investment.
The activities of CSC include research and development into
advanced compound semiconductor wafer products, the provision of
contract manufacturing services for compound semiconductor wafers
to certain subsidiaries within the IQE plc Group and the provision
of compound semiconductor manufacturing services to other third
parties.
CSC operates from its manufacturing facilities in Cardiff,
United Kingdom and leases certain additional administrative
building space from the Group. During the period the CSC leased
this space from the Group for GBP58,000 (H1 2022: GBP58,000, FY22:
GBP115,000) and procured certain administrative support services
from the Group for GBP118,000 (H1 2022: GBP118,000, FY22:
GBP235,000). As part of the administrative support services
provided to CSC the Group procured goods and services, recharged to
CSC at cost, totalling GBP2,359,000 (H1 2022: GBP2,069,000, FY22:
GBP4,031,000).
CSC granted the Group the right to use its assets following its
formation for a minimum five-year period. Costs associated with the
right to use the CSC's assets are treated by the Group as operating
lease costs. Costs are charged by the CSC at a price which reflects
the CSC's cash cost of production (including direct labour,
materials and site costs) but excludes any related depreciation or
amortisation of the CSC's property, plant and equipment and
intangible assets respectively under the terms of the joint venture
agreement between the parties. Costs associated with the right to
use the CSC's assets totalled GBP3,488,000 (H1 2022: GBP3,288,000 ,
FY22: GBP6,822,000) in the period.
At 30 June 2023 an amount of GBP243,000 (H1 2022: GBP439,000,
FY22: GBP137,000) was owed from the CSC.
In the Groups balance sheet 'A' Preference Shares with a nominal
value of GBP8,800,000 (H1 2022: GBP8,800,000, FY22: GBP8,800,000)
are included in financial assets at an amortised cost of GBPnil (H1
2022: GBPnil, FY22: GBPnil) and the Group has a shareholder loan of
GBP248,000 (H1 2022: GBP246,000, FY22: GBP247,000) due from
CSC.
15. COMMITMENTS
The Group had capital commitments at 30 June 2023 of
GBP12,197,000 (H1 2022: GBP3,527,000, FY22: GBP1,740,000).
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted
for use in the UK;
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the condensed set of financial statements; and a description of
the principal risks and uncertainties for the remaining six months
of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
Americo Lemos Neil Rummings
Chief Executive Officer, IQE Interim Chief Financial Officer,
plc. IQE plc.
12 September 2023 12 September 2023
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IR EAXNFFLLDEFA
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