2019 half year results

03 September 2019

IQE plc

(“IQE” or the “Group”)

2019 HALF YEAR RESULTS

Performance in line with half-year guidance and full year guidance reiterated 

Strategic and operational progress to ensure business is well-positioned for future growth

Cardiff, UK 3 September 2019: IQE plc (AIM: IQE) the leading supplier of advanced wafer products and material solutions to the semiconductor industry, announces its results for the six months ended 30thJune 2019. 

 

FINANCIAL HIGHLIGHTS

 

 

 

H1 2019

£’m*

H1 2018

£’m*

 

 

 

REVENUE

66.7

73.4

 

 

 

ADJUSTED EBITDA***

7.4

13.5

 

 

 

OPERATING (LOSS) / PROFIT

(3.1)

6.6

 

 

 

ADJUSTED OPERATING (LOSS) / PROFIT

(1.9)

7.6

 

 

 

REPORTED (LOSS) / PROFIT BEFORE TAX

(3.7)

6.6

 

 

 

REPORTED (LOSS) / PROFIT AFTER TAX

(10.7)

4.2

 

 

 

DILUTED EPS

(1.38p)

0.50p

 

 

 

ADJUSTED DILUTED EPS

(1.29p)

0.76p

 

 

 

CASH GENERATED FROM OPERATIONS

4.0

7.6

 

 

 

CAPITAL INVESTMENT (PP&E) 

19.1

19.4

 

 

 

NET (DEBT) / FUNDS**

(0.8)

40.6

 

*   All figures £’m excluding adjusted diluted EPS 

** Net (debt) / funds excludes IFRS16 lease liabilities (see note 4.5)

Adjusted Measures: The Directors believe that the adjusted measures provide a more useful comparison of business trends and performance. Adjusted measures exclude exceptional items, share based payments and non-cash acquisition accounting charges as detailed in note 7.  The following highlights of the first half results is based on these adjusted profit measures, unless otherwise stated.

 

  • Revenue of £66.7m (H1 2018: £73.4m) is 9% down year on year, impacted by a weak smartphone handset market and reductions in demand in the context of a technology market slowdown, international trade tensions and fall in demand from a major InP laser customer.

 

  • Adjusted operating loss of £1.9m (H1 2018: profit £7.6m) reflects negative operating leverage from a cost base scaled for volume which includes an increase in depreciation and amortisation of £2.4m resulting from the investment in capacity.

 

  • Negative EPS of 1.29p due to the operating loss plus a one-off non-cash deferred US tax charge resulting from a shift in the balance of future projected manufacturing between the US and UK / Asia.

 

  • Cash generated from operations of £4.0m (H1 2018: £7.6m) reduced due to lower trading volumes. Additional asset financing facility agreed post half year-end.

 

Dr Drew Nelson, Chief Executive Officer of IQE, said:

“I am pleased that IQE has delivered results which are in line with the trading update from June this year and to reiterate our full-year guidance, despite a number of challenging market conditions facing our industry in the first half of 2019. 

 

“We remain confident in IQE’s ability to adapt to global supply chain shifts and have made significant strategic and operational progress with our global expansion projects. This includes completing the infrastructure phase at our Mega Foundry in Newport, South Wales as well as the capacity expansion in Taiwan and Massachusetts, US. 

 

These investments in the Group’s global manufacturing footprint, coupled with IQE’s unique breadth of compound semiconductor materials experience and IP portfolio, position the Group well for future growth and margin expansion as volumes increase, driven by the growth opportunities in 5G and connected devices.”

 

 

OPERATIONAL HIGHLIGHTS

 

 

  • Major Investment Programme substantially completed:

 

-       Infrastructure phase at Mega Foundry in Newport, South Wales now finished with ten tools installed and optionality to add up to 90 more 

-       Capacity in Taiwan has been increased by 40%, enabling growth in revenues with Asian supply chains

-       Investment in GaN capacity in Massachusetts to capitalise on forthcoming 5G infrastructure deployments

 

  • Newport Mega-Foundry Commencement of Production:

 

-       First mass production order from IQE’s leading VCSEL customer 

-       Extensive product qualifications ongoing with twelve other chip customers across broad supply chains 

-       Commencement of production, post half year-end, with a second customer, serving Android supply chains.

-       Signature of a contract extension, post half year end, with one of its largest VCSEL customers, running through to the end of 2021. In addition, two other existing contracts have also been extended with several other new contracts anticipated.

 

  • 5G Product Development: 

 

-       Continued strong results in the development of Filters and Switches for 5G, based on IQE’s patented cREO technology, with customer engagement for commercialisation proceeding well

-       Introduction of a Full Service Distributed Feedback (DFB) Laser for high-speed datacoms using Nano-Imprint Lithography

 

  • New management structure implemented to support growth ambitions and scalability of operations:

 

-       Dr Drew Nelson, Chief Executive Officer (CEO)

-       Tim Pullen, Chief Financial Officer (CFO)

-       Dr Rodney Pelzel as Executive VP, Global Innovation (CTO)

-       Keith Anderson as Executive VP, Global Operations (COO)

-       Dr Wayne Johnson as Executive VP, Global Business Development, Wireless and Emerging Products 

-       Dr Mark Furlong as Executive VP, Global Business Development, Photonics and InfraRed 

 

  • Development of the IQE Board

 

-       Appointment of Phil SmithCBE, as Chairman

-       Appointment of Carol Chesney, FCA, as Non-Executive Director and Chair of the Audit Committee

 

  • Post half year end increase to available credit facilities

 

-       £30m asset financing facility in place, increasing total available facilities to ~£57m (£12m drawn down at 30thJune 2019)

 

 

 

 

 

CURRENT TRADING AND FULL YEAR OUTLOOK

 

Outlook and guidance remain in line with the trading update from June 21st, 2019. 

 

Three key factors affect IQE’s revenue outlook for 2019

 

(i)             Continued uncertainty related to the geo-political landscape, the effects on global technology markets and, in particular,the confidence for supply chains to rebuild inventory;

 

(ii)            The market for smartphone handsets in the second half of 2019;

 

(iii)           The speed of formation of new Asian supply chains, the associated product qualifications and volumes of initial orders.

 

Balancing these factors, full year revenue guidance of £140m to £160m is reiterated.

 

Segmental revenue guidance is reiterated on a like-for-like basis, but restated to reflect a change in allocation methodology based on (i) the newly implemented business unit structure upon the formation of the Executive Management Board and (ii) certain revenues pertaining to a specific site which has shared production, being reclassified between segments due to an allocation methodology change  (USD constant currency):

 

 

 

Previous Segmentation 

FY18 Revenue £m

Revised Segmentation 

FY18 Revenue £m

Previous Segmentation

FY19 YoY

Revised Segmentation 

FY19 YoY

 

 

 

 

 

Wireless

97.8

87.9

-20% to -25% decline

-25% to -30% decline

Photonics

43.8

66.8

<30% growth

<30% growth

Infrared

13.1

N/A

c15% growth

N/A

 

Second half revenues are expected to represent between 52% and 58% of full year revenues. As such, given the additional contribution against a largely fixed cost base, a return to adjusted operating profitability is expected in H2. This will be strengthened by cost management actions that support the strategic direction of the Group. 

 

EBITDA margins will remain low in FY19 as the utilisation of facilities remains low versus capacity and a high number of product qualifications continue. Full year adjusted operating profit margin guidance, whereby IQE expects to remain profitable in 2019 but with adjusted operating profit margin significantly below the original FY19 guidance of over 10%, is reiterated. 

 

With the infrastructure phase of the capital investment programme substantially complete in H1, full year capex guidance of £30m to £40m is reiterated. The range relates to the timing of the decision to invest in further tools at either Newport or Taiwan, which is discretionary depending on prevailing market conditions. The Group has sufficient installed capacity to underpin significant revenue growth.

 

 

 

 

 

CONTACTS:

IQE plc

+44 (0) 29 2083 9400

Drew Nelson

Tim Pullen

            

Peel Hunt LLP (Nomad and Joint Broker)

+44 (0) 20 7418 8900

Edward Knight

Nick Prowting                 

            

Citigroup Global Markets Limited (Joint Broker)

+44 (0) 20 7986 4000

Christopher Wren

Peter Catterall    

 

Headland Consultancy (Financial PR)
+ 44 (0) 20 38054822

Andy Rivett-Carnac: +44 (0) 7968 997 365

Chloe Francklin: +44 (0) 7834 974 624

 

ABOUT IQE

http://iqep.com

 

IQE is the leading global supplier of advanced compound semiconductor wafers that enable a diverse range of applications across:

 

  • handset devices
  • global telecoms infrastructure
  • connected devices 
  • 3D sensing

 

The macro trends of 5G and connected devices are expected to drive significant growth for compound semiconductors over the coming years.

 

As a scaled global epitaxy wafer manufacturer, IQE is uniquely positioned in this market which has high barriers to entry. IQE supplies the whole market and is agnostic to the winners and losers 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 c. 650 employees, and is listed on the AIM stock Exchange in London.

 

  

 

Consolidated Income Statement

 

 

 

 

 

 

6 months to

 

6 months to

 

12 months to

 

30 Jun 2019

30 Jun 2018

31 Dec 2018

(All figures £’000s)

Note

Unaudited

Unaudited

Audited

Revenue

 

66,720

73,396

156,291

Cost of sales

 

(56,128)

(57,279)

(118,840)

Gross profit

 

10,592

16,117 

37,451

Other income and expenses 

 

-

1,648

1,097

Selling, general and administrative expenses 

 

(13,667)

(11,163)

(29,888)

Operating (loss) / profit

 

(3,075)

6,602

8,660

Net finance (costs) / income

 

(394)

46

87

Share of losses of joint ventures accounted for using the equity method

 

(254)

-

(2,000)

Adjusted (loss) / profit before income tax

 

(2,623)

7,615

13,974

Adjustments

7

(1,100)

(967)

(7,227)

(Loss) / Profit before income tax

 

(3,723)

6,648

6,747

Taxation

 

(6,926)

(2,485)

(5,558)

(Loss) / Profit for the period

(10,649)

4,163

1,189

(Loss) / Profit attributable to:

 

 

 

Equity shareholders

(10,805)

4,023

966

Non-controlling interests

156

140

223

 

(10,649)

4,163

1,189

 

 

 

 

(Loss) / earnings per share attributable to owners of the parent during the period

 

 

 

Basic (loss) / earnings per share                                        9                                                

(1.38)

0.53p

0.13p

Diluted (loss) / earnings per share                                     9                            

(1.38)

0.50p

0.12p

 

 

 

 

 

 

 

 

 

 

Adjusted basic and diluted earnings per share are presented in Note 9.

 

All items included in the (loss) / profit for the period relate to continuing operations.




 

 

 

Consolidated statement of comprehensive income

 

 

 

 

6 months to

 

6 months to

 

12 months to

 

30 Jun 2019

30 Jun 2018

31 Dec 2018

(All figures £’000s)

Unaudited

Unaudited

Audited

(Loss) / Profit for the period

(10,649)

4,163 

1,189

Currency translation differences on foreign currency net investments*

(741)

3,028 

11,140

Total comprehensive (expense) / income for the period

(11,390)

7,191 

12,329

Total comprehensive (expense) / income attributable to:

 

 

 

Equity shareholders

(11,507)

7,063 

12,010

Non-controlling interest

117

128 

319

 

(11,390)

7,191 

12,329

 

  * Balance might subsequently be reclassified to the income statement when it becomes realised.

 

 

 

Consolidated Balance Sheet

 

 

As At

 

As At

 

As At

 

 

30 Jun 2019

30 Jun 2018

31 Dec 2018

(All figures £’000s)

Note

Unaudited

Unaudited

Audited

 

 

 

 

 

Non-current assets 

 

 

 

 

Intangible assets

 

123,328

116,607 

121,775

Fixed asset investments

 

75

75 

75

Property, plant and equipment

 

136,628

107,494 

124,445

Right of use assets

 

40,990

-

-

Lease receivable

 

1,408

-

-

Deferred tax assets

 

7,095

15,372 

13,244

Financial assets

 

8,085

7,776 

7,937

Total non-current assets

 

317,609

247,324 

267,476

 

 

 

 

 

Current assets 

 

 

 

 

Inventories

 

37,277

35,433 

35,709

Trade and other receivables

 

37,313

40,590 

38,015

Lease receivable

 

588

-

-

Cash and cash equivalents

11

11,173

40,634 

20,807

Total current assets

 

86,351

116,657 

94,531

Total assets

 

403,960

363,981 

362,007

 

 

 

 

 

Current liabilities 

 

 

 

 

Trade and other payables

 

(43,039)

(61,056)

(45,908)

Lease liabilities

11

(2,897)

-

-

Current tax liabilities

 

(1,242)

(405)

(431)

Provisions for other liabilities and charges

12

-

(1,477)

(2,554)

Total current liabilities

 

(47,178)

(62,938)

(48,893)

 

 

 

 

 

Non-current liabilities 

 

 

 

 

Borrowings

11

(12,008)

-

Lease liabilities

11

(46,375)

-

-

Provisions for other liabilities and charges

12

-

(3,836)

Total non-current liabilities

 

(58,383)

(3,836)

Total liabilities

 

(105,561)

(62,938)

(52,729)

Net assets

 

298,399

301,043 

309,278

 

 

 

 

 

Equity attributable to shareholders of the parent

 

 

 

 

Share capital

13

7,913

7,608 

7,767

Share premium

 

151,592

147,318 

151,147

Retained earnings

 

88,494

102,356 

99,299

Other reserves

 

46,735

40,404 

47,517

 

 

294,734

297,686 

305,730

Non-controlling Interest

 

3,665

3,357 

3,548

Total equity

 

298,399

301,043 

309,278

 

 

 

 

 

 

 

 

Consolidated Statement of Changes in Equity

 

 

 

 

 

 

 

 

Unaudited

 

(All figures £’000s)

Share capital

Share premium

Retained earnings

Exchange rate reserve

Other reserves

Non-controlling interests

Total equity

 

 

 

 

 

 

 

 

At 1 January 2019

7,767

151,147

99,299

31,113

16,404

3,548

309,278

 

 

 

 

 

 

 

 

(Loss) / Profit for the period

-

-

(10,805)

-

-

156

(10,649)

Other comprehensive expense for the year

-

-

-

(702)

-

(39)

(741)

Total comprehensive (expense) / income

-

-

(10,805)

(702)

-

117

(11,390)

 

 

 

 

 

 

 

 

Share based payments

-

-

-

-

12

-

12

Tax relating to share options

-

-

-

-

(60)

-

(60)

Proceeds from shares issued

146

445

-

-

(32)

-

559

Total transactions with owners

146

445

-

-

(80)

-

511

 

 

 

 

 

 

 

 

At 30 June 2019

7,913

151,592

88,494

30,411

16,324

3,665

298,399

 

 

 

 

 

 

 

 

 

Unaudited

 

(All figures £’000s)

Share capital

Share premium

Retained earnings

Exchange rate reserve

Other reserves

Non-controlling interests

Total equity

 

 

 

 

 

 

 

 

At 1 January 2018 

7,560 

145,927 

98,333 

20,069 

16,061 

3,229 

291,179 

 

 

 

 

 

 

 

 

Profit for the period

-

-

4,023 

-

-

140 

4,163 

Other comprehensive income for the year 

-

-

-

3,040 

-

(12)

3,028 

Total comprehensive income

4,023 

3,040 

128 

7,191 

 

 

 

 

 

 

 

 

Share based payments

-

-

-

-

2,586 

-

2,586 

Tax relating to share options

-

-

-

-

(455)

-

(455)

Proceeds from shares issued

48 

1,391 

(897)

542 

Total transactions with owners

48 

1,391 

1,234 

2,673 

 

 

 

 

 

 

 

 

At 30 June 2018

7,608 

147,318 

102,356 

23,109 

17,295 

3,357 

301,043 

 

 

 

 

 

 

 

 

 

 

Audited

 

(All figures £’000s)

Share capital

Share premium

Retained earnings

Exchange rate reserve

Other reserves

Non-controlling interests

Total equity

 

 

 

 

 

 

 

 

At 1 January 2018

7,560 

145,927 

98,333 

20,069 

16,061 

3,229 

291,179 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

966

-

-

223

1,189

Other comprehensive income for the year

-

-

-

11,044

-

96

11,140

Total comprehensive income

-

-

966

11,044

-

319

12,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share based payments

-

-

-

-

1,826

-

1,826

Tax relating to share options

-

-

-

-

(437)

-

(437)

Proceeds from shares issued

207

5,220

-

-

(1,046)

-

4,381

Total transactions with owners

207

5,220

-

-

343

-

5,770

 

 

 

 

 

 

 

 

At 31 December 2018 

7,767

151,147

99,299

31,113

16,404

3,548

309,278

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Cash Flow Statement

 

 

6 months to

 

6 months to

 

12 months to

 

 

30 Jun 2019

30 Jun 2018

31 Dec 2018

 

(All figures £’000s)

Note

Unaudited

Unaudited

Audited

 

 

 

 

 

 

 

Cash flows from operating activities 

 

 

 

 

 

Adjusted cash inflow from operations

 

6,677

8,303

16,982

 

Cash impact of adjustments

7

(2,694)

(723)

6

 

Cash generated from operations

10

3,983

7,580

16,988

 

Net interest (paid)/received

 

(195)

1

(66)

 

Income tax paid

 

(101)

(232)

(665)

 

Net cash generated from operating activities

3,687

7,349

16,257

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchase of property, plant and equipment

(19,048)

(6,292)

(30,375)

 

Purchase of intangible assets

(940)

(317)

(1,550)

 

Capitalised development expenditure

(4,752)

(6,372)

(10,437)

 

Net cash used in investing activities

 

(24,740)

(12,981)

(42,362)

 

 

 

 

 

 

 

Cash flows from financing activities 

 

 

 

 

 

Proceeds from issuance of ordinary shares

 

559

542

813

 

Proceeds from borrowings

 

12,060

-

-

 

Transaction costs related to loans and borrowings

 

(161)

-

-

 

Payment of lease liabilities

 

(1,035)

-

-

 

Net cash generated from financing activities

11,423

542

813

 

Net decrease in cash and cash equivalents

(9,630)

(5,090)

(25,292)

 

Cash and cash equivalents at the beginning of the period

20,807

45,612

45,612

 

Exchange (losses) / gains on cash and cash equivalents

 

(4)

112

487

 

Cash and cash equivalents at the end of the period

11

11,173

40,634

20,807

 

 

 

 

 

 

 

             

 

 

 

 

 

  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 2019 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.

 

  1. 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 2018 which were approved by the Board of Directors on 20 March 2019 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 statementsdo not include all of the information required for a complete set of IFRS financial statements anddo 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.  

 

This is the first set of the Group’s financial statements where IFRS 16, ‘Leases’ has been applied. Changes to significant accounting policies are described in Note 4.

 

Comparative information in the interim financial statements as at and for the year ended 31 December 2018 has been taken from the published audited financial statements as at and for the year ended 31 December 2018. All other periods presented are unaudited. 

 

The Company’s auditor in accordance with ISRE 2410 has reviewed the financial information contained in these interim financial statements. This review does not constitute an audit. 

 

The Board of Directors and the Audit Committee approved the interim financial statements on 3September 2019.

 

  1. 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:

 

  • New significant judgements and key sources of estimation uncertainty related to the application of IFRS 16, which are described in Note 4; and
  • Changes in estimates associated with the recognition of deferred tax assets.

 

Deferred Tax Assets

 

Deferred tax assets are only recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilised. This necessitates an assessment of future trading forecasts, capital expenditure and the utilisation of tax losses for each relevant tax jurisdiction where the Group operates.

 

At 31 December 2018, the Group recognised deferred tax assets in relation to historical losses at its operations in the United States of America (‘US’). Recognition of the deferred tax asset was based on an assessment of future cash flow forecasts and the associated profitability of the US operations. 

 

Increased international trade tension and resultant shifts in the balance of future forecast manufacturing between the Group’s global operations has resulted in current period changes to estimated forecast future cash flows and associated recognition of deferred tax assets relating to the Group’s US operations (see note 8).

 

 

 

  1. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES

 

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December 2018, as described in note 2 of those financial statements, except for the impact of the implementation of IFRS 16 ‘Leases’.

 

4.1        Recent accounting developments

 

In preparing the interim financial statements, the Group has adopted the following Standards, amendments and interpretations, which are effective for 2019 and will be adopted in the financial statements for the year ended 31 December 2019:

  • IFRS 16 ‘Leases’.
    • Amendments to IAS 19 ‘Employee Benefits’ which clarifies the accounting for defined benefit plan amendments, curtailments and settlements. 
    • Amendment to IAS 28 ‘Investments in associates and joint ventures’ which clarifies the accounting for long-term interests in an associate or joint venture, which in substance form part of the net investment in the associate or joint venture, but to which equity accounting is not applied.
    • Amendments to IFRS 10 ‘Consolidated financial statements’ and IAS 28 ‘Investments in associates and joint ventures’ which clarifies the accounting treatment for sales or contribution of assets between an investor and its associates or joint ventures.
    • Interpretation 23 ‘Uncertainty over Income Tax Treatments’ which explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment.

 

The adoption of these standards and amendments has not had a material impact on the interim financial statements, except for IFRS 16, ‘Leases’.

 

4.2        Change in accounting policy – IFRS 16 ‘Leases’

 

IFRS 16 ‘Leases’ addresses the definition of a lease, the recognition and measurement of leases and establishes principles for reporting useful information to users of financial statements about the leasing activities of both lessees and lessors. A key change arising from IFRS 16 is that most operating leases will be accounted for on balance sheet for lessees. The standard replaces IAS 17 ‘Leases’, IFRIC 4 ‘Determining whether an arrangement contains a lease’, SIC-15 ‘Operating leases – Incentives’ and SIC-17 ‘Evaluating the substance of transactions involving the legal form of a lease’ and is effective for annual periods beginning on or after 1 January 2019. 

 

4.3               Change in accounting policy - IFRS 16 ‘Leases’ - Transition

 

The Group currently leases a number of assets principally relating to property, including its newly constructed Newport facility as well as leasing property, plant and equipment from its joint venture, Compound Semiconductor Centre Limited. 

 

The group has implemented the requirements of IFRS 16 ‘Leases’ from 1 January 2019 using the modified retrospective approach applying the following practical expedients on a lease-by-lease basis to its portfolio of leases:

 

  • Application of a single discount rate to the portfolio of property and plant leases that are deemed to have reasonably similar characteristics; 
  • Adjustment on transition to the right of use asset value associated with the leased Singapore manufacturing facility by the amount of the previously recognised onerous lease provision as an alternative to performing an impairment review;
  • Application of recognition and measurement exemptions for all leases where the lease term ends within 12 months or fewer of the date of initial application with those leases accounted for as short-term leases;
  • Application of hindsight in applying the new standard to determine the lease term where lease contracts contain options to extend or terminate the lease; and
  • Exclusion of any initial direct costs in the measurement of the right of use asset.

 

4.4               Change in accounting policy IFRS 16 ‘Leases’ - Accounting policy

 

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability.

 

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

 

The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

 

 

 

  1. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

4.4               Change in accounting policy IFRS 16 ‘Leases’ - Accounting policy (continued)

 

The Group has applied judgement to determine the lease term for some lease contracts in which as lessee there includes a renewal option. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which affects the amount of lease liabilities and right-of-use assets recognised.

 

4.5               Change in accounting policy – IFRS 16 ‘Leases’ - Implementation impact

 

Implementation of IFRS 16 ‘Leases’ requires the Group to recognise new right of use assets and lease liabilities for certain operating leases that principally relate to the Group’s manufacturing facilities. The nature of expenses related to these leases has changed in the six months ended 30 June 2019 because the Group now recognises a depreciation charge for the right of use assets and an interest expense on lease liabilities. Previously, for non-variable lease expenses, the Group recognised operating lease costs on a straight-line basis over the lease term and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised. 

 

The implementation of IFRS 16 at 1 January 2019, which had no impact on total net assets or cash, is summarised in the narrative and table set out below:

 

Non-Current Assets

  • Increase in non-current assets of £40,545k to reflect the recognition of right of use lease assets (net of the previously recognised Singapore onerous lease of £5,256k);
  • Increase in non-current assets of £1,645k to reflect the recognition of non-current lease receivables associated with sub-let property; 
  • Decrease in property, plant and equipment and corresponding increase in right of use assets of £2,178k to reflect the reclassification of previously capitalised Newport foundry rent free period costs during the asset commissioning phase;

 

Non-Current Liabilities

  • Increase in non-current liabilities of £48,116k to reflect the non-current recognition of lease liabilities associated with the right of use lease assets;
  • Decrease in non-current provisions of £3,836k to reflect reclassification of the non-current element of the previously recognised Singapore onerous lease to right of use lease assets

 

Current Assets and Liabilities

  • Increase in current assets of £588k to reflect the recognition of lease receivables associated with sub-let property due within one year;
  • Increase in current liabilities of £2,097k to reflect the recognition of lease liabilities associated with the right of use lease assets payable within one year;
  • Decrease in provisions due within one year of £1,420k to reflect reclassification of the current element of the previously recognised Singapore onerous lease to right of use lease assets; and
  • Decrease in trade and other payables of £2,178k to reflect reclassification of deferred Newport foundry rent-free period costs to lease liabilities.

 

 

 

  1. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

4.5        Change in accounting policy – IFRS 16 ‘Leases’ – Implementation impact (continued)

 

Impact on the condensed consolidated balance sheet as at 

1 January 2019

 

 

Reported

2018

 

Right of

use asset

 

Lease

Receivable

 

Lease

liability

 

Working

capital

 

Onerous

lease

 

1 January 2019

£’000

£’000

£’000

£’000

£’000

£’000

£’000

Intangible assets

121,775

-

-

-

-

-

121,775

Fixed asset investments

75

-

-

-

-

-

75

Property, plant & equipment

124,445

-

-

-

(2,178)

-

122,267

Right of use lease assets

-

45,801

-

-

2,178

(5,256)

42,723

Lease receivable

-

-

1,645

-

-

-

1,645

Deferred tax assets

13,244

-

-

-

-

-

13,244

Financial assets

7,937

-

-

-

-

-

7,937

Non-current assets

267,476

45,801

1,645

-

-

(5,256)

309,666

Inventories

35,709

-

-

-

-

-

35,709

Trade and other receivables

38,015

-

-

-

-

-

38,015

Lease receivable

-

-

588

-

-

-

588

Cash and cash equivalents

20,807

-

-

-

-

-

20,807

Current assets

94,531

-

588

-

-

-

95,119

Total assets

362,007

45,801

2,233

-

-

(5,256)

404,785

Trade and other payables

(45,908)

-

-

-

2,178

-

(43,730)

Current tax liabilities

(431)

-

-

-

-

-

(431)

Provisions

(2,554)

-

-

-

-

1,420

(1,134)

Lease liabilities

-

-

-

(2,097)

-

-

(2,097)

Current liabilities

(48,893)

-

-

(2,097)

2,178

1,420

(47,392)

Provisions

(3,836)

-

-

-

-

3,836

-

Lease liabilities

-

-

-

(48,115)

-

-

(48,115)

Non-current liabilities

(3,836)

-

-

(48,115)

-

3,836

(48,115)

Total liabilities

(52,729)

-

-

(50,212)

2,178

5,256

(95,507)

Net assets

309,278

45,801

2,233

(50,212)

2,178

-

309,278

 

 

 

 

 

 

  1. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

4.2        Change in accounting policy – IFRS 16 ‘Leases’ (continued) 

 

4.6           Critical accounting judgements and key sources of estimation uncertainty - IFRS 16 ‘Leases’

 

(a) Critical accounting judgements in applying IFRS 16 ‘Leases’

 

Joint Ventures – Right to use assets

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. 

 

On establishment of the joint venture, the Group contributed assets as part of its initial investment and entered into an agreement with the joint venture that conveys to the Group the right to use the assets of the joint venture for a minimum five-year period. This agreement, which contains rights attaching to the use of the joint venture’s assets, meets the definition of a lease. The variable nature of the lease payments, which are directly linked to the actual usage of the assets, have been excluded from the measurement of right of use assets and lease liabilities with the variable lease costs recognised in operating expenses in the income statement as incurred.  

 

(b) Critical accounting estimates and key sources of estimation uncertainty

 

Valuation of lease liabilities and right of use assets

The application of IFRS 16 requires the Group to make judgments that affect the valuation of the lease liabilities and the valuation of right-of-use assets that includes determining the contracts in scope of IFRS 16, determining the contract term and determining the interest rate used for discounting of future cash flows.

 

The lease term determined by the Group generally comprises the non-cancellable period of lease contracts, periods covered by an option to extend the lease if the Group is reasonably certain to exercise that option and periods covered by an option to terminate the lease if the Group is reasonably certain not to exercise that option. Exercise of extension options, principally existing in the Group’s property leases are assumed to be reasonably certain, except for the Group’s Newport facility where it has been assumed that it is reasonably certain that the Group will exercise its buy-out option at the end of the initial lease term. The same term applied to the length of the lease contract has been applied to the useful economic life of right-of-use assets.

 

The present value of the lease payments applicable to the Group’s portfolio of property and plant leases has been determined using a discount rate that represents the Group’s incremental rate of borrowing, assessed as 2.25% - 2.65% depending on the lease characteristics.

 

  1. PRINCIPAL RISKS AND UNCERTAINTIES

 

The principal risks and uncertainties affecting the Group are set out in the Strategic Report in the 2018 Annual report and financial statements and remain unchanged at 30 June 2019.

 

The principal risks and uncertainties include competition, technological change, market conditions, health, safety and environment, human resourcing, natural disasters, financial liquidity, business interruption (supply chain), customer concentration, legal compliance, loss of intellectual property, information technology failure and tax compliance.  

 

 

 

  1. SEGMENTAL INFORMATION

 

 

 

 

 

 

Revenue

 

6 Months to 30 June 2019

Unaudited

 

£’000

 

6 Months to 30 June 2018

Unaudited

Restated

£’000

 

12 Months to 31 Dec 2018

Audited

Restated

£’000

 

 

 

 

Wireless

30,147

42,481 

87,862

Photonics

35,483

30,081 

66,807

CMOS++

1,090

834 

1,622

 

 

 

 

Revenue

66,720

73,396 

156,291

 

 

 

 

Adjusted operating (loss) / profit

 

 

 

 

 

 

 

Wireless

3,256

8,522 

16,548

Photonics

1,540

4,370 

10,239

CMOS++

(533)

(791)

(1,295)

Central corporate costs

(6,141)

(4,487)

(9,452)

 

 

 

 

Adjusted operating (loss) / profit

(1,878)

7,614 

16,040

 

 

 

 

Adjusted items 

(1,197)

(1,012)

(7,380)

Operating (loss) / profit

(3,075)

6,602 

8,660

 

 

 

 

Share of losses of joint venture accounted for using the equity method

(254)

-

(2,000)

Finance (costs)/income

(394)

46 

87

 

 

 

 

(Loss) / Profit before tax

(3,723)

6,648 

6,747

 

 

Segmental information has been restated to reflect changes in the Group’s operating and reporting structure following the establishment of an Executive Management Board that has consolidated responsibility for the Group’s primary markets and operating segments under the leadership of an Executive VP, Global Business Development, Wireless and Emerging Products and an Executive VP, Global Business Development, Photonics & Infrared.

 

As part of this change, certain revenues and associated costs pertaining to a specific site, which has shared production, have also been reclassified between segments to reflect a change in allocation methodology. 

 

Restatement of the operating segments has had no impact on consolidated (loss) / profit, net assets or cash.  

  1. ADJUSTED PROFIT 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 operating profit, adjusted profit before income tax and adjusted earnings per share. The Directors believe that the adjusted profit measures provide a more 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 and one-off or non-operational items. The Group uses these adjusted profit 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 profit measures and the impact on the Group’s reported financial performance.

 

 

 

 

Adjusted

 

 

Adjusted

6 months to 30 Jun 2019

Reported

 

 

Adjusted

 

 

Adjusted

6 months to 30 Jun 2018

Reported

 

 

Adjusted

 

 

Adjusted

 

2018

Reported

£’000s

Results

Items

Results

Results

Items

Results

Results

Items

Results

Revenue

66,720

-

66,720

73,396

-

73,396

156,291

-

156,291

Cost of sales

(56,083)

(45)

(56,128)

(56,279)

(1,000)

(57,279)

(119,536)

696

(118,840)

Gross profit

10,637

(45)

10,592

17,117

(1,000)

16,117

36,755

696

37,451

Other income

-

-

-

-

1,648

1,648

-

1,097

1,097

SG&A

(12,515)

(1,152)

(13,667)

(9,503)

(1,660)

(11,163)

(20,715)

(9,173)

(29,888)

Profit on disposal of PPE 

-

-

-

-

-

-

-

-

-

Operating (loss) / profit

(1,878)

(1,197)

(3,075)

7,614

(1,012)

6,602

16,040

(7,380)

8,660

Share of JV losses

(254)

-

(254)

-

-

-

(2,000)

-

(2,000)

Finance costs

(491)

97

(394)

1

45

46

(66)

153

87

(Loss) / Profit before tax

(2,623)

(1,100)

(3,723)

7,615

(967)

6,648

13,974

(7,227)

6,747

Taxation

(7,291)

365

(6,926)

(1,369)

(1,116)

(2,485)

(2,745)

(2,813)

(5,558)

(Loss) / Profit for the period

(9,914)

(735)

(10,649)

6,246

(2,083)

4,163

11,229

(10,040)

1,189

 

 

 

 

Pre tax

 

 

Tax 

6 months to 30 Jun 2019

Reported

 

 

Pre tax

 

 

Tax

6 months to 30 Jun 2018

Reported

 

 

Pre tax 

 

 

Tax

 

2018

Reported

 £’000s

Adjustment

Impact

Results

Adjustment

Impact

Results

Adjustment

Impact

Results

Share based payments

(135)

182

47

(1,500)

(1,317)

(2,817)

1,044

(3,607)

(2,563)

Amortisation of acquired intangibles

(266)

56

(210)

(252)

45

(207)

(518)

109

(409)

Restructuring

(223)

47

(176)

-

-

-

(3,337)

701

(2,636)

Insurance income

-

-

-

1,648

-

1,648

1,097

(197)

900

Patent dispute legal fees

(573)

109

(464)

(908)

164

(744)

(1,262)

227

(1,035)

Onerous property lease

-

-

-

-

-

-

(4,404)

-

(4,404)

Discounting

97

(29)

68

45

(8)

37

153

(46)

107

Total

(1,100)

365

(735)

(967)

(1,116)

(2,083)

(7,227)

(2,813)

(10,040)

 

 

 

 

 

 

 

  1. ADJUSTED PROFIT MEASURES (CONTINUED)

 

The nature of the adjusted items is as follows:

  • Share based payments – The charge recorded in accordance with IFRS 2 ‘share based payment’ of which £0.1m (H1 2018: £1.0m, FY18 income £0.7m) has been classified within cost of sales in gross profit and £0.05m (H1 2018: £0.5m, FY18 income £0.3m) in selling, general and administrative expenses within operating profit.

 

  • Amortisation of acquired intangibles arising in respect of fair value exercises associated with previous corporate acquisitions – The charge of £0.3m(H1 2018: £0.3m, FY18 £0.5m) has been classified as selling, general and administrative expenses within operating profit and is non-cash.

 

  • Restructuring – The charge of £0.2m(H1 2018: £nil, FY18: £3.3m) relates to the closure of the Group’s manufacturing facility in New Jersey, USA and the transfer of the associated trade and assets to the Group’s manufacturing facility in Massachusetts, USA. The charge comprises cash costs of £0.2m(H1 2018: £nil, FY18 £1.1m) relating to severance and reactor decommissioning and non-cash asset impairment costs of £nil (H1 2018: £nil, FY18: £2.2m) that have been classified as selling, general and administrative expenses within operating profit. Cash costs defrayed in the period total £1.3m(H1 2018: £nil, FY18: £nil).

 

  • Insurance income – The income in the prior periods (H1 2018: £1.7m, FY18: £1.1m) relates to the net insurance proceeds received following the death of the Chief Financial Officer, Phillip Rasmussen, in April 2018. Obligations payable to Phillip Rasmussen’s estate and fees associated with the recruitment of Phillip Rasmussen’s successor (H1 2018: £0.4m, FY18: £1.0m) were netted off the gross insurance proceeds (H1 2018: £2.1m, FY18: £2.1m). The net insurance proceeds received were classified as other income within operating profit. Cash costs defrayed in the period total £nil(H1 2018: £1.7m income, FY18: £1.5m income).

 

  • Patent dispute legal costs – The charge relates to legal fees incurred in respect of a patent dispute defence. Costs of £0.6m(H1 2018: £0.9m, FY18: £1.3m) (2017: £nil) have been classified within selling, general and administrative expenses within operating profit. Cash costs defrayed in the period total £0.7m(H1 2018: £nil, FY18: £nil).

 

  • Onerous property lease – The charge of £nil (H1 2018: £nil, FY18: £4.4m) relates to an increase in the provision for an onerous property lease that was originally made in 2014 following the restructuring of the Group’s operations in Singapore. The increase in the provision made in 2018 for unused and unlet space at the manufacturing site extended the provision to the end of the lease obligation in 2022. The extension of the onerous lease provision resulted in a charge of £4.4m that was classified within selling, general and administrative expenses within operating profit. Cash costs associated with the annual rental for the unused and unlet space total £0.7m(H1 2018: £0.7m, FY18: £1.5m).  

 

The group has implemented the requirements of IFRS 16 ‘Leases’ from 1 January 2019 with the Singapore property lease accounted for on balance sheet from this date. IFRS 16 ‘Leases’ has been implemented using the modified retrospective approach applying the practical expedient that allows on transition an adjustment to the value of the right of use asset by the amount of any previously recognised onerous lease provision as an alternative to performing an impairment review. The adoption of this practical expedient results in the reclassification of the lease provision as part of the net value of the right of use asset in the Group’s balance sheet from 1 January 2019 (see note 4).

 

  • Discounting – This relates to the unwinding of the discounting on long term financial assets of £0.1m (H1 2018: £0.1m, FY18: £0.3m) and the unwinding of discounting on long term financial liabilities of £nil(H1 2018: £0.1m, FY18 £0.1m) and has been classified as finance costs within profit before tax.

 

 

 

  1. ADJUSTED PROFIT MEASURES (CONTINUED)

 

Adjusted EBITDA (adjusted earnings before interest, tax, depreciation and amortisation) has been calculated as follows:

 

 

(All figures £’000s)

6 months to

30 June 2019

Unaudited

6 months to

30 June 2018 

Unaudited 

12 months to

31 Dec 2018

Audited 

(Loss) / Profit attributable to equity shareholders

(10,805)

4,023

966

Non-controlling interest

156

140 

223

Finance costs/(income)

394

(46)

(87)

Tax

6,926

2,485 

5,558

Depreciation of property, plant and equipment

4,761

3,162 

6,773

Depreciation of right of use assets

1,025

-

-

Amortisation of intangible fixed assets

3,981

2,944 

6,109

Share based payments

135

1,500 

(1,044)

Adjusted Items

796

(740)

7,906

Restructuring

223

-

3,337

Insurance income

-

(1,648)

(1,097)

Patent dispute legal costs

573

908

1,262

Onerous property lease

-

4,404

Adjusted EBITDA

7,369

13,468 

26,404

 

 

 

  1. TAXATION

 

The Group’s consolidated effective tax rate for the six months ended 30 June 2019 was 186.0% (H1 2018: 37.4%, 2018: 82.4%). 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 FY18: 19%, FY18: 19.0%) principally due to the following factors:

 

  • The current geo-political context affecting the markets in which IQE operates has resulted in a shift in the balance of projected manufacturing production and hence profits between the US and rest of the world. As a result, lower utilisation of US deferred tax assets is projected in coming years. This in-turn has resulted in a partial reversal of the previously recognised US deferred tax assets with a combined tax impact of ~£8m.

 

  • The Group’s results report certain financial measures after a number of adjusted items with a tax impact of £0.4m as detailed in note 7.

 

 

 

  1. (LOSS) / EARNINGS PER SHARE

 

(All figures £’000s)

 

6 months to

30 June 2019

Unaudited

6 months to

30 June 2018

Unaudited 

12 months to

31 Dec 2018

Audited 

(Loss) / Profit attributable to ordinary shareholders

(10,805)

4,023

966

Adjustments to profit after tax (note 7)

735

2,083

10,040

Adjusted (loss) / profit attributable to ordinary shareholders

(10,070)

6,106 

11,006

 

 

 

 

Number of shares:

 

 

 

Weighted average number of ordinary shares

780,640,261

756,614,361 

761,750,145

Dilutive share options

24,149,201

51,197,646 

37,072,892

 

804,789,462

807,812,007 

798,823,037

 

Adjusted basic (loss) / earnings per share

(1.29p)

0.81p

1.44p

Basic (loss) / earnings per share

(1.38p)

0.53p

0.13p

 

 

 

 

Adjusted diluted (loss) / earnings per share

(1.29p)

0.76p

1.38p

Diluted (loss) / earnings per share

(1.38p)

0.50p

0.12p

 

Basic (loss)/earnings per share is calculated by dividing the (loss)/profit attributable to ordinary shareholders by the weighted average number of ordinary shares during the period. 

 

Diluted (loss)/earnings per share is calculated by dividing the (loss)/profit 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.

 

 

  1. CASH GENERATED FROM OPERATIONS

 

 

(All figures £’000s)

6 months to

30 June 2019

Unaudited

6 months to

30 June 2018

Unaudited 

12 months to

31 Dec 2018

Audited 

(Loss)/Profit before tax

(3,723)

6,648 

6,747

Finance costs/(income)

394

(46)

(87)

Depreciation of property, plant and equipment

4,761

3,162 

6,773

Depreciation of right of use assets

1,025

-

-

Amortisation of intangible assets

3,981

2,944 

6,109

Impairment of property, plant and equipment

-

-

1,651

Non cash provision movements

-

-

5,495

Share based payments

135

1,500 

(1,044)

Cash inflow from operations before changes in working capital

6,573

14,208 

25,644

Increase in inventories

(1,605)

(2,058)

(1,387)

Decrease / (increase) in trade and other receivables

439

(4,772)

(4,032)

(Decrease) / increase in trade and other payables

(1,424)

202 

(3,237)

Cash inflow from operations

3,983

7,580 

16,988

 

 

  1. ANALYSIS OF NET FUNDS / (DEBT)

 

 

 

 

 

 

(All figures £’000s)

6 months to

30 June 2019

Unaudited

6 months to

30 June 2018

Unaudited 

12 months to

31 Dec 2018

Audited 

 

     

Bank borrowings due after one year

(12,008)

-

Bank borrowings due within one year

-

-

Lease liabilities due after one year

(46,375)

-

Lease liabilities due within one year

(2,897)

-

Total borrowings

(61,280)

-

Cash and cash equivalents

11,173

40,634 

20,807

Net (debt) / funds

(50,107)

40,634 

20,807

           

 

Bank borrowings relate to amounts drawn down on the Group’s £27.3m (US$35.0m) multi-currency revolving credit facility, provided by HSBC. The facility is secured over the assets of IQE plc and certain subsidiary companies and has a three-year term with an interest margin of between 1.45% and 1.95% per annum over LIBOR.

 

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.

 

 

  1. PROVISIONS FOR OTHER LIABILITIES AND CHARGES

 

 

(All figures £’000s)

6 months to

30 June 2019

Unaudited

6 months to

30 June 2018

Unaudited 

12 months to

31 Dec 2018

Audited 

 

 

 

 

As at 1 January 

6,390

2,200

2,200

Charged to the income statement

223

-

5,495

Utilised during the period

(1,357)

(723)

(1,539)

Transferred to right of use asset

(5,256)

-

-

Foreign exchange 

-

-

234

As at 30 June / 31 December

-

1,477

6,390

 

Provisions for other liabilities and charges consists of an onerous lease provision of £nil (H1 2018: £1,477,000, 2018: £5,256,000) and a restructuring provision of £nil(H1 2018: £nil, 2018: £1,134,000).

 

During 2014, as part of the re-organisation and rationalisation of the Group’s operations the Group restructured its activities in Singapore and established with its joint venture partners the Compound Semiconductor Development Centre. The Group sub-lets space at its Singapore manufacturing facility to its joint venture and established an onerous lease provision for vacant space at the property following the re-organisation. The provision for unused and unlet space at the manufacturing site was reassessed in 2018 and extended to the end of the lease obligation in 2022 given the low level of interest from external parties to sublet the residual unused space. The onerous lease provision has been reclassified from 1 January 2019 as an adjustment to the right of use asset relating to the Group’s leased Singapore manufacturing facility on implementation of IFRS 16’Leases’ (see note 4).

 

The restructuring provision relates to costs associated with the closure of the Group’s manufacturing facility in New Jersey, USA and the transfer of the trade and assets to the Group’s manufacturing facility in Massachusetts, USA. The provision principally comprised severance and reactor decommissioning costs and has been fully utilised during 2019. 

 

 

  1. SHARE CAPITAL

 

 

Number of shares

6 months to

30 June 2019

Unaudited

6 months to

30 June 2018

Unaudited 

12 months to

31 Dec 2018

Audited 

 

 

 

 

As at 1 January 

776,699,681

756,050,549

756,050,549

Employee share schemes

14,596,208

4,749,808

16,386,876

Translucent equity consideration

-

-

4,262,256

As at 30 June / 31 December

791,295,889

760,800,357

776,699,681

 

 

 

 

(All figures £’000s)

6 months to

30 June 2019

Unaudited

6 months to

30 June 2018

Unaudited 

12 months to

31 Dec 2018

Audited 

 

 

 

 

As at 1 January 

7,767

7,561

7,561

Employee share schemes

146

47

164

Translucent equity consideration

-

-

42

As at 30 June / 31 December

7,913

7,608

7,767

 

 

 

 

  1. RELATED PARTY TRANSACTIONS

 

Transactions with Joint Ventures 

 

Compound Semiconductor Development Centre Private Limited (‘CSDC’)

The Group established CSDC with its joint venture partners as a centre of excellence for the development and commercialisation of advanced compound semiconductor wafer products in Asia and on its formation, CSDC entered into an agreement to license certain intellectual property and plant and equipment from the Group. 

 

The activities of CSDC include research and development into advanced compound semiconductor wafer products and the provision of contract manufacturing services for compound semiconductor wafers to a subsidiary of the IQE plc Group, MBE Technology Pte Limited. 

 

CSDC operates from space within the Group’s manufacturing facility in Singapore. During the period the Group sub-let space at its manufacturing facility to CSDC for £297,000 (H1 2018: £268,000,2018: £565,000) at a rental cost per square foot equivalent to the cost paid by the Group on the head lease associated with the property. 

 

Intellectual property and equipment is licensed to CSDC and wafer products are procured from CSDC at prices mutually agreed by the Group and its joint venture partners, WIN Semiconductors Corp, Nangyang Technological University and four representatives of the University. The Group recognised no license revenue in the period (H1 2018: £nil, 2018: £nil) and purchased advanced compound semiconductor wafer products from CSDC for £2,596,000 (H1 2018: £2,395,000, 2018: £4,429,000).

 

During the period payments of £254,000(H1 2018: £nil, 2018: £2,000,000) have been made on behalf of CSDC which in accordance with the Group’s accounting policy has been recognised in the income statement as the Group’s share of losses in CSDC exceeds the carrying value of its investment.

 

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 £12,000,000 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 £57,500 (H1 2018 £57,500, 2018: £115,000) and procured certain administrative support services from the Group for £117,500 (H1 2018: £117,500, 2018: £235,000). As part of the administrative support services provided to CSC the Group procured goods and services, recharged to CSC at cost, totalling £2,235,135 (H1 2018: £1,893,060, 2018: £3,130,000).

 

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 (see note 4) and 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 £3,464,000(H1 2018: £3,407,000,2018: £6,655,000) in the period.  

 

At 30 June 2019 an amount of £233,700 (H1 2018: £188,342 2018: £586,000) was owed from the CSC. 

 

In the Groups balance sheet ‘A’ Preference Shares with a nominal value of £8,800,000 (H1 2018: £8,800,000, 2018: £8,800,000) are included in financial assets at an amortised cost of £8,085,000 (H1 2018: £7,776,000,2018: £7,937,000) and the Group has a shareholder loan of £238,500 (H1 2018: £235,500, 2018: £237,000) due from CSC.

 

 

  1. POST BALANCE SHEET EVENTS

 

On 29 August 2019, the Company agreed a new £30,000,000 Asset Finance Loan facility, provided by HSBC, which is secured over the assets of certain IQE subsidiary companies. The facility has a five year term and an interest margin of 1.65% per annum over base rate on any drawn balances.