IQE Regulatory News (IQE)

22 Mar 2005 07:02

IQE PLC22 March 2005 22 March 2005 IQE plc Preliminary Results for the Year Ended 31 December 2004 IQE plc (IQE), the leading global outsource supplier of customised epitaxialwafers to the semiconductor industry, today announces its Group PreliminaryResults for the year ended 31 December 2004. KEY POINTS • Full year revenue down 18.2% at £15.344m (2003: £18.753m) as the weak dollar, selling price reductions and a weak third quarter impacted sales. In dollar terms, sales were down 8.5% at $27.907m (2003: $30.490m) • Wafer volumes increased by 27.3% to approximately 140,000 units (2003: 110,000 units) • Despite lower revenues, the loss on ordinary activities before taxation was reduced by 25.9% to £10.104m (2003: £13.639m) as a result of tight cost control, cost reduction measures and continued improvement in operational efficiencies. • Operating cash outflow reduced by 9.9% at £9.096m (2003: £10.100m) • Closing year end cash at £9.923m (2003: £21.738m) • Operating cash breakeven run rate lowered to £25.800m revenue (2003: £41.400m) through continued improvements in operational efficiencies and substantial cost reduction programmes • Won major outsourcing contract worth approximately $25.000m over first two years for RF wireless applications, production commenced in last few weeks of 2004 • Positive customer feedback on strained silicon indicating substantial performance improvements, leading to patent applications on technology • Prospects very good for significantly increased revenue in 2005 Commenting on the results, Dr Drew Nelson, President and CEO, said "After some setbacks in our main market sectors during quarter three, the lastfew weeks of 2004 saw a significant upturn in business with the commencement ofa major outsource contract, increased demand for RF products driven by renewedgrowth in the mobile handset marketplace, and the completion of some significantqualifications. The winning of a major outsource contract worth around $25.0m over the first twoyears has enabled the Group to exit the year with its largest order book forover twenty four months and an exit revenue run rate which will deliversubstantially improved revenues in 2005. I am confident the Group can achieveits key initial objective of ongoing monthly cash generation in the near futurewith the outlook for 2005 being positive." Contacts:IQE plc :Drew Nelson +44 (0)2920-839400Stuart Hall +44 (0)2920-839400Chris Meadows +44 (0)2920-839400Buchanan Communications : Tim Thompson/Nicola Cronk +44 (0)2074-665000 PRELIMINARY RESULTS 2004 1. INTRODUCTION IQE has built a powerful position as a world leading supplier of advanced waferproducts and wafer foundry services to the semiconductor industry. Our materialsare found at the very heart of many leading-edge consumer, communication andcomputing applications including mobile handsets, PDAs, CD/DVD systems,satellite navigation devices, and voice and data communications systems. Weprovide bespoke wafers and manufacturing services in the form of atomicallyengineered semiconductor wafers, which are built to yield precisely definedelectronic, optical and mechanical characteristics. Our materials are thenfabricated by our customers to make the advanced electronic and optoelectroniccomponents that drive virtually all of today's high-tech products and systems. In addition, as established silicon technologies continue to be pushed to theirlimits, the use of new, highly advanced materials systems is absolutely key inenabling the major players to maintain their leading edge within this highlycompetitive, global landscape. To this end, IQE is an ideal development andproduction foundry partner. Having invested heavily in large scale state of theart manufacturing facilities and possessing a wealth of experience in advancedsemiconductor materials development, the Group holds a unique position as adedicated materials foundry covering the full range of semiconductor materials,strongly supporting the adoption of the outsourcing model. 2. OVERVIEW Sales revenues increased at the start of the year but declined during the thirdquarter before recovering again strongly towards the end of the year. The mainfactors contributing to the decline in sales revenues were the weak dollar,aggressive pricing reductions to encourage further outsourcing and weakness inthe optical component markets. However, the Group was able to more than offsetthe effect of lower revenues with increased operating efficiencies and asignificantly reduced cost base which reduced the Group's losses compared withprevious years. Capital expenditure and research and development costs remainedlow, principally because much of the investment in state of the art facilitiesand new product developments had already been incurred during previous periods. Total shipments of III/V epiwafers, Si epiwafers and III/V substrates increasedby 27% to around 140,000 units compared with around 110,000 units the previousyear. Major progress was made in winning new business, particularly in the fourthquarter. A major outsource deal was completed which is expected to be worthapproximately $25m over the first two years of the contract, with shipping ofproduction volumes commencing during the last few weeks of the fourth quarter.In addition, a number of qualifications were successfully completed during 2004and several others are due to be completed in the first half of 2005. As aresult, IQE is now formally qualified to supply key materials for a range ofoptoelectronic components to manufacturers based in the Far East, and to a majordefence contractor in the US for RF components. Several other key technicalmilestones were achieved including highly encouraging device results on IQE'sproprietary strained silicon, achievement of the highest ever power output froma Vertical Cavity Laser, and demonstration of the world's first four bandQuantum Well Integrated Photodetector (QWIP). 3. RESULTS The Group's operating results are detailed in the Consolidated Profit and LossAccount and Consolidated Cash Flow Statements. H2/2004 sales were £7.316m (H1/2004: £8.028m), which represented an 8.9%reduction compared with H1/2004. This was mainly due to the continuing weaknessin the US dollar, an intended reduction in average selling prices to encouragefurther outsourcing, and a slower than expected recovery in some of the keymarkets in which IQE operates. Revenues for the full year were £15.344m (2003:£18.753m), which represented an 18.2% reduction compared with last year. Theaverage exchange rate for 2004 was 11.7% worse than the average rate for lastyear at USD 1.8188/GBP (2003: USD 1.6280/GBP), which resulted in a significantreduction in the Group's sales line by approx £1.800m. The gross loss in H2/2004 was £1.885m (H1/2004: loss £1.928m) and was equivalentto a gross loss of 17.5% (H1/2004: gross loss 24.0%). Gross loss for the fullyear was 24.9% at £3.813m (2003: gross loss 17.5% at £3.278m). Adverse exchangerates, sales price reductions and lower overall sales into key markets were themain reasons for a worsening in the Group's gross margin performance. Significant cost savings were made in respect of research and developmentexpenditure by focusing on only the most essential and cost effective programs.H2/2004 research and development costs were £0.354m (H1/2004: £0.481m).Research and development costs for the full year were £0.835m (2003: £1.839m),which represented 5.4% of sales. All research and development costs wereexpensed in the period. Savings were also made in respect of selling, general and administration costs,which comprise distribution costs and other administrative expenses. H2/2004selling, general and administration costs were £2.494m (H1/2004: £3.209m), whichrepresented a 22.3% reduction compared with H1/2004. This included exceptionalcredits of £0.392m (H1/2004: exceptional charges £0.221m) in respect of therelease of an onerous lease provision and the cost of staff redundancies at IQEEurope, IQE Inc and IQE Silicon. Selling, general and administration costs forthe full year were £5.703m (2003: £8.299m), which included net exceptionalcredits of £0.171m (2003: exceptional charges £0.828m). As a result of the above, H2/2004 operating loss before exceptional credits of£0.392m was £5.125m (H1/2004: £5.618m before exceptional charges of £0.221m),which represented an 8.8% reduction compared with H1/2004. The operating lossfor the full year before exceptional credits of £0.171m was £10.522m (2003: loss£12.588m before exceptional charges of £0.828m). The pre tax loss for the fullyear was £10.104m (2003: pre tax loss £13.639m). Cash management continued to be a priority for the Group throughout the periodwith the focus firmly concentrated on reducing operating costs and carefullymanaging the Group's working capital. However working capital, comprisingstocks, debtors and creditors, increased in H2/2004 by £0.866m (H1/2004:increase £0.043m), which was mainly due to a reduction in creditors and therelease of provisions. As a result, the operating cash outflow for H2/2004 was£0.186m less than H1/2004 at £4.456m (H1/2004: outflow £4.642m). The operatingcash outflow for the full year was £9.096m (2003: outflow £10.100m). Capital expenditure continued to be restricted to essential items only andtotalled £0.214m in H2/2004 (H1/2004: £0.134m). Loan and lease repayments in H2/2004 totalled £1.148m (H1/2004: £1.589m), which reduced total borrowings at theend of the period to £3.160m (H1/2004: £4.346m). Gross cash on hand at the endof the period was £9.923m (H1/2004: £15.552m). 4. OPERATIONS IQE Inc IQE Inc had experienced a downturn in order volumes during the second and thirdquarters of the year as three of its major customers supplying into the wirelesssector experienced unexpected declines in orders from a leading handsetmanufacturer. As a result, revenues for the first part of the year were lessthan originally expected. However, all three customers experienced an upturnduring the last two months of the year and this fed through to increased ordersand sales levels towards the end of the year and coincided with increasedproduction volumes due to the major outsourcing contract win that was announcedin November. In addition, several other qualifications were completed resultingin significantly improved business conditions exiting 2004 which have continuedinto 2005. All operational metrics continued to improve throughout the year with the resultthat the business unit was able to respond quickly and efficiently to the upturnin production towards the year end. Additionally, excellent technical progresscontinued with development of the world's first four band quantum well infrareddetector (QWIP) camera, jointly with NASA's Jet Propulsion Lab, capable ofimaging through smog and other atmospheric interferences. The Company is alsoqualified as an approved supplier to a number of the world's top RF componentcompanies. IQE (Europe) Limited Major progress was made during the year in developing material for marketsectors into which IQE had previously made little penetration. Many of these newmarkets were developed by successfully qualifying products and services for newcustomers in the Far East for a range of consumer electronics products such asCD/DVD players, DVD-RW systems, minidisks and ROMs. However, production volumeswere lower than expected in the second half of 2004 due to a general weakeningin demand across the board for consumer products. Demand has since improvedagain and, as a consequence, shipments at the end of 2004 and into 2005 havepicked up substantially. Demand for optical materials from the Company's traditional communicationsmarkets continued to be weak during the first three quarters of 2004 but theCompany remains qualified and holds "preferred vendor status" for a wide rangeof optical communications products, and orders have begun to increase since thelate summer. Interest continued to grow in advanced devices such as VCSELs thatare used in short distance communications systems, sensing and imagingapplications, lasers, detectors and other optical communications devices, andshortly after the year end the Company announced a technical breakthrough withSweden's Chalmers University in terms of world leading high power performanceoutput from IQE's VCSEL wafers. IQE Silicon Compounds Limited The profile of strained silicon continues to grow with the material taking on adominant position on the ITRS (international semiconductor technology roadmap). In the first half of the year, IQE Silicon launched its new 20% SiGe producttargeting the sub 100nm technology node. The business unit's position wasfurther enhanced towards the end of the year when, following successfully filingfor patents, the Company announced its UltraSmooth Strained Silicon product thathad exhibited for the first time a significant enhancement in speed for bothnMOS and pMOS devices at sub 100nm technology nodes. IQE's reputation as a leading player in strained silicon technology is undoubtedand whilst the timescales for adopting the material for mainstream silicondevices depend upon other factors in the sector, IQE is poised to take adominant role when the transition to the new platform occurs. IQE Silicon has also succeeded in growing its revenues from standard siliconepitaxy processing as a result of increased sales and marketing activities.Furthermore, the business has increased its overall market share, partly as aresult of a major competitor being acquired by a wafer fabrication business asan in-house epi source. Wafer Technology Limited Total wafer shipments during 2004 were 22.9% up on 2003 and only 2.5% below theprevious highest annual total which was recorded in 2000. The Company alsoprogressed a number of encouraging new qualifications which are expected togenerate further demand for its GaAs products throughout 2005. In response tocustomers' increasingly stringent quality demands, the Company has developedsignificantly improved surface finish products across its product ranges, whichare currently being sampled to leading industry players and are expected tocontribute to revenue growth later this year. The Board has accepted the resignation of Martin Lamb as Board Director of IQEplc and Managing Director of Wafer Technology Limited, and he will leave theGroup on 29 April 2005. The management team at Wafer Technology has beenstrengthened by the appointment of Dr A Johnson, who brings considerablecompound semiconductor industry experience to the Group. 5. TRADING PROSPECTS The Group won a major outsourcing contract and experienced significant increasesin demand for the full range of its products in the latter part of the year. Asa result, the Group enters 2005 with its largest order book in the last twoyears and is in an excellent position to face the increased levels of orderactivity and capitalise on the improvements in productivity and operationalefficiencies that have been achieved during the past year. The Board hadanticipated that EBITDA breakeven would be achieved by the year end, but this isnow expected to be accomplished within the next few months as sales levelsincrease. Coupled with substantially reduced debt payments, this should enablethe Group to become cash generative in the near future. Dr Drew Nelson President and Chief Executive IQE plc RESULTS FOR 12 MONTHS TO 31 DECEMBER 2004 6 months to 6 months to 6 months 12 months 12 months to to toCONSOLIDATED PROFIT AND LOSS 31 Dec 2004 30 Jun 2004 31 Dec 31 Dec 2004 31 Dec ACCOUNT 2003 2003 (All figures GBP000s) Note Unaudited Unaudited Unaudited Unaudited Audited Turnover from ContinuingOperations 7,316 8,028 8,697 15,344 18,753Cost of Sales (9,201) (9,956) (10,412) (19,157) (22,031) Gross Loss (1,885) (1,928) (1,715) (3,813) (3,278)Gross Loss % (25.8) (24.0) (19.7) (24.9) (17.5) Operating Expenses : Distribution Expenses (794) (605) (755) (1,399) (1,555) Administrative Expenses : Research/Development (354) (481) (668) (835) (1,839) Other Administrative Expenses (including exceptional items) 1,2 (1,700) (2,604) (3,683) (4,304) (6,744) (2,848) (3,690) (5,106) (6,538) (10,138) Operating Loss beforeexceptional items (5,125) (5,397) (6,299) (10,522) (12,588) Other Operating Expenses : Exceptional items 2 392 (221) (522) 171 (828) Operating Loss from ContinuingOperations (4,733) (5,618) (6,821) (10,351) (13,416) Operating Loss % fromContinuing Operations (64.7) (70.0) (78.4) (67.5) (71.5) Interest Received/(Paid) 136 111 (51) 247 (223) Loss on Ordinary Activitiesbefore Taxation (4,597) (5,507) (6,872) (10,104) (13,639)Loss % (62.8) (68.6) (79.0) (65.9) (72.7) Current Taxation 0 (0) 0 0 0Deferred Taxation 0 (0) 0 0 0 Retained Loss for the Period (4,597) (5,507) (6,872) (10,104) (13,639) Basic Loss Pence/Share 3 (1.46) (1.75) (3.31) (3.20) (6.57)Diluted Loss Pence/Share 3 (1.46) (1.75) (3.31) (3.20) (6.57) Net Loss before Interest/ Taxes/Depreciation andAmortisation (EBITDA) (3,512) (4,599) (5,766) (8,112) (11,300) 6 months 6 months to 6 months 12 months 12 months TOTAL RECOGNISED GAINS to to to to AND LOSSES AND MOVEMENT IN 31 Dec 30 Jun 2004 31 Dec 2003 31 Dec 2004 31 Dec SHAREHOLDERS' FUNDS 2004 2003 (All figures GBP000s) Unaudited Unaudited Unaudited Unaudited Audited TOTAL RECOGNISED LOSSES Loss for the Period (4,597) (5,507) (6,872) (10,104) (13,639) Currency Translation Differences on Foreign Currency Net Investments (123) (43) (158) (166) (356) Total Recognised Losses relating to the Period (4,720) (5,550) (7,030) (10,270) (13,995) MOVEMENT IN SHAREHOLDERS' FUNDS Opening balance as previously reported 20,558 26,057 15,177 26,057 21,936 Prior year adjustment 0 (15) 0 (15) 0 Shares Issued net of Issue Costs 54 66 17,909 120 18,116 Foreign Exchange Translation Differences (123) (43) (158) (166) (356) Movement in Other Reserves 0 0 0 0 0 Loss Attributable to Members of the Group (4,597) (5,507) (6,872) (10,104) (13,639) Closing balance 15,892 20,558 26,056 15,892 26,057 The adoption of UITF 38 has required changes in the method of accounting for ESOP shares which are now dealt with as a deduction from shareholders' funds. As a result of this change in accounting policy, the comparatives have been restated as follows : Investment in Shareholders' Own Shares Funds 31 December 2003 as previously reported 15 26,057 Reclassification of own shares to shareholders funds (15) (15) 31 December 2003 restated 0 26,042 As At As At As AtCONSOLIDATED BALANCE SHEET 31 Dec 30 Jun 31 Dec 2004 2004 2003(All figures GBP000s) Unaudited Unaudited Audited Fixed Assets 9,204 10,363 11,349 Current Assets : Stocks 3,433 3,978 3,464 Debtors 2,604 2,356 2,439 Cash at Bank and in Hand 4 9,923 15,552 21,738 Total Current Assets 15,960 21,886 27,641 Creditors Falling Due within OneYear (6,471) (8,124) (8,606) Net Current Assets 9,489 13,762 19,035 Total Assets less Current Liabilities 18,693 24,125 30,384 Creditors Falling Due after morethan One Year : Deferred Income (307) (385) (385) Long Term Borrowings (2,150) (2,387) (3,056) Total Creditors Falling Due after more than One Year (2,457) (2,772) (3,441) Provision for Liabilities andCharges (344) (793) (901) Net Assets 15,892 20,560 26,042 Capital and Reserves : Called-up Share Capital 3,157 3,154 3,151 Share Premium 157,187 157,147 157,118 Merger Reserve (605) (605) (605) Profit and Loss Account (143,251) (138,654) (133,147) Exchange Rate Reserve (808) (683) (640) Investment in Own Shares (13) (15) (15) Other Reserves 225 216 180 Total Equity Shareholders' Funds 15,892 20,560 26,042 Approved by the Directors of IQE plc on 21 March 2005 6 months to 6 months to 6 months to 12 months 12 months to toCONSOLIDATED CASH FLOW STATEMENT 31 Dec 2004 30 Jun 2004 31 Dec 2003 31 Dec 31 Dec 2003 2004 (All figures GBP000s) Unaudited Unaudited Unaudited Unaudited Audited Net Cash Outflow from OperatingActivities (4,454) (4,642) (5,106) (9,096) (10,100) Returns on Investment and Servicing ofFinance : Interest Received/(Paid) 136 111 (51) 247 (223) Capital Expenditure : Payments to Acquire Fixed Assets less Leases (214) (134) (149) (348) (234) Proceeds from Sale of Fixed Assets 0 0 58 0 134 Net Cash Outflow before Management of LiquidResources and Financing (4,532) (4,665) (5,248) (9,197) (10,423) Management of Liquid Resources 5,065 6,921 (11,800) 11,986 (5,550) 533 2,256 (17,048) 2,789 (15,973)Financing : Issues of Ordinary Share Capital 53 67 17,909 120 18,116 Repayment of Loans (157) (202) (100) (359) (978) Repayment of Leases (992) (1,387) (1,518) (2,379) (2,692) Net Cash (Outflow)/Inflow from Financing (1,096) (1,522) 16,291 (2,618) 14,446 Increase/(Decrease) in Cash (563) 734 (757) 171 (1,526) RECONCILIATION OF OPERATING LOSS TO 6 months to 6 months 6 months to 12 months 12 months NET CASH OUTFLOW FROM OPERATING to to toACTIVITIES 31 Dec 2004 30 Jun 31 Dec 2003 31 Dec 31 Dec 2003 2004 2004 (All figures GBP000s) Unaudited Unaudited Unaudited Unaudited Audited Operating Loss (4,733) (5,618) (6,821) (10,351) (13,416) Depreciation of Fixed Assets 1,221 1,019 1,056 2,240 2,118Loss on Sale of Fixed Assets 16 0 46 16 46Movement in Stocks 545 (514) 831 31 1,524Movement in Debtors (248) 83 517 (165) 1,282Movement in Creditors (1,177) 388 (668) (789) (1,587)Government Grants Released (78) 0 (67) (78) (67) Net Cash Outflow from OperatingActivities (4,454) (4,642) (5,106) (9,096) (10,100) 6 months to 6 months 6 months 12 months to 12 months toRECONCILIATION OF NET CASH FLOW TO 31 Dec 2004 to to 31 Dec 2004 31 Dec 2003MOVEMENT IN NET FUNDS 30 Jun 31 Dec 2004 2003 (All figures GBP000s) Unaudited Unaudited Unaudited Unaudited Audited Increase/(Decrease) in Cash (563) 736 (757) 171 (1,526) Management of Liquid Resources (5,065) (6,921) 11,800 (11,986) 5,550Loans Repaid 157 202 100 359 978Leases Repaid 992 1,387 1,518 2,379 2,692 Change in Net Funds Resulting fromCash Flows (4,479) (4,596) 12,661 (9,077) 7,694 Opening Net Funds 11,206 15,776 3,045 15,776 7,959Exchange Differences 35 27 70 64 124 Closing Net Funds 6,763 11,206 15,776 6,763 15,776 As At As At As At 31 Dec 30 Jun 31 DecANALYSIS OF NET FUNDS 2004 2004 2003 (All figures GBP000s) Unaudited Unaudited Audited Cash at Bank and in Hand 1,109 1,673 938Cash at Bank Accessible between 1 and 7 Days 8,814 13,879 20,800 Total Cash and Bank 9,923 15,552 21,738 Loans Due after more than One Year (2,150) (2,308) (2,451)Loans Due within One Year (409) (446) (531)HP/Finance Leases Due after more than One Year 0 (78) (605)HP/Finance Leases Due within One Year (601) (1,514) (2,375) Total 6,763 11,206 15,776 NOTES TO THE PRELIMINARY ANNOUNCEMENT 1 ACCOUNTING POLICIES Accounting convention The financial information is prepared under the historical cost convention andin accordance with applicable UK accounting standards, which have been appliedon a consistent basis during the period under review. Basis of consolidation The financial information consolidates the financial statements of the Companyand all of its subsidiaries. The acquisition of EPI Holdings Limited and IQE Inc(formerly Quantum Epitaxial Designs Inc) by IQE plc, a new holding Companyestablished for that purpose, on 16 May 1999 has been accounted for under mergeraccounting whereby the financial information is disclosed as if the companieshad always been part of the Group. The acquisition of IQE (Europe) Limited(formerly Epitaxial Products International Limited) and its subsidiary EpitaxialProducts Inc by EPI Holdings Limited, a new Company established for thatpurpose, on 27 March 1996 and the acquisition of Wafer Technology InternationalLimited and its subsidiary Wafer Technology Limited on 22 November 2000 havebeen accounted for under acquisition accounting, whereby these companies becamepart of the Group on the date of acquisition. Turnover Turnover represents amounts receivable for goods and services provided in thenormal course of business net of value added tax and other sales related taxes.Turnover is recognised on despatch of goods. Tangible fixed assets Tangible fixed assets are stated at cost less accumulated depreciation andprovision for impairment. Cost comprises all costs that are directlyattributable to bringing the asset into working condition for its intended use,as defined by Financial Reporting Standard Number 15. Depreciation has beencalculated so as to write down the cost of assets to their residual values overthe following estimated useful economic lives. No depreciation is provided onland or assets yet to be brought into use. Freehold buildings 25 yearsShort leasehold improvements 5/27 yearsPlant and machinery 5/10 yearsFixtures and fittings 4/5 years Stocks Stocks are stated at the lower of cost and net realisable value. Research and development Research and development expenditure is fully written off when incurred. Foreign currencies Transactions in foreign currencies during the period are recorded at the ratesruling at the dates of the transactions. Monetary assets and liabilities inforeign currencies are translated into sterling at the rates ruling at thebalance sheet date. All exchange differences are taken to the profit and lossaccount. The balance sheets of IQE Inc are translated into sterling at theclosing rates of exchange for the period, while the profit and loss accounts aretranslated into sterling at the average rates of exchange for the period.Theresulting translation differences are taken directly to reserves. Pension costs The Group operates defined contribution pension schemes. Contributions arecharged in the profit and loss account as they become payable in accordance withthe rules of the schemes. Deferred taxation Deferred tax is provided in full on timing differences that result in anobligation at the balance sheet date to pay more tax, or a right to pay lesstax, at a future date at rates expected to apply when they crystallise based oncurrent tax rates and law. Timing differences arise from the inclusion ofitems of income and expenditure in tax computations in periods different fromthose in which they are included in the financial statements. Deferred tax isnot provided on timing differences arising from the revaluation of fixed assetswhere there is no binding contract to dispose of those assets. Deferred taxassets are recognised to the extent that it is regarded as more likely than notthat they will be recovered. Deferred tax assets and liabilities are notdiscounted. Government grants Government grants receivable in connection with expenditure on tangible fixedassets are accounted for as deferred income, which is credited to the profitand loss account by instalments over the expected useful economic life of therelated assets on a basis consistent with the depreciation policy. Revenuegrants for the reimbursement of costs incurred are deducted from the costs towhich they related, in the period in which the costs are incurred. Leases Assets held under finance leases and hire purchase contracts are capitalised attheir fair value on inception of the leases and depreciated over the shorter ofthe period of the lease and the estimated useful economic lives of the assets.The finance charges are allocated over the period of the lease in proportion tothe capital amount outstanding and are charged to the profit and loss account. Operating lease rentals are charged to profit and loss account in equalamounts over the lease term. Provision is made at the balance sheet date forthe present value of future rentals under operating leases on vacatedproperties. 6 months 6 months 6 months 12 months 12 months to to to to to 2 EXCEPTIONAL ITEMS 31 Dec 30 Jun 31 Dec 31 Dec 31 Dec 2004 2004 2003 2004 2003 Unaudited Unaudited Unaudited Unaudited Audited Exceptional items comprise GBP000s : Restructuring costs 6 221 (6) 227 300 Onerous lease provisions (398) 0 528 (398) 528 Exceptional items (392) 221 522 (171) 828 Restructuring costs relate to the cost of staff redundancies as part of theGroup's cost reduction programme. The exceptional credit of £398,000 (2003: charge £528,000) relates to theonerous lease provision in respect of a vacant property at Wafer TechnologyLimited. 6 months 6 months 6 months 12 months 12 months to to to to to 31 Dec 30 Jun 31 Dec 31 Dec 31 Dec 3 LOSS PER SHARE 2004 2004 2003 2004 2003 Unaudited Unaudited Unaudited Unaudited Audited Retained Loss GBP000s (4,597) (5,507) (6,872) (10,104) (13,639) Weighted Average Number of Ordinary Shares 315,466,318 315,401,383 207,631,857 315,466,318 207,631,857 Diluted Share Options 4,538,582 2,474,166 1,665,548 4,538,582 1,665,548 Adjusted Weighted Average Number of Ordinary Shares 320,004,900 317,875,549 209,297,405 320,004,900 209,297,405 Basic Loss Pence/Share (1.46) (1.75) (3.31) (3.20) (6.57) Diluted Loss Pence/Share (1.46) (1.75) (3.31) (3.20) (6.57) Basic loss per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares duringthe period. Diluted loss per share is calculated by adjusting the weightedaverage number of ordinary shares in issue on the assumption of conversion ofall dilutive potential ordinary shares. FRS 14 requires the presentation of diluted LPS when a company could be calledupon to issue shares that would decrease net profit or increase net loss pershare. For a loss-making company with outstanding share options and warrants,net loss per share would only be increased by the exercise of the out of themoney options and warrants. Since it seems inappropriate to assume that optionholders would act irrationally, no adjustment has been made to diluted LPS forout of the money share options and warrants. 4 CASH AT BANK AND IN HAND Cash at bank at 31 December 2004 included £1,202,000 (2003: £nil) which had beenplaced on an interest bearing US dollar escrow account. The funds are intendedto be used to purchase equipment from the counter party to the escrow accountduring 2005. 5 STATUTORY ACCOUNTS The financial information set out in this announcement does not constitute theCompany's statutory accounts for the years ended 31 December 2004 and 31December 2003. The financial information for the six months ended 31 December2004 and 31 December 2003 is unaudited. The financial information for the yearended 31 December 2003 is derived from the Company's statutory accounts for theyear ended 31 December 2003 which have been delivered to the Registrar ofCompanies. The auditors reported on those accounts. Their report wasunqualified and did not contain a statement under s237 (2) or (3) Companies Act1985. The financial information set out in this announcement, which was approved bythe Board of Directors and the Audit Committee on 21 March 2005, will beannounced to all shareholders on the London Stock Exchange and published on theCompany's website on 22 March 2005. Copies will be available to members of thepublic upon application to the Company Secretary at Pascal Close, Cypress Drive,St Mellons, Cardiff CF3 0EG. The statutory accounts for the year ended 31 December 2004 will be finalised onthe basis of the financial information presented by the Directors in thispreliminary announcement and will be delivered to the Registrar of Companiesfollowing the Company's Annual General Meeting. This information is provided by RNS The company news service from the London Stock Exchange