IQE Regulatory News (IQE)

14 Aug 2007 07:01

IQE PLC14 August 2007 IQE plc Transition to International Financial Reporting Standards IQE plc ('the Group'), the leading global supplier of advanced wafer productsand wafer services to the semiconductor industry, will be reporting itsfinancial results in accordance with International Financial Reporting Standards('IFRS') with effect from 1 January 2007. On 22 August 2007 the Group willreport its interim results for the six months ended 30 June 2007 under IFRS,including the restated comparatives for the six months to 30 June 2006. This statement presents and explains the conversion of the Group's results aspreviously reported under UK Generally Accepted Accounting Principles ('UKGAAP') onto an IFRS basis for the year ended 31 December 2006. The key changes for the Group are: • accounting for the two acquisitions in the second half of 2006, which includes the separate recognition of intangibles that formed part of goodwill under UK GAAP • goodwill is no longer amortised • the capitalisation of expenditure on the development of new or significantly improved products and processes The net impact of these changes for the year ended 31 December 2006 is a £0.3million reduction in the Group's loss before taxation, and a reduction in thebasic loss per share from 1.21 pence to 1.14 pence. Full details are set out in this announcement. 14 August 2007 Enquiries: IQE plcPhil Rasmussen, Chief Financial Officer 029 2083 9400 Noble & Company LimitedJohn Llewellyn-Lloyd / Sam Reynolds 020 7763 2200 College HillAdrian Duffield / Ben Way 020 7457 2020 Restatement of financial information for International Financial ReportingStandards 1 Introduction Following a European Union Regulation (IAS Regulation EC 1606/2002) issued inJune 2002, and AIM notice 22, IQE plc is required to prepare its consolidatedfinancial statements under International Financial Reporting Standards witheffect for the year ending 31 December 2007. The financial statements for the year ended 31 December 2006 have been restatedunder IFRS, adopting a 1 January 2006 transition date. This announcementpresents and explains the Group's results for the year ended 31 December 2006 asconverted from UK GAAP to IFRS. The first results to be published under IFRS will be for the half year to 30June 2007, which will be reported in an announcement to be issued on 22 August2007. The financial information contained in this report does not constitute statutoryaccounts within the meaning of section 240 of the Companies Act 1985. Thecomparative figures for the year ended 31 December 2006 prepared under IFRS andshown in this report are unaudited. The consolidated statutory financialstatements of IQE plc for the year ended 31 December 2006 prepared under UK GAAPhave been filed with the Registrar of Companies. The auditors' report on thosefinancial statements was unqualified and did not contain any statement undersection 237 (2) or (3) of the Companies Act 1985. 2 Basis of preparation EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidatedfinancial statements of the company, for the year ending 31 December 2007, beprepared in accordance with International Financial Reporting Standards (IFRSs)adopted for use in the EU ("adopted IFRSs"). This interim financial information has been prepared on the basis of therecognition and measurement requirements of IFRSs in issue that either areendorsed by the EU and effective (or available for early adoption) or areexpected to be endorsed and effective (or available for early adoption) at 31December 2007, the Group's first annual reporting date at which it is requiredto use adopted IFRSs. Based on these adopted and unadopted IFRSs, the directorshave made assumptions about the accounting policies expected to be applied,which are as set out in note 6, when the first annual IFRS financial statementsare prepared for the year ending 31 December 2007. In addition, the adopted IFRSs that will be effective (or available for earlyadoption) in the annual financial statements for the year ending 31 December2007 are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the year ending 31 December 2007. 3 Transition to IFRS - first time adoption IFRS 1 'First Time Adoption of International Financial Reporting Standards' setsout the procedures that the Group must follow when it adopts IFRS for the firsttime as the basis for preparing its consolidated financial statements. The Groupis required to establish its accounting policies for the year ending 31 December2007 and, in general, apply these retrospectively to determine the IFRS openingbalance sheet as at its date of transition, 1 January 2006. This standardpermits companies adopting IFRS for the first time to take certain exemptionsfrom the full requirements of IFRS during the transition period. As permittedunder the transitional provisions of IFRS1, the exemptions adopted by the Groupare set out below. i) Share based payments The Group has adopted the exemption to apply IFRS 2 ('Share Based Payments')only to awards made after 7 November 2002 that had not vested by 1 January 2005. This exemption is consistent with the previous policy adopted under UK GAAP. ii) Business combinations The Group has chosen not to restate business combinations completed prior to thetransition date on an IFRS basis. iii) Financial Instruments The Group has taken advantage of the exemptions in IAS 32 and IAS 39 enabling itto apply these standards from 1 January 2007. iv) Cumulative translation differences Cumulative translation differences in respect of foreign operations have beendeemed to be nil at the date of transition. 4 Principal differences to UK GAAP i) Business combinations Acquisitions undertaken since 1 January 2006 have been restated in accordancewith IFRS 3 ("Business Combinations"). This has impacted the accounting adoptedin respect of the acquisition of IQE RF LLC in August 2006 and the acquisitionof MBE Technologies Pte Ltd in December 2006. The main impact is the requirement to separately identify certain intangibleassets previously included within goodwill under UK GAAP. Therefore, theestimated fair values of development projects have been separately recognisedand will be amortised over their estimated useful lives. The estimated fairvalue of development projects acquired as part of the acquisitions is £2.2million. In addition, the fair value of the acquisition consideration has beenre-assessed under IFRS and adjusted for discounting and acquisition expenses,resulting in a £0.2 million reduction in the fair value of consideration for theacquisitions. The remaining goodwill is no longer amortised. Therefore, the amortisationcharge in 2006 of £0.2 million has been reversed. ii) Intangible assets In accordance with IAS 38 ("Intangible Assets") the Group is required tocapitalise development expenditure incurred on projects which meet certaincriteria, including the projects' technical feasibility and likelihood thatfuture economic benefits will be obtained. The net book value of deferreddevelopment costs as at 31 December 2006 was £0.3 million. IAS 38 also requires computer software to be treated as an intangible asset.This has resulted in a balance sheet reclassification from property, plant andequipment to intangible assets at 31 December 2006 of £0.1m iii) Employee benefits In accordance with IAS 19 ('Employee Benefits') the Group is required torecognise a liability for employees' unused entitlement to annual leave.Therefore, an additional accrual amounting to £0.1m has been recognised at 31December 2006. 5 Restatement of financial information under IFRS The financial information set out below has been prepared on the basis of theaccounting policies set out in note 6. An explanation of the effects oftransition to IFRS is provided above in note 4. i) Consolidated Income Statement for the year ended 31 December 2006 ii) Consolidated Balance Sheet as at 31 December 2006 iii) Consolidated Balance Sheet as at 31 December 2005 iv) Cash flow Statement The IAS 7 ('Cash flow Statements') adjustment of £3,621,000 reflects theinclusion of highly liquid deposits within cash and cash equivalents as requiredby IAS 7. 6 IFRS Accounting Policies The Group's accounting policies under IFRS are set out below. Basis of preparation This financial information has been prepared under the historical costconvention and in accordance with International Financial Reporting Standards ('IFRS') and interpretations expected to be in issue at 31 December 2007. Theprincipal accounting policies of the Group are stated below. Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and its subsidiary undertakings. Subsidiaries are all entities overwhich the Group has the power to govern their financial and operating policies. Subsidiaries are consolidated from the date on which control is transferred tothe Group and are de-consolidated from the date that control ceases. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. Thecost of an acquisition is measured at the fair value of the consideration pluscosts directly attributable to the acquisition. The acquired identifiableassets, liabilities and contingent liabilities are recognised at their fairvalue at the date of acquisition. Goodwill Goodwill arising on an acquisition is recognised as an asset and initiallymeasured at cost, being the excess of the fair value of the consideration anddirectly attributable costs over the fair value of the identifiable assets,liabilities and contingent liabilities. Goodwill is not amortised. However, it is reviewed annually for any indicationof potential impairment. Any impairment identified is immediately charged tothe Consolidated Income Statement. Subsequent reversals of impairment lossesfor goodwill are not recognised. Revenue recognition Revenue represents the amounts receivable for goods and services provided in theordinary course of business net of value added tax and other sales relatedtaxes. Revenue is recognised when the risks and rewards of the underlying salehave been transferred to the customer, and when collectability of the relatedreceivable is reasonably assured, which is usually on the delivery of the goodsor services supplied and accepted by the customer. Research and development Expenditure incurred on the development of new or substantially improvedproducts or processes is capitalised, provided that the related projectsatisfies the criteria for capitalisation, including the project's technicalfeasibility and likely commercial benefit. All other research and developmentcosts are expensed as incurred. Capitalised development costs are amortised on a straight line basis over theperiod during which the economic benefits are expected to be received. Theestimated remaining useful lives of development costs are reviewed at least onan annual basis. The carrying value of capitalised development costs is reviewed for potentialimpairment at least annually. Any impairment identified is immediately chargedto the Consolidated Income Statement. Tangible fixed assets Tangible fixed assets are stated at cost less accumulated depreciation and anyprovision for impairment. Cost comprises all costs that are directlyattributable to bringing the asset into working condition for its intended use.Depreciation is calculated to write down the cost of fixed assets to theirresidual values on a straight-line basis over the following estimated usefuleconomic lives: Freehold buildings ......................... 25 years Leasehold improvements ..................... 5 to 27 years Plant and machinery ........................ 5 to 15 years Fixtures and fittings ...................... 4 to 5 years No depreciation is provided on land or assets yet to be brought into use. Impairment Fixed assets are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount may not be recoverable. Animpairment loss is recognised for the amount by which the asset's carryingamount exceeds its recoverable amount. The recoverable amount is the higher ofan asset's fair value (less disposal costs) and value in use. Value in use is based on the present value of the future cash flows relating tothe asset. For the purpose of assessing impairment, assets are grouped at thelowest levels for which there are separately identifiable cash flows (CashGenerating Units). Inventories Inventories are stated at the lower of cost and net realisable value. Costcomprises direct materials and, where applicable, direct labour costs andattributable overheads that have been incurred in bringing the inventories totheir present location and condition. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand, and call depositswhich have maturity of three months or less. Provisions Provisions are recognised when the Group has a legal or constructive obligationas a result of a past event; it is probable that an outflow of resources will berequired to settle the obligation; and the amount can be reliably estimated.Provisions are calculated based on management's best estimate of the expenditurerequired to settle the obligation after due consideration of the risks anduncertainties that surround the event. Foreign currencies Transactions in foreign currencies during the year are recorded at the rates ofexchange ruling at the date of the transaction. Monetary assets and liabilitiesin foreign currencies are translated into sterling at the rates ruling at thebalance sheet date. All exchange differences are taken to the income statement. The balance sheets of overseas subsidiaries are translated into sterling at theclosing rates of exchange at the balance sheet date, whilst the incomestatements are translated into sterling at the average rate for the period. Theresulting translation differences are taken directly to reserves. Foreign exchange gains and losses on the retranslation of foreign currencyborrowings that are used to finance overseas operations are accounted for on the'net investment' basis and are recorded directly in reserves provided that thehedge is 'effective' as defined in IAS 39 ('Financial Instruments : recognitionand measurement'). Pension costs The Group operates defined contribution pension schemes. Contributions arecharged in the Consolidated Income Statement as they become payable inaccordance with the rules of the scheme. Share based payment Under the IQE plc Share Option Scheme, the scheme participants are eligible forthe grant of share options in the Company. These have vesting periods ofbetween one and four years and can be exercised within ten years from the dateof grant, subject to performance criteria relating to profitability and shareprice growth. The fair value of the employee services received in exchange forthe grant of the options is recognised as an expense. The total amount to beexpensed over the vesting period is determined by reference to the fair value ofthe options granted which is calculated using the Black-Scholes option pricingmodel. Under the IQE plc All Employee Share Ownership Plans, the scheme participantsare eligible for the grant of matching shares from the Company which areequivalent to the number of partnership shares that the company purchases ontheir behalf with their monthly contributions. The matching shares have a three year vesting period. The Company issues itsown shares in the open market in order to meet its obligations under the shareincentive schemes. Shares held by the Employee Share Ownership Trust's areshown as a deduction from shareholders' funds. The cost of employee share plansis charged to Consolidated Income Statement using the quoted market price ofshares at the date of grant and credited to reserves under shares to be issued.The charge is accrued over the vesting period of the shares to the extent thatthey are projected to vest. Taxation Income tax on the profit or loss for the year comprises current and deferredtax. Current tax is the expected tax payable on the taxable income for the year usingrates substantially enacted at the balance sheet date, and any adjustments totax payable in respect of prior years. Deferred tax is provided in full on temporary differences between the carryingamounts of assets and liabilities in the financial statements and the amountsused for taxation purposes. Deferred tax is calculated at the tax rates that areexpected to apply in the period when the liability is settled or the asset isrealised. Deferred tax assets are only recognised to the extent that it isprobable that future taxable profits will be utilised. Tax is recognised in the Consolidated Income Statement except to the extent thatit relates to items recognised directly in equity, in which case it isrecognised in equity. Government grants Government grants receivable in connection with expenditure on tangible fixedassets are accounted for as deferred income, which is credited to theConsolidated Income Statement by instalments over the expected useful economiclife of the related assets on a basis consistent with the depreciation policy.Revenue grants for the reimbursement of costs charged to the Consolidated IncomeStatement are credited to the Consolidated Income Statement in the year in whichthe costs are incurred. Leases Leases which transfer substantially all the risks and rewards of ownership of anasset are treated as a finance lease. Assets held under finance lease arecapitalised at their fair value at the inception of the lease and depreciatedover the estimated useful economic life of the asset or lease term if shorter.The finance charges are allocated to the Consolidated Income Statement inproportion to the capital amount outstanding. All other leases are classified as operating leases. Operating lease rentals arecharged to the Consolidated Income Statement in equal annual amounts over thelease term. This information is provided by RNS The company news service from the London Stock Exchange