IQE Regulatory News (IQE)

22 Aug 2007 07:01

IQE PLC22 August 2007 22 August 2007 IQE plc Global wireless strategy drives IQE to operational profitability IQE plc (AIM: IQE, "the Group"), the leading global supplier of advanced waferproducts and services to the semiconductor industry, announces its InterimResults for the half year ended 30 June 2007. HIGHLIGHTS • Revenues up 62% at £23.7m (H1/2006: £14.6m), despite the impact of an adverse USD exchange rate. Revenue up 80% at constant exchange rates to £26.2m. • Gross profit up 206% at £3.9m (H1/2006: £1.3m) • EBITDA profit £1.3m (H1/2006: EBITDA loss £1.1m before exceptional gain) • Operating profit £0.1m (H1/2006 operating loss £1.8m before exceptional gain) • Cash generated from operations £0.4m (H1/2006 outflow £3.4m) • Net cash outflow £2.8m (H1/2006 outflow £5.1m) • Half year cash balance £1.3m (H1/2006 £1.2m) • Acquisitions made during 2006 integrated smoothly and contributing strongly • Also announced today; a multi-year preferred supplier agreement signed with an existing customer, one of the leading wireless chip manufacturer, expected to be worth at least $50m over first two years - see separate statement • Relocating to larger state-of-the-art facility in Singapore to enable significant future capacity expansion in Asia Pacific • Major R&D programme secured worth $4m Dr Drew Nelson, IQE Chief Executive, commenting on the results said: "Continued strong growth in the global wireless marketplace combined with ashift towards high-end, fully-featured handsets, high speed wi-fi and satellitecommunications systems, all of which use increasing amounts of our products,have driven revenues ahead of expectations during the first half of the year.This is despite the impact of a slow start in January and February and a weakdollar. "Our position in the wireless market was substantially bolstered by the twomajor acquisitions made during 2006. This has positioned IQE as the clearleader in the supply of wafer products to the global wireless communicationsindustry as confirmed by Strategy Analytics. We have also today announced theaward of a very substantial, multi-year, preferred supply agreement with one ofthe world's largest wireless chip manufacturers, worth in total at least $50million over the next two years. "I am extremely pleased to announce the Group's move into operating profit as aresult of the substantially increased revenues and strong operational gearing.This is a key milestone in our continuing progress and clearly demonstrates thestrength of the business model. As more customers become cross qualified at ourvarious manufacturing locations worldwide, we will be able to leverage ouradditional manufacturing capacity, which we expect will result in continuedstrong growth." Contacts: IQE plc :Drew Nelson +44 (0)2920-839400Phil RasmussenChris Meadows College Hill:Adrian Duffield / Ben Way +44 (0)20 7457 2020 Noble and Company :John Llewellyn-Lloyd/ Sam Reynolds +44 (0)2077-632200 NOTE TO EDITORS IQE is the leading global supplier of advanced semiconductor wafers withproducts that cover a diverse range of applications, supported by an innovativeoutsourced foundry services portfolio that allows the Group to provide a 'onestop shop' for the wafer needs of the world's leading semiconductormanufacturers. IQE uses advanced crystal growth technology (epitaxy) to manufacture and supplybespoke semiconductor wafers ('epi-wafers') to the major chip manufacturingcompanies, who then use these wafers to make the chips which form the keycomponents of virtually all high technology systems. IQE is unique in being ableto supply wafers using all of the leading crystal growth technology platforms. IQE's products are found in many leading-edge consumer, communication, computingand industrial applications, including a complete range of wafer products forthe wireless industry, such as mobile handsets and wireless infrastructure,wi-fi, wi-max, base stations, GPS, and satellite communications; opticalcommunications, optical storage (CD, DVD), laser optical mouse, laser printersand photocopiers, thermal imagers, leading-edge medical products, barcode, highefficiency LEDs and a variety of advanced silicon-based systems. The manufacturers of these chips are increasingly seeking to outsource waferproduction to specialist foundries such as IQE in order to reduce overall wafercosts and accelerate time to market. IQE also provides bespoke R&D services to deliver customised materials forspecific applications and offers specialist technical staff to manufacture tospecification either at its own facilities or on the customer's own sites. TheGroup is also able to leverage its global purchasing volumes to reduce the costof raw materials. In this way IQE's outsourced services provide compellingbenefits in terms of flexibility and predictability of cost, therebysignificantly reducing operating risk. IQE operates six manufacturing facilities located in Cardiff (two) and MiltonKeynes in the UK; in Bethlehem, Pennsylvania and Somerset, New Jersey in theUSA; and in Singapore. The Group also has 11 sales offices located in majoreconomic centres worldwide. INTERIM RESULTS 2007 1. OVERVIEW The Group is now firmly established as the world's leading supplier of advancedwafer products and services to the semiconductor industry through its commitmentto customer service, cost-effective products, unparalleled technicalcapabilities and its substantial investment in state-of-the-art manufacturingtools and facilities worldwide. IQE is the only supplier able to provide a fullrange of advanced epi-wafer products using all the key technology platforms, andoffering global multi-site contingency planning, with operations in Europe, USAand Asia Pacific. This unique offering is viewed by existing and potentialcustomers as a significant competitive advantage. Revenues increased strongly during H1/2007 despite a flat start to trading inJanuary and February and a weak dollar and were up 62% at £23.7m (H1/2006:£14.6m). At constant exchange rates, revenues would have grown by approximately80% to £26.2m. This strong growth was largely driven by growth in the wirelessmarket. There was a substantial improvement in trading performance and theachievement of EBITDA profit of £1.3m (H1/2006: EBITDA loss £0.8m) and anoperating profit of £0.1m (H1/2006 operating loss £1.5m). These results endorse the Group's strategy of becoming the leading supplier ofwireless products enabled by the two acquisitions made during the second half of2006. These acquisitions have been integrated successfully into the Group andperformed well ahead of management expectations. By gaining exposure to thewireless power amplifier and the Asia Pacific markets, the product and customerreach of IQE has been substantially enhanced. Existing customers have reactedenthusiastically to these acquisitions and to IQE's unique offering in thewireless sector. This higher profile has also generated significant interestwith potential new customers, who see the benefits of IQE's full product range,multi-site, multi-technology offering and overall global presence. The Group'sstrategy provides a clear competitive advantage which is allowing it toaggressively pursue higher market share. 2. RESULTS Revenues were £23.7m (H1/2006: £14.6m) which represents a 62% increase comparedwith H1/2006 despite a significant worsening in exchange rate to USD 1.97/GBP(H1/2006: USD1.78/GBP). There was also a significant increase in gross profit to£3.9m (H1/2006: £1.3m), a 206% increase. Selling, general and administrative expenses (SG&A costs) were up 23% at £3.8m(H1/2006: £3.1m before exceptional gain of £0.3m) equivalent to 16% of revenues(H1/2006: 19%) as a direct result of the fixed costs associated with the twoacquired businesses. On a like for like basis, SG&A costs were flat. The Group reported EBITDA of £1.3m (H1/2006: EBITDA loss £0.8m) and an operatingprofit of £0.1m (H1/2006: operating loss £1.5m). The loss for the period fellsharply to £0.5m (H1/2006: loss £1.6m) equivalent to a loss per share of 0.12pence (H1/2006: loss per share 0.52 pence). Cash management continued to be a priority with the focus firmly concentrated oncontrolling operating costs and carefully managing working capital. During theperiod, the Group achieved a cash inflow from operations of £0.4m (H1/2006:outflow £3.4m). Capital expenditure was £4.0m (H1/2006: £1.0m) and consisted mainly of thepurchase of property (£2.5m) and additional manufacturing equipment at IQE RFfor increased production capacity for a key customer. This was funded by £3.7mof new loans. The net receipt from loans and leases was £1.8m (H1/2006: net repayment £0.7m).Cash on hand at 30 June 2007 was £1.3m (H1/2006: £1.2m) and total borrowingsincreased to £11.6m (H1/2006: £4.6m), resulting in an increase in net debt to£10.4m (H1/2006: £3.4m). The Group has access to working capital facilities of£5.0m (H1/2006: £2.0m). 3. OPERATIONS The Group operates in three key sectors: wireless, optoelectronics (opto) andelectronics. Over 70% of the Group's revenue currently comes from the wireless sector. IQEis now the largest supplier of wafers in this rapidly growing market, supplyingproducts and services which are used in a wide variety of devices, includingmobile handsets, cellular base-stations, GPS, set top boxes and other satellitecommunication systems, as well as the rapidly growing wi-fi, wi-max, wi-bro,wireless LAN, laptop wi-fi and other wireless-enabled technologies that arebecoming ubiquitous in business, industrial and consumer applications. The optoelectronics (opto) market also continues to be a key focus for the Groupaccounting for approximately 20% of revenues. In this market the Group suppliesa wide range of high-end opto electronic wafer products for leading-edgeconsumer, communication and computing applications, which include wafers forfibre-optic communication networks, lasers for printing and other officeapplications, optical storage (CD/DVD) systems, laser mouse products, LEDs andother laser based components, and devices covering a wide variety of automotive,aerospace, industrial and medical applications. In addition, the Group isaggressively pursuing the development of compound semiconductor basedTerrestrial Solar Cell technology for clean and efficient energy generation, andultra high efficiency LED technology for energy saving general lightingapplications IQE also operates at the cutting edge of advanced silicon-based epi technologyfor high end Integrated Circuit (IC) and high density memory applications in theelectronics sector, and is actively developing ultra high speed, ultra highdensity memory technologies through funded R&D programmes. This business sectoris growing rapidly as these new technologies are increasingly adopted by largemultinational chip manufacturers. During the first half, IQE negotiated a very attractive opportunity to relocatethe Singapore operation into a much larger, state-of-the-art clean room facilityat minimal capital cost. This will provide substantially increased expansioncapability to support the rapidly growing business in the Asia Pacific region,particularly in China where IQE's customers are planning major expansions. Themove will be achieved with minimal impact to ongoing operations and hasattracted significant Singaporean Government assistance, including the offer oftax free status over the next ten years. The Group has recently been awarded substantial R&D contracts worth in the orderof USD4m. One, as part of a UK consortium, is to develop ultra high efficiencyLight Emitting Diodes (LEDs) for solid state lighting, expected to be the keytechnology to replace the incandescent bulb as it is progressively banned byGovernments around the globe in response to global warming. Other R&D contractsinclude the development of Strontium Titanium Oxide on Silicon epi-wafers (STO/Si) using IQE's state-of-the-art molecular beam epitaxy (MBE) systems and thedevelopment of advanced material structures for increased processing speed forfuture ICs. The Group is also progressing its Terrestrial Solar Cell activitiesthrough customer funded programmes, which have already demonstrated world classefficiency performance levels. 4. MAJOR CONTRACT WIN The Group has also today announced that it has been awarded a very substantial,multi-year, preferred supplier agreement with ANADIGICS Inc, one of the world'sleading wireless chip manufacturers. IQE's wafer products for this customer are used to manufacture chips for 3Ghandsets and base stations, latest generation (802.11n) wi-fi systems forinfrastructure and wi-fi enabled laptop computers, broadband fibre optic systemsand satellite set top box applications. It is estimated that the value of thisbusiness will be at least $50m over the first two years. 5. TRADING PROSPECTS The acquisitions made during 2006 and the Group's strong focus on the rapidlygrowing wireless communications marketplace have ensured that IQE is now firmlydelivering on its growth strategy. The increase in wireless volumes (mobilephones, wi-fi, wi-max, GPS, direct broadcast TV and Bluetooth) and,significantly, the continued trend to higher speed, feature rich devices isfuelling strong demand for IQE products. Recent upgrades to the overall handsetmarket for 2007 and 2008 are mainly for high-end replacement phones, and this isseen as a strong indicator of continually growing demand for the Group'sGaAs-based power amplifier and switch products. In addition to the Group's strong position in the wireless market, IQE is firmlyestablished as a leading supplier of high end optoelectronic products,particularly laser based wafer technologies, with widespread application in manyareas, including optical storage, office based laser printers and copiers,optical fibre communications, computer laser mouse applications, and severalother industrial, automotive and medical systems. The Group's future product strategy and technology roadmap include compoundsemiconductor wafers for advanced wireless products, terrestrial solar cellapplications where excellent results have already been achieved, laser basedprojection and high definition optical storage systems, and ultra high speed,high density memory device applications. The Board remains confident that the robust global strategy, the Group's highoperational gearing and the continued strength of the markets in which IQEoperates position it well to deliver continued strong growth. INTERIM RESULTS FOR 6 MONTHS TO 30 JUNE 2007 6 months 6 months 12 monthsCONSOLIDATED INCOME STATEMENT to 30 Jun to 30 Jun to 31 Dec 2007 2006 2006(All figures GBP000s) Note Unaudited Unaudited Unaudited Revenue 23,680 14,591 32,421Cost of Sales (19,806) (13,325) (30,072) Gross Profit 3,873 1,267 2,349Gross Profit % 16.4 8.7 7.2 Selling, General and Administrative Expenses 3 (3,809) (2,787) (6,050)(Including Exceptional Gain) Operating Profit/(Loss) 64 (1,520) (3,701)Operating Profit/(Loss) % 0.3 (10.4) (11.4) Operating Profit/(Loss) before Exceptional Gain 64 (1,775) (3,956)Exceptional Gain 3 0 255 255 Operating Profit/(Loss) 64 (1,520) (3,701)Operating Profit/(Loss) % before Exceptional Gain 0.3 (12.2) (12.2) Finance Income 5 49 104Finance Costs (572) (170) (393) Loss for the Period (503) (1,641) (3,990) Basic Loss Pence per Ordinary 1p Share 4 (0.12) (0.52) (1.14)Diluted Loss Pence per Ordinary 1p Share 4 (0.12) (0.52) (1.14) Loss for the Period (503) (1,641) (3,990)Net Interest Payable 567 121 289Depreciation of Fixed Assets 1,111 682 1,617Amortisation of Intangible Assets 157 46 136 Earnings before Interest, Taxes, Depreciation and 1,332 (792) (1,948)Amortisation (EBITDA) 6 months 6 months 12 monthsCONSOLIDATED STATEMENT OF RECOGNISED to 30 Jun to 30 Jun to 31 DecINCOME AND EXPENSE 2007 2006 2006(All figures GBP000s) Unaudited Unaudited Unaudited Loss for the Period (503) (1,641) (3,990)Currency translation differences on foreign currency net (233) (313) (916)investments Total Recognised Expense for the Period (736) (1,955) (4,906) As At As At As AtCONSOLIDATED BALANCE SHEET 30 Jun 30 Jun 31 Dec 2007 2006 2006(All figures GBP000s) Unaudited Unaudited Unaudited Non-Current Assets :Intangible Assets 11,644 123 11,095Tangible Assets 14,510 8,780 11,803 Total Non-Current Assets 26,153 8,903 22,898 Current Assets :Inventories 8,094 5,592 8,580Trade and Other Receivables 8,540 4,973 6,480Cash and Cash Equivalents 1,263 1,193 4,071 Total Current Assets 17,897 11,758 19,131 Total Assets 44,050 20,662 42,029 Current Liabilities :Borrowings (3,583) (1,468) (2,755)Trade and Other Payables (8,851) (5,268) (8,040) Total Current Liabilities (12,434) (6,736) (10,795) Non-Current Liabilities :Borrowings (8,046) (3,151) (7,234)Deferred Income (141) (179) (160) Total Non-Current Liabilities (8,187) (3,330) (7,394) Total Liabilities (20,621) (10,066) (18,190) Net Assets 23,430 10,595 23,840 Shareholders' Equity :Ordinary Shares 4,308 3,169 4,299Share Premium 172,155 157,314 172,030Other Reserves (951) (658) (910)Profit and Loss Account (152,082) (149,230) (151,579) Total Shareholders' Equity 23,430 10,595 23,840 6 months 6 months 12 monthsCONSOLIDATED CASH FLOW STATEMENT to 30 Jun to 30 Jun to 31 Dec 2007 2006 2006(All figures GBP000s) Unaudited Unaudited Unaudited Cash Flows from Operating Activities :Cash Generated from Operations 393 (3,436) (4,418)Interest Received 5 49 104Interest Paid (427) (170) (368) Net Cash Used in Operating Activities (29) (3,557) (4,683) Cash Flows from Investing Activities :Purchase of Subsidiary Undertakings 0 0 (11,227)Cash Acquired in Subsidiary Undertakings 0 0 1,023Development Expenditure (730) 0 (222)Purchase of Tangible Fixed Assets (3,974) (977) (1,430)Proceeds from Sale of Tangible Fixed Assets 0 160 251 Net Cash Used in Investing Activities (4,704) (817) (11,605) Cash Flows from Financing Activities :Issues of Ordinary Share Capital 127 51 15,920Loans and Leases Received/(Repaid) 1,798 (730) (1,806) Net Cash Generated from Financing Activities 1,925 (679) 14,114 Net Decrease in Cash and Cash Equivalents (2,808) (5,053) (2,174) Cash and Cash Equivalents at the Beginning of the 4,071 6,245 6,245Period Cash and Cash Equivalents at the End of the Period 1,263 1,193 4,071 NOTES TO THE INTERIM FINANCIAL STATEMENTS 1 BASIS OF PREPARATION These unaudited interim financial statements have been prepared under thehistorical cost convention and in accordance with International FinancialReporting Standards ("IFRS") and interpretations expected to be in issue at 31December 2007. The principal accounting policies of the Group are stated below.The interim financial statements were approved by the Board of Directors andthe Audit Committee on 21 August 2007. The interim financial statements do notconstitute statutory accounts within the meaning of the Companies Act 1985 andhave not been audited. Comparative figures in the financial statements for theyear ended 31 December 2006 have been taken from the Group's audited UK GAAPstatutory accounts on which the company's auditors, PricewaterhouseCoopers LLP,expressed an unqualified opinion and amended by adjustments required by IFRS.All periods presented are unaudited. In anticipation of changes required under IFRS, the Group has published an IFRStransition statement on 14 August 2007. This statement sets out the effect ofadopting IFRS for the Group, the basis of preparation, the accounting policies,and details of significant adjustments in respect of the opening balance sheetat 1 January 2006, the results for the year ended 31 December 2006 and thebalance sheet at 31 December 2006. The interim financial statements will be announced to all shareholders on theLondon Stock Exchange and published on the Group's website on 22 August 2007.Copies will be available to members of the public upon application to theCompany Secretary at Pascal Close, Cypress Drive, St Mellons, Cardiff CF3 0LW. 6 months 6 months 12 months 2 SEGMENTAL INFORMATION to 30 Jun to 30 Jun to 31 Dec 2007 2006 2006 (All figures GBP000s) Unaudited Unaudited Unaudited Revenue by Business Segment : Wireless 17,326 8,713 20,271 Optoelectronics 5,097 4,965 10,066 Electronics 1,256 913 2,084 Total Revenue 23,680 14,591 32,421 Operating Profit/(Loss) by Business Segment: Wireless 1,261 (78) (166) Optoelectronics (938) (860) (2,361) Electronics (258) (583) (1,174) Total Operating Profit/(Loss) 64 (1,520) (3,701) 6 months 6 months 12 months 3 EXCEPTIONAL GAIN to 30 Jun to 30 Jun to 31 Dec 2007 2006 2006 (All figures GBP000s) Unaudited Unaudited Unaudited Onerous lease provision credited in 0 (255) (255) administrative expenses Exceptional gain 0 (255) (255) The exceptional gain in 2006 of £255,000 relates to the onerous lease provisionin respect of a vacant property at IQE (Europe) Limited which has been releasedto the profit and loss account as the Group is no longer the tenant. 6 months 6 months 12 months 4 LOSS PER SHARE to 30 Jun to 30 Jun to 31 Dec 2007 2006 2006 Unaudited Unaudited Unaudited Loss for the Period GBP 000s (503) (1,641) (3,990) Weighted Average Number of Ordinary Shares 430,362,629 315,976,014 350,729,318 Diluted Share Options 6,931,004 6,919,658 8,593,469 Adjusted Weighted Average Number of Ordinary Shares 437,293,633 322,895,672 359,322,787 Basic Loss Pence per Share (0.12) (0.52) (1.14) Diluted Loss Pence per Share (0.12) (0.52) (1.14) Basic loss per share is calculated by dividing the loss attributable to ordinaryshareholders by the weighted average number of ordinary shares during theperiod. Diluted loss per share is calculated by adjusting the weighted averagenumber of ordinary shares in issue on the assumption of conversion of alldilutive potential ordinary shares. IAS 33 requires the presentation of diluted Loss Pence per Share when a companycould be called upon to issue shares that would decrease net profit or increasenet loss per share. For a loss-making company with outstanding share options,net loss per share would only be increased by the exercise of the out of themoney options. Since it seems inappropriate to assume that option holders wouldact irrationally, no adjustment has been made to diluted Loss Pence per Sharefor out of the money share options. 6 months 6 months 12 months 5 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY to 30 Jun to 30 Jun to 31 Dec 2007 2006 2006 (All figures GBP000s) Unaudited Unaudited Unaudited At the Beginning of the Period 23,839 12,326 12,326 Loss for the Period Attributable to Equity (503) (1,641) (3,990) Shareholders Share Option Costs Credited to Reserves 198 170 500 Shares Issued net of Issue Costs 127 51 15,920 Deferred Consideration on Acquisition of Subsidiary 0 0 0 Net Exchange Differences Offset in Reserves (233) (313) (916) At the End of the Period 23,429 10,593 23,839 6 months 6 months 12 months 6 CASH GENERATED FROM OPERATIONS to 30 Jun to 30 Jun to 31 Dec 2007 2006 2006 (All figures GBP000s) Unaudited Unaudited Unaudited Operating Profit/(Loss) 64 (1,520) (3,701) Depreciation of Tangible Assets 1,111 682 1,617 Amortisation of Intangible Assets 157 46 136 Loss/(Gain) on Sale of Tangible Assets 0 (62) (38) Government Grants Released (19) (19) (39) Non-Cash Share Option Costs 198 170 500 Operating Profit/(Loss) before Changes in Working 1,511 (703) (1,525) Capital Decrease/(Increase) in Inventories 487 (1,280) (1,536) (Increase)/Decrease in Trade and Other Receivables (2,060) (1,569) (1,930) Increase/(Decrease) in Trade and Other Payables 455 116 572 Cash Inflow/(Outflow) Generated from Operations 393 (3,436) (4,418) As At As At As At 7 ANALYSIS OF NET DEBT 30 Jun 30 Jun 31 Dec 2007 2006 2006 (All figures GBP000s) Unaudited Unaudited Unaudited Cash at Bank and in Hand 1,252 1,187 3,085 Highly Liquid Investments 11 6 986 Total Cash and Cash Equivalents 1,263 1,193 4,071 Loans Due after One Year (8,040) (3,151) (7,226) Loans Due within One Year (3,582) (1,468) (2,731) Finance Leases Due after One Year (6) 0 (8) Finance Leases Due within One Year (1) 0 (24) Total Borrowings (11,629) (4,619) (9,989) Net Debt (10,366) (3,426) (5,918) 6 months 12 months 8 RECONCILIATION OF OPERATING LOSS UNDER UK GAAP TO IFRS to 30 Jun to 31 Dec 2006 2006 (All figures GBP000s) Unaudited Unaudited Operating Loss per UK GAAP (1,450) (3,976) Capitalisation of development costs (5) 222 Amortisation of intangible assets (46) (136) Amortisation of goodwill 0 166 Provision for holiday pay (19) 24 Operating Loss per IFRS (1,520) (3,701) 9 RECONCILIATION OF SHAREHOLDERS' UK GAAP IFRS 3 IAS 38 IAS 19 EQUITY AT 31 DECEMBER 2005 Business Intangible Employee UNDER UK GAAP TO IFRS Reformatted Combinations Assets Benefits IFRS (All figures GBP000s) Unaudited Unaudited Unaudited Unaudited Unaudited Non-Current Assets : Intangible Assets 0 0 183 0 183 Tangible Assets 8,816 0 (62) 0 8,754 Total Non-Current Assets 8,816 0 121 0 8,937 Current Assets : Inventories 4,312 0 0 0 4,312 Trade and Other Receivables 3,404 0 0 0 3,404 Cash and Cash Equivalents 6,245 0 0 0 6,245 Total Current Assets 13,961 0 0 0 13,961 Current Liabilities : Borrowings (1,739) 0 0 0 (1,739) Trade and Other Payables (4,616) 0 0 (117) (4,733) Total Current Liabilities (6,355) 0 0 (117) (6,472) Non-Current Liabilities : Borrowings (3,646) 0 0 0 (3,646) Deferred Income (199) 0 0 0 (199) Provision for Liabilities and (255) 0 0 0 (255) Charges Total Non-Current Liabilities (4,100) 0 0 0 (4,100) Net Assets 12,323 0 121 (117) 12,327 Shareholders' Equity : Ordinary Shares 3,163 0 0 0 3,163 Share Premium 157,264 0 0 0 157,264 Other Reserves (509) 0 0 0 (509) Profit and Loss Account (147,594) 0 121 (117) (147,590) Total Shareholders' Equity 12,323 0 121 (117) 12,327 10 RECONCILIATION OF SHAREHOLDERS' UK GAAP IFRS 3 IAS 38 IAS 19 EQUITY AT 30 JUNE 2006 Business Intangible Employee UNDER UK GAAP TO IFRS Reformatted Combinations Assets Benefits IFRS (All figures GBP000s) Unaudited Unaudited Unaudited Unaudited Unaudited Non-Current Assets : Intangible Assets 0 0 123 0 123 Tangible Assets 8,833 0 (53) 0 8,780 Total Non-Current Assets 8,833 0 70 0 8,903 Current Assets : Inventories 5,592 0 0 0 5,592 Trade and Other Receivables 4,973 0 0 0 4,973 Cash and Cash Equivalents 1,193 0 0 0 1,193 Total Current Assets 11,758 0 0 0 11,758 Current Liabilities : Borrowings (1,468) 0 0 0 (1,468) Trade and Other Payables (5,132) 0 0 (136) (5,268) Total Current Liabilities (6,600) 0 0 (136) (6,736) Non-Current Liabilities : Borrowings (3,151) 0 0 0 (3,151) Deferred Income (179) 0 0 0 (179) Total Non-Current Liabilities (3,330) 0 0 0 (3,330) Net Assets 10,661 0 70 (136) 10,595 Shareholders' Equity : Ordinary Shares 3,169 0 0 0 3,169 Share Premium 157,314 0 0 0 157,314 Other Reserves (658) 0 0 0 (658) Profit and Loss Account (149,164) 0 70 (136) (149,230) Total Shareholders' Equity 10,661 0 70 (136) 10,595 11 RECONCILIATION OF SHAREHOLDERS' UK GAAP IFRS 3 IAS 38 IAS 19 EQUITY AT 31 DECEMBER 2006 Business Intangible Employee UNDER UK GAAP TO IFRS Reformatted Combinations Assets Benefits IFRS (All figures GBP000s) Unaudited Unaudited Unaudited Unaudited Unaudited Non-Current Assets : Goodwill 10,903 (2,303) 0 0 8,600 Intangible Assets 0 2,172 323 0 2,495 Tangible Assets 11,861 0 (58) 0 11,803 Total Non-Current Assets 22,765 (131) 265 0 22,898 Current Assets : Inventories 8,580 0 0 0 8,580 Trade and Other Receivables 6,480 0 0 0 6,480 Cash and Cash Equivalents 4,071 0 0 0 4,071 Total Current Assets 19,131 0 0 0 19,131 Current Liabilities : Borrowings (2,755) 0 0 0 (2,755) Trade and Other Payables (8,161) 214 0 (93) (8,040) Total Current Liabilities (10,916) 214 0 (93) (10,795) Non-Current Liabilities : Borrowings (7,234) 0 0 0 (7,234) Deferred Income (160) 0 0 0 (160) Total Non-Current Liabilities (7,394) 0 0 0 (7,394) Net Assets 23,585 83 265 (93) 23,840 Shareholders' Equity : Ordinary Shares 4,299 0 0 0 4,299 Share Premium 172,030 0 0 0 172,030 Other Reserves (910) 0 0 0 (910) Profit and Loss Account (151,834) 83 265 (93) (151,579) Total Shareholders' Equity 23,585 83 265 (93) 23,840 12 CONTINGENT LIABILITY The Group received a claim in 2005 for approximately £1 million in respect ofnational insurance contributions in relation to share options that were issuedin 1999. Having sought legal opinion, the Board remains robust in its opinionthat the Group has meritorious defences to this claim. Accordingly, noprovision has been made in the Interim results. INDEPENDENT REVIEW REPORT TO IQE Plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprises a summarised profit and lossaccount, a statement of total gains and losses, summarised balance sheetinformation as at 30 June 2007, a summarised cash flow statement, comparativefigures and related notes. We have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The rules of theAlternative Investment Market require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany and for no other purpose. We do not, in producing this report, accept orassume responsibility for any other purpose or to any other person to whom thisreport is shown or into whose hands it may come save where expressly agreed byour prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. PricewaterhouseCoopers LLPChartered Accountants and Registered AuditorsCardiff22 August 2007 This information is provided by RNS The company news service from the London Stock Exchange