IQE Regulatory News (IQE)

24 Aug 2005 07:00

IQE PLC24 August 2005 For Immediate Release 24 August 2005 IQE plc Interim Results for the Half Year Ended 30 June 2005 IQE plc (IQE), the leading global outsource supplier of customised wafers to thesemiconductor industry, today announces its Interim Results for the half yearended 30 June 2005. KEY POINTS • First half revenues increased by 32% compared with H2/2004 to £9.665m (H2/2004: £7.316m) despite continuing adverse dollar exchange rate. In dollar terms, first half revenues increased by 37% compared with H2/2004 • Operating profit achieved in June, the first monthly operating profit since June 2001. Achieved at less than 30% capacity utilisation, demonstrating high level of operational gearing • Gross loss reduced by £1.425m compared with H2/2004 on sales revenue increase of £2.349m • EBITDA loss as detailed in the consolidated profit and loss account reduced by 46% to £1.902m (H2/2004: loss £3.512m) • Net cash outflow from operating activities reduced by 30% to £3.118m (H2/2004: outflow £4.456m) • Half year cash at £5.928m (H2/2004: £9.923m), ahead of internal budget for first half • Operating cash breakeven run rate under tight control at £27m per annum with continued improvements in operating margins • Total wafer area shipped increased by 36% to 986,000 sq.inches (H2/2004: 727,000 sq.inches) • Won major industry award for Ultra Smooth strained silicon product, which was presented at the Semicon West exhibition in July • Significant outsourcing research and development wins in first half of 2005 • Good prospects for continued increases in revenue in the second half of 2005 and the achievement of a sustainable positive cash flow Commenting on the results, Dr Drew Nelson, President and CEO, said ....... "The IQE Group has made major progress in the first half of 2005 towardsreaching operating profitability on an ongoing basis. Revenues rosesubstantially despite the adverse impact of the dollar exchange rate in theearly part of H1/2005, fixed costs have been kept under close control andoperational efficiencies have resulted in continued operational marginimprovements. We exceeded our goal of monthly cash breakeven in June and postedour first monthly operating profit since June 2001 and, although the comingmonths will see some variability, we expect to achieve monthly cash breakeven orabove on an ongoing basis during the latter part of H2/2005. The demonstrationof monthly operating profitability is a key milestone, particularly as it wasachieved at less than 30% of our overall capacity, which clearly demonstratesthe high level of operational gearing of our business model. We have substantialopportunities to further enhance revenues and profitability as a result ofnumerous outsource qualification programmes and leading edge materialsdevelopment programmes, and remain confident that our wafer outsourcingstrategy, strong investment in productive capacity in prior years and ourbusiness model will lead to significant shareholder returns in the future." For further information, please contact: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 1. INTRODUCTION IQE is widely recognised in its market sector as a world leading supplier ofadvanced wafer products and wafer foundry services to the semiconductorindustry. The diverse range of materials which are produced by the Group'sfour divisions form the enabling technology for many leading-edge consumer,communication and computing applications including mobile phones, satellitenavigation devices, personal computers, telecommunication systems, LEDtechnology PDAs, CD/DVD systems and a variety of automotive, aerospace,industrial and medical applications. The Group's large investment in state-of-the-art manufacturing tools andfacilities, coupled with its unique concentration of world-class expertise andexperience in semiconductor materials, make it the only supplier worldwide toprovide a full range of advanced epi-wafer products using all three leadingtechnology platforms (MOVPE, MBE and CVD) as well as providing a variety ofadvanced substrates. This in turn makes the Group a highly attractive choice asthe ideal outsource partner. 2. OVERVIEW Sales revenues increased strongly during the first half of the year as a numberof contracts and qualifications came to fruition, including the major outsourcedeal that was completed in November 2004. Some smaller product developmentopportunities were also secured, notably one with a major global player foradvanced materials for future potential integrated circuit (IC) applications. Additional product qualification continues to gather pace, with more and moresuccessful product lines achieving approved status with customers in NorthAmerica and the Far East. Although the number of wafers shipped was slightly less than H2/2004, asignificant change in the product mix towards larger diameter, higher valuewafers meant that the total wafer area shipped increased by 36% to 986,000sq.inches in H1/2005 (H2/2004: 727,000 sq.inches). On the basis of this increase, the Group recorded its best sales month for threeyears in June 2005 and this resulted in an operating profit being achieved inthat month for the first time in four years. This was achieved at less than 30%capacity utilisation, fully proving the business model and demonstrating thestrong operational gearing of the business. Excellent progress was also made infurther improving operational efficiencies and continuing to bear down on thecost base. The annualised breakeven revenue run rate in June was around £27m,which is half the level of two years ago. 3. RESULTS The Group's operating results for H1/2005, together with comparative figures forH2/2004 and H1/2004, are detailed in the Consolidated Profit and Loss Accountand Consolidated Cash Flow Statement. H1/2005 sales were 32% up on the second half of last year at £9.665m (H2/2004:£7.316m) due to increased revenues at IQE Europe, IQE Inc and IQE Silicon. Withmost of those revenues being earned in US dollars, we were once again adverselyaffected by a weak dollar exchange rate which, at USD 1.8889/GBP, was 4% worsethan the rate for the previous half year (H2/2004: USD 1.8208/GBP) andeffectively reduced our sales line by approximately £0.400m. If the recentstrengthening of the US dollar is maintained, this should contribute to animprovement in our sales line in H2/2005. In terms of gross margin, we achieved very significant improvements inperformance as result of a combination of operational efficiencies, costreductions and lower supplier prices for raw materials which together reducedthe gross loss in H1/2005 to £0.460m (H2/2004: loss £1.885m). This isequivalent to a gross loss of 5% (H2/2004: gross loss 26%). The £1.425mreduction in gross loss for the half year was achieved on a sales revenueincrease of £2.349m clearly demonstrating the Group's ability to generateprofitability of greater than 50% on incremental revenues. With many of the key wafer products that have been in research and developmentover the last couple of years now moving into pre production or full production,research and development expenditure has continued to fall. Current expenditureis being strongly focused on key future materials for both silicon and III-Vwafer products. Consequently, research and development costs in the first halfwere £0.215m (H2/2004: £0.354m) equivalent to 2% of sales (H2/2004: 5%) Allresearch and development costs were expensed in the period. We also achieved savings in respect of selling, general and administrationcosts, which comprise distribution costs and other administrative expenses. H1/2005 selling, general and administration costs were £2.294m (H2/2004:£2.494m), which represented an 8% reduction compared with H2/2004 and includedcertain restructuring costs of £0.110m. As a result of the above, our H1/2005 operating loss was reduced to £2.968m(H2/2004: £4.732m), which represented a 37% reduction compared with H2/2004. The pre tax loss for H1/2005 was also significantly down on H2/2004 at £2.912m(H2/ 2004: pre tax loss £4.597m). Cash management was a priority for the Group throughout the period with thefocus continuing to be concentrated on reducing operating costs and carefullymanaging working capital, which comprises stocks, debtors and creditors. Workingcapital increased in H1/2005 by £1.127m (H2/2004: increase £0.884m) in line withour revenue increase as shown in the Reconciliation of Operating Loss to NetCash Outflow from Operating Activities. This was mainly due to increased tradedebtors generated by improved sales and a planned build-up of finished goodsstock at IQE Inc in accordance with the outsource agreement which was signedlast year. Including the significant reduction in operating loss compared withH2 /2004, the net result was an overall reduction in net cash outflow fromoperating activities for H1/2005 to £3.118m (H2 /2004: outflow £4.456m). Capital expenditure was restricted to £0.289m in H1/2005 (H2/2004: £0.215m) withthe majority being incurred at Wafer Technology. Loan and lease repaymentstotalled £0.667m in H1/2005 (H2/2004: £1.148m) and this reduced our totalborrowings at the end of the period to £2.541m (H2/2004: £3.160m) with the lastof the major lease repayments being made during the first half. Gross cash onhand exiting H1/2005 was £5.928m (H2/2004: £9.923m), ahead of our internalbudget expectations. As an AIM listed company, the Group will adopt International Financial reportingStandards (IFRS) for its financial statements for the year ending 31 December2007. Accounting for share-based payments (IFRS 2) will be reflected as aresult of the implementation of FRS 20 (share-based payments) with effect from 1January 2006. 4. OPERATIONS IQE Inc The Bethlehem-based wireless materials division experienced a sharp increase indemand during the first half year from a number of customers for its pHEMTproducts for wireless communications applications. The division achieved amonthly operating profit in June despite output being limited as a result of anextensive planned maintenance programme during the first few months of the year.As previously noted in our AGM statement, we experienced a significant increasein sales in June as a result of additional capacity becoming available and thisis expected to continue in the second half year. Additionally, there are several qualification programmes currently underwaywhich, if successful, should lead to further significant increases in revenue.The division has also been successful in attracting significant outsourceresearch and development programmes and recently announced that it had begunshipping antimonide based epitaxial wafers. These are particularly attractivefor high-frequency, low noise, low power-consumption electronic devices, and forlong wavelength emitters and detectors. IQE (Europe) Limited The Cardiff-based optoelectronic materials division reported significantlyincreased revenues which, together with increased batch sizes on a number ofimportant product lines during the first half year, helped to ensure that itachieved a monthly operating profit in June and contributed strongly to theGroup recording an operating profit in that month. The division remains qualified on a wide range of products including lasers anddetectors for telecoms and datacomms applications as well as optical componentsfor consumer products. Feedback from customers and ongoing market researchsuggests a steady and sustained demand for the range of materials produced bythis division for the remainder of the year. Notable achievements in the firsthalf year included the development of an industry leading high power visiblelaser product for DVD RW applications, particularly for the PC market, and thequalification of our VCSELs for optical mouse applications. IQE Silicon Compounds Limited The Cardiff-based silicon compounds division experienced a strong increase indemand for its standard Si and SiGe epitaxy from a number of major European-based customers during the first half year. Some of the increased activity wasas a direct result of a major competitor being acquired as an in-house supplierfor a major, global wafer fabrication business. Other recent order wins weredue to the increasing use of epitaxy in the fabrication of silicon devices withmany customers believing that outsourcing is the most cost effective way ofacquiring the technology. The division's key technology lead remains its UltraSmooth strained siliconproduct that recently gained a prestigious industry award for "best enablingmaterial" at the Semicon West industry show in San Francisco. This product isnow being used to develop fully bonded strained silicon on insulator wafers inconjunction with one of our key development partners. This represents a verysignificant milestone in the development of strained silicon, as the SSOIproduct is fully compatible with existing fab processes. Wafer Technology Limited The Milton Keynes-based substrate division underwent some significantrestructuring during the first half year in order to reduce its cost base andenable it to be more competitive, given the adverse dollar exchange rate. DrAndrew Johnson, who was appointed General Manager in March 2005, was appointedOperations Director with effect from June 2005. Following a full review of theoperation, the cost base was significantly reduced through a reduction inheadcount numbers and some operational changes, which will improve manufacturingefficiencies. The division already has a world leading position as a supplier of advancedsubstrate materials such as antimonides referred to earlier for high-frequency,low noise, low power-consumption electronic devices. With improved surfacefinish products now undergoing qualification for a wide range of laserapplications and the return of a stronger LED market, which had been weak in thefirst half of 2005 as a result of periodic inventory correction, this divisionalso has strong growth prospects in the second half year. 5. TRADING PROSPECTS The Group's profile within the industry continues to grow in both new andestablished markets as acknowledged by the recent winning of an industry awardfor its strained silicon product offering and the continued winning of newoutsource opportunities. In addition, the Group made major progress in thefirst half of 2005 and achieved a significant increase in revenues despitecontinuing adverse exchange rates, which culminated in full Group profitabilityin June on a capacity utilisation of less than 30%. This was achieved throughstrong operational and financial management, increased operational efficienciesand close cost control across the Group. The Board believes that the achievement of operating profitability in June 2005marks a key milestone, clearly demonstrating the Group's strong operationalgearing as revenues increase and offering a highly cost effective outsourceroute for major industry players. Further increases in revenue in the secondhalf of this year and beyond are expected to lead to cash generation on anongoing basis, full profitability and strong shareholder returns in the future. Dr Drew Nelson President and Chief Executive IQE plc INTERIM RESULTS FOR 6 MONTHS TO 30 JUNE 2005 6 months to 6 months to 6 months to 12 months toCONSOLIDATED PROFIT AND LOSS ACCOUNT 30 Jun 2005 31 Dec 2004 30 Jun 2004 31 Dec 2004 (All figures GBP000s) Note Unaudited Unaudited Unaudited Audited Turnover from Continuing Operations 9,665 7,316 8,028 15,344Cost of Sales (10,125) (9,201) (9,956) (19,157) Gross Loss (460) (1,885) (1,929) (3,813)Gross Loss % (5) (26) (24) (25) Operating Expenses : Distribution Expenses (870) (794) (605) (1,399) Administrative Expenses : Research/Development (215) (354) (481) (835) Other Administrative Expenses (including exceptional items) 1,2 (1,424) (1,700) (2,604) (4,304) (2,509) (2,848) (3,690) (6,538) Operating Loss from Continuing Operations (2,968) (4,732) (5,619) (10,351)Operating Loss % from Continuing Operations (31) (65) (70) (67) Interest Received 57 135 111 246 Loss on Ordinary Activities before Taxation (2,912) (4,597) (5,507) (10,104) Loss % (30) (63) (69) (66) Current Taxation 0 0 0 0Deferred Taxation 0 0 0 0 Retained Loss for the Period (2,912) (4,597) (5,507) (10,104) Basic Loss Pence per Share 3 (0.92) (1.46) (1.75) (3.20)Diluted Loss Pence per Share 3 (0.92) (1.46) (1.75) (3.20) Earnings before Interest, Taxes,Depreciation and Amortisation (EBITDA)have been calculated as follows : Retained Loss for the Period (2,912) (4,597) (5,507) (10,104)Interest Received (57) (135) (111) (246)Current and Deferred Taxation 0 0 0 0Depreciation 1,067 1,221 1,019 2,240 Earnings before Interest, Taxes, Depreciation (1,902) (3,511) (4,599) (8,111)and Amortisation 6 months 6 months 6 months 12 monthsTOTAL RECOGNISED GAINS AND LOSSES to to to toAND MOVEMENT IN SHAREHOLDERS' FUNDS 30 Jun 2005 31 Dec 2004 30 Jun 2004 31 Dec 2004 (All figures GBP000s) Unaudited Unaudited Unaudited Audited TOTAL RECOGNISED LOSSES Loss for the Period (2,912) (4,597) (5,507) (10,104)Currency Translation Differences on ForeignCurrency Net Investments 134 (125) (43) (168) Total Recognised Losses Relating to the Period (2,778) (4,722) (5,550) (10,272) MOVEMENT IN SHAREHOLDERS' FUNDS Opening Balance as Previously Reported 15,891 20,560 26,042 26,042 Shares Issued net of Issue Costs 22 53 68 121Foreign Exchange Translation Differences 134 (125) (43) (168)Loss Attributable to Members of the Group (2,912) (4,597) (5,507) (10,104) Closing Balance 13,136 15,891 20,560 15,891 As At As At As AtCONSOLIDATED BALANCE SHEET 30 Jun 31 Dec 30 Jun 2005 2004 2004(All figures GBP000s) Note Unaudited Audited Unaudited Fixed Assets 8,588 9,204 10,363 Current Assets : Stocks 4,191 3,433 3,978 Debtors 3,388 2,604 2,356 Cash at Bank and in Hand 4 5,928 9,923 15,552 Total Current Assets 13,507 15,959 21,886 Creditors Falling Due within One Year (6,433) (6,470) (8,124) Net Current Assets 7,074 9,490 13,762 Total Assets less Current Liabilities 15,662 18,693 24,125 Creditors Falling Due after more than OneYear : Deferred Income (218) (308) (385) Long Term Borrowings (2,042) (2,150) (2,387) Total Creditors Falling Due after more than One Year (2,260) (2,458) (2,772) Provision for Liabilities and Charges (266) (344) (793) Net Assets 13,136 15,891 20,560 Capital and Reserves : Called-up Share Capital 3,159 3,157 3,154 Share Premium 157,216 157,188 157,147 Shares to be Issued 216 225 216 Investment in Own Shares (13) (14) (15) Merger Reserve (605) (605) (605) Profit and Loss Account (146,163) (143,251) (138,653) Exchange Rate Reserve (674) (808) (683) Total Equity Shareholders' Funds 13,136 15,891 20,560 Approved by the Directors of IQE plc on 23 August 2005 6 months to 6 months to 6 months to 12 months toCONSOLIDATED CASH FLOW STATEMENT 30 Jun 2005 31 Dec 2004 30 Jun 2004 31 Dec 2004 (All figures GBP000s) Unaudited Unaudited Unaudited Audited Net Cash Outflow from Operating Activities (3,118) (4,456) (4,642) (9,098) Returns on Investment and Servicing of Finance : Interest Received 57 135 111 246 Capital Expenditure : Payments to Acquire Fixed Assets (289) (215) (134) (349) Net Cash Outflow before Management of Liquid Resources and Financing (3,350) (4,536) (4,665) (9,201) Management of Liquid Resources 4,137 5,065 6,921 11,986 787 529 2,256 2,785Financing : Issues of Ordinary Share Capital 22 53 68 121 Repayment of Loans (116) (157) (202) (359) Repayment of Leases (551) (991) (1,387) (2,378) Net Cash Outflow from Financing (645) (1,095) (1,521) (2,616) Increase/(Decrease) in Cash 142 (566) 736 170 RECONCILIATION OF OPERATING LOSS TO 6 months to 6 months to 6 months to 12 months toNET CASH OUTFLOW FROM OPERATING 30 Jun 2005 31 Dec 2004 30 Jun 2004 31 Dec 2004ACTIVITIES (All figures GBP000s) Unaudited Unaudited Unaudited Audited Operating Loss (2,968) (4,732) (5,619) (10,351) Depreciation of Fixed Assets 1,067 1,221 1,019 2,240Loss on Sale of Fixed Assets 0 17 0 17Movement in Stocks (759) 545 (514) 31Movement in Debtors (784) (248) 83 (165)Movement in Creditors 416 (1,181) 388 (793)Government Grants Released (389) (78) 0 (78)Government Grants Received 300 0 0 0 Net Cash Outflow from Operating Activities (3,118) (4,456) (4,642) (9,098) RECONCILIATION OF NET CASH FLOW TO 6 months to 6 months to 6 months to 12 months toMOVEMENT IN NET FUNDS 30 Jun 2005 31 Dec 2004 30 Jun 2004 31 Dec 2004 (All figures GBP000s) Unaudited Unaudited Unaudited Audited Increase/(Decrease) in Cash 142 (566) 736 170 Management of Liquid Resources (4,137) (5,065) (6,921) (11,986)Loans Repaid 116 157 202 359Leases Repaid 551 991 1,387 2,378 Change in Net Funds Resulting from Cash Flows (3,328) (4,483) (4,596) (9,079) New Finance Leases 0 0 0 0New Loans Non Cash 0 0 0 0 Movement in Net Funds (3,328) (4,483) (4,596) (9,079) Opening Net Funds 6,763 11,206 15,776 7,959Exchange Differences (48) 39 27 7,883 Net Funds 3,387 6,763 11,206 6,763 As At As At As AtANALYSIS OF NET FUNDS 30 Jun 31 Dec 30 Jun 2005 2004 2004 (All figures GBP000s) Unaudited Audited Unaudited Cash at Bank and in Hand 1,251 1,109 1,673Cash at Bank Accessible between One and Seven Days 4,677 8,814 13,879 Total Cash at Bank and in Hand 5,928 9,923 15,552 Loans Due after more than One Year (2,042) (2,150) (2,308)Loans Due within One Year (449) (409) (446)HP/Finance Leases Due after more than One Year 0 0 (78)HP/Finance Leases Due within One Year (50) (601) (1,514) Total Borrowings (2,541) (3,160) (4,346) Net Funds 3,387 6,763 11,206 NOTES TO THE INTERIM RESULTS 1 ACCOUNTING POLICIES Basis of preparation The interim financial information has been prepared on the basis of the material accounting policies set out in the 2004 Annual Report and Accounts. The interim financial information was approved by the Board of Directors and Audit Committee on 23 August 2005. The financial information set out above does not constitute statutory accounts within the meaning of the Companies Act 1985. Comparative figures in the financial statements for the year ended 31 December 2004 have been taken from the Group's audited statutory accounts on which Deloitte & Touche LLP expressed an unqualified opinion. The results for the six months to 30 June 2005, 31 December 2004 and 30 June 2004 are unaudited. The statement of interim results will be announced to all shareholders on the London Stock Exchange and published on the Group's website on 24 August 2005. Copies will be available to members of the public upon application to the Company Secretary at Pascal Close, Cypress Drive, St Mellons, Cardiff CF3 0EG. Accounting convention The financial information is prepared under the historical cost convention and in accordance with applicable UK accounting standards, which have been applied on a consistent basis during the period under review. Basis of consolidation The financial information consolidates the financial statements of the Company and all of its subsidiaries. The acquisition of EPI Holdings Limited and IQE Inc (formerly Quantum Epitaxial Designs Inc) by IQE plc, a new holding Company established for that purpose, on 16 May 1999 has been accounted for under merger accounting whereby the financial information is disclosed as if the companies had always been part of the Group. The acquisition of IQE (Europe) Limited (formerly Epitaxial Products International Limited) and its subsidiary Epitaxial Products Inc by EPI Holdings Limited, a new Company established for that purpose, on 27 March 1996 and the acquisition of Wafer Technology International Limited and its subsidiary Wafer Technology Limited on 22 November 2000 have been accounted for under acquisition accounting, whereby these companies became part of the Group on the date of acquisition. Turnover Turnover represents amounts receivable for goods and services provided in the normal 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 and provision for impairment. Cost comprises all costs that are directly attributable to bringing the asset into working condition for its intended use, as defined by Financial Reporting Standard Number 15. Depreciation has been calculated so as to write down the cost of assets to their residual values over the following estimated useful economic lives. No depreciation is provided on land or assets yet to be brought into use. Freehold buildings 25 years Short leasehold improvements 5/27 years Plant and machinery 5/10 years Fixtures 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 rates ruling at the dates of the transactions. Monetary assets and liabilities in foreign currencies are translated into sterling at the rates ruling at the balance sheet date. All exchange differences are taken to the profit and loss account. The balance sheets of IQE Inc are translated into sterling at the closing rates of exchange for the period, while the profit and loss accounts are translated into sterling at the average rates of exchange for the period. The resulting translation differences are taken directly to reserves. Pension costs The Group operates defined contribution pension schemes. Contributions are charged in the profit and loss account as they become payable in accordance with the rules of the schemes. Government grants Government grants receivable in connection with expenditure on tangible fixed assets are accounted for as deferred income, which is credited to the profit and loss account by instalments over the expected useful economic life of the related assets on a basis consistent with the depreciation policy. Revenue grants for the reimbursement of costs incurred are deducted from the costs to which they related, in the period in which the costs are incurred. Taxation Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Group's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis. Leases Assets held under finance leases and hire purchase contracts are capitalised at their fair value on inception of the leases and depreciated over the shorter of the 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 to the capital amount outstanding and are charged to the profit and loss account. Operating lease rentals are charged to the profit and loss account in equal amounts over the lease term. Provision is made at the balance sheet date for the present value of future rentals under operating leases on vacated properties. Financial instruments The only derivative instruments utilised by the Group are forward exchange contracts. The Group does not enter into speculative derivative contracts. Forward exchange contracts are used for hedging purposes to alter the risk profile of an existing underlying exposure of the Group in line with the Group's risk management policies. 6 months to 6 months to 6 months to 30 Jun 2005 31 Dec 2004 30 Jun 20042 EXCEPTIONAL ITEMS Unaudited Unaudited Unaudited GBP000s GBP000s GBP000s Exceptional items comprise : Restructuring costs 0 6 221 Onerous lease provisions 0 (398) 0 Exceptional items 0 (392) 221 The exceptional credit in H2/2004 of £398,000 relates to the release of an onerous lease provision in respect of a previously vacant property at Wafer Technology Limited. Included in administration expenses for the six months to June 2005 are restructuring costs of £110,000 relating to staff redundancies which, although not exceptional, the Directors consider to be one-off expenses in the period. 6 months to 6 months to 6 months to 30 Jun 2005 31 Dec 2004 30 Jun 20043 LOSS PER SHARE Unaudited Unaudited Unaudited Retained Loss GBP000s (2,912) (4,597) (5,507) Weighted Average Number of Ordinary 315,813,351 315,466,318 315,401,383 Shares Diluted Share Options 5,735,597 4,538,582 2,474,166 Adjusted Weighted Average Number of Ordinary 321,548,948 320,004,900 317,875,549 Shares Basic Loss Pence per Share (0.92) (1.46) (1.75) Diluted Loss Pence per Share (0.92) (1.46) (1.75) Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares during the period. Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all dilutive potential ordinary shares. FRS 22 requires the presentation of diluted LPS when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. 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 the money options and warrants. Since it seems inappropriate to assume that option holders would act irrationally, no adjustment has been made to diluted LPS for out of the money share options and warrants. 4 CASH AT BANK AND IN HAND Cash at bank at 30 June 2005 includes £1,302,000 (31 December 2004: £1,212,000) which has been placed on an interest bearing US dollar escrow account. The funds are intended to be used to purchase equipment from the counter party to the escrow account during the second half of 2005. INDEPENDENT REVIEW REPORT TO IQE PLC Introduction We have been instructed by the company to review the financial information for the six months ended 30 June2005 the profit and loss account, the statement of total recognised gains and losses and movement inshareholders' funds, the balance sheet, the cash flow statement, notes to the cash flow statement and relatednotes 1 to 4. We have read the other information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company, in accordance with Bulletin 1999/4 issued by the AuditingPractices Board. Our work has been undertaken so that we might state to the company those matters we arerequired to state to them in an independent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other than the company, for our reviewwork, for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and hasbeen approved by, the directors. The directors are also responsible for ensuring that the accounting policiesand presentation applied to the interim figures are consistent with those applied in preparing the precedingannual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the AuditingPractices Board for use in the United Kingdom. A review consists principally of making enquiries of groupmanagement and applying analytical procedures to the financial information and underlying financial data and,based thereon, assessing whether the accounting policies and presentation have been consistently appliedunless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than an audit performed inaccordance with United Kingdom auditing standards and therefore provides a lower level of assurance than anaudit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to thefinancial information as presented for the six months ended 30 June 2005. Deloitte & Touche LLPChartered AccountantsCardiff, United Kingdom 23 August 2005 This information is provided by RNS The company news service from the London Stock Exchange