enabling advanced technologies
annual report & financial statements
2
1
0
2
E
Q
I
IQE Annual Report & Financial Statements 2012
Five
year
financial
summary
Revenue
EBITDA
(see
below)
Operating
profit
- Before
exceptional
items
- After
exceptional
items
Retained
profit/(loss)
- Before
exceptional
items
- After
exceptional
items
Net
cash
flow
from
operations
- Before
exceptional
items
- After
exceptional
items
Free
cash
flow*
- Before
exceptional
items
- After
exceptional
items
Net
(debt)
/
funds
2012
£’000
87,961
16,437
7,584
7,014
7,201
6,631
4,109
4,109
(2,139)
(2,139)
(15,483)
2011
£’000
75,318
13,955
7,373
7,373
8,443
8,443
10,823
10,823
(8,585)
(8,585)
(3,921)
2010
£’000
72,650
13,115
7,208
7,208
7,506
7,506
10,250
10,250
3,315
3,315
7,021
2009
£’000
2008
£’000
52,652
60,485
8,051
8,407
3,044
3,044
2,058
2,058
8,139
7,712
3,906
3,479
4,000
69
2,546
(1,385)
8,526
7,461
690
(375)
(14,931)
(18,135)
Shareholders’
funds
90,189
72,750
62,274
29,837
EPS
–
adjusted**
EPS
–
unadjusted
Diluted
EPS
–
adjusted**
Diluted
EPS
–
unadjusted
1.59p
1.16p
1.51p
1.10p
1.86p
1.62p
1.74p
1.51p
1.91p
1.63p
1.76p
1.50p
0.68p
0.47p
0.64p
0.44p
30,218
0.79p
(0.32p)
0.79p
(0.32p)
*
Free
cash
flow
is
defined
as
net
cash
flow
before
acquisitions,
contingent
deferred
consideration
(settled
through
contractual
discounts),
financing
and
net
interest
paid
**
adjusted
EPS
measures
exclude
non-‐cash
charges
for
share
based
payments,
non-‐cash
acquisition
related
charges
and
exceptional
items
(see
note
9
to
the
accounts)
EBITDA
has
been
calculated
as
follows:
Profit/(loss)
after
tax
Tax
Interest
Share
based
payments
Exceptional
items
Depreciation
Amortisation
of
intangible
assets
2012
£‘000
6,631
(503)
886
1,360
570
5,998
1,495
2011
£’000
8,443
(1,551)
481
1,284
-‐
4,175
1,123
2010
£’000
7,506
(1,172)
874
1,302
-‐
3,619
986
EBITDA
16,437
13,955
13,115
2009
£’000
2,058
-‐
986
898
-‐
3,372
737
8,051
2008
£’000
(1,385)
-‐
1,454
884
3,931
3,076
447
8,407
1
IQE Annual Report & Financial Statements 2012
IQE supplies
wafers for over
two billion
wireless chips
and more than
one billion
optoelectronic
chips each
year
2
IQE Annual Report & Financial Statements 2012
What’s
inside?
Five-‐year
financial
summary
1
......................................................................................................
Chairman’s
statement
5
...............................................................................................................
The
evolution
of
semiconductors
7
...............................................................................................
What
we
do
...............................................................................................................................
9
Our
strategy
............................................................................................................................
10
Our
competitive
advantage
.....................................................................................................
11
Recent
acquisitions
..................................................................................................................
13
Our
business
model
.................................................................................................................
15
Our
markets
.............................................................................................................................
17
Current
trading
and
outlook
....................................................................................................
24
Operational
highlights
.............................................................................................................
25
Financial
highlights
..................................................................................................................
26
Innovation,
research
&
development
.......................................................................................
28
Our
commitment
....................................................................................................................
29
Risks
and
risk
management
.....................................................................................................
31
Directors’
biographies
..............................................................................................................
32
Corporate
governance
report
..................................................................................................
34
Directors’
report
......................................................................................................................
38
Remuneration
report
...............................................................................................................
42
Independent
auditors’
report
...................................................................................................
47
Financial
statements
...............................................................................................................
49
Consolidated
income
statemen .............................................................................................
t
49
Consolidated
balance
sheet ...................................................................................................
50
Consolidated
statement
of
changes
in
equity ..........................................................................
51
Consolidated
cash
flow
statement .........................................................................................
52
Parent
company
balance
sheet ..............................................................................................
53
Parent
company
statement
of
changes
in
equity.....................................................................
54
Parent
company
cash
flow
statement ....................................................................................
55
Notes
to
the
financial
statements
............................................................................................
56
Professional
advisers
...............................................................................................................
81
3
IQE Annual Report & Financial Statements 2012
Successful completion
of three strategic and
transformational deals
in twelve months
4
IQE Annual Report & Financial Statements 2012
Chairman’s
statement
You
will
read
more
in
this
annual
report
about
the
highs
and
lows
of
the
past
year.
A
tough
start
to
the
year,
as
we
grappled
with
the
tail
end
of
a
de-‐stocking
by
a
few
major
customers,
was
accompanied
by
three
hugely
important
strategic
transactions
which
have
significantly
strengthened
our
market
and
technology
leadership.
A
very
strong
second
half
performance
followed.
But
be
assured,
we
do
not
rest
on
our
laurels.
There
is
much
hard
work
ahead
if
we
are
to
fulfil
our
ambitions
and
potential.
I
would
like
to
take
this
opportunity
to
thank
everyone
who
makes
our
business
successful.
To
you,
our
shareholders,
thank
you
for
your
continued
support.
I
also
extend
my
sincere
appreciation
to
our
dedicated
management
and
staff
around
the
world
and
across
all
of
our
operations
for
their
passion
and
devotion
to
making
IQE
the
world
leader
that
it
is
today.
What
is
also
remarkable,
is
that
it
is
semiconductors
that
has
enabled
every
single
one
of
these
revolutions.
Semiconductors
are
the
fundamental
building
blocks
of
the
electronics
industry.
But
what
is
even
more
relevant
to
IQE
is
that
these
foundations
are
shifting.
Silicon
has
been
pushed
to
its
fundamental
limits,
defined
by
the
laws
of
physics,
and
it
is
already
being
superseded
by
advanced
‘compound’
semiconductors.
Furthermore,
what
is
inevitable
is
that
the
shift
to
compound
semiconductors
will
only
accelerate
as
mankind
continues
to
innovate
and
demand
faster,
more
efficient,
and
more
powerful
devices.
Akin
to
the
emergence
of
the
first
portable
phones,
or
the
first
digital
cameras,
we
are
starting
to
see
glimpses
of
what
lies
ahead:
revolutions
in
lighting,
energy
generation,
gesture
recognition,
optical
communication,
and
pico
projection.
Nevertheless,
whilst
it
is
difficult
to
anticipate
the
full
extent
of
how
technology
will
change
our
lives
over
the
next
25
years,
it
is
clear
to
me
that
compound
semiconductors
will
be
at
the
very
heart
of
the
development
of
these
new
technologies.
I
am
proud
to
be
part
of
a
company
that
lies
at
the
heart
of
the
technology
that
has,
and
will
continue,
to
transform
the
way
we
live
our
lives.
As
you
can
tell,
it
is
clear
to
me
that
we
have
superb
opportunities
ahead,
with
the
ambitions,
commitment
and
drive
to
match.
5
It
is
my
pleasure
to
introduce
IQE’s
Annual
Report
for
2012.
This
year
marks
IQE’s
25th
anniversary.
As
I
reflect
on
the
technology
changes
over
the
past
25
years,
I
find
the
extent
and
pace
of
change
remarkable,
with
advances
in
technology
that
have
changed
our
lives
in
ways
we
could
not
have
imagined
25
years
ago.
In
a
single
generation
we
have
witnessed
not
only
the
birth
of
the
internet,
but
we
have
seen
it
revolutionise
the
way
we
work,
shop,
entertain
ourselves
and
even,
for
some
at
least,
socialise.
We
have
not
only
seen
the
introduction
of
mobile
phones,
with
their
brick-‐
like
form
and
voice-‐only
capability,
but
we
have
witnessed
this
transform
into
the
multi-‐function
smart
phone
revolution
of
a
hyper-‐
connected
world.
We
have
experienced
large
industries
which
took
generations
to
mature,
seemingly
disappear
overnight:
celluloid
cameras
displaced
by
digital,
CDs
emerge
and
are
then
replace
by
downloads.
IQE Annual Report & Financial Statements 2012
The World continues to demand faster, smaller and
more power efficient devices and circuits. Due to the
fundamental laws of physics, these devices and
circuits will inevitably transition from silicon to
compound semiconductors
Silicon
IC
revolution
Compound
semiconductors
in
production
Dawn
of
silicon
IC
revolution
Silicon
comes
of
age
1960
1970
1980
1990
2000
2010
2020
2030
“The next quantum
leap in technology
will be achieved by
combining the
advanced
properties of
compound
semiconductors
with the scale and
cost advantages of
the mature silicon
industry”
Fixed
line
comms
Cellular
handsets
Base
stations
Radar
Infrared
sensing
Lighting
Photovoltaics
Switching
Computing
"Compound III-V transistors could begin to replace traditional silicon
technology around 2015"
Senior Intel Executive
6
IQE Annual Report & Financial Statements 2012
The
evolution
of
semiconductors
The
importance
of
materials
throughout
history
From
the
stone
age,
iron
age,
and
bronze
age,
through
to
the
industrial
revolution,
the
space
race,
the
electronics
revolution
and
the
digital
revolution,
the
evolution
of
mankind
has
been
enabled
by
innovations
in
material
science.
The
elements
Every
material
in
the
universe
is
made
from
one
or
more
of
the
fundamental
elements.
It
is
the
properties
of
these
elements
which
has
enabled
the
evolution
of
mankind.
There
are
118
elements
of
which
around
100
are
naturally
occurring.
These
are
recorded
in
the
periodic
table
where
they
are
arranged
in
groups
according
to
their
properties.
The
evolution
of
semiconductors
Semiconductors
are
a
remarkable
combination
of
elements
that
have
the
ability
to
both
conduct
and
insulate
electric
current.
It
is
these
phenomena
that
have
enabled
the
electronics
revolution
that
has
transformed
our
lives
from
the
early
1960s
through
to
the
present
day.
Silicon
has
been
the
backbone
of
the
electronics
revolution
from
the
1960s
by
virtue
of
the
continuous
miniaturization
of
the
electronic
circuits.
This
concept,
which
was
expressed
by
one
of
the
founders
of
Intel,
Gordon
Moore,
has
become
known
as
“Moore’s
Law”.
Impressive
as
the
impact
of
silicon
has
been
on
our
lives,
it
has
very
basic
properties
in
the
context
of
the
broader
family
of
semiconducting
materials.
This
is
why
human
innovation
has
turned
to
the
advanced
properties
of
other
semiconducting
compounds
to
enable
the
dawn
of
the
digital
revolution.
It’s
mankind’s
ability
to
harness
the
advanced
properties
of
the
full
range
of
semiconducting
materials
that
will
drive
the
digital
revolution
for
generations
to
come.
This
is
the
world
of
advanced
or
“compound”
semiconductors.
The
early
years
of
compound
semiconductors
Whether
you
realise
it
or
not,
compound
semiconductors
have
already
revolutionised
your
life.
The
early
markets
for
compound
semiconductors
have
been
in
laser,
LED,
and
wireless
applications.
In
other
words,
the
advent
of
the
internet,
fibre
optic
communication
and
the
smartphone
revolution
have
been
fundamentally
dependent
on
compound
semiconductor
technologies.
The
years
ahead
The
trends
are
clear,
applications
begin
their
lives
based
on
silicon
technology,
but
inevitably
transition
to
compound
semiconductors
as
human
innovation
demands
more
from
materials.
But
this
is
only
the
tip
of
the
iceberg.
Compound
semiconductor
technology
will
lie
at
the
heart
of
human
innovation
for
generations
to
come.
We
are
at
an
exciting
inflection
point,
and
at
a
time
when
the
rate
of
change
has
never
been
quicker
and
continues
to
gather
pace.
“IQE is uniquely
positioned to enable
an exploit this
opportunity by virtue
of its unparalleled
breadth of
compound
semiconductor
technologies and its
advanced silicon
technologies.”
The
next
quantum
leap
Of
course,
the
mass
adoption
of
new
technologies
is
more
than
just
a
function
of
what
is
possible.
Rather,
it
is
a
function
of
cost
versus
performance.
Compound
semiconductors
will
continue
to
gather
momentum
in
their
own
right
as
the
industry
continues
to
increase
scale
which
is
enabling
technology
to
advance
and
costs
to
reduce.
But,
the
next
quantum
leap
in
technology
will
be
achieved
by
combining
the
advanced
properties
of
compound
semi-‐conductors
with
the
scale
and
cost
advantages
of
the
mature
silicon
industry.
IQE
is
uniquely
positioned
to
both
enable
and
exploit
this
opportunity
by
virtue
of
its
unparalleled
breadth
of
compound
semi-‐conductor
technologies
and
its
advanced
silicon
technologies.
This
is
why
we
are
the
technology
partner
for
governments
and
“Blue
Chips”
alike
in
developing
“compound
semiconductors
on
Silicon.”
7
IQE Annual Report & Financial Statements 2012
1988
2008: Voice
Silicon based technology
2013: Voice, data, email, internet, video streaming ...
Compound semiconductor enabled technology
enabling advanced
wireless, photonic and
electronic technologies
since 1988
8
IQE Annual Report & Financial Statements 2012
What
we
do
The
supply
chain
Our
core
IP
is
“Epitaxy”
IQE
designs
and
manufactures
advanced
semiconductor
materials.
Our
finished
products
are
compound
semiconductor
wafers
(also
called
“epiwafers”).
Our
products
are
bespoke.
We
manufacture
to
the
exact
technical
specifications
required
by
our
customers.
Our
customers
fabricate
our
wafers
into
the
“chips”
that
form
the
critical
components
for
a
wide
range
of
wireless
communication
and
photonic
devices.
IQE
manufactures
epiwafers
using
a
nano
technology
called
“Epitaxy”.
Epitaxy
is
a
form
of
atomic
engineering
that
requires
high
specification
cleanrooms,
sophisticated
production
tools
and
high
levels
of
intellectual
property.
Essentially,
we
grow
atomically
thin
films
of
crystals
on
a
substrate.
The
substrate
is
simply
a
physical
and
electric
template
required
in
order
to
handle
our
finished
product.
It’s
the
combination
of
layers
produced
by
IQE
that
gives
the
epiwafer
its
properties.
The
films
are
grown
atomic
layer
by
atomic
layer.
Epitaxy is the key
enabling
technology
necessary for the
efficient
manufacture of
compound
semiconductors
Our customers:
Chip specialists
OEMs:
System specialists
Our customers fabricate our
wafers into chips
OEMs utilise these chips to
make devices and systems
9
IQE: Materials specialistsWe make advanced semiconductor wafers in high spec cleanrooms using sophisticated tools and extensive IP IQE Annual Report & Financial Statements 2012
Our vision
To be the global number one provider of
advanced semiconductor materials.
Our strategy
To use technology leadership and scale to
deliver the performance, cost points and
security of supply required for mass market
adoption of compound semiconductor
materials.
Our delivery
Number one provider to the wireless market
by market share and scale.
Clear technology leader with an unparalleled
breadth of technology. Leading the
advancement of new materials technologies.
10
IQE Annual Report & Financial Statements 2012
Our
competitive
advantage
Global
footprint
Security
of
supply
IQE’s
operations
span
the
US,
Asia
and
Europe.
This
allows
IQE
to
be
positioned
close
to
its
customers
and
build
strong
relationships.
Breadth
of
technology
As
one
of
the
pioneers
of
compound
semiconductor
technology,
IQE
has
developed
an
unparalleled
and
comprehensive
breadth
of
technology
and
advanced
production
platforms.
Technology
leadership
Through
organic
development
and
through
acquisition,
IQE
has
established
clear
technology
leadership
and
created
a
virtuous
circle
which
continues
to
attract
the
brightest
and
best
talent.
Cost
leadership
In
the
electronics
industry,
cost
leadership
is
achieved
through
advanced
technology
and
scale.
IQE
has
developed
leadership
in
both.
Confidence
in
a
secure
supply
is
critical
to
the
supply
chains
in
which
IQE
operates.
IQE
offers
its
customers
identical
supply
from
multiple
locations
for
all
its
core
technologies,
allowing
it
to
be
a
primary
and
trusted
supplier
to
its
customers.
Our
risk
mitigation
strategy
IQE’s
strategy
is
to
be
the
most
significant
supplier
to
all
of
the
major
wireless
chip
companies
in
order
to
mitigate
against
the
impact
of
swings
in
market
share
between
the
chip
companies.
The
completion
of
the
acquisitions
of
the
former
RFMD
and
Kopin
epi
businesses
in
June
2012
and
January
2013
mark
the
delivery
of
this
strategy.
IQE’s unique
sales proposition
provides
differentiation
and competitive
advantage
11
IQE Annual Report & Financial Statements 2012
Global leader
global presence
Asia
Singapore
Taiwan
North
America
Europe
Bath,
UK
Cardiff,
UK
Cardiff,
UK
Milton
Keynes,
UK
Bethlehem,
PA
Greensboro,
NC
Somerset,
NJ
Spokane,
WA
Taunton,
MA
12
IQE Annual Report & Financial Statements 2012
Recent
acquisitions
Solar
Junction
investment
and
exclusive
supply
agreement
In
February
2012,
IQE
announced
an
investment
in,
and
an
exclusive
wafer
supply
agreement
with
leading
edge
Concentrated
PhotoVoltaic
(CPV)
cell
developer
and
manufacturer
Solar
Junction
Corporation.
The
investment
significantly
accelerated
IQE’s
strategy
to
become
a
leading
global
supplier
of
CPV
wafers
for
the
solar
power
markets.
The
deal
confirmed
IQE
as
Solar
Junction’s
strategic
and
exclusive
epitaxy
partner,
a
move
that
has
enabled
Solar
Junction
to
benefit
from
IQE’s
strong
materials
intellectual
property
and
expertise
in
high
volume
epi
wafer
manufacturing.
In
turn,
IQE
secured
a
partnership
for
developing
CPV
technology
with
Solar
Junction
with
exclusive
access
to
the
company’s
on-‐going
extensive
R&D
programme.
Following
the
deal,
IQE
owns
a
9%
share
of
Solar
Junction
Corporation.
RF
Micro
Devices
epitaxy
division
acquisition
and
exclusive
supply
agreement
In
June
2012,
IQE
acquired
the
entire
in-‐house
Molecular
Beam
Epitaxy
(MBE)
epi-‐wafer
manufacturing
unit
of
RF
Micro
Devices,
a
global
leader
in
the
design
and
manufacture
of
high
performance
RF
components
and
compound
semiconductor
technologies.
The
deal
also
included
a
long-‐term
wafer
supply
agreement
for
exclusive
provision
of
all
of
RFMD’s
MBE
wafers
and
for
provision
of
a
majority
of
RFMD’s
Metal
Organic
Chemical
Vapour
Deposition
(MOCVD)
wafer
requirements.
The
acquisition
included
a
fully
furnished
epi
manufacturing
plant,
including
a
fully
fitted
clean
room
of
over
90,000
sq.ft,
16
MBE
manufacturing
systems
and
equipment,
all
housed
in
a
135,000
sq.ft.
stand-‐alone
building
in
Greensboro,
North
Carolina.
The
16
operational
MBE
tools
will
be
partly
deployed
towards
servicing
anticipated
future
CPV
solar
demand,
creating
a
powerful
position
in
CPV
market
growth
The
deal
involved
no
cash
outlay
for
the
transfer
of
the
assets,
resulting
in
no
IQE
shareholder
dilution.
In
exchange
for
the
transfer
of
the
assets,
the
parties
agreed
to
a
long
term
wafer
supply
agreement
with
a
minimum
purchase
commitment
of
$55m
over
the
first
two
years,
whereby
IQE
will
supply
all
MBE
wafer
requirements
and
a
majority
of
RFMD’s
MOCVD
wafer
requirements
under
a
discounted
pricing
arrangement.
Kopin
acquisition
Post
year-‐end,
in
January
2013,
IQE
acquired
the
compound
semiconductor
epiwafer
manufacturing
business
of
Kopin
Corporation
for
total
consideration
of
$75
million
in
cash.
The
acquired
wireless
division
is
the
leading
global
manufacturer
of
heterojunction
bipolar
transistor
(HBT)
materials
that
are
used
in
power
amplifiers,
a
key
wireless
component
in
mobile
devices.
These
are
produced
using
MOCVD
epitaxial
wafer
technology.
The
acquisition
of
Kopin
builds
on
IQE’s
strategic
developments
in
2012
to
further
extend
IQE’s
leadership
in
wireless
industry
supply
and
deliver
a
market
leading
position
in
MOCVD
HBTs.
The
transaction
also
builds
on
IQE’s
risk
mitigation
strategy
and
market
share
in
wireless,
adding
Skyworks
as
a
major
customer
and
increasing
IQE’s
wireless
market
share.
Skyworks’
current
contract
with
Kopin
Wireless
runs
until
the
end
of
2013
and
guarantees
a
significant
proportion
of
Skyworks’
business.
Additionally,
the
move
extends
IQE’s
global
manufacturing
footprint
with
the
addition
of
a
Taiwan
manufacturing
facility,
providing
a
strong
position
to
access
the
growing
Asian
semiconductor
market.
13
IQE Annual Report & Financial Statements 2012
Scottish
economist Adam
Smith (1776)
advocated
specialisation
as a competitive
advantage
14
IQE Annual Report & Financial Statements 2012
Our
business
model
Outsourcing
pioneer
In
the
early
days
of
the
industrial
revolution
it
became
absolutely
necessary
for
manufacturers
to
be
vertically
integrated
since
there
were
no
alternative
sources
of
specialised
goods
and
services.
Only
towards
the
middle
of
the
twentieth
century
did
specialisation
become
a
competitive
advantage.
However,
in
new
and
emerging
technologies,
the
early
adopters
were
in
a
similar
position
to
their
industrial
revolution
forefathers
in
that
the
development
of
new
processes
and
technologies
required
the
early
pioneers
to
establish
all
key
parts
of
their
supply
chain.
Specialisation
within
the
silicon
industry
Early
silicon
chip
manufacturers
found
it
necessary
to
set
up
complete
vertically
integrated
supply
chains
to
source
each
part
of
the
production
process
from
raw
materials
through
to
final
packaged
product.
As
silicon
technology
matured,
the
industry
saw
the
emergence
of
businesses
specialising
in
different
parts
of
the
process
to
the
extent
that
there
now
exist
a
large
number
of
fabless
companies
who
outsource
the
entire
production
process
to
large
specialists
such
as
TSMC
Ltd
and
Global
Foundries.
Pioneering
specialisation
within
the
compound
semiconductor
industry
The
compound
semiconductor
industry
shares
similar
attributes
with
the
silicon
chip
industry.
Some
of
the
processes
such
as
epitaxy
require
large
scale
investment,
complex
infrastructure
support
in
the
form
of
cleanrooms,
environmental
controls
and
most
importantly,
highly
specialised
skills
and
expertise.
In
1988,
IQE
became
the
first
compound
semiconductor
materials
company
to
recognise
the
potential
value
in
offering
specialised
outsourcing
of
compound
semiconductor
wafers
and
has
witnessed
an
increasing
trend
towards
this
model
over
its
twenty-‐five
year
history.
Our track record
• Sales CAGR of 25%
over 5 years
• High operational
gearing to transform
profitability
• Operational and
financial resilience
•Strong position in high-
growth markets
provide strong outlook
By
specialising
in
the
complex
epitaxy
process,
IQE
offers
its
customers
economies
of
scale,
access
to
leading
technology
and
the
ability
to
do
what
they
do
best:
design
and
refine
their
products.
The
high
level
of
investment
means
that
IQE’s
business
is
highly
operationally
geared
which
facilitates
significant
scope
for
profitability
once
sales
contribution
exceed
fixed
costs.
The
last
decade
has
demonstrated
an
unprecedented
number
of
key
industry
suppliers
selecting
outsourcing
as
a
key
business
advantage.
Revenues 2003 - 2012
EBITDA 2003 - 2012
90.00
67.50
45.00
22.50
0
s
n
o
i
l
l
i
m
£
20.00
10.00
0
-10.00
-20.00
s
n
o
i
l
l
i
m
£
2003
2005
2007
2009
2011
2003
2005
2007
2009
2011
15
IQE Annual Report & Financial Statements 2012
Adoption
of
compound
semiconductors
driven
by
several
“megatrends”
Wireless
Photonics
Electronics
High
speed
connectivity
Smartphones
tablets,
WiFi
Infrastructure
Satellite
Active
optical
cables
Optical
comms
Thunderbolt
Advanced
silicon
SiGe,
GaN
on
Si
CS
on
Si
Energy
efficiency
Power
efficient
infrastructure
Smart
meters
CPV
Solar
energy
LED
lighting
GaN
power
control
Electric
vehicles
Power
switching
Lifestyle
Social
networking
Home
automation
Leisure
and
gaming
Cosmetic
Health
Leisure
and
gaming
High
capacity
memory
High
speed
processing
Safety
&
security
Radar
Airport
security
RF
communications
Laser
guidance
Night
vision
Infrared
CCTV
Missile
detection
Guidance
systems
16
IQE Annual Report & Financial Statements 2012
Our
markets
Overview
Wireless
The
key
advantages
of
compound
semiconductors
over
silicon
are
:
Accounts
for
79%
of
the
group’s
sales
in
2012.
We
segment
the
photonics
market
into:
✦ Emitters
and
detectors
Compound
semiconductors
are
much
more
efficient
at
emitting
and
receiving
radio
waves
Compound
semiconductors
are
much
more
efficient
at
emitting
and
detecting
light
Compound
semiconductors
operate
at
much
higher
speeds
and
lower
power
consumption
It
is
these
advanced
properties
which
determine
the
markets
for
our
materials:
✦ Wireless
✦ Photonics
✦ Electronics
The
wireless
market
covers
electronic
devices
that
communicate
wirelessly.
This
includes
but
is
not
limited
to
mobile
phones,
smartphones,
mobile
networks,
WiFi,
smart
metering,
satellite
navigation,
and
a
plethora
of
connected
devices.
Photonics
Accounts
for
20%
of
the
group’s
sales
in
2012.
The
photonics
market
covers
applications
that
either
emit
or
detect
light.
✦ Infrared
✦ Solar
(CPV)
✦ Lighting
Electronics
The
electronics
market
combines
the
advanced
properties
of
compound
semiconductors
with
the
low
cost
of
silicon.
We
segment
the
electronics
market
into:
✦ Power
control
✦ Advanced
materials
Photonics
20%
Wireless
79%
IQE’s 2012 revenues by market sector
17
IQE Annual Report & Financial Statements 2012
Wireless
The
wireless
communications
market
has
grown
rapidly
in
recent
years
reflecting
the
increasing
adoption
of
wireless
technology,
coupled
with
the
need
for
a
increased
compound
semiconductor
content
to
support
greater
sophistication
of
mobile
devices.
More
than
1.75
billion
mobile
handsets
were
sold
in
2012,
of
which
over
670
million
were
smartphones
that
carry
significantly
more
compound
semiconductor
materials.
Smartphone
shipments
are
expected
to
show
further
growth
in
the
coming
years,
driven
by
new
features,
apps,
social
networking,
entertainment
and
location
based
services.
High-‐speed
connectivity
and
added
functionality
drive
the
requirement
for
the
advanced
properties
offered
by
compound
semiconductor
epiwafers.
The
global
roll-‐out
of
wireless
broadband
networks
such
as
4G/LTE
devices
increasingly
rely
on
higher
levels
of
compound
semiconductor
content.
Shipments
of
smartphone
devices
represented
38%
of
total
handset
shipments
in
2012
compared
with
32%
in
2011.
Globally,
smartphone
penetration
is
estimated
to
represent
only
18%
of
the
total
handset
market
in
terms
of
subscribers,
indicating
significant
growth
potential.
Future
drivers
for
smartphone
sales
include
near
field
communications
for
contactless
payments,
and
augmented
reality
for
enhanced
location
based
services.
The
migration
to
new
WiFi
standards
is
another
major
driver
for
RF
components.
2012: total year on
year handset
shipments
declined 1.75% to
1.75b units.
smartphone
shipments
increased 42% to
671m units during
the same period
The
new
802.11ac
WiFi
standard
will
operate
at
5GHz
rather
than
the
2.6GHz
currently
used.
The
higher
frequency
which
will
greatly
increase
the
range
and
reliability
of
WiFi
networks,
will
further
raise
the
demand
for
compound
semiconductor
based
RF
devices.
Wireless
chip
companies
are
expected
to
show
around
15%
CAGR
over
the
coming
years.
This
growth
will
be
driven
by
the
need
for
more
radio
frequency
functionality
and
greater
complexity
in
wireless
circuitry
but
will
be
partly
mitigated
by
improved
efficiencies
and
a
drive
towards
reduced
component
footprints.
18
IQE Annual Report & Financial Statements 2012
January 2012
June 2012
January 2013
SkyWorks&
IntelliEpi&
Sumitomo&
Hitachi&Cable&
VPEC&
EpiWorks&
Soitec&
MicroLink&
Avago&
Other&
Kopin&
RFMD&
IQE
IQE
IQE
IQE’s change in wireless market share change since January 2012
Photonics
Photonics
represents
applications
which
emit
and
detect
light.
We
segment
this
market
into
emitters
and
detectors,
infra-‐red,
solar
and
lighting.
Emitters
and
detectors
This
encompasses
a
wide
range
of
applications
including
optical
interconnects,
laser
projectors,
optical
storage,
cosmetic
applications,
gesture
recognition
and
finger
navigation.
Optical
interconnects
Higher
data
transfer
rates
demanded
within
data
centres
as
well
as
consumer
applications
such
as
high-‐definition
imaging
and
video
streaming,
require
high-‐
speed
data
transfer
rates
for
faster
communications
between
devices.
The wireless
communications
market continues
to represent an
exciting long term
growth prospect
for IQE due to:
• Continuing strong
market growth for
mobile devices
• Increased
compound
semiconductor
content
• Adoption of
higher
specification WiFi
networks
Optical
interconnects
offer
significantly
higher-‐speed
data
transfers
over
much
longer
distances
than
their
copper
counterparts
and
are
certain
to
replace
existing
cable
standards
such
as
USB
and
HDMI,
as
these
traditional
cables
struggle
to
meet
the
increasing
demands
for
data
transfer.
This
is
a
mass
market
opportunity,
where
demand
for
USB
cables
alone
is
around
three
billion
units
a
year.
Compound
semiconductor
technology
that
enables
optical
interconnects
include
Vertical
Cavity
Surface
Emitting
Lasers
(VCSELs).
VCSELs
are
an
advanced
laser
technology
geared
to
mass
production
and
low
cost.
IQE
is
the
market
and
technology
leader
for
VCSEL
products,
with
world
record
data
speeds
in
excess
of
40GBs
already
demonstrated.
19
IQE Annual Report & Financial Statements 2012
Laser
projectors
Gesture
recognition
Finger
navigation
Finger
navigation
is
closely
coupled
with
gesture
recognition
in
terms
of
how
humans
will
interface
with
machines
in
the
future.
After
their
emergence
via
RIM’s
Blackberry
devices,
the
use
of
lasers
and
optical
sensors
for
precise
control
of
miniature
track-‐pads
is
also
likely
to
penetrate
areas
such
as
remote
control
units,
cameras
and
other
consumer
devices
over
the
coming
years.
Gesture
recognition
represents
the
ability
of
electronic
devices
to
recognise
hand
and
body
gestures
and
movements
in
order
to
control
any
device.
The
advanced
properties
of
compound
semiconductor
epiwafers
are
a
key
component
in
gesture
recognition
devices
which
made
their
debut
with
the
launch
of
Microsoft’s
Kinect
gaming
console.
The
potential
applications
for
this
technology
extend
far
become
gaming,
from
medical
applications,
disability
aids,
remote
controls,
to
sign
language
recognition,
and
more.
In
fact,
the
use
of
this
technology
is
only
limited
by
human
imagination,
and
has
far
reaching
implications
for
how
we
will
interface
with
technology
in
the
near
future.
Conventional
projection
technologies
utilise
incandescent
or
halogen
lamps
as
their
light
sources.
Such
devices
are
power
hungry,
physically
bulky,
have
relatively
short
lifetimes
and
require
focusing
optics
which
can
limit
the
image
quality
and
flexibility.
The
emergence
of
lasers
in
each
of
the
primary
colours
(red,
green
and
blue)
enables
a
low
cost,
high
quality
laser
projection
solution
which
can
be
miniaturized
and
does
not
require
focusing
optics.
This
technology
is
called
pico
projection.
Early
pico
projector
technologies
utilise
LEDs
for
the
light
source
but
the
next
generation
of
devices
will
incorporate
miniature
laser
projection
units.
High
speed,
high
density
optical
storage
The
commercialization
of
IQE’s
gallium
nitride
(GaN)
photonic
technology
will
also
provide
the
Group
with
access
to
the
rapidly
growing
market
for
high-‐speed,
high-‐density
optical
storage
(Blu-‐
ray).
Industry
analysts
predict
growth
rates
in
this
market
of
c.
55-‐60%.
Cosmetic
applications
There
are
exciting
new
applications
of
compound
semiconductor
technology
in
the
billion
dollar
cosmetics
market.
We
are
working
with
a
number
of
customers
to
develop
advanced
laser
technology
for
cosmetic
applications
such
as
laser
hair
removal,
wrinkle
treatment,
skin
rejuvenation,
acne
and
psoriasis
treatments
to
name
just
a
few.
20
IQE Annual Report & Financial Statements 2012
Infrared
(sensors)
Solar
(CPV)
IQE
is
the
clear
market
leader
in
advanced
gallium
antimonide
and
indium
antimonide
substrates
for
use
in
a
range
of
infrared
and
heat
sensing
applications.
The
sensitivity
of
current
heat
sensors
enable
a
monochrome
image
so
that
applications
such
as
night
vision
devices
can
only
see
in
tones
of
green
and
black,
whereas
the
new
antimonide
materials
allow
greater
sensitivity
so
that
different
shades
and
colours
can
be
distinguished,
effectively
producing
full
colour
night
vision
images.
The
improved
sensitivity
is
useful
for
search
and
rescue
operations
and
the
full
colour
night
vision
capability
has
major
military
potential
in
terms
of
enabling
effective
identification
of
personnel
and
equipment
in
low
or
zero
visibility
conditions.
IQE
is
actively
engaged
in
a
number
of
collaborative
programmes
along
with
leading
industry
players
and
government
agencies
in
the
development
and
supply
of
infrared
materials
based
on
antimonide
materials.
Solar
cells
utilising
compound
semiconductors
(called
CPV
or
Concentrated
PhotoVoltaics)
provide
the
most
efficient
solution
by
using
multiple
layers
of
finely
tuned
materials
to
absorb
sunlight
across
a
wider
range
of
wavelengths.
As
a
result
the
efficiency
of
this
material
is
already
in
excess
of
44%,
with
a
roadmap
to
increase
this
to
beyond
50%.
This
compares
with
12
to
18%
efficiency
from
silicon
solar
panels,
while
thin
film
technology
is
typically
around
10
to
15%
efficient.
There
is
very
little
scope
to
improve
the
efficiency
of
these
technologies
due
to
the
fundamental
properties
of
the
materials
used.
A
further
advantage
of
compound
semiconductors
is
their
tolerance
of
higher
temperatures.
This
means
the
cost
of
CPV
systems
is
also
reduced
by
using
lenses
which
intensify
sunlight
and
thereby
reduce
the
amount
of
semiconductor
required.
CPV
has
now
reached
price
parity
with
fossil
fuels
and
other
alternative
energy
sources
in
high
sunlight
regions
and
is
considered
to
be
at
an
inflection
point,
with
industry
analysts
forecasting
175%
compound
annual
growth
rates
for
CPV
installations,
which
are
expected
to
grow
to
over
1.0GW
of
generating
capacity
by
2015,
representing
an
epiwafer
market
opportunity
of
over
$200m.
Early
in
2012,
IQE
announced
a
strategic
investment
in
Solar
Junction
Corporation,
a
US
based
CPV
manufacturer
with
some
key
intellectual
property.
Solar
Junction
Corporation
holds
the
world
record
for
solar
cell
efficiency
at
44.5%.
IQE’s
investment
in
Solar
Junction
also
gives
the
Group
exclusive
long-‐
term
manufacturing
rights
over
its
IP,
which
includes
a
technology
roadmap
to
design
solar
cells
with
efficiencies
in
excess
of
50%.
21
IQE Annual Report & Financial Statements 2012
Solid
state
lighting
is
widely
viewed
as
the
only
credible
solution
to
replace
the
incandescent
light
bulb.
Efficient
energy
consumption
will
remain
a
key
driver
in
the
development
and
adoption
of
this
technology,
but
the
critical
success
factor
is
reducing
cost
and
improving
the
ambience
of
these
units.
High
quality
gallium
nitride
provides
the
route
map
to
achieving
this,
which
will
revolutionise
residential
and
commercial
lighting
around
the
planet
over
the
coming
years.
Solid state lighting
is widely viewed as
the only credible
solution to replace
the incandescent
light bulb.
High quality
gallium nitride
provides the route
map to achieving
this.
Solid
state
lighting
(LEDs)
A
high
performance,
low
cost,
green
alternative
to
incandescent
light
bulbs.
Global
concerns
about
climate
change
and
the
Earth’s
dwindling
natural
resources
continues
to
be
a
priority
for
governments
worldwide.
Significant
new
policies
and
legislation
continue
to
be
introduced
in
the
direction
of
renewable
and
highly
efficient
energy
devices.
Already,
many
continents
have
introduced
wide-‐ranging
legislation
to
progressively
ban
incandescent
lighting
with
2012
being
a
key
milestone
for
eradicating
the
form
of
lighting
altogether.
Alternative
low
energy
lighting
is
unpopular
because
of
perceptions
of
low
quality
lighting
and
on-‐going
issues
with
heavy
metal
content
including
mercury.
22
IQE Annual Report & Financial Statements 2012
Advanced
materials
IQE
has
developed
a
powerful
range
of
advanced,
engineered
wafers
such
as
germanium-‐on-‐
insulator
(GeOI),
germanium-‐on-‐
silicon
(GeOSi)
and
silicon-‐on-‐
sapphire
(SOS),
which
offer
a
high
performance
and
low
cost
solution
for
next
generation
microprocessors,
ultra-‐high
speed/
high
density
flash
memory
and
MEMS
devices
such
as
motion
sensors.
IQE
has
established
a
powerful
position
in
these
advanced
technologies,
working
with
some
of
the
biggest
names
in
the
industry,
which
is
reflected
in
a
number
of
joint
patents
awarded
in
conjunction
with
Intel
for
the
production
of
compound
semiconductor
materials
on
silicon
substrates.
We
believe
that
the
intellectual
property
that
we
are
developing
in
this
field
has
the
potential
to
revolutionise
the
semi-‐conductor
world,
and
in
doing
so
create
significant
long
term
value
to
IQE
stakeholders.
Electronics
Power
control
Gallium
nitride
(GaN)
is
a
compound
semiconductor
that
offers
a
diverse
range
of
RF,
photonic
and
electronic
properties.
Of
particular
interest
is
the
material’s
ability
to
cope
with
high
voltages,
high
temperative,
and
high
power
which
makes
it
an
ideal
candidate
for
power
control
systems
which
are
growing
in
demand
driven
by
alternative
energy
sources
such
as
solar,
wind
and
wave
power,
and
also
the
adoption
of
electrically
driven
transportation.
It
is
estimated
that
more
than
10%
of
all
electricity
is
ultimately
lost
due
to
conversion
inefficiencies,
as
energy
is
switched
from
generation,
to
grid,
and
through
to
consumption.
The
scale
of
this
loss
exceeds
the
world’s
entire
supply
of
renewable
energy
generation.
The
transformers
that
we
use
for
our
electronic
devices,
such
as
laptop
power
supplies,
provide
a
vivid
example
of
this
phenomenon
by
the
virtue
of
the
heat
energy
they
generate
as
electricity
is
lost.
GaN
offers
performance
and
efficiency
which
are
orders
of
magnitude
better
than
the
silicon
technology
which
dominates
power
switching
technology
today.
Indeed,
this
technology
has
the
potential
to
eliminate
up
to
90%
the
energy
lost
through
switching.
23
IQE Annual Report & Financial Statements 2012
Current
trading
and
outlook
IQE
is
now
the
clear
technology
and
market
leader
in
the
wireless
market,
with
an
estimated
50%
to
60%
share.
The
benefit
of
the
three
key
deals
will
increasingly
be
reflected
in
the
Group’s
performance
going
forward.
The
Group
is
also
beginning
to
see
the
rewards
of
its
investment
programme
in
advanced
wireless
technology
over
the
last
two
years
and
in
initial
production
with
a
number
of
chip
companies
on
advanced
BiHEMT
technology.
As
anticipated,
the
Group’s
photonics
(optoelectronics)
business
is
transitioning
towards
high
volume
applications.
IQE
has
started
to
ship
advanced
VCSEL
materials
for
optical
communications
applications,
including
data
centre
applications.
The
Group
remains
on
track
to
transition
to
production
for
a
range
of
other
applications,
including
solar
power
(CPV),
in
the
second
half
of
2013.
IQE
continues
to
develop
new
products
at
the
leading
edge
of
technology
such
as
compound
semiconductors
on
silicon
integrated
circuits,
which,
in
due
course
will
revolutionise
the
electronics
marketplace.
The
focus
in
2013
is
on
delivery.
IQE
will
access
the
significant
efficiencies
and
synergies
that
the
three
deals
bring
to
the
Group
and
leveraging
the
investment
in
product
qualifications
in
order
to
deliver
strong
organic
growth
in
the
core
markets.
The
current
financial
year
has
started
well,
in
line
with
the
Board’s
expectations,
with
the
momentum
seen
in
the
second
half
of
2011
continuing.
Overall
IQE
is
well
positioned
to
deliver
strong
growth
in
the
current
year
and
beyond,
based
on
its
premier
position
to
supply
of
its
advanced
technologies
in
growing
global
markets.
24
IQE Annual Report & Financial Statements 2012
Operational
highlights
A
secure
supply
provides
competitive
advantage
Integration
of
acquisitions
IQE’s
spare
capacity
and
multi-‐site
supply
gives
our
customers
confidence
in
our
ability
to
meet
their
growth
needs
and
surges
in
demand.
This
is
why
IQE
embarked
on
a
capacity
expansion
programme
which
spanned
2011
and
2012.
This
programme
was
successfully
concluded
on
time
and
budget.
This
was
further
complemented
by
the
spare
capacity
that
came
with
the
acquisitions
of
the
ex
RFMD
and
ex
Kopin
epi
businesses
in
June
2012
and
January
2013.
Process
innovation
As
part
of
the
group’s
constant
improvement
strategy,
IQE
has
demonstrated
process
innovation
to
increase
production
efficiencies,
resulting
in
both
throughput
and
quality
improvements.
This
technology
will
be
rolled
out
across
our
customer
base
over
time,
providing
both
capacity
and
margin
benefits.
Equipment
upgrades
Maintaining
our
fleet
of
high
spec
production
tools
at
a
state-‐of-‐the-‐art
standard
is
a
key
part
of
our
strategy
to
push
technology
boundaries
in
parallel
with
achieving
cost
down
targets.
We
have
made
continued
progress
during
2012
in
our
programme
of
tool
maintenance
and
upgrades.
We
continue
to
innovate
our
planned
maintenance
cycles,
and
are
actively
engaged
in
a
tool
upgrade
programme
to
maintain
our
competitive
edge.
IQE’s
impressive
track
record
has
been
achieved
both
organically,
and
by
acquisition.
In
doing
so,
IQE
has
demonstrated
a
clear
ability
to
successfully
and
seamlessly
integrate
newly
acquired
businesses
into
the
group.
This
was
further
demonstrated
in
the
second
half
of
2012,
with
the
successful
integration
of
the
epi
business
acquired
from
RFMD.
Post
acquisition
this
unit
has
seamlessly
and
successfully
met
significant
levels
of
customer
demand
over
and
above
expectations.
Best
practice
sharing
The
challenge
of
a
successful
integration
is
to
“make
the
whole
greater
than
the
sum
of
the
parts”,
and
deliver
synergies
beyond
just
the
incremental
business
acquired.
This
is
where
IQE
has
been
particularly
successful,
with
an
impressive
cross
fertilization
of
technologies,
know-‐how
and
ideas
across
the
group.
This
benefit
has
been
recognized
by
our
customers
who
see
the
collaboration
of
our
world
leading
material
scientists
as
a
compelling
benefit
and
competitive
advantage
of
IQE
as
the
technology
leader
in
our
industry.
Qualifications
As
they
say,
the
“proof
of
the
pudding
is
in
the
eating”;
and
in
our
industry,
the
first
measure
of
success
is
in
the
qualification
of
your
product
with
the
customer.
The market
leadership that IQE
has achieved
stands as a
testament to our
operational
excellence
This
is
where
IQE
has
enjoyed
excellent
progress
over
the
course
of
the
past
year.
Our
success
in
BiHEMT
technology
is
a
particularly
good
example,
where
IQE
is
now
qualified
and
in
production
with
5
wireless
chip
companies
for
this
very
advanced
wireless
material.
We
expect
sales
of
these
products
to
move
from
strength
to
strength
as
the
industry
seeks
to
address
the
increasing
demands
of
4G
communication.
In
the
opto
electronics
market
we
are
seeing
the
transition
of
several
R&D
programmes
into
production,
particularly
with
VCSEL
technology
and
fiber
optic
communications.
Specifically,
we
are
now
in
production
with
multiple
customers
for
data
centre
applications.
Beyond
this,
the
pipeline
remains
full
with
qualifications
in
progress
for
multiple
new
applications
including
advanced
silicon
for
wireless
applications,
advanced
VCSELs
for
active
optical
cables
and
finger
navigation.
25
IQE Annual Report & Financial Statements 2012
Financial
highlights
Revenues
EBITDA
90,000
67,500
45,000
s
n
o
i
l
l
i
m
£
22,500
0
2008 2009 2010 2011 2012
s
n
o
i
l
l
i
m
£
17,000
12,750
8,500
4,250
0
2008 2009 2010 2011 2012
Operating profit
(before exceptional items)
EPS
(diluted and adjusted)
e
c
n
e
p
K
U
2.00
1.50
1.00
0.50
0
2008 2009 2010 2011 2012
2008 2009 2010 2011 2012
s
n
o
i
l
l
i
m
£
8,000
6,000
4,000
2,000
0
26
IQE Annual Report & Financial Statements 2012
Financial
Review
Overview
Interest
Cash
generated
The
Group
enjoyed
a
very
strong
second
half
and
delivered
record
full
year
sales
and
EBITDA
despite
the
poor
first
quarter.
Revenues
grew
17%
year
on
year
from
£75.3m
to
£88.0m
driven
by
increased
sales
volumes.
The
acquisition
contributed
£20m
to
sales.
EBITDA
Group
EBITDA
was
up
18%
to
£16.4m
(2011:
£14.0m).
As
anticipated,
sales
and
profits
were
much
more
heavily
skewed
to
the
second
half
than
normal,
reflecting
the
impact
of
the
destocking
in
the
first
quarter
and
the
benefit
of
the
RFMD
acquisition
on
trading
in
H2.
Sales
and
EBITDA
in
the
second
half
were
£53.7m
(2011
H2:
£37.0m)
and
£12.2m
(2011
H2:
£7.9m)
respectively.
Gross
profit
Gross
profit
increased
to
£18.5m
from
£18.2m.
Whilst
contribution
margins
have
remained
stable,
the
benefit
of
the
sales
growth
has
been
partly
offset
by
higher
depreciation
and
the
overhead
associated
with
the
facility
acquired
from
RFMD.
SG&A
Selling,
general
and
administration
expenses
increased
by
£0.7m
to
£11.5m
(2011:
£10.8m).
This
increase
largely
reflects
one-‐off
costs
of
£0.6m
related
to
the
three
transactions.
Operating
profit
Adjusted
operating
profit,
before
the
one-‐off
£0.6m
transaction
costs,
increased
from
£7.4m
to
£7.6m.
Interest
cost
of
£0.9m
(2011:
£0.5m)
included
£0.3m
of
notional
interest
relating
to
the
discounting
of
long
term
balances
arising
on
acquisition
(2011:
£nil).
Pre
tax
profit
Adjusted
pre-‐tax
profit
was
up
5%
to
£8.6m
from
£8.2m.
Adjusted
pretax
profit
excludes
non-‐cash
financing
charges
relating
to
discounting
of
long
term
acquisition
balances
(£0.3m),
exceptional
charges
of
(£0.6m),
charges
relating
to
the
amortisation
of
intangibles
arising
on
acquisition
(£0.3m)
and
share
based
payments
(£1.4m).
Reported
pretax
profit
was
£6.1m
(2011:
£6.9m).
Tax
credits
The
income
tax
credit
of
£0.5m
was
lower
than
the
£1.5m
tax
credit
in
2011,
which
included
a
£1.0m
non-‐
cash
deferred
tax
credit.
Tax
receipts
of
£0.5m
in
2012
relate
to
R&D
tax
credits
(2011:
£0.5m).
The
Group
has
sufficient
tax
losses
available
to
shield
future
tax
payable
of
up
to
£31.2m.
Earnings
per
share
Adjusted
earnings
per
share
were
1.59p
(2011:
1.86p).
Basic
earnings
per
share
were
1.16p
(2011:
1.62p).
Cash
generated
from
operating
activities
was
£4.8m
(2011:
£10.3m).
Cash
generated
from
operating
activities
assuming
cash
settlement
of
acquisition
of
£13.2m
(see
below).
Deferred
consideration
paid
of
£7.0m
(2011:
£1.1m)
primarily
related
to
the
final
balances
for
the
Galaxy
acquisition
in
2010.
In
addition,
the
Group
invested
£3.2m
for
a
9%
equity
stake
in
Solar
Junction.
Capital
expenditure
Capital
expenditure
of
£11.6m
(2011:
£15.5m)
marked
the
completion
of
a
major
multi-‐year
capital
expansion
programme.
Capital
expenditure
will
now
return
to
maintenance
levels.
Investment
&
equity
Investment
in
product
development
of
£4.0m
(2011:
£3.7m)
primarily
reflects
investment
in
new
products
to
access
new
and
emerging
markets.
Proceeds
from
new
equity
issued
was
£11.4m
(2011:
£0.6m).
This
primarily
reflects
the
issue
of
£10.5m
of
new
equity
to
finance
the
investment
in
Solar
Junction
and
related
expenditures.
Retained
profit
Debt
Adjusted
(see
note
9)
retained
profit
was
£9.1m
(2011:
£9.7m),
including
a
£4m
contribution
from
the
acquisition.
Reported
retained
profit
was
£6.6m
(2011:
8.4m).
Dividends
The
Board
will
not
be
recommending
the
payment
of
a
dividend.
Net
debt,
was
in
line
with
the
Board’s
expectations
at
the
end
of
December
2012
was
£15.5m
(2011:
£3.9m).
Acquisition
See
business
combination
note
17
to
the
accounts.
27
IQE Annual Report & Financial Statements 2012
Innovation,
research
and
development
Government
IQE’s
products
form
the
essential
key
enabling
technologies
(KETs)
whose
impact
cuts
across
world
leading
industries
including
the
automotive,
chemicals,
aeronautics,
space,
health
and
energy
sectors
Many
governments
worldwide
have
recognised
the
importance
of
KETs
in
driving
economic
growth.
The
importance
of
KETs
is
such
that
they
will
form
a
significant
focus
for
government
funded
programmes
over
the
coming
years.
IQE
maintains
good
relationships
with
many
government
agencies
and
departments
across
geographies
in
which
it
operates.
IQE
is
widely
recognised
by
government
departments
and
agencies
as
world
experts
in
advanced
materials
and
representatives
from
the
company
are
often
called
upon
to
provide
input
and
advise
on
areas
of
technology
in
which
the
group
has
acknowledged
and
respected
expertise.
R&D
activity
The
continuous
development
of
leading
edge
materials
technology
is
paramount
to
IQE’s
success.
The
Group’s
twenty-‐five
years’
experience
combined
with
a
culture
of
innovation
has
enabled
us
to
develop
technology
and
market
leadership
in
the
markets
in
which
we
operate.
We
continue
to
push
the
limits
of
materials
technology,
constantly
improving
the
quality
of
existing
products
whilst
developing
new
and
enhanced
capabilities.
We
are
engaged
in
a
number
of
research
and
development
programmes
with
customers,
research
institutions
and
government
agencies.
IQE
has
many
exciting
development
activities
in
place
to
ensure
continuing
support
of
our
growing
customer
base
and
the
increasing
range
of
commercially
important
semiconductor
devices.
IQE's
development
activities
include
internally-‐funded,
government-‐funded,
customer-‐
funded
and
third-‐party
co-‐funded
projects.
Development
programmes
are
often
associated
with
next
generation
applications
as
well
as
process
improvements
leading
to
greater
throughput,
higher-‐quality
products,
better
manufacturing
yield,
increased
production
uptime
and
new
product
development.
Whilst
many
R&D
programmes
are
subject
to
non-‐disclosure
agreements
and
confidentiality,
there
are
some
programmes
in
the
public
domain,
examples
of
which
include:
★ Integration
of
III-‐V
with
Si
★ Graphene
for
RF
electronics
★ Sb-‐based
materials
★ QD
VCSELs
(EU
VISIT
program)
★ Dilute
nitrides
for
lasers
and
SWIR
detectors
★ Mixed
nitride-‐antimonide-‐
based
detectors
★ High
power
InP-‐based
quantum
cascade
lasers
A
list
of
technical
publications
is
available
within
the
research
pages
of
the
IQE
website
at
www.iqep.com.
Open
Innovation
In
recognition
of
IQE’s
reputation
for
quality,
innovation,
research
and
development,
the
Group’s
corporate
headquarters
in
Cardiff,
UK,
has
been
selected
by
the
Welsh
Government
to
head
up
an
Open
Innovation
initiative
to
collaborate
with
industry
and
academia
to
identify
supply
chain
opportunities
within
Wales
and
across
Europe.
Industry
events
IQE
actively
participates
in
major
industry
events
and
frequently
chairs,
hosts
and
presents
technical
papers
at
international
conferences.
28
IQE Annual Report & Financial Statements 2012
Our
commitment
Corporate
social
responsibility
The
IQE
Group
actively
promotes
a
philosophy
of
corporate
social
responsibility
across
all
of
its
operations
and
engages
in
a
number
of
local,
national
and
international
initiatives
working
with
a
wide
range
of
third
party
organisations
and
authorities
in
areas
such
as
ethical
employment
policies,
educational
and
community
work.
Every
effort
will
be
made
by
all
Group
companies
to
ensure
best
business
practice
is
deployed
by:
Respecting
the
need
for
confidentiality
across
our
global
customer
base
by
ensuring
that
any
references
to
customer's
names,
products
or
services
are
not
disclosed
to
third
parties
without
the
customer's
consent;
Being
open
and
honest
about
our
products
and
services
and
communicating
with
customers
all
appropriate
information
they
need
to
make
informed
decisions;
Ensuring
that
any
issues
or
problems
are
dealt
with
efficiently,
with
fairness
and
in
a
timely
manner;
Working
closely
with
customers
and
potential
customers
to
help
us
improve
the
value
of
the
products
and
services
we
offer
them;
Ensuring
that
we
benchmark
and
evaluate
what
we
do
in
order
to
constantly
improve
products
and
services
in
the
marketplace;
Communicating
with
all
stakeholders
as
and
when
appropriate,
effectively
and
transparently
subject
to
ensuring
confidential
information
is
not
compromised;
Identifying
and
selecting
suppliers
using
fair
and
reasonable
methodologies;
Identifying
and
using
suppliers
who
operate
to
ethical
business
standards;
Identifying
and
using
local
suppliers
wherever
possible;
Working
closely
with
suppliers
to
help
us
improve
the
value
of
the
products
and
services
we
offer
customers
to
the
benefit
of
the
supply
chain;
Ensuring
that
our
terms
and
conditions
are
fair
and
reasonable;
Ensuring
employment
practices
throughout
the
Group
are
fair
and
in
full
compliance
with
employment
legislation;
Working
with
and
supporting
local
and
national
charities;
Encouraging
volunteer
work
in
community
activities;
Supporting
local
academic
establishments;
and
Participating
in
voluntary
business
advisory
services
via
professional
bodies.
Each
of
the
Group's
subsidiaries
is
responsible
for
communicating
and
applying
group
policies
within
their
businesses
taking
account
of
local
legislation
and
potential
risks.
The
group
also
actively
engages
with
a
number
of
industry
groups,
educational
bodies
and
charities
to
promote
science
and
technology
and
to
help
contribute
to
community
causes.
Each
of
the
Group's
subsidiaries
is
responsible
for
communicating
and
applying
group
policies
within
their
businesses
taking
account
of
local
legislation
and
potential
risks.
As
an
AIM
listed
company,
IQE
is
not
eligible
to
participate
in
the
London
Stock
Exchange
FTSE4Good
programme,
but
nevertheless
maintains
standards
and
applies
the
principles
of
this
index.
The
group
also
actively
engages
with
a
number
of
industry
groups,
educational
bodies
and
charities
to
promote
science
and
technology
and
to
help
contribute
to
community
causes.
29
IQE Annual Report & Financial Statements 2012
The
environment
IQE
is
fully
committed
to
creating
business
growth
whilst
ensuring
that
the
impact
on
the
environment
is
minimised
and
that
all
activities
are
conducted
safely
by
appropriately
trained
and
qualified
employees.
The
group
works
closely
with
all
key
stakeholders
to
ensure
that
its
global
facilities,
and
those
activities
over
which
it
has
influence
through
its
supply
chain,
operate
in
a
way
that
is
ethical
and
in
accordance
with
best
practice.
Policies
relating
to
quality
and
environmental
standards
are
available
on
the
company’s
website
at
www.iqep.com
along
with
access
to
third
party
accreditation
certificates.
Quality
IQE’s
reputation
for
quality
and
excellence
in
products
and
service
is
second
to
none.
A
philosophy
of
total
quality
is
integrated
throughout
the
group’s
operations
and
each
of
the
group’s
manufacturing
facilities
worldwide
is
independently
accredited
to
the
international
standard
for
Quality
Management:
ISO9001:2008.
IQE's
ongoing
commitment
to
provide
the
highest
quality
of
service
ensures
customer
satisfaction
covering
the
entire
customer
relationship
experience,
from
order
inception
through
to
delivery
and
after-‐sales
support.
IQE's
quality
assurance
program
includes
wafer
evaluation
using
the
most
advanced
measurement
techniques
applied
specifically
to
its
customers'
structures,
thereby
ensuring
consistent
delivery
of
the
highest-‐quality
products.
Rigorous
data
logging
and
documentation
of
all
manufacturing
processes
and
procedures
maintain
a
system
of
full
product
traceability.
IQE's
thorough
materials
characterization
processes
ensure
excellent
repeatability
and
reproducibility.
Customers
strongly
value
the
trust
and
confidence
they
have
established
with
IQE
as
a
"pure
play"
supplier
with
whom
they
share
their
most
confidential
and
proprietary
device
design
information.
The
IQE
strategy
is
to
consolidate
and
maintain
its
position
as
the
pre-‐
eminent
supplier
of
epiwafers
rather
than
vertically
integrate
into
device
or
component
manufacturing.
This
philosophy
protects
customer
interests
to
the
fullest
and
facilitates
excellent
supply
chain
relationships.
Employing
its
extensive
wafer
production
experience,
IQE
continually
maintains
its
technological
leadership
through
the
development
and
implementation
of
new
growth
and
characterization
technologies
and
new
materials
solutions.
IQE
is
actively
involved
in
partnerships
with
its
suppliers
of
crystal
growth
and
characterization
equipment
to
develop
the
next
generations
of
epitaxy
and
metrology
equipment
with
specific
focus
on
increasing
production
efficiencies,
reducing
epiwafer
costs,
and
maintaining
its
technological
leadership.
30
IQE Annual Report & Financial Statements 2012
Risks
and
risk
management
Raw
materials
The
primary
raw
materials
used
in
IQE’s
processes
are
not
scarce
and
are
in
general
sourced
from
multiple
continents.
In
some
cases,
materials
may
have
uses
in
multiple
industries
and
as
such,
may
be
prone
to
temporary
fluctuations
in
supply
and
demand
where
there
are
surges
in
usage.
One
such
example
is
Indium
which
is
in
relatively
abundant
supply.
Indium
is
used
in
small
quantities
in
the
manufacture
of
flat
panel
displays.
A
sudden
surge
in
demand
for
flat
panels
had
a
short
term
impact
on
global
indium
pricing
but
such
impacts
are
normally
short-‐
lived
and
their
affect
on
IQE
usually
negligible.
Natural
disasters
IQE
operates
multiple
global
manufacturing
facilities
which
customers
see
as
key
mitigation
against
the
impact
of
natural
disasters.
However,
the
impact
of
such
disasters
on
other
parts
of
the
supply
chain
cannot
be
ruled
out
but
such
macro-‐economic
factors
would
have
a
much
wider
impact
on
the
global
economy.
Supply
chain
risk
mitigation
IQE
supplies
many
different
customers
with
a
diverse
range
of
products.
The
wireless
sector
accounts
for
approximately
80%
of
the
Group’s
revenues.
Within
this
space
there
are
approximately
twelve
key
customers
who
in
turn
supply
all
of
the
key
wireless
device
manufacturers.
IQE
supplies
each
customer
with
up
to
three
different
products
which
are
then
further
sub-‐divided
into
several
different
part
numbers,
each
with
different
specifications.
The
numbers
and
types
of
products
varies
over
time
as
new
products
are
launched
and
older
lines
become
obsolete.
IQE’s
strategy
has
to
ensure
that
as
many
parts
and
products
are
embedded
with
as
many
customers
as
possible
to
reduce
the
risk
of
losing
a
supply
socket
should
a
customer
lose
market
share.
This
mitigation
strategy
for
wireless
products
has
been
significantly
enhanced
with
the
major
transactions
successfully
completed
since
the
beginning
of
2012.
Process
improvements
IQE’s
strategy
is
to
focus
on
high-‐
growth
technology
markets
such
as
the
wireless
sector
where
growth
in
smartphone
units
sold
is
accompanied
by
greater
demand
for
higher
performance
materials
such
as
those
supplied
by
IQE.
However,
this
increased
demand
may
to
some
extent
be
countered
by
improved
product
design,
leading
to
more
performance
per
area
of
GaAs.
Improved
processing
technologies
also
lead
to
improved
process
yields
through
the
supply
chain
which
can
lead
to
greater
efficiencies
per
dollar.
Alternative
technologies
IQE’s
R&D
activity
coupled
with
excellent
relationships
with
customers,
academia
and
participation
in
industry
conferences,
coupled
with
ongoing
market
intelligence,
keeps
the
management
fully
aware
and
appraised
of
emerging
technologies.
In
most
cases,
IQE
is
actively
involved
in
the
development
of
the
next
generation
of
materials.
Older
technologies
that
have
been
displaced
by
IQE’s
materials
can
“chip
away”
at
the
trailing
edge
of
the
technology
product
curve,
but
the
gap
between
capabilities
of
material
s
such
as
silicon,
compared
with
IQE’s
advanced
materials
are
several
orders
of
magnitude
apart
whilst
improvements
in
silicons
capabilities
are
incremental.
The
company
maintains
a
close
watching
brief
and
is
also
engaged
in
developments
in
silicon
technology.
31
IQE Annual Report & Financial Statements 2012
Board
of
directors
Godfrey
Ainsworth
(57)
Chairman,
Non-‐Executive
Director,
Chairman
of
the
Audit
Committee
Drew
Nelson
OBE
(58)
President
and
Chief
Executive
Officer
Phillip
Rasmussen
(42)
Group
Finance
Director
and
Company
Secretary
Phillip
Rasmussen
qualified
as
a
Chartered
Accountant
with
Coopers
and
Lybrand,
a
predecessor
firm
of
PwC.
During
his
career
with
PwC
he
spent
two
years
in
Toronto,
Canada
and
gained
significant
experience
of
working
with
and
advising
a
broad
range
of
companies
in
a
variety
of
sectors,
including
multinational
main
market
and
AIM
listed
companies.
Before
joining
IQE,
Mr
Rasmussen
was
Director
of
Transaction
Services
with
PwC
in
Bristol
and
worked
with
IQE
on
two
major
acquisitions
during
2006.
He
was
appointed
to
the
Board
of
IQE
Plc
in
March
2007
and
appointed
as
Company
Secretary
in
January
2009.
Current
directorships:
none
Godfrey
Ainsworth
qualified
as
a
Chartered
Accountant
and
was
employed
by
Coopers
&
Lybrand
before
becoming
an
audit
partner
and
then
corporate
finance
partner
with
Spicer
&
Oppenheim.
He
founded
Gambit
Corporate
Finance
in
1992,
a
practice
specialising
in
the
provision
of
corporate
finance
services
where
he
was
Managing
Partner
until
his
retirement
from
the
firm
on
30
November
2009.
He
has
held
several
Non-‐Executive
Directorship
appointments,
including
assignments
for
3i
plc
and
the
Welsh
Development
Agency.
He
has
provided
advice
to
IQE
(formerly
EPI)
since
its
inception
and
was
appointed
to
the
Board
in
1997.
He
was
appointed
to
the
Board
of
IQE
Plc
in
April
1999,
and
was
appointed
chairman
in
February
2002.
Current
directorships:
Omniport
Holdings
Limited
Seren
Photonics
Limited
Mesuro
Limited
Cardiff
Partnership
Fund
Drew
Nelson
has
over
30
years
experience
in
the
semiconductor
industry
in
a
variety
of
research
and
managerial
positions.
Following
a
PhD
in
Semiconductor
Physics,
he
joined
BT
Research
Laboratories
in
1981,
leading
the
group
responsible
for
the
development
of
advanced
optoelectronic
devices
for
optical
fibre
communications.
He
subsequently
managed
the
technology
transfer
from
BT
to
Agilent
for
mass
production.
He
co-‐founded
EPI
in
1988
(which
became
IQE
in
1999)
and
was
appointed
Chief
Executive
Officer
of
IQE
Plc
in
April
1999.
Dr
Nelson
has
held
several
Non-‐Executive
Directorship
appointments,
and
served
on
several
Government
and
Industry
bodies.
He
received
an
OBE
in
2001
for
services
to
the
Electronics
Industry.
He
is
currently
a
member
of
the
High
Level
Group
appointed
by
the
EC
to
oversee
the
implementation
of
Key
Enabling
Technologies
(KETs)
throughout
Europe.
Current
directorships:
PhotonStar
LED
Group
plc.
32
IQE Annual Report & Financial Statements 2012
Simon
J
Gibson
OBE
(55)
Non-‐Executive
Director,
Chairman
of
the
Remuneration
Committee
Howard
Williams
(58)
Operations
Director
David
Grant
(65)
Senior
Independent
Director
Howard
Williams
has
held
a
number
of
positions
within
both
Manufacturing
and
Service
industry
sectors,
with
roles
ranging
from
Engineering
Management
to
General
Management.
He
was
a
member
of
the
founding
team
of
EPI
in
1988
and
was
appointed
Operations
Director
for
EPI
in
1996.
He
was
appointed
General
Manager
of
IQE
Inc
in
2002
and
General
Manager
of
IQE
(Europe)
Limited
in
2003.
He
was
subsequently
appointed
Chief
Operations
Officer
in
2004
and
was
appointed
to
the
Board
of
IQE
Plc
as
Operations
Director
in
December
2004.
Current
directorships:
none
Simon
is
Chief
Executive
of
Wesley
Clover
Corporation.
Wesley
Clover
is
an
investment
vehicle
and
holding
company.
He
has
broad
management
experience
in
high-‐technology
industries
in
both
North
America
and
Europe.
Before
joining
Wesley
Clover,
he
was
co-‐founder,
President
and
CEO
of
Ubiquity
Software
Corporation.
Ubiquity
was
acquired
by
Avaya
Inc
in
2007.
Prior
to
Ubiquity
he
held
senior
management
roles
at
Newbridge
Networks
and
Mitel.
He
is
the
Chairman
and
founder
of
the
Alacrity
Foundation,
a
graduate
entrepreneurship
program
which
operates
in
the
UK
and
Canada.
The
Foundation
provides
young
people
with
post
graduate
education,
opportunity
alignment
and
access
to
capital;
with
the
objective
of
creating
a
new
companies.
He
was
appointed
to
the
Board
of
IQE
in
January
2002.
Current
Directorships:
Wesley
Clover
Wales
Limited
Celtic
Manor
Resort
Limited
Alacrity
Foundation
David
Grant
has
a
background
in
engineering
and
technology
and
was
appointed
to
the
Board
of
IQE
Plc
in
September
2012.
He
was
Vice-‐Chancellor
of
Cardiff
University
from
2001
to
2012.
Previously
he
held
leadership
positions
in
a
number
of
international
businesses
including
United
Technologies
Corp.,
Dowty
Group
plc
and
GEC
plc.
He
has
been
a
Vice-‐President
of
the
IET,
and
was
a
Vice-‐
President
of
the
Royal
Academy
of
Engineering
from
2007
to
2012.
He
was
awarded
the
IEE's
Mensforth
Gold
Medal
in
1996
and
in
1997
he
was
made
a
CBE
for
his
contribution
to
the
UK's
Foresight
Programme.
He
has
a
PhD
in
Engineering
Science
from
the
University
of
Durham.
Current
directorships:
Renishaw
plc
DSTl
STEMNET
33
IQE Annual Report & Financial Statements 2012
Corporate
governance
Although
not
required
to,
the
directors
have
decided
to
provide
corporate
governance
disclosures
similar
to
those
that
would
be
required
of
a
fully
listed
company.
The
Board
recognises
that
it
is
accountable
to
the
group’s
shareholders
for
the
standard
of
governance
and
therefore
seeks
to
maintain
high
standards
in
its
management
of
the
affairs
of
the
group,
seeing
it
as
a
fundamental
part
of
discharging
its
stewardship
responsibilities.
Accordingly,
both
the
Board
and
the
audit
committee
continue
to
keep
under
review
the
group’s
whole
system
of
internal
control,
which
comprises
not
only
financial
controls
but
also
operational
controls,
compliance
and
risk
management.
Throughout
the
year
ended
31
December
2012,
the
company
has
been
in
compliance
with
the
Code
provisions
set
out
in
the
UK
Corporate
Governance
Code.
The
Board
of
Directors
The
management
of
the
group
is
directed
by
the
Board
of
directors,
which
is
responsible
for
ensuring
the
development
and
implementation
of
the
group’s
overall
strategy.
The
Board
of
directors
comprises
the
non-‐
executive
Chairman
Dr
G
H
H
Ainsworth,
the
Chief
Executive
Dr
A
W
Nelson,
two
executive
directors
and
two
non-‐executive
directors.
There
is
a
clear
division
of
responsibility
between
the
non-‐
executive
Chairman,
who
is
responsible
for
the
running
of
the
Board,
and
the
Chief
Executive,
who
is
responsible
for
the
running
of
the
group
in
accordance
with
the
authority
delegated
by
the
Board.
34
This
ensures
that
there
is
a
balance
of
power
and
authority
such
that
no
one
individual
has
unfettered
powers
of
decision.
The
fees
of
the
non-‐executive
directors
are
paid
in
cash.
The
Board
considers
that
the
non-‐
executive
directors
are
independent
of
management
and
free
from
any
business
or
other
relationship
which
could
materially
interfere
with
the
exercise
of
their
independent
judgement.
The
terms
and
conditions
of
appointment
of
the
non-‐executive
directors
are
available
for
inspection
upon
request
to
the
Company
Secretary.
Dr
David
Grant
is
recognised
as
the
senior
independent
non-‐executive
director
to
whom
concerns
by
staff
of
any
suspected
impropriety
can
be
conveyed
in
private
and
investigated
as
required
by
the
Code
of
Best
Practice.
Under
the
Company’s
Articles
of
Association
each
of
the
directors
is
required
ordinarily
to
retire
by
rotation
once
every
three
years.
The
Board
held
regular
meetings
during
the
year.
The
Board
has
a
formal
schedule
of
matters
referred
to
it
for
decision,
which
includes
the
approval
of
interim
and
annual
results,
the
annual
budget,
acquisitions
and
disposals,
major
items
of
capital
expenditure,
share
capital
issues,
governance
issues
and
executive
appointments.
The
Board
is
provided
with
appropriate
strategic
and
financial
information
prior
to
each
meeting
together
with
monthly
reports
to
enable
it
to
monitor
the
performance
of
the
group.
The
Chief
Executive
reviews
the
performance
of
the
executive
directors
on
an
annual
basis.
All
directors
have
direct
access
to
the
advice
and
services
of
the
Company
Secretary
who
is
responsible
for
ensuring
that
Board
procedures
are
followed,
and
are
allowed
to
take
independent
professional
advice
if
necessary
at
the
company’s
expense.
Board
committees
The
Board
has
delegated
specific
responsibilities
to
the
following
committees:
(a)
Executive
Committee
The
executive
committee
consists
of
the
executive
directors
under
the
chairmanship
of
Dr
A
W
Nelson
and
is
responsible
for
the
development
of
strategy,
annual
budgets
and
operating
plans
linked
to
the
management
and
control
of
the
day-‐to-‐day
operations
of
the
group.
The
executive
committee
is
also
responsible
for
monitoring
key
research
and
development
programmes
and
for
ensuring
that
the
Board
policies
are
carried
out
on
a
group-‐wide
basis.
(b)
Audit
Committee
The
audit
committee
consists
of
the
non-‐executive
directors,
Dr
G
H
H
Ainsworth,
S
J
Gibson
and
Dr
D
Grant.
The
committee
meets
at
least
twice
a
year
under
the
chairmanship
of
Dr
G
H
H
Ainsworth.
The
audit
committee
has
specific
written
terms
of
reference
which
deal
with
its
authority
and
responsibilities
and
these
are
available
for
inspection
upon
request
to
the
Company
Secretary.
Its
duties
include
monitoring
IQE Annual Report & Financial Statements 2012
internal
controls
throughout
the
group,
approving
the
group’s
accounting
policies,
and
reviewing
the
group’s
interim
results
and
full
year
financial
statements
before
submission
to
the
full
Board.
The
audit
committee
also
reviews
and
approves
the
scope
and
content
of
the
group’s
annual
risk
assessment
programme
and
the
annual
audit,
and
monitors
the
independence
of
the
external
auditors.
The
Group
has
an
Internal
Audit
function,
with
a
scope
of
evaluating
and
testing
the
group’s
financial
control
procedures.
The
Internal
Audit
function
reports
directly
to
the
chairman
of
the
audit
committee,
and
liaises
with
the
external
auditors
as
appropriate.
The
Finance
Director,
other
financial
management
and
the
external
auditors
attend
meetings
of
the
audit
committee
by
invitation.
The
committee
also
holds
separate
meetings
with
the
external
auditors,
as
appropriate.
(c)
Remuneration
and
Nominations
Committees
The
remuneration
committee
consists
of
the
non-‐executive
directors,
S
J
Gibson,
Dr
G
H
H
Ainsworth
and
Dr
D
Grant.
The
committee
meets
at
least
twice
a
year
under
the
chairmanship
of
S
J
Gibson.
The
Chief
Executive
attends
meetings
of
the
remuneration
committee
by
invitation
to
respond
to
questions
raised
by
the
committee,
but
he
is
excluded
from
any
matter
concerning
the
details
of
his
own
remuneration.
The
remuneration
committee
has
specific
terms
of
reference
which
deal
with
its
authority
and
duties
and
these
are
available
for
inspection
upon
request
to
the
Company
Secretary.
The
remuneration
committee
is
responsible
for
setting
salaries,
incentives
and
other
benefit
arrangements
of
executive
directors
and
senior
executives
and
overseeing
the
group’s
employee
share
schemes.
The
group's
policy
on
directors’
remuneration
has
been
in
line
with
the
Code
provisions
throughout
the
year,
full
details
of
which
are
given
in
the
remuneration
report.
Members
of
the
remuneration
committee
do
not
participate
in
decisions
concerning
their
own
remuneration.
The
Board
has
not
established
a
separate
nominations
committee
and
has
delegated
responsibility
for
nominations
to
the
remuneration
committee.
There
are
currently
no
plans
for
further
appointments
to
the
Board.
Attendance
at
meetings
The
number
of
meetings
held
during
2012
by
the
Board,
the
audit
committee
and
the
remuneration
committee
are
as
shown
below.
The
number
of
meetings
attended
by
the
executive
and
non-‐executive
directors
is
also
shown
below:
Number
of
meetings
held
in
2012
Number
of
meetings
attended
in
2012:
Executive
Dr
A
W
Nelson
P
J
Rasmussen
Dr
H
R
Williams
Mr
A
G
Meldrum
Non-‐executive
Dr
G
H
H
Ainsworth
S
J
Gibson
Dr
D
Grant
Board
Audit
Committee
7
6
7
6
4
7
6
3
4
-‐
4
-‐
-‐
4
4
-‐
Remuneration
Committee
2
* Dr
D
Grant
attended
all
meetings
following
his
appointment
on
the
18
September
2012.
In
addition
to
the
formal
meetings
listed
above,
there
were
a
number
of
meetings
conducted
by
telephone
and
electronic
media
for
circumstances
requiring
Board,
Audit
Committee
or
Remuneration
Committee
approvals.
2
-‐
-‐
-‐
2
2
-‐
35
IQE Annual Report & Financial Statements 2012
Internal
control
The
Board
acknowledges
its
responsibility
for
the
group’s
system
of
internal
control,
the
effectiveness
of
which
has
been
reviewed
by
the
audit
committee
during
the
year
and
reported
on
to
the
Board.
The
review
has
taken
account
of
any
material
developments
up
to
the
date
of
the
signing
of
the
financial
statements.
The
processes
to
identify
and
manage
key
risks
to
the
success
of
the
group
are
an
integral
part
of
the
internal
control
environment.
Such
processes
are
on-‐going,
are
regularly
reviewed
and
improved
as
necessary,
and
are
in
accordance
with
the
internal
control
guidelines
for
directors
in
the
UK
Corporate
Governance
Code.
They
include
strategic
planning,
the
appointment
of
senior
executives,
the
monitoring
on
a
regular
basis
of
performance,
control
of
capital
expenditure
and
significant
revenue
investment,
and
the
setting
of
high
standards
for
health,
safety
and
environmental
performance.
These
processes
have
been
in
place
throughout
the
financial
year
and
up
to
the
date
of
approval
of
the
financial
statements.
The
effectiveness
of
the
control
systems
and
procedures
is
monitored
regularly
through
management
self-‐assessment
and
review
by
internal
audit.
In
addition,
recognition
is
given
to
the
external
audit
findings,
which
inform
the
audit
committee’s
views
of
areas
of
increased
risk.
the
reporting
of
any
variances
in
a
timely
manner
to
the
Board;
The
system
of
internal
control
comprises
those
controls
established
in
order
to
provide
assurance
that
the
assets
of
the
group
are
safeguarded
against
unauthorised
use
or
disposal
and
to
ensure
the
maintenance
of
proper
accounting
records
and
the
reliability
of
financial
information
used
within
the
business
or
for
publication.
Any
system
of
internal
control
can
only
provide
reasonable,
but
not
absolute,
assurance
against
material
misstatement
or
loss,
as
it
is
designed
to
manage
rather
than
to
eliminate
the
risk
of
failing
to
achieve
the
business
objectives
of
the
group.
The
key
procedures
that
the
directors
have
established
with
a
view
to
providing
effective
internal
control
are
as
follows:
a
clearly
defined
organisational
structure
and
limits
of
authority;
corporate
policies
and
procedures
for
financial
reporting
and
control,
project
appraisal,
human
resources,
quality
control,
health
and
safety,
information
security
and
corporate
governance;
the
preparation
of
annual
budgets
and
regular
forecasts
which
require
approval
from
both
the
group
executive
committee
and
the
Board;
the
monitoring
of
performance
against
budget
and
forecasts
and
regular
review
and
self-‐assessment
of
the
risks
to
which
the
group
is
exposed,
taking
steps
to
monitor
and
mitigate
these
wherever
possible
including,
where
appropriate,
taking
out
insurance
cover;
and
approval
by
the
audit
committee
of
audit
plans
and,
on
behalf
of
the
Board,
receipt
of
reports
on
the
group’s
accounting
and
financial
reporting
practices
and
its
internal
controls
together
with
reports
from
the
external
auditors
as
part
of
their
normal
audit
work.
an
internal
audit
function,
which
is
mandated
to
evaluate
and
test
the
Group’s
financial
control
procedures,
reporting
directly
to
the
chairman
of
the
audit
committee.
Shareholder
relations
The
Chief
Executive
and
the
Finance
Director
meet
on
a
regular
basis
with
representatives
of
institutional
shareholders
to
discuss
their
views
and
to
ensure
that
the
strategies
and
objectives
of
the
group
are
well
understood.
The
Chief
Executive
keeps
the
Board
fully
informed
of
the
views
of
institutional
shareholders.
Issues
discussed
with
institutional
shareholders
include
the
group’s
performance
and
the
impact
of
any
major
transactions.
The
Chairman
has
met
with
individual
shareholders
on
an
ad
hoc
basis.
36
IQE Annual Report & Financial Statements 2012
The
company
also
has
a
manager
responsible
for
investor
relations
and
operates
a
web
site,
which
provides
details
of
the
group’s
facilities
and
products
and
includes
a
separate
investor
relations
section
on
which
financial
data
and
other
significant
announcements
are
published.
The
web
site
can
be
found
at
www.iqep.com.
The
group’s
annual
report
and
financial
statements,
interim
reports
and
other
documentation
is
available
online
and
by
mail
where
requested.
The
Annual
General
Meeting
allows
shareholders
to
raise
questions
with
the
Board,
although
shareholder
enquiries
and
questions
are
also
addressed
throughout
the
year.
In
accordance
with
the
recommendation
of
the
Hampel
Code,
the
company
will
advise
shareholders
attending
the
Annual
General
Meeting
of
the
number
of
proxy
votes
lodged
for
each
resolution
in
the
categories
‘For’
and
‘Against’,
together
with
the
numbers
‘at
the
Chairman’s
discretion’
and
abstentions.
These
will
be
advised
after
the
resolutions
have
been
dealt
with
on
a
show
of
hands.
Audit
and
related
services
The
Board
is
aware
of
the
importance
of
maintaining
the
independence
of
the
group
auditors,
and
does
not
contract
for
additional
services
from
them
which
would
compromise
their
audit
independence.
Additional
services
are
also
subject
to
appropriate
market
testing.
The
Audit
Committee
keeps
under
review
the
nature
and
extent
of
audit
and
non-‐audit
services
provided
to
the
group
by
the
auditors
in
accordance
with
a
policy
which
it
established
in
2004.
Under
this
policy,
the
award
to
the
group’s
auditors
of
audit-‐related
services,
tax
consulting
services
or
other
non-‐audit
related
services
in
excess
of
£10,000
must
first
be
approved
by
the
Chairman
of
the
Audit
Committee.
In
addition,
the
group’s
auditors
will
be
required
to
make
a
formal
report
to
the
Audit
Committee
annually
on
the
safeguards
that
are
in
place
to
maintain
their
independence
and
the
internal
safeguards
in
place
to
ensure
their
objectivity.
The
nature
of
the
services
provided
by
the
auditors
and
the
amounts
paid
to
them
are
as
detailed
below:
Total
2012
£‘000
Total
2011
£‘000
PricewaterhouseCoopers
LLP
(group
auditors)
Fees
payable
to
company’s
auditor
and
its
associates
for
the
audit
of
parent
company
and
consolidated
financial
statements
Fees
payable
to
company’s
auditor
and
its
associates
for
other
services:
-‐
The
audit
of
company’s
subsidiaries
-‐
Audit-‐related
assurance
services
-‐
Due
diligence
-‐
Tax
compliance
service
Ernst
and
Young
(auditors
of
MBE
Technology
Pte
Limited)
-‐
Subsidiary
company’s
audit
-‐
Tax
services
Total
18
67
15
53
-‐
18
7
178
18
65
5
-‐
-‐
15
10
113
37
IQE Annual Report & Financial Statements 2012
Directors’
report
Dividends
The
directors
do
not
recommend
the
payment
of
a
dividend
(2011:
£nil).
Directors
The
directors
in
office
at
31
December
2012
and
throughout
the
year
and
their
beneficial
interests
in
the
company’s
issued
ordinary
share
capital
and
share
options
are
set
out
in
the
remuneration
report
on
page
42.
Substantial
interests
in
shares
As
at
15
March
2013,
the
company
had
been
notified
pursuant
to
the
Companies
Act
of
the
following
substantial
interests
in
the
shares
of
the
company
as
defined
by
the
Listing
Rules
in
addition
to
those
disclosed
for
the
directors:
Research
and
development
The
group
incurred
costs
in
respect
of
research
and
development
during
the
year
of
£4,185,000
(2011:
£3,773,000)
of
which
£4,042,000
(2011:
£3,666,000)
has
been
capitalised
in
accordance
with
IAS
38
(“Intangible
assets”).
The
remaining
research
and
development
costs
totalling
£143,000
(2011:
£107,000)
have
been
charged
to
the
income
statement.
Payment
terms
The
group
seeks
to
agree
favourable
credit
terms
with
its
suppliers
where
possible,
and
adhere
to
the
agreed
terms.
The
group’s
average
number
of
days’
purchases
outstanding
in
respect
of
trade
creditors
at
31
December
2012
was
85
days
(2011:
82
days).
AXA
Framlington
Investment
Management
....................
9.33%
T
Rowe
Price
Inc
.............................................................
8.84%
Blackrock
Investment
Management
...............................
6.42%
Four
Capital
Partners
......................................................
4.94%
Nelson
A
W
Dr
.................................................................
4.62%
Herald
Investment
Management
Limited
.......................
4.40%
Barclays
Stock
Brokers
Limited
.......................................
3.84%
M&G
Investment
Management
.......................................
3.27%
Shareholder analysis by Argus Vickers
The
directors
present
their
annual
report
and
the
audited
financial
statements
for
the
year
ended
31
December
2012.
Activities
The
principal
activity
of
the
group
during
the
year
was
the
development,
manufacture
and
sale
of
advanced
semiconductor
materials.
The
principal
activity
of
the
company
is
that
of
a
holding
company
for
the
group,
the
provision
of
services
to
subsidiary
companies,
and
the
research,
development
and
provision
of
engineering
consultancy
services
to
the
compound
semiconductor
industry.
Business
review
A
review
of
the
group’s
trading
during
the
year
and
its
position
at
the
year
end
is
provided
in
the
Chief
Executive’s
review.
The
review
includes
key
performance
indicators
as
detailed
in
the
Five
Year
Financial
Summary.
The
principal
risks
and
uncertainties
facing
the
group
are
set
out
on
page
39.
a) Non
financial
KPIs
are
commercially
sensitive
and
are
therefore
not
disclosed
b) The
outlook
for
the
Group
is
set
out
on
page
24.
c) During
the
year
and
post
year
end
the
Group
completed
a
number
of
transactions.
Details
of
these
transactions
are
disclosed
in
the
business
combination
note
17
and
the
post
balance
sheet
events
note
25.
38
IQE Annual Report & Financial Statements 2012
Employment
policies
It
is
the
group’s
policy
that
there
should
be
no
discrimination
in
considering
applications
for
employment
including
those
from
disabled
persons.
All
employees,
including
the
disabled,
are
given
equal
opportunities
in
terms
of
career
development
and
promotion.
Appropriate
training
is
arranged
for
disabled
persons,
including
retraining
for
alternative
work
of
employees
who
become
disabled,
to
promote
their
career
development
within
the
organisation.
The
group
remains
committed
to
its
policy
of
keeping
employees
fully
informed
about
all
matters
which
concern
them.
Formal
communications
are
used
to
achieve
this
objective,
including
intranet,
e-‐mail
and
notice
board
announcements.
Employee
involvement
takes
different
forms
in
each
subsidiary,
ranging
from
formal
committee
meetings
to
less
formal
discussion
groups.
Schemes
have
been
implemented
to
ensure
that
employees
are
properly
rewarded
for
performance
and
loyalty.
Going
concern
The
directors,
after
making
enquiries,
have
considered
the
future
prospects
of
the
group
and
have
a
reasonable
expectation
that
it
will
have
adequate
resources
to
continue
operating
for
the
foreseeable
future
and
therefore
the
going
concern
basis
has
been
adopted
in
preparing
these
financial
statements.
Principal
risks
and
uncertainties
The
Board
considers
that
the
principal
risks
and
uncertainties
facing
the
group
are:
Competition
IQE’s
business
model
involves
building
close
working
relationships
with
its
customers
and
often
involves
forming
multilevel
partnerships
from
the
product
design
stages
through
to
pilot
and
volume
production.
Such
arrangements
can
lead
to
long
qualification
timescales
but
once
a
product
range
and
relationship
is
established,
it
can
also
create
significant
barriers
to
entry
for
competitors.
In
some
cases,
customers
seek
second
source
supply
arrangements
to
meet
their
own
business
continuity
planning
policies.
As
such,
there
is
a
risk
that
market
share
may
be
eroded.
The
Board
believes
that
IQE’s
strategy
to
provide
multiple
site
capabilities
for
all
leading
product
lines
provides
an
effective
mitigation
against
this
risk.
Technological
change
Any
technology
based
company
faces
a
threat
from
technology
change
that
has
not
been
anticipated.
IQE
actively
engages
with
customers,
educational
institutions
and
government
agencies
on
a
range
of
research
and
development
(R&D)
programmes.
The
company’s
involvement
in
R&D
activities
coupled
with
its
broad
range
of
products
and
process
technologies
helps
ensure
a
forward
looking
approach
that
positions
IQE
as
a
driver
of
technological
change.
Supply
chain
Changes
in
the
supply
chain
such
as
scarcity
of
key
raw
materials
could
impact
the
business.
IQE
builds
close
relationships
with
its
key
suppliers
in
order
to
keep
well
informed
about
potential
supply
issues.
The
raw
materials
which
sustain
IQE’s
products
are
not
scarce
resources.
Retention
of
key
employees
The
Board
recognises
that
the
retention
and
development
of
its
workforce
is
critical
to
its
long
term
success
as
a
leading
technology
group.
IQE’s
people
are
the
heart
of
the
business
and
in
order
to
promote
the
development
and
retention
of
its
staff
IQE
offers
career
progression,
personal
development
and
a
range
of
benefits
and
incentives
to
its
staff.
This
is
reflected
in
low
staff
turnover,
with
many
employees
who
have
been
with
the
company
since
it
was
formed
over
twenty
years
ago.
In
addition,
IQE
operates
a
highly
effective,
robust,
and
fully
documented
quality
management
system
across
all
of
its
operations.
These
systems
ensure
that
all
key
data
and
procedures
are
fully
documented,
reflecting
IQE’s
“learning
organisation”
philosophy.
These
rigorous
systems
provide
IQE
and
its
customers
with
a
high
level
of
confidence
in
terms
of
process
reproducibility
and
product
traceability,
and
minimise
the
potential
impact
of
losing
key
personnel.
39
IQE Annual Report & Financial Statements 2012
Treasury
IQE
operates
a
central
treasury
which
acts
in
accordance
with
specific
board
policies.
Speculative
transactions
are
not
permitted.
Interest
rate
risk
The
Board
is
aware
of
the
risks
associated
with
changes
in
interest
rates
and
does
not
speculate
on
future
changes
in
interest
rates
or
currencies.
The
group’s
policy
is
to
regularly
review
its
exposure
to
interest
rate
risk,
and
in
particular
the
mix
between
fixed
and
floating
rate
facilities.
The
percentage
of
borrowings
on
fixed
rate
terms
at
31
December
2012
was
29%
(2011:
1%).
Floating
rate
liabilities
are
primarily
indexed
to
LIBOR.
The
group
did
not
enter
into
any
interest
rate
swap
instruments
during
2012.
This
remains
under
regular
review.
As
a
guide
to
the
sensitivity
of
the
group’s
results
to
movements
in
interest
rates,
a
100
basis
point
(1%)
movement
in
interest
rates
would
have
impacted
the
2012
annual
interest
charge
by
approximately
£100,000.
Credit
risk
The
majority
of
the
group’s
revenues
are
derived
from
large
multinational
organisations.
Therefore
the
credit
risk
is
considered
to
be
small.
Where
the
group
assesses
a
potential
credit
risk,
this
is
dealt
with
either
by
up-‐front
payment
prior
to
the
shipment
of
goods
or
by
other
credit
risk
mitigation
measures.
As
a
result
the
group
has
historically
had
and
continues
to
have
a
very
low
level
of
payment
default.
Currency
risk
(a)
Cash
flow
risk
The
group’s
presentational
currency
is
sterling.
However,
the
majority
of
sales
are
denominated
in
US
dollars.
Therefore,
the
group’s
cash
flows
are
affected
by
fluctuations
in
the
rate
of
exchange
between
Sterling
and
the
US
dollar.
This
exposure
is
managed
by
a
natural
currency
hedge
because
a
significant
portion
of
the
group’s
cost
base
is
also
denominated
in
US
dollars.
In
particular,
the
majority
of
the
group’s
raw
materials
are
purchased
in
US
dollars,
and
a
significant
portion
of
labour
and
overheads
are
also
denominated
in
US
dollars
as
three
of
the
group’s
principal
subsidiaries
are
situated
in
North
America.
To
a
lesser
extent,
the
group
also
generates
sales
in
other
currencies
including
Yen
and
Euros
which
are
also
partially
hedged
where
possible
by
purchases
of
some
raw
materials
in
these
currencies.
Taking
into
account
the
extent
of
the
natural
hedge
within
the
business
model,
management
periodically
use
forward
exchange
contracts
to
mitigate
the
impact
of
the
residual
foreign
currency
exposure.
As
at
31
December
2012
there
were
no
contracts
in
place.
(b)
Fair
value
risk
The
group
has
operations
in
the
UK,
North
America
and
Asia.
Translation
exposures
that
arise
on
converting
the
results
of
overseas
subsidiaries
are
not
hedged.
Net
assets
held
in
foreign
currencies
are
hedged
wherever
practical
by
matching
borrowings
in
the
same
currency.
As
a
guide
to
the
sensitivity
of
the
group’s
results
to
movements
in
foreign
currency
exchange
rates,
a
one
cent
movement
in
the
US
dollar
to
Sterling
rate
would
impact
annual
earnings
by
approximately
£100,000
(2011:
£100,000).
Liquidity
risk
Prudent
liquidity
risk
management
requires
maintaining
sufficient
cash
and
cash
equivalents
and
the
availability
of
funding
through
committed
credit
facilities.
Management
utilises
detailed
rolling
cash
flow
forecasts
as
part
of
its
cash
management.
This
includes
weekly
forecasts
for
the
next
quarter
and
monthly
forecasts
for
the
next
12
months.
40
IQE Annual Report & Financial Statements 2012
Capital
risk
The
group’s
main
objectives
when
managing
capital
are
to
safeguard
the
group’s
ability
to
continue
as
a
going
concern
in
order
to
provide
returns
for
shareholders
and
benefits
for
other
stakeholders
and
to
maintain
an
optimal
capital
structure
to
reduce
the
cost
of
capital.
The
group
defines
total
capital
as
equity
in
the
consolidated
balance
sheet
plus
net
debt
or
less
net
funds
(note
23).
Total
capital
at
31
December
2012
was
£106,079,000
(2011:
£76,671,000).
Consistent
with
others
in
the
industry,
the
group
monitors
capital
on
the
basis
of
the
gearing
ratio.
This
ratio
is
calculated
as
net
debt
divided
by
total
capital.
At
31
December
2012
the
gearing
ratio
was
15%
(2011:
5%).
All
covenants
in
relation
to
the
group’s
borrowing
facilities
have
been
complied
with
during
the
year.
Statement
of
directors’
responsibilities
The
directors
are
responsible
for
preparing
the
Annual
Report
and
the
financial
statements
in
accordance
with
applicable
law
and
regulations.
Company
law
requires
the
directors
to
prepare
financial
statements
for
each
financial
year.
Under
that
law
the
directors
have
prepared
the
group
and
parent
company
financial
statements
in
accordance
with
International
Financial
Reporting
Standards
(IFRSs)
as
adopted
by
the
European
Union.
Under
company
law
the
directors
must
not
approve
the
financial
statements
unless
they
are
satisfied
that
they
give
a
true
and
fair
view
of
the
state
of
affairs
of
the
group
and
the
company
and
of
the
profit
or
loss
of
the
group
for
that
period.
In
preparing
these
financial
statements,
the
directors
are
required
to:
select
suitable
accounting
policies
and
then
apply
them
consistently;
make
judgements
and
accounting
estimates
that
are
reasonable
and
prudent;
state
whether
applicable
IFRSs
as
adopted
by
the
European
Union
have
been
followed,
subject
to
any
material
departures
disclosed
and
explained
in
the
financial
statements;
prepare
the
financial
statements
on
the
going
concern
basis
unless
it
is
inappropriate
to
presume
that
the
company
will
continue
in
business.
The
directors
are
responsible
for
keeping
adequate
accounting
records
that
are
sufficient
to
show
and
explain
the
company’s
transactions
and
disclose
with
reasonable
accuracy
at
any
time
the
financial
position
of
the
company
and
the
group
and
enable
them
to
ensure
that
the
financial
statements
and
the
Directors’
Remuneration
Report
comply
with
the
Companies
Act
2006.
They
are
also
responsible
for
safeguarding
the
assets
of
the
company
and
the
group
and
hence
for
taking
reasonable
steps
for
the
prevention
and
detection
of
fraud
and
other
irregularities.
The
directors
are
responsible
for
the
maintenance
and
integrity
of
the
group’s
website,
www.iqep.com.
Legislation
in
the
United
Kingdom
governing
the
preparation
and
dissemination
of
financial
statements
may
differ
from
legislation
in
other
jurisdictions.
Provision
of
information
to
auditors
So
far
as
the
directors
are
aware,
there
is
no
relevant
audit
information
of
which
the
company’s
auditors
are
unaware.
The
directors
have
taken
all
the
steps
that
ought
to
have
been
taken
as
directors
in
order
to
make
themselves
aware
of
any
relevant
audit
information
and
to
establish
that
the
company’s
auditors
are
aware
of
that
information.
Independent
Auditors
A
resolution
to
reappoint
PricewaterhouseCoopers
LLP
will
be
proposed
at
the
forthcoming
Annual
General
Meeting.
Approved
by
the
Board
of
Directors
and
signed
on
behalf
of
the
Board.
Phillip
Rasmussen
Finance
Director
&
Company
Secretary
20
March
2013
41
IQE Annual Report & Financial Statements 2012
Remuneration
report
Introduction
This
report
has
been
prepared
in
accordance
with
the
Directors’
Remuneration
Report
Regulations
2007
which
introduced
new
statutory
requirements
for
the
disclosure
of
directors’
remuneration.
Although
not
required
to,
the
directors
have
decided
to
provide
directors’
remuneration
disclosures
similar
to
those
that
would
be
required
of
a
fully
listed
company.
In
particular,
the
Remuneration
Report
describes
how
the
Board
has
applied
the
principles
of
good
governance
relating
to
directors’
remuneration
set
out
in
the
UK
Corporate
Governance
Code.
A
resolution
to
approve
the
report
will
be
proposed
at
the
forthcoming
Annual
General
Meeting
of
the
company.
The
report
has
been
divided
into
separate
sections
for
unaudited
and
audited
information.
Unaudited
information
(a)
Remuneration
Committee
The
Board
considers
itself
ultimately
responsible
for
the
framework
and
cost
of
executive
remuneration,
but
has
delegated
responsibility
for
determining
the
remuneration
levels
and
conditions
of
service
for
executive
directors
and
senior
executives
to
the
remuneration
committee.
The
committee’s
approach
is
fully
consistent
with
the
company’s
overall
philosophy
that
all
employees
should
be
competitively
rewarded
in
order
to
attract
and
retain
their
valued
skills
in
the
business,
as
well
as
supporting
corporate
strategy
by
directly
aligning
executive
management
with
the
company’s
strategic
business
goals.
The
remuneration
committee
is
comprised
exclusively
of
independent
non-‐executive
directors
of
the
company
who
have
no
personal
financial
interest,
other
than
as
shareholders,
in
the
matters
to
be
decided.
The
members
of
the
committee
throughout
the
year
were
Dr
G
H
H
Ainsworth
and
S
J
Gibson.
The
Chairman
of
the
committee
is
S
J
Gibson.
The
committee
follows
the
provisions
of
Schedule
A
to
the
UK
Corporate
Governance
Code,
and
is
responsible
for
determining
the
company’s
policy
on
compensation
of
executive
directors
and
the
basis
of
their
service
agreements
with
due
regard
to
the
interests
of
shareholders.
It
also
approves
the
allocation
of
share
options
to
employees.
The
committee
operates
under
clear
written
terms
of
reference
and
has
access
to
and
takes
independent
professional
advice
as
appropriate.
The
committee
met
four
times
during
2012
to
review
the
performance
of
the
executive
directors
and
other
senior
executives,
and
set
the
scale
and
structure
of
their
remuneration.
(b)
Remuneration
policy
In
establishing
its
remuneration
policy,
the
committee
has
given
full
consideration
to
Schedule
B
of
the
Best
Practices
Provisions
annexed
to
the
Listing
Rules
of
the
Financial
Services
Authority.
The
remuneration
packages
for
executive
directors
and
senior
executives,
as
determined
by
the
committee,
are
intended
to
attract
and
retain
high
quality
executives,
induce
loyalty
and
motivate
them
to
achieve
a
high
level
of
corporate
performance
in
line
with
the
best
interests
of
shareholders,
while
not
being
excessive.
The
remuneration
of
the
executive
directors
consists
of
annual
salary,
performance
bonus,
share
options,
taxable
benefits
in
kind
and
pension
contributions.
There
is
an
annual
review
at
which
the
committee
approves
the
basic
salary
and
profit
sharing
bonus
scheme
for
each
executive
director.
The
committee
receives
input
from
the
Chief
Executive
regarding
recommended
packages
for
executive
directors
and
senior
executives.
(c)
Basic
salary
Basic
salary
is
determined
by
reference
to
individual
responsibilities,
performance
and
external
market
data.
(d)
Performance
bonus
Bonus
payments
are
linked
to
the
executive
directors
achieving
internal
annual
plan
targets
in
respect
of
profitability
and
other
non-‐financial
performance
criteria.
Bonuses
were
awarded
to
certain
directors
in
respect
of
2012
in
accordance
with
this
scheme.
42
IQE Annual Report & Financial Statements 2012
(e)
Taxable
benefits
in
kind
The
company
reimbursed
all
fuel
and
maintenance
costs
in
respect
of
the
executive
directors’
private
cars,
and
these
costs
are
treated
as
taxable
benefits
in
kind.
Other
taxable
benefits
comprise
medical
health
and
life
insurance.
(f)
Share
incentive
schemes
The
company
operates
a
number
of
share
incentive
schemes.
The
IQE
Plc
Share
Option
Scheme,
as
adopted
on
26
May
2000
and
amended
by
shareholders
at
the
company’s
Annual
General
Meeting
on
17
May
2002,
allows
the
company
to
grant
options
over
up
to
15%
of
the
issued
share
capital
and
those
options
are
subject
to
performance
conditions.
During
the
year,
the
committee
approved
the
grant
of
2,761,361
share
options
to
staff
(2011:
5,889,277
share
options).
During
2012,
Directors
were
awarded
nil
cost
options
over
6,710,583
ordinary
shares
in
the
company
(2011:
nil).
Option
price
Share
options
of
nil
cost
to
10p/option
Share
options
in
excess
of
10p/option
to
20p/option
Share
options
in
excess
of
20p/option
to
30p/option
Share
options
in
excess
of
30p/option
Total
As
at
31
December
2012,
38,693,514
share
options
(2011:
51,043,125
share
options)
granted
under
the
IQE
Plc
Share
Option
Scheme
remain
outstanding
with
exercise
prices
ranging
from
nil
cost
to
86p/option
(2011:
nil
cost
to
86p/
option).
14,935,129
share
options
were
exercised
by
directors
during
the
year
(2011:
6,241,500).
2,251,349
of
directors
share
options
lapsed
during
the
year
(2011:
nil)
The
numbers
and
prices
of
share
options
at
31
December
2012
and
31
December
2011
were
as
follows:
2012
No.
of
options
2011
No.
of
options
21,133,728
14,234,831
1,970,000
1,354,956
38,693,514
23,446,947
25,377,375
754,000
1,464,803
51,043,125
(g)
Directors’
interests
in
ordinary
shares
of
IQE
Plc
The
interests
in
ordinary
shares
of
IQE
Plc
of
those
directors
holding
office
at
31
December
2012
were
as
follows:
Name
of
director
Executive:
Dr
A
W
Nelson
Dr
H
R
Williams
P
J
Rasmussen
Non-‐Executive:
Dr
G
H
H
Ainsworth
S
J
Gibson
Dr
D
Grant
Total
As
at
1
January
2012
As
at
31
December
2012
27,482,913
678,342
495,000
3,121,999
301,855
-‐
32,080,109
29,830,132
1,672,430
852,822
3,121,999
301,855
-‐
35,779,238
43
IQE Annual Report & Financial Statements 2012
The
interests
in
share
options
in
IQE
Plc
of
those
directors
who
held
office
at
31
December
2012
were
as
follows:
Name
of
director
Executive:
Dr
A
W
Nelson
Dr
H
R
Williams
P
J
Rasmussen
Non-‐Executive:
Dr
G
H
H
Ainsworth
S
J
Gibson
Dr
D
Grant
Total
As
at
1
January
2012
Options
granted
Options
exercised
As
at
31
December
2012
Date(s)
from
which
exercisable
12,845,124
5,386,433
2,586,393
2,370,669
1,499,656
1,499,656
(10,283,219)
(3,494,088)
(1,157,822)
4,932,574
3,392,001
2,928,227
1
Jan
2012
to
1
Jan
2015
1
Jan
2012
to
1
Jan
2015
1
Jan
2012
to
1
Jan
2015
-‐
-‐
-‐
20,817,950
-‐
-‐
-‐
11,252,802
The
highest
and
lowest
mid-‐market
share
prices
in
respect
of
the
shares
of
IQE
Plc
during
2012
were
33.25p/share
and
18.72p/share
respectively
(2011:
59.00p/share
and
17.75p/share
respectively).
The
mid-‐market
price
of
IQE
plc
shares
closed
at
30.75p/share
as
at
31
December
2012
(2011:
18.72p/share).
(h)
Pension
arrangements
The
executive
directors
are
members
of
the
group
defined
contribution
pension
schemes
and
their
pension
contributions
are
based
on
a
percentage
of
basic
annual
salary.
Their
dependants
are
eligible
for
the
payment
of
a
lump
sum
in
the
event
of
death
in
service.
There
have
been
no
changes
in
the
terms
of
directors’
pension
entitlements
during
2012,
and
there
were
no
unfunded
pension
promises
or
similar
arrangements
for
directors
at
31
December
2012.
(i)
Executive
Directors’
service
contracts
It
is
the
company’s
policy
to
appoint
executive
directors
under
service
agreements
which
are
terminable
by
either
party
giving
between
six
and
twelve
months’
notice.
Each
of
the
agreements
contain
post-‐termination
restrictive
covenants,
which
place
limitations
on
solicitation
of
customers
and
employees
of
the
group
and
on
acting
in
competition
with
the
business
of
the
group.
There
are
no
predetermined
provisions
for
compensation
on
termination
within
executive
directors’
service
agreements.
However,
the
company
is
against
rewards
for
failure
and
believes
that
severance
arrangements
should
be
restricted
to
basic
pay
and
consequential
payments
such
as
earned
bonus.
In
circumstances
where
there
is
no
conflict
of
interest,
the
company
allows
executive
directors
to
serve
as
non-‐executive
directors
elsewhere.
In
such
circumstances
the
remuneration
received
is
retained
by
the
director.
44
IQE Annual Report & Financial Statements 2012
(j)
Non-‐Executive
Directors’
contracts
The
non-‐executive
directors
have
entered
into
service
agreements
with
the
company,
and
these
are
terminable
by
either
party
on
three
months’
notice.
Non-‐executive
directors
have
specific
terms
of
engagement,
and
their
fees
are
determined
by
the
Board
within
the
limits
set
by
the
company’s
Articles
of
Association.
Non-‐executive
directors
do
not
take
part
in
discussions
on
their
own
remuneration.
There
were
no
changes
to
non-‐executive
remuneration
during
2012.
The
services
of
Dr
G
H
H
Ainsworth
were
paid
in
cash.
£70,000
(2011:
£70,000),
was
paid
to
Horton
Corporate
Finance
for
his
fees
and
expenses
for
2012.
Dr
G
H
H
Ainsworth
is
a
director
of
Horton
Corporate
Finance.
VAT
was
charged
on
the
invoices
from
Horton
Corporate
Finance
and
this
was
recovered
by
the
company.
The
services
of
S
J
Gibson
were
paid
in
cash.
£35,000
(2011:
£35,000),
was
paid
to
Fishstone
Limited
for
his
fees
and
expenses
for
2012.
S
J
Gibson
is
a
shareholder
in
Fishstone
Limited.
VAT
was
charged
on
the
invoices
from
Fishstone
Limited
and
this
was
recovered
by
the
company.
The
services
of
Dr
D
Grant
were
payable
in
cash.
£12,000
(2011:
£nil).
The
non-‐executive
directors
receive
no
other
pay
or
benefits,
do
not
participate
in
the
company’s
share
schemes,
and
are
not
eligible
for
pension
scheme
membership.
Neither
had
any
share
options
in
the
company
at
31
December
2012
and
it
is
not
intended
that
share
options
will
be
issued
to
them
in
the
future
in
accordance
with
Best
Practice
Guidelines
issued
by
the
Association
of
British
Insurers.
(k)
Share
price
performance
The
IQE
plc
share
price
has
been
compared
with
the
AIM
market
all-‐
share
index
for
the
five
year
period
2007
to
2012
as
this
was
considered
to
be
the
most
representative
market
group.
Five
year
share
price
performance:
IQE
plc
share
price
compared
with
AiM
all
share
index,
2008
to
2012.
45
IQE Annual Report & Financial Statements 2012
Audited
information
(a)
Aggregate
directors’
remuneration
The
total
amounts
paid
for
directors’
remuneration
during
2012
were
as
follows:
Basic
salaries
Bonuses
Non-‐executive
fees
Subtotal
salaries
and
fees
Car
allowance
Benefits
in
kind
Money
purchase
pension
contributions
Total
(b)
Directors
emoluments
2012
£’000
718
51
117
835
115
20
49
1,070
2011
£’000
752
134
105
991
116
28
45
1,180
The
aggregate
emoluments
paid
to
each
director
during
2012
were
as
follows:
Name
of
director
Salary
fees
and
bonuses
£’000
Car
allowance
£’000
Benefits
in
kind
£’000
Pensions
£’000
2012
Total
£’000
2011
Total
£’000
Executive:
Dr
A
W
Nelson
Dr
H
R
Williams
P
J
Rasmussen
A
G
Meldrum
(Resigned
21
September
2012)
Non-‐Executive:
Dr
G
H
H
Ainsworth
S
J
Gibson
Dr
D
Grant
Dr
D
Grant
(Appointed
18
September
2012)
(Appointed
18
September
2012)
Total
Notes:
271
171
167
160
42
27
27
19
9
2
8
1
-‐
20
24
6
322
220
226
186
70
35
12
367
243
249
216
70
35
-‐
1,070
1,180
In
aggregate,
the
executive
directors
made
a
gain
of
£3,493,661
(2011:
£2,465,000)
on
the
exercise
of
share
options
during
the
year.
The
majority
of
the
shares
obtained
on
the
exercise
of
these
options
were
sold
in
order
to
satisfy
the
option
price
and
tax
arising
on
the
exercise.
The
shares
retained
are
included
in
the
closing
totals
shown
on
the
next
page.
Dr
Nelson
made
a
gain
of
£1,570,762
as
part
of
these
exercises.
Approval
This
report
was
approved
by
the
Board
of
Directors
on
20
March
2013
and
signed
on
its
behalf
by:
S
J
Gibson,
OBE
46
IQE Annual Report & Financial Statements 2012
Independent
auditors’
report
to
the
members
of
IQE
plc
We
have
audited
the
group
and
parent
company
financial
statements
(the
‘‘financial
statements’’)
of
IQE
plc
for
the
year
ended
31
December
2012
which
comprise
the
Consolidated
Income
Statement,
the
Consolidated
Statement
of
Comprehensive
Income,
the
Consolidated
and
Parent
Company
Balance
Sheets,
the
Consolidated
and
Parent
Company
Cash
Flow
Statements,
the
Consolidated
and
Parent
Company
Statements
of
Changes
in
Equity
and
the
related
notes.
The
financial
reporting
framework
that
has
been
applied
in
their
preparation
is
applicable
law
and
International
Financial
Reporting
Standards
(IFRSs)
as
adopted
by
the
European
Union
and,
as
regards
the
parent
company
financial
statements,
as
applied
in
accordance
with
the
provisions
of
the
Companies
Act
2006.
Respective
responsibilities
of
directors
and
auditors
As
explained
more
fully
in
the
Directors’
Responsibilities
Statement
set
out
on
page
41,
the
directors
are
responsible
for
the
preparation
of
the
financial
statements
and
for
being
satisfied
that
they
give
a
true
and
fair
view.
Our
responsibility
is
to
audit
and
express
an
opinion
on
the
financial
statements
in
accordance
with
applicable
law
and
International
Standards
on
Auditing
(UK
and
Ireland).
Those
standards
require
us
to
comply
with
the
Auditing
Practices
Board’s
Ethical
Standards
for
Auditors.
This
report,
including
the
opinions,
has
been
prepared
for
and
only
for
the
company’s
members
as
a
body
in
accordance
with
Chapter
3
of
Part
16
of
the
Companies
Act
2006
and
for
no
other
purpose.
We
do
not,
in
giving
these
opinions,
accept
or
assume
responsibility
for
any
other
purpose
or
to
any
other
person
to
whom
this
report
is
shown
or
into
whose
hands
it
may
come
save
where
expressly
agreed
by
our
prior
consent
in
writing.
Scope
of
the
audit
of
the
financial
statements
An
audit
involves
obtaining
evidence
about
the
amounts
and
disclosures
in
the
financial
statements
sufficient
to
give
reasonable
assurance
that
the
financial
statements
are
free
from
material
misstatement,
whether
caused
by
fraud
or
error.
This
includes
an
assessment
of:
whether
the
accounting
policies
are
appropriate
to
the
company’s
circumstances
and
have
been
consistently
applied
and
adequately
disclosed;
the
reasonableness
of
significant
accounting
estimates
made
by
the
directors;
and
the
overall
presentation
of
the
financial
statements.
In
addition,
we
read
all
the
financial
and
non-‐financial
information
in
the
Annual
Report
to
identify
material
inconsistencies
with
the
audited
financial
statements.
If
we
become
aware
of
any
apparent
material
misstatements
or
inconsistencies
we
consider
the
implications
for
our
report.
Opinion
on
financial
statements
In
our
opinion:
• the
financial
statements
give
a
true
and
fair
view
of
the
state
of
the
group’s
and
of
the
parent
company’s
affairs
as
at
31
December
2012
and
of
the
group’s
profit
and
group’s
and
parent
company’s
cash
flows
for
the
year
then
ended;
• the
group
financial
statements
have
been
properly
prepared
in
accordance
with
IFRSs
as
adopted
by
the
European
Union;
• the
parent
company
financial
statements
have
been
properly
prepared
in
accordance
with
IFRSs
as
adopted
by
the
European
Union
and
as
applied
in
accordance
with
the
provisions
of
the
Companies
Act
2006;
and
• the
financial
statements
have
been
prepared
in
accordance
with
the
requirements
of
the
Companies
Act
2006.
47
IQE Annual Report & Financial Statements 2012
Opinion
on
other
matter
prescribed
by
the
Companies
Act
2006
In
our
opinion,
the
information
given
in
the
Directors’
Report
for
the
financial
year
for
which
the
financial
statements
are
prepared
is
consistent
with
the
financial
statements.
Matters
on
which
we
are
required
to
report
by
exception
We
have
nothing
to
report
in
respect
of
the
following
matters
where
the
Companies
Act
2006
requires
us
to
report
to
you
if,
in
our
opinion:
• adequate
accounting
records
have
not
been
kept
by
the
parent
company,
or
returns
adequate
for
our
audit
have
not
been
received
from
branches
not
visited
by
us;
or
• the
parent
company
financial
statements
are
not
in
agreement
with
the
accounting
records
and
returns;
or
• certain
disclosures
of
directors’
remuneration
specified
by
law
are
not
made;
or
• we
have
not
received
all
the
information
and
explanations
we
require
for
our
audit.
The
directors
have
requested,
(because
the
company
applies
Listing
Rules
9.8.6R
5
and
6
of
the
Financial
Services
Authority
as
if
it
were
a
listed
company),
that
we
review
the
parts
of
the
Corporate
Governance
Report
relating
to
the
company’s
compliance
with
the
nine
provisions
of
the
UK
Corporate
Governance
Code
specified
for
our
review
by
the
Listing
Rules
of
the
Financial
Services
Authority.
We
have
nothing
to
report
in
respect
of
this
review.
At
the
request
of
the
directors,
we
have
also
audited
the
part
of
the
Directors’
Remuneration
Report
that
is
described
as
having
been
audited.
In
our
opinion,
the
part
of
the
Directors’
Remuneration
Report
to
be
audited
has
been
properly
prepared
in
accordance
with
the
Companies
Act
2006.
Mark
Ellis
(Senior
Statutory
Auditor)
for
and
on
behalf
of
PricewaterhouseCoopers
LLP
Chartered
Accountants
and
Statutory
Auditors
Cardiff
20
March
2013
48
IQE Annual Report & Financial Statements 2012
Financial
statements
Consolidated
income
statement
for
the
year
ended
31
December
2012
Revenue
Cost
of
sales
Gross
profit
Selling,
general
and
administrative
expenses
Operating
profit
before
exceptional
items
Exceptional
items
Operating
profit
Finance
costs
Profit
before
tax
Income
tax
credit
Profit
for
the
year
attributable
to
equity
shareholders
Profit
for
the
year
attributable
to
equity
shareholders
Adjusted
earnings
per
share
Basic
earnings
per
share
Adjusted
diluted
earnings
per
share
Diluted
earnings
per
share
The
notes
on
pages
56
to
80
form
part
of
these
financial
statements.
Consolidated
statement
of
comprehensive
income
for
the
year
ended
31
December
2012
Profit
for
the
year
Currency
translation
differences
on
foreign
currency
net
investments
Foreign
exchange
hedges
Total
comprehensive
income
for
the
year
Note
3
4
4
6
7
9
9
9
9
2012
£’000
87,961
(69,491)
18,470
(11,456)
7,584
(570)
7,014
(886)
6,128
503
6,631
1.59p
1.16p
1.51p
1.10p
2011
£’000
75,318
(57,142)
18,176
(10,803)
7,373
-‐
7,373
(481)
6,892
1,551
8,443
1.86p
1.62p
1.74p
1.51p
2012
£’000
6,631
(2,497)
-‐
4,134
2011
£’000
8,443
432
(598)
8,277
49
IQE Annual Report & Financial Statements 2012
Consolidated
balance
sheet
as
at
31
December
2012
Non-‐current
assets:
Intangible
assets
Property,
plant
and
equipment
Investments
Deferred
tax
asset
Total
non-‐current
assets
Current
assets:
Inventories
Trade
and
other
receivables
Cash
and
cash
equivalents
Total
current
assets
Total
assets
Current
liabilities:
Borrowings
Trade
and
other
payables
Total
current
liabilities
Non-‐current
liabilities:
Borrowings
Other
payables
Total
non-‐current
liabilities
Total
liabilities
Net
assets
Shareholders’
equity:
Share
capital
Share
premium
Retained
earnings
Other
reserves
Total
equity
Note
10
11
12
7
13
14
16
15
16
15
18
2012
£’000
54,165
62,320
3,205
14,549
134,239
18,351
19,186
2,773
40,310
174,549
(2,428)
(31,709)
(34,137)
(15,828)
(34,386)
(50,214)
(84,351)
90,198
5,882
33,445
42,749
8,122
90,198
2011
£’000
32,706
37,348
-‐
1,876
71,930
15,122
14,338
3,233
32,693
104,623
(49)
(23,157)
(23,206)
(7,105)
(1,562)
(8,667)
(31,873)
72,750
5,251
22,122
36,118
9,259
72,750
The
notes
on
pages
56
to
80
form
part
of
these
financial
statements.
These
financial
statements
were
approved
by
the
Board
of
Directors
on
20
March
2013
Signed
on
behalf
of
the
Board
of
Directors
P
J
Rasmussen
Dr
A
W
Nelson
50
IQE Annual Report & Financial Statements 2012
Consolidated
statement
of
changes
in
equity
for
the
year
ended
31
December
2012
Share
capital
£’000
Share
premium
£’000
Retained
earnings
£’000
Exchange
rate
reserve
£’000
Other
reserves
£’000
Total
equity
£’000
Balance
at
1
January
2012
5,251
22,122
36,118
5,272
3,987
72,750
Comprehensive
income
Profit
for
the
year
Foreign
exchange
translation
differences
Total
comprehensive
income
Transactions
with
owners
Employee
share
option
scheme
Issues
of
ordinary
shares
Total
transactions
with
owners
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
631
631
11,323
11,323
6,631
-‐
6,631
-‐
(2,497)
(2,497)
-‐
-‐
-‐
6,631
(2,497)
4,134
-‐
-‐
-‐
-‐
-‐
-‐
1,360
1,360
1,360
11,954
13,314
Balance
at
31
December
2012
5,882
33,445
42,749
2,775
5,347
90,198
Balance
at
1
January
2011
5,153
21,237
28,019
4,840
3,025
62,274
Comprehensive
income
Profit
for
the
year
Foreign
exchange
translation
differences
Foreign
exchange
hedges
Total
comprehensive
income
Transactions
with
owners
Employee
share
option
scheme
Other
issues
of
ordinary
shares
Total
transactions
with
owners
-‐
-‐
-‐
-‐
-‐
98
98
-‐
-‐
-‐
-‐
-‐
885
885
8,443
-‐
-‐
8,443
(344)
-‐
(344)
-‐
432
-‐
432
-‐
-‐
-‐
-‐
-‐
(598)
(598)
1,284
276
1,560
8,443
432
(598)
8,277
940
1,259
2,199
Balance
at
31
December
2011
5,251
22,122
36,118
5,272
3,987
72,750
The
notes
on
pages
56
to
80
form
part
of
these
financial
statements.
51
IQE Annual Report & Financial Statements 2012
Consolidated
cash
flow
statement
for
the
year
ended
31
December
2012
Cash
flows
from
operating
activities:
Cash
inflow
from
operations
Net
interest
paid
Income
tax
received
Net
cash
generated
from
operating
activities
Cash
flows
from
investing
activities:
Acquisition
deferred
consideration
Investment
in
Solar
Junction
Corporation
Development
expenditure
Investment
in
other
intangible
fixed
assets
Purchase
of
property,
plant
and
equipment
Proceeds
from
sale
of
property,
plant
and
equipment
Net
cash
used
in
investing
activities
Cash
flows
from
financing
activities:
Issues
of
ordinary
share
capital
Loans
and
leases
repaid
Loans
and
leases
received
Net
cash
generated
from
financing
activities
Net
decrease
in
cash
and
cash
equivalents
Cash
and
cash
equivalents
at
1
January
Exchange
gains
on
cash
and
cash
equivalents
Cash
and
cash
equivalents
at
31
December
The
notes
on
pages
56
to
80
form
part
of
these
financial
statements.
Note
21
12
22
22
23
23
2012
£’000
4,109
(616)
1,284
4,777
(7,043)
(3,205)
(4,042)
(307)
(11,562)
-‐
(26,159)
11,445
(1,383)
10,877
20,939
(443)
3,233
(17)
2,773
2011
£’000
10,823
(515)
13
10,321
(1,134)
-‐
(3,666)
(328)
(15,517)
90
(20,555)
616
(6,933)
7,267
950
(9,284)
12,507
10
3,233
52
IQE Annual Report & Financial Statements 2012
Parent
company
balance
sheet
for
the
year
ended
31
December
2012
Non-‐current
assets:
Investments
Total
non-‐current
assets
Current
assets:
Trade
and
other
receivables
Cash
and
cash
equivalents
Total
current
assets
Total
assets
Current
liabilities:
Trade
and
other
payables
Total
current
liabilities
Non-‐current
liabilities:
Trade
and
other
payables
Borrowings
Total
non-‐current
liabilities
Total
liabilities
Net
assets
Shareholders’
equity:
Share
capital
Share
premium
Retained
earnings
Other
reserves
Total
equity
Note
12
14
15
15
16
18
2012
£’000
16,143
16,143
56,392
3,161
59,553
75,696
(684)
(684)
(484)
(9,565)
(10,049)
(10,733)
64,963
5,882
33,445
20,103
5,533
64,963
2011
£’000
13,687
13,687
46,134
240
46,374
60,061
(1,737)
(1,737)
(1,562)
(7,087)
(8,649)
(10,386)
49,675
5,251
22,122
18,129
4,173
49,675
The
notes
on
pages
56
to
80
form
part
of
these
financial
statements.
These
financial
statements
were
approved
by
the
Board
of
Directors
on
20
March
2013
.
Signed
on
behalf
of
the
Board
of
Directors
P
J
Rasmussen
Dr
A
W
Nelson
53
IQE Annual Report & Financial Statements 2012
Parent
company
statement
of
changes
in
equity
for
the
year
ended
31
December
2012
Balance
at
1
January
2011
5,153
21,237
16,886
3,423
46,699
Share
capital
£’000
Share
premium
£’000
Retained
earnings
£’000
Other
reserves
£’000
Total
equity
£’000
Comprehensive
income
Profit
for
the
year
Total
comprehensive
expense
Transactions
with
owners
Employee
share
option
scheme
Other
issues
of
ordinary
shares
Total
transactions
with
owners
-‐
-‐
-‐
98
98
-‐
-‐
-‐
885
885
1,243
1,243
-‐
-‐
-‐
-‐
-‐
476
274
750
1,243
1,243
476
1,257
1,733
Balance
at
31
December
2011
5,251
22,122
18,129
4,173
49,675
Comprehensive
income
Profit
for
the
year
Total
comprehensive
income
Transactions
with
owners
Employee
share
option
scheme
Share
placing
Other
issues
of
ordinary
shares
Total
transactions
with
owners
-‐
-‐
-‐
438
193
631
-‐
-‐
-‐
9,546
1,777
11,323
1,974
1,974
-‐
-‐
1,974
1,974
-‐
-‐
-‐
-‐
1,360
-‐
-‐
1,360
9,984
1,970
1,360
13,314
Balance
at
31
December
2012
5,882
33,445
20,103
5,533
64,963
The
notes
on
pages
56
to
80
form
part
of
these
financial
statements.
54
IQE Annual Report & Financial Statements 2012
Parent
company
cash
flow
statement
for
the
year
ended
31
December
2012
Cash
flows
from
operating
activities:
Cash
outflow
from
operations
Interest
received
Taxation
Net
cash
used
in
operating
activities
Cash
flows
from
investing
activities:
Investment
in
Solar
Junction
Net
cash
used
in
investing
activities
Cash
flows
from
financing
activities:
Issues
of
ordinary
share
capital
Loans
and
leases
(repaid)
Loans
and
leases
received
Net
cash
generated
from
financing
activities
Net
increase/(decrease)
in
cash
and
cash
equivalents
Cash
and
cash
equivalents
at
1
January
Cash
and
cash
equivalents
at
31
December
The
notes
on
pages
56
to
80
form
part
of
these
financial
statements.
Note
21
2012
£’000
(10,717)
2,845
75
(7,797)
(3,205)
(3,205)
11,445
-‐
2,478
13,923
2,921
240
3,161
2011
£’000
(8,453)
2,167
-‐
(6,286)
-‐
-‐
616
-‐
3,408
4,024
(2,262)
2,502
240
55
IQE Annual Report & Financial Statements 2012
Notes
to
the
financial
statements
1.
Significant
accounting
policies
The
principal
accounting
policies
adopted
in
the
preparation
of
these
financial
statements
are
set
out
below.
These
policies
have
been
consistently
applied
to
all
years
presented.
General
Information
The
company
is
a
public
limited
company,
which
is
listed
on
the
Alternative
Investment
Market
(AIM)
and
incorporated
and
domiciled
in
Great
Britain.
The
address
of
its
registered
office
is
Pascal
Close,
St
Mellons,
Cardiff,
CF3
0LW.
Basis
of
preparation
This
financial
information
has
been
prepared
on
a
going
concern
basis
under
the
historical
cost
convention
and
in
accordance
with
the
Companies
Act
2006
applicable
to
companies
reporting
under
IFRS,
International
Financial
Reporting
Standards
(“IFRS”)
as
adopted
by
the
European
Union
and
IFRIC
interpretations
expected
to
be
in
issue
at
31
December
2012.
The
application
of
these
standards
and
interpretations
necessitates
the
use
of
estimates
and
judgements.
The
main
areas
involving
estimates
are
set
out
below
in
note
2.
Changes
in
accounting
policy
and
disclosures
a)
New
and
amended
standards
adopted
by
the
group
There
are
no
IFRSs
or
IFRIC
interpretations
that
are
effective
for
the
first
time
for
the
financial
year
beginning
on
or
after
1
January
2012
that
would
be
expected
to
have
a
material
impact
on
the
group.
b)
New
standards,
amendments
and
interpretations
issued
but
not
effective
for
the
financial
year
beginning
1
January
2012
and
not
early
adopted
A
number
of
new
standards
and
amendments
to
standards
and
interpretations
are
effective
for
annual
periods
beginning
after
1
January
2012,
and
have
not
been
applied
in
preparing
these
consolidated
financial
statements.
None
of
these
are
expected
to
have
a
significant
effect
on
the
consolidated
financial
statements
of
the
group.
Basis
of
consolidation
The
consolidated
financial
statements
incorporate
the
financial
statements
of
the
company
and
its
subsidiary
undertakings.
Subsidiaries
are
all
entities
over
which
the
Group
has
the
power
to
govern
their
financial
and
operating
policies
generally
accompanying
a
shareholding
of
more
than
half
of
the
voting
rights.
Subsidiaries
are
consolidated
from
the
date
on
which
control
is
transferred
to
the
Group
and
are
de-‐consolidated
from
the
date
that
control
ceases.
Inter-‐company
transactions,
balances,
income
and
expenses
on
transactions
between
group
companies
are
eliminated.
Profits
and
losses
resulting
from
intercompany
transactions
that
are
recognised
in
assets
are
also
eliminated.
Accounting
policies
of
subsidiaries
have
been
changed
where
necessary
to
ensure
consistency
with
the
policies
adopted
by
the
group.
As
permitted
by
Section
408
of
the
Companies
Act
2006,
the
income
statement
of
the
parent
company
has
not
been
presented.
Business
combinations
The
acquisition
of
subsidiaries
is
accounted
for
using
the
purchase
method.
The
cost
of
an
acquisition
is
measured
at
the
fair
value
of
the
consideration.
The
acquired
identifiable
assets,
liabilities
and
contingent
liabilities
are
recognised
at
their
fair
value
at
the
date
of
acquisition.
Where
the
fair
values
of
contingent
deferred
consideration,
assets
and
liabilities
acquired
are
initially
recognised
on
a
provisional
basis,
these
are
reassessed
during
the
12
month
period
following
the
date
of
the
business
combination.
Adjustments
to
the
fair
values
as
at
the
date
of
acquisition
within
this
‘measurement
period’
are
recorded,
with
any
net
impact
being
added
to
or
deducted
from
the
goodwill
recognised.
Such
adjustments
are
recognised
in
both
the
current
period
and
restated
comparative
period
balance
sheets
as
if
the
final
fair
values
had
been
used
in
the
initial
recognition
of
the
acquisition.
The
group
recognises
any
non-‐controlling
interest
on
an
acquisition-‐by-‐acquisition
basis,
either
at
fair
value
or
at
the
non-‐
controlling
interest’s
proportionate
share
of
the
recognised
amounts
of
acquiree’s
identifiable
net
assets.
Acquisition
related
costs
are
expensed
as
incurred.
Intangible
assets
a)
Goodwill
Goodwill
arising
on
an
acquisition
is
recognised
as
an
asset
and
initially
measured
at
cost,
being
the
excess
of
the
fair
value
of
the
consideration
over
the
fair
value
of
the
identifiable
assets,
liabilities
and
contingent
liabilities
acquired.
Goodwill
is
not
amortised.
However,
it
is
reviewed
for
potential
impairment
at
least
annually
or
more
frequently
if
events
or
circumstances
indicate
a
potential
impairment.
For
the
purpose
of
impairment
testing,
goodwill
is
allocated
to
each
of
the
Cash
Generating
Units
to
which
is
relates.
Any
impairment
identified
is
charged
directly
to
Consolidated
Income
Statement.
Subsequent
reversals
of
impairment
losses
for
goodwill
are
not
recognised.
56
IQE Annual Report & Financial Statements 2012
b)
Patents
trademarks
and
licences
Separately
acquired
patents,
trademarks
and
licences
are
shown
at
historical
cost.
Patents,
trademarks
and
licences
acquired
in
a
business
combination
are
recognised
at
fair
value
at
the
acquisition
date.
Patents,
Trademarks
and
licences
have
a
finite
useful
life
and
are
carried
at
cost
less
accumulated
amortisation.
Amortisation
is
calculated
using
the
straight-‐line
method
to
allocate
the
cost
of
trademarks
and
licences
over
their
estimated
useful
lives
of
10
to
15
years.
The
carrying
value
of
patents,
trademarks
and
licences
is
reviewed
for
potential
impairment
at
least
annually,
or
more
frequently
if
events
or
circumstances
indicate
a
potential
impairment.
Any
impairment
identified
is
immediately
charged
to
the
Consolidated
Income
Statement.
c)
Development
costs
Expenditure
incurred
that
is
directly
attributable
to
the
development
of
new
or
substantially
improved
products
or
processes
is
recognised
as
an
intangible
asset
when
the
following
criteria
are
met
:
•
•
•
•
•
•
the
product
or
process
is
intended
for
use
or
sale;
the
development
is
technically
feasible
to
complete;
there
is
an
ability
to
use
or
sell
the
product
or
process;
it
can
be
demonstrated
how
the
product
or
process
will
generate
probable
future
economic
benefits;
there
are
adequate
technical,
financial
and
other
resources
to
complete
the
development;
and
the
development
expenditure
can
be
reliably
measured.
Directly
attributable
costs
refers
to
the
materials
consumed;
the
directly
attributable
labour;
and
the
incremental
overheads
incurred
in
the
development
activity.
General
operating
costs,
administration
costs
and
selling
costs
do
not
form
part
of
directly
attributable
costs.
All
research
and
other
development
costs
are
expensed
as
incurred.
Capitalised
development
costs
are
amortised
on
a
straight
line
basis
over
the
period
during
which
the
economic
benefits
are
expected
to
be
received,
which
typically
range
between
2
and
5
years.
The
estimated
remaining
useful
lives
of
development
costs
are
reviewed
at
least
on
an
annual
basis.
The
carrying
value
of
capitalised
development
costs
is
reviewed
for
potential
impairment
at
least
annually,
or
more
frequently
if
events
or
circumstances
indicate
a
potential
impairment.
Any
impairment
identified
is
immediately
charged
to
the
Consolidated
Income
Statement.
d)
Software
Directly
attributable
costs
incurred
in
the
development
of
bespoke
software
for
the
group’s
own
use
are
capitalised
and
amortised
on
a
straight
line
basis
over
the
expected
useful
life
of
the
software,
which
typically
range
between
3
and
5
years.
The
carrying
value
of
capitalised
software
costs
is
reviewed
for
potential
impairment
at
least
annually,
or
more
frequently
if
events
or
circumstances
indicate
a
potential
impairment.
Any
impairment
identified
is
immediately
charged
to
the
Consolidated
Income
Statement.
The
costs
of
maintaining
internally
developed
software,
and
annual
license
fees
to
utilise
third
party
software,
are
expensed
as
incurred.
e)
Other
intangibles
recognised
on
acquisition
Other
intangible
assets
which
form
part
of
the
identifiable
net
assets
of
an
acquired
business
are
recognised
at
their
fair
value
and
amortised
on
a
systematic
basis
over
their
useful
economic
life,
which
is
up
to
seven
years.
This
includes
customer
contracts,
the
fair
value
of
which
have
been
estimated
based
an
imputed
royalty
stream
to
recover
the
estimated
cost
of
product
development
and
qualification
to
which
the
contract
relates.
The
carrying
value
of
other
intangible
assets
is
reviewed
for
potential
impairment
at
least
annually,
or
more
frequently
if
events
or
circumstances
indicate
a
potential
impairment.
Any
impairment
identified
is
immediately
charged
to
the
Consolidated
Income
Statement.
57
IQE Annual Report & Financial Statements 2012
Property,
plant
and
equipment
Property,
plant
and
equipment
is
stated
at
cost
less
accumulated
depreciation
and
any
provision
for
impairment.
Cost
comprises
all
costs
that
are
directly
attributable
to
bringing
the
asset
into
working
condition
for
its
intended
use.
Depreciation
is
calculated
to
write
down
the
cost
of
fixed
assets
to
their
residual
values
on
a
straight-‐line
basis
over
the
following
estimated
useful
economic
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.
The
assets
residual
values
and
useful
economic
lives
are
reviewed,
and
adjusted
if
appropriate,
at
the
end
of
each
reporting
period.
The
carrying
value
of
property,
plant
and
equipment
is
reviewed
for
potential
impairment
at
least
annually.
Any
impairment
identified
is
immediately
charged
to
the
Consolidated
Income
Statement.
Impairment
of
non-‐current
assets
Non-‐current
assets
are
reviewed
for
potential
impairment
at
least
annually,
or
more
frequently
if
events
or
circumstances
indicate
a
potential
impairment.
An
impairment
loss
is
recognised
for
the
amount
by
which
the
asset’s
carrying
amount
exceeds
its
recoverable
amount.
The
recoverable
amount
is
the
higher
of
an
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
to
the
asset,
discounted
at
the
Group’s
weighted
average
cost
of
capital.
For
the
purpose
of
assessing
impairment,
assets
are
grouped
at
the
lowest
levels
for
which
there
are
separately
identifiable
cash
flows
(Cash
Generating
Units).
Inventories
Inventories
are
stated
at
the
lower
of
cost
and
net
realisable
value.
Cost
is
determined
using
the
first-‐in,
first-‐out
(FIFO)
method.
Cost
comprises
direct
materials
and,
where
applicable,
direct
labour
costs
and
attributable
overheads
that
have
been
incurred
in
bringing
the
inventories
to
their
present
location
and
condition
based
on
normal
operating
capacity.
Net
realisable
value
is
the
estimated
selling
price
in
the
ordinary
course
of
business,
less
applicable
variable
selling
expenses.
Trade
receivables
Trade
receivables
are
amounts
due
from
customers
for
merchandise
sold
or
services
performed
in
the
ordinary
course
of
business.
If
collection
is
expected
in
one
year
or
less
(or
in
the
normal
operating
cycle
of
the
business
if
longer),
they
are
classified
as
current
assets.
If
not,
they
are
presented
as
non-‐current
assets.
Trade
receivables
are
recognised
initially
at
fair
value
and
subsequently
measured
at
amortised
cost
using
the
effective
interest
method,
less
provision
for
impairment.
Cash
and
cash
equivalents
In
the
consolidated
statement
of
cash
flows,
cash
and
cash
equivalents
includes
cash
in
hand,
deposits
held
at
call
with
banks,
other
short-‐term
highly
liquid
investments
with
original
maturities
of
three
months
or
less
and
bank
overdrafts.
In
the
consolidated
balance
sheet,
bank
overdrafts
are
shown
within
borrowings
in
current
liabilities.
Trade
payables
Trade
payables
are
obligations
to
pay
for
goods
or
services
that
have
been
acquired
in
the
ordinary
course
of
business
from
suppliers.
Accounts
payable
are
classified
as
current
liabilities
if
payment
is
due
within
one
year
or
less
(or
in
the
normal
operating
cycle
of
the
business
if
longer).
If
not,
they
are
presented
as
non-‐current
liabilities.
Trade
payables
are
recognised
initially
at
fair
value
and
subsequently
measured
at
amortised
cost
using
the
effective
interest
method.
58
IQE Annual Report & Financial Statements 2012
Financial
instruments
Financial
assets
and
liabilities
are
recognised
on
the
group’s
balance
sheet
when
the
group
becomes
a
party
to
the
contractual
provisions
of
the
financial
instrument.
The
financial
assets
held
by
the
group
are
other
equity
investments,
receivables
and
cash
and
cash
equivalents.
Receivables
do
not
carry
interest
and
are
stated
at
their
nominal
value
as
reduced
by
appropriate
allowances
for
estimated
irrecoverable
amounts.
Cash
and
cash
equivalent
comprise
cash
in
hand.
Other
equity
investments
are
held
at
cost
less
provision
for
impairment.
Financial
liabilities
and
equity
instruments
are
classified
according
to
the
substance
of
the
contractual
arrangements
entered
into.
An
equity
instrument
is
any
contract
that
evidences
a
residual
interest
in
the
assets
of
the
Group
after
deducting
all
of
its
liabilities.
Trade
payables
are
stated
at
their
nominal
value
and
do
not
bear
interest.
Equity
instruments
issued
by
the
company
are
recorded
at
the
proceeds
received
net
of
any
direct
issue
costs.
Interest
bearing
loans
are
recorded
at
the
proceeds
received
net
of
any
direct
issue
costs.
Finance
charges
are
accounted
for
on
an
accrual
basis
using
the
effective
interest
method.
The
group
does
not
use
derivative
financial
instruments
for
speculative
purposes.
The
group
uses
forward
currency
contracts
as
appropriate
to
manage
foreign
exchange
risk.
Detailed
disclosures
of
the
group’s
financial
instruments
are
provided
in
notes
15
and
16.
Leases
Leases
which
transfer
substantially
all
the
risks
and
rewards
of
ownership
of
an
asset
are
treated
as
a
finance
lease.
Assets
held
under
finance
leases
are
capitalised
at
their
fair
value
at
the
inception
of
the
lease
and
depreciated
over
the
estimated
useful
economic
life
of
the
asset
or
lease
term
if
shorter.
The
finance
charges
are
allocated
to
the
Consolidated
Income
Statement
in
proportion
to
the
capital
amount
outstanding.
All
other
leases
are
classified
as
operating
leases.
Operating
lease
rentals
are
charged
to
the
Consolidated
Income
Statement
in
equal
annual
amounts
over
the
lease
term.
Revenue
recognition
Revenue
represents
the
amounts
receivable
for
goods
and
services
provided
in
the
ordinary
course
of
business
net
of
value
added
tax
and
other
sales
related
taxes.
Revenue
is
recognised
when
the
risks
and
rewards
of
the
underlying
sale
have
been
transferred
to
the
customer,
which
is
on
the
delivery
of
the
goods
or
services
and
acceptance
by
the
customer.
Accrued
income
is
recognised
for
sales
where,
at
the
balance
sheet
date,
billing
has
not
yet
taken
place
but
contractual
terms
dictate
that
the
risks
and
rewards
have
been
transferred
to
the
customer
and
the
customer
is
committed
to
payment.
Billing
is
deferred
to
a
contractually
defined
trigger
point.
An
acquisition
was
made
during
the
year,
where
the
consideration
is
being
settled
through
agreed
contractual
price
discounts.
The
revenues
of
products
which
are
subject
to
this
discount,
are
recognised
at
full
market
value.
On
settlement
of
the
transaction,
the
discount
is
applied
to
reduce
the
deferred
consideration
balance.
Segmental
reporting
Operating
segments
are
reported
in
a
manner
consistent
with
the
internal
reporting
provided
to
the
Board
of
Directors,
who
oversee
the
allocation
of
resources
and
the
assessment
of
operating
segment
performance.
A
business
segment
is
a
group
of
assets
and
operations
engaged
in
providing
products
or
services
that
are
subject
to
risks
and
returns
that
are
different
from
those
of
other
business
segments.
A
geographical
segment
is
engaged
in
providing
products
or
services
within
a
particular
economic
environment
that
are
subject
to
risks
and
returns
that
are
different
from
those
of
components
operating
in
other
economic
environments.
Pension
costs
The
group
operates
defined
contribution
pension
schemes.
Contributions
are
charged
in
the
Consolidated
Income
Statement
as
they
become
payable
in
accordance
with
the
rules
of
the
scheme.
59
IQE Annual Report & Financial Statements 2012
Share
based
payments
The
group
operates
a
Share
Option
Scheme,
under
which
the
group
receives
services
from
employees
as
consideration
for
share
options
in
IQE
plc.
The
fair
value
of
the
employee
services
received
in
exchange
for
the
grant
of
the
options
is
recognised
as
an
expense
in
the
Consolidated
Income
Statement.
The
total
amount
to
be
expensed
is
determined
by
reference
to
the
fair
value
of
the
options
granted
including
any
market
performance
conditions
(for
example,
an
entity's
share
price);
excluding
the
impact
of
any
service
and
non-‐market
performance
vesting
conditions
(for
example,
profitability,
sales
growth
targets
and
remaining
an
employee
of
the
entity
over
a
specified
time
period)
and
including
the
impact
of
any
non-‐vesting
conditions
(for
example,
the
requirement
for
employees
to
save).
Non-‐market
performance
and
service
conditions
are
included
in
assumptions
about
the
number
of
options
that
are
expected
to
vest.
The
total
expense
is
recognised
over
the
vesting
period,
which
is
the
period
over
which
all
of
the
specified
vesting
conditions
are
to
be
satisfied.
At
the
end
of
each
reporting
period,
the
group
revises
its
estimates
of
the
number
of
options
that
are
expected
to
vest
based
on
the
non-‐market
vesting
conditions.
It
recognises
the
impact
of
the
revision
to
original
estimates,
if
any,
in
the
income
statement,
with
a
corresponding
adjustment
to
equity.
When
the
options
are
exercised,
the
company
issues
new
shares.
The
proceeds
received
net
of
any
directly
attributable
transaction
costs
are
credited
to
share
capital
(nominal
value)
and
share
premium.
The
scheme
is
equity
settled.
In
the
company’s
own
accounts,
the
grant
of
share
options
to
the
employees
of
subsidiary
undertakings
is
treated
as
a
capital
contribution.
Specifically,
the
fair
value
of
employee
services
received
(measured
at
the
date
of
grant)
is
recognised
over
the
vesting
period
as
an
increase
to
investment
in
subsidiary
undertakings,
with
a
corresponding
credit
to
equity
in
the
parent
entity
accounts.
The
social
security
contributions
payable
in
connection
with
the
grant
of
the
share
options
is
considered
an
integral
part
of
the
grant
itself,
and
the
change
will
be
treated
as
a
cash-‐settled
transaction.
Foreign
currencies
Items
included
in
the
financial
statements
of
each
subsidiary
are
measured
using
the
currency
of
the
primary
economic
environment
in
which
the
subsidiary
operates
(“the
functional
currency”).
The
consolidated
financial
statements
are
presented
in
sterling,
which
is
the
group’s
presentational
currency.
Foreign
currency
transactions
are
translated
into
the
subsidiaries
functional
currency
at
the
rates
of
exchange
ruling
at
the
date
of
the
transaction,
or
at
the
forward
currency
hedged
rate
where
appropriate.
Monetary
assets
and
liabilities
in
foreign
currencies
are
translated
into
the
subsidiaries
functional
currency
at
the
rates
ruling
at
the
balance
sheet
date.
All
exchange
differences
are
taken
to
the
income
statement.
The
balance
sheets
of
overseas
subsidiaries
are
translated
into
sterling
at
the
closing
rates
of
exchange
at
the
balance
sheet
date,
whilst
the
income
statements
are
translated
into
sterling
at
the
average
rate
for
the
period.
The
resulting
translation
differences
are
taken
directly
to
reserves.
Foreign
exchange
gains
and
losses
on
the
retranslation
of
foreign
currency
borrowings
that
are
used
to
finance
overseas
operations
are
accounted
for
on
the
‘net
investment’
basis
and
are
recorded
directly
in
reserves
provided
that
the
hedge
is
‘effective’
as
defined
in
IAS
39
“Financial
Instruments
:
recognition
and
measurement”.
Taxation
Income
tax
on
the
profit
or
loss
for
the
year
comprises
current
and
deferred
tax.
Current
tax
is
the
expected
tax
payable
on
the
taxable
income
for
the
year
using
rates
substantially
enacted
at
the
balance
sheet
date,
and
any
adjustments
to
tax
payable
in
respect
of
prior
years.
Amounts
receivable
from
tax
authorities
in
relation
to
R&D
tax
relief
claims
are
recognised
as
a
credit
within
the
group's
tax
charge.
Where
amounts
are
outstanding
at
the
year
end
and
have
not
been
formally
agreed,
an
appropriate
estimate
of
the
amount
is
included
within
other
receivables.
Deferred
tax
is
provided
in
full
on
temporary
differences
between
the
carrying
amounts
of
assets
and
liabilities
in
the
financial
statements
and
the
amounts
used
for
taxation
purposes.
Deferred
tax
is
calculated
at
the
tax
rates
that
have
been
enacted
or
substantially
enacted
at
the
balance
sheet
date.
Deferred
tax
assets
are
only
recognised
to
the
extent
that
it
is
probable
that
future
taxable
profits
will
be
available
against
which
deductible
temporary
differences
can
be
utilised.
Deferred
tax
liabilities
are
recognised
for
taxable
temporary
differences,
unless
specifically
exempt.
Deferred
tax
assets
and
liabilities
are
offset
when
there
is
a
legally
enforceable
right
to
set
off
current
taxation
assets
against
current
taxation
liabilities
and
it
is
the
intention
to
settle
these
on
a
net
basis.
Tax
is
recognised
in
the
Consolidated
Income
Statement
except
to
the
extent
that
it
relates
to
items
recognised
directly
in
equity,
in
which
case
it
is
recognised
in
equity.
60
IQE Annual Report & Financial Statements 2012
Investment
in
subsidiaries
Investments
in
subsidiaries
are
held
at
cost
of
investment
less
provision
for
impairment
in
the
parent
company
accounts.
Other
equity
investments
Other
equity
investments
are
held
at
cost
less
provision
for
impairment
in
both
the
parent
company
and
group
accounts
on
the
basis
that
the
Group
(and
Company)
does
not
have
the
ability
to
exert
significant
influence
or
control
over
the
strategic
and
operating
activities
of
the
other
equity
investments.
2.
Critical
accounting
judgements
and
key
sources
of
estimation
uncertainty
The
group’s
principal
accounting
policies
are
described
in
note
1.
The
application
of
these
policies
necessitates
the
use
of
estimates
and
judgements
in
a
number
of
areas.
Accordingly,
the
actual
amounts
may
differ
from
these
estimates.
The
main
areas
involving
estimation
are
set
out
below:
(a)
Impairment
of
intangible
assets
Goodwill
on
the
group’s
balance
sheet
is
not
subject
to
amortisation
because
it
is
assumed
to
have
an
indefinite
useful
life.
In
accordance
with
IAS
36
“Impairment
of
assets”,
the
carrying
value
of
goodwill
is
assessed
at
least
annually
for
impairment.
This
assessment
is
based
on
cash
flow
forecasts.
In
light
of
these
forecasts
the
Board
has
concluded
that
goodwill
is
not
impaired.
The
group
capitalises
the
cost
of
developing
new
and
substantially
improved
products
and
processes
if
there
is
a
reasonable
expectation
of
obtaining
an
appropriate
economic
return.
This
necessitates
an
assessment
of
the
future
technical
viability
and
future
commercial
benefits
of
the
product
or
process.
The
carrying
value
for
each
project
is
assessed
for
impairment
on
an
on-‐
going
basis.
(b)
Impairment
of
receivables
Trade
and
other
receivables
are
carried
at
the
contractual
amount
due
less
any
estimated
provision
for
non-‐recovery.
Provision
is
made
based
a
number
of
factors
including
the
age
of
the
receivable,
previous
collection
experience
and
the
financial
circumstances
of
the
counterparty.
(d)
Inventory
provisions
Inventories
are
carried
at
the
lower
of
cost
and
net
realisable
value.
Provision
is
made
based
on
a
number
of
factors
including
the
age
of
inventories,
the
risk
of
obsolescence
and
the
expected
future
usage.
(e)
Acquisition
fair
values
An
assessment
is
made
of
the
fair
value
of
the
purchase
consideration
and
net
assets
acquired
was
undertaken
for
the
acquisition
made
during
2012.
The
basis
of
the
key
judgments
made
is
set
out
in
note
17.
(d)
Deferred
tax
assets
Deferred
tax
assets
are
only
recognised
to
the
extent
that
it
is
probable
that
future
taxable
profits
will
be
available
against
which
deductible
temporary
differences
can
be
utilised.
This
necessitates
an
assessment
of
future
trading
forecasts
for
each
relevant
tax
authority,
capital
expenditures
and
the
utilisation
of
tax
losses.
61
IQE Annual Report & Financial Statements 2012
3.
Segmental
analysis
The
board
of
directors
considers
that
the
wireless,
photonics
and
electronics
markets
are
the
group’s
primary
reporting
segments.
The
board
of
directors
assesses
the
performance
of
these
operating
segments
based
on
their
earnings
before
interest,
tax,
depreciation,
amortisation
and
share
based
payments
(EBITDA).
Further
detail
on
the
nature
of
the
segments
is
provided
in
the
Chief
Executive’s
Review.
2012
Income
statement
Revenue
EBITDA
Exceptional
items
Share
based
payments
Depreciation
Amortisation
Operating
profit/(loss)
Finance
costs
Tax
Retained
profit
Segment
assets
Operating
assets
Cash
Total
assets
Segment
liabilities
Operating
liabilities
Borrowings
Total
liabilities
Other
segmental
information
Capital
expenditure
-‐
intangible
assets
Capital
expenditure
-‐
property,
plant
and
equipment
Wireless
£’000
Photonics
£’000
Electronics
£’000
68,962
12,929
(455)
(1,066)
(4,921)
(877)
5,610
18,049
3,732
(115)
(279)
(786)
(612)
1,940
950
(224)
-‐
(15)
(291)
(6)
(536)
137,040
30,226
4,510
(60,738)
(4,679)
(280)
22,213
31,717
2,558
1,336
998
3
Total
£’000
87,961
16,437
(570)
(1,360)
(5,998)
(1,495)
7,014
(886)
503
6,631
171,776
2,773
174,549
(65,697)
(18,256)
(83,953)
25,769
33,056
Costs
not
directly
attributable
to
a
segment
are
allocated
based
on
the
proportion
of
revenue
attributable
to
that
segment.
Finance
costs
are
not
allocated
to
the
segments
because
treasury
is
managed
centrally.
62
IQE Annual Report & Financial Statements 2012
Wireless
£’000
Photonics
£’000
Electronics
£’000
55,156
10,718
(933)
(3,101)
(820)
5,864
18,551
3,409
(309)
(743)
(300)
2,057
1,611
(172)
(42)
(331)
(3)
(548)
73,108
24,930
3,352
(13,362)
(10,992)
(365)
Total
£’000
75,318
13,955
(1,284)
(4,175)
(1,123)
7,373
(481)
1,551
8,443
101,390
3,233
104,623
(24,719)
(7,154)
(31,873)
2011
Income
statement
Revenue
EBITDA
Share
based
payments
Depreciation
Amortisation
Operating
profit/(loss)
Finance
costs
Tax
Retained
profit
Segment
assets
Operating
assets
Cash
Total
assets
Segment
liabilities
Operating
liabilities
Borrowings
Total
liabilities
Other
segmental
information
Capital
expenditure
-‐
intangible
assets
Capital
expenditure
-‐
property,
plant
and
equipment
1,974
15,604
496
1,549
782
235
3,252
17,388
In
the
periods
set
out
below,
certain
customers,
all
within
the
Wireless
operating
segment,
accounted
for
greater
than
10%
of
the
Group’s
total
revenues:
Customer
1
Customer
2
Customer
3
2012
£’000
2012
%
revenue
2011
£’000
2011
%
revenue
22,364
12,849
7,800
25%
15%
9%
1,804
14,848
7,491
2%
20%
10%
There
are
no
customers
in
the
photonics
or
electronics
segments
that
accounted
for
greater
than
10%
of
the
Group’s
total
revenues.
63
IQE Annual Report & Financial Statements 2012
Geographical
information
Disclosure
of
group
revenues
by
location
of
customer:
Americas
United
States
of
America
Rest
of
Americas
Europe,
Middle
East
&
Africa
(EMEA)
France
Germany
Israel
United
Kingdom
Rest
of
EMEA
Asia
Pacific
People’s
Republic
of
China
Japan
Taiwan
Rest
of
Asia
Pacific
Total
revenue
Disclosure
of
non-‐current
assets
by
location
of
assets:
By
location
USA
Singapore
UK
64
2012
£’000
64,967
64,425
542
5,721
503
1,391
1,042
1,439
1,346
17,273
865
6,006
9,074
1,328
2011
£’000
49,848
48,498
1,350
7,494
426
1,694
2,493
821
2,060
17,976
2,202
6,241
7,758
1,775
87,961
75,318
Property,
plant
and
equipment
Property,
plant
and
equipment
Intangible
assets
Intangible
assets
2012
£’000
45,647
11,167
5,506
62,320
2011
£’000
22,558
9,262
5,528
37,348
2012
£’000
36,013
9,041
9,111
54,165
2011
£’000
16,882
8,843
6,981
32,706
IQE Annual Report & Financial Statements 2012
4.
Operating
profit
The
operating
profit
is
stated
after
charging/(crediting):
Depreciation
of
property,
plant
and
equipment
Amortisation
of
non-‐current
intangible
assets
Gain
on
sale
of
property,
plant
and
equipment
Services
provided
by
auditors
Operating
lease
rentals
Research
and
development
Exchange
losses
Cost
of
inventories
consumed
Exceptional
items
2012
£’000
5,998
1,495
-‐
178
2,511
143
(258)
34,110
570
2011
£’000
4,175
1,123
(68)
113
2,158
107
26
30,822
-‐
A
schedule
of
services
provided
by
the
group’s
auditors
is
disclosed
in
the
Corporate
Governance
Report.
Exceptional
items
relate
to
the
transaction
costs
expensed
during
the
year
in
relation
to
acquisitions
and
debt
and
equity
fund
raising.
5.
Employee
costs
Employee
costs
(including
directors’
remuneration)
Wages
and
salaries
Social
security
costs
Other
pension
costs
Charge
for
share
based
payments
Average
number
of
employees
(including
directors)
Cost
of
sales
Selling,
general
and
administrative
2012
£’000
18,593
2,051
904
1,360
22,908
2011
£’000
15,541
1,952
729
1,284
19,506
2012
Number
2011
Number
389
90
479
311
95
406
Directors’
emoluments
and
share
option
details
are
disclosed
in
the
Remuneration
Report.
Key
management
within
the
group
comprises
the
executive
and
non-‐executive
directors
and
the
general
managers
of
the
subsidiaries.
Compensation
to
key
management,
including
pensions
of
£83,000
(2011:
£75,000),
was
£2,132,000
(2011:
£1,987,000)
and
the
charge
for
share-‐based
payments
was
£230,000
(2011:
£594,000).
65
IQE Annual Report & Financial Statements 2012
6.
Finance
costs
Bank
and
other
loans
Finance
lease
interest
Unwind
of
discount
on
long
term
balances
7.
Taxation
Current
tax
credit
United
Kingdom
research
and
development
tax
credits
receivable
Overseas
taxes
receivable/(payable)
Total
current
tax
credit
Deferred
tax
(charge)/credit
Total
tax
credit
Factors
affecting
total
tax
credit
2012
£’000
588
29
269
886
2012
£’000
501
10
511
(8)
503
2011
£’000
408
73
-‐
481
2011
£’000
568
(58)
510
1,041
1,551
The
tax
credit
assessed
for
the
period
is
different
from
that
resulting
from
applying
the
standard
rate
of
corporation
tax
in
the
UK:
24.5%
(2011:
26.5%).
The
differences
are
explained
below:
Profit
on
ordinary
activities
before
taxation
2012
£’000
6,128
2011
£’000
6,892
Tax
charge
at
24.5%
thereon
(2011:
26.5%)
(1,501)
(1,826)
Effects
of
:
Expenses
not
deductible
for
tax
purposes
Overseas
tax
rate
differences
Decrease/(Increase)
in
unrecognised
tax
losses
Other
deferred
tax
movements
United
Kingdom
research
and
development
tax
credits
receivable
Total
tax
credit
for
the
year
(63)
375
423
768
501
503
(48)
530
(1,008)
3,335
568
1,551
On
21
March
2012
the
UK
Government
announced
a
reduction
in
the
rate
of
corporation
tax
to
24%
with
effect
from
1
April
2012.
In
addition,
the
Finance
Act
2012,
which
passed
into
law
on
3
July
2012
included
legislation
to
reduce
the
main
rate
of
corporation
tax
from
24%
to
23%
with
effect
from
1
April
2013.
The
proposed
further
reduction
in
the
UK
corporation
tax
rate
by
2%
to
21%
from
1
April
2014
is
expected
to
be
enacted
separately;
the
effect
of
this
change
on
deferred
tax
cannot
be
reliably
quantified
at
this
stage.
66
IQE Annual Report & Financial Statements 2012
Deferred
tax
asset
At
1
January
Deferred
tax
(expense)/credit
recognised
in
the
year
Deferred
tax
assets
recognised
on
acquisition
Foreign
exchange
differences
At
31
December
2012
£’000
1,876
(8)
13,188
(507)
14,549
2011
£’000
824
1,041
-‐
11
1,876
The
deferred
income
tax
asset
recognised
at
31
December
2012
of
£14,549,000
(2011:
£1,876,000)
relates
mainly
to
timing
differences
on
fair
value
adjustments
in
respect
of
the
acquisition
set
out
in
note
17,
as
well
as
an
element
of
tax
losses
carried
forward
and
accelerated
depreciation.
These
are
recognised
to
the
extent
that
the
realisation
of
the
related
tax
benefit
through
future
taxable
profits
from
the
same
trade
is
probable.
The
group
currently
benefits
from
a
0%
tax
rate
on
trading
income
arising
in
Singapore.
The
net
amount
not
recognised
is
an
asset
of
£25,036,000
(2011:
£26,691,000).
Tax
losses
carried
forward
account
for
an
asset
of
£31,228,000
(2011:
£31,651,000).
The
remaining
unrecognised
amounts
relating
to
a
mix
of
temporary
timing
differences
including
accelerated
depreciation
and
income
tax
deductions
receivable
on
the
exercise
of
employee
share
options.
The
asset
would
be
recognised
if
sufficient
profits
from
the
same
trade
arise
in
future
periods.
8.
Dividends
No
dividend
has
been
paid
or
proposed
in
2012
(2011:
£nil).
9.
Earnings
per
share
Basic
earnings
per
share
is
calculated
by
dividing
the
profit
attributable
to
ordinary
shareholders
by
the
weighted
average
number
of
ordinary
shares
in
issue
during
the
year.
Diluted
earnings
per
share
is
calculated
by
dividing
the
profit
attributable
to
ordinary
shareholders
by
the
weighted
average
number
of
shares
and
‘in
the
money’
share
options
in
issue.
Share
options
are
classified
as
‘in
the
money’
if
their
exercise
price
is
lower
than
the
average
share
price
for
the
year.
As
required
by
IAS
33,
this
calculation
assumes
that
the
proceeds
receivable
from
the
exercise
of
‘in
the
money’
options
would
be
used
to
purchase
shares
in
the
open
market
in
order
to
reduce
the
number
of
new
shares
that
would
need
to
be
issued.
The
directors
also
present
an
adjusted
earnings
per
share
measure
which
eliminates
certain
non-‐cash
items
in
order
to
provide
a
more
meaningful
underlying
profit
measure.
Specifically,
the
non-‐cash
accounting
charges
eliminated
are:
• financing
charges
relating
to
discounting
of
long
term
acquisition
balances;
• amortisation
of
intangibles
arising
on
acquisition;
• share
based
payments;
and
• exceptional
items.
Profit
attributable
to
ordinary
shareholders
Exceptional
items
Discounting
of
long
term
acquisition
related
balances
Amortisation
of
acquired
intangibles
Share
based
payments
Adjusted
profit
attributable
to
ordinary
shareholders
2012
£’000
6,631
570
269
258
1,360
9,088
2011
£’000
8,443
-‐
-‐
-‐
1,284
9,727
67
IQE Annual Report & Financial Statements 2012
Weighted
average
number
of
ordinary
shares
Dilutive
share
options
2012
Number
571,972,538
29,715,163
2011
Number
522,386,930
37,008,723
Adjusted
weighted
average
number
of
ordinary
shares
601,687,701
559,395,653
Adjusted
earnings
per
share
Earnings
per
share
Adjusted
diluted
earnings
per
share
Diluted
earnings
per
share
10.
Intangible
assets
The
Group
Cost
At
1
January
2012
Additions
NanoGaN
adjustment
(see
below)
Acquisitions
(note
17)
Foreign
exchange
At
31
December
2012
Accumulated
amortisation
and
impairment
Accumulated
amortisation
and
impairment
Accumulated
amortisation
and
impairment
Accumulated
amortisation
and
impairment
At
1
January
2012
Charge
for
the
year
Foreign
exchange
At
31
December
2012
Net
book
value
At
31
December
2012
At
31
December
2011
1.86p
1.62p
1.74p
1.51p
Total
£’000
37,168
4,366
(1,078)
21,403
(1,897)
1.59p
1.16p
1.51p
1.10p
Goodwill
£’000
Patents
£’000
Development
Development
costs
costs
£’000
£’000
Software
Software
£’000
£’000
Acquisition
intangibles
£’000
19,823
-‐
(478)
18,287
(1,267)
36,365
-‐
-‐
-‐
-‐
36,365
19,823
305
88
-‐
-‐
-‐
16,098
16,098
4,042
4,042
(600)
(600)
-‐-‐
(458)
(458)
942942
219219
-‐-‐
-‐-‐
(1)(1)
-‐
17
-‐
3,116
(171)
393
19,082
19,082
1,160
1,160
2,962
59,962
26
30
-‐
56
337
279
4,092
4,092
1,188
1,188
(145)
(145)
5,135
5,135
13,947
13,947
12,006
12,006
344344
1919
(3)(3)
360360
800800
598598
-‐
258
(12)
246
4,462
1,495
(160)
5,797
2,716
54,165
-‐
32,706
The
NanoGaN
adjustment
relates
to
the
reduction
in
the
estimated
deferred
consideration
payable.
68
IQE Annual Report & Financial Statements 2012
The
Group
Cost
At
1
January
2011
Additions
Foreign
exchange
At
31
December
2011
Accumulated
amortisation
and
impairment
Accumulated
amortisation
and
impairment
Accumulated
amortisation
and
impairment
Accumulated
amortisation
and
impairment
At
1
January
2011
Charge
for
the
year
Foreign
exchange
At
31
December
2011
Net
book
value
At
31
December
2011
At
31
December
2010
Goodwill
£’000
Patents
£’000
Development
Development
costs
costs
£’000
£’000
Software
Software
£’000
£’000
Acquisition
intangibles
£’000
19,674
-‐
149
19,823
-‐
-‐
-‐
-‐
19,823
19,674
222
83
-‐
305
11
15
-‐
26
279
211
13,097
13,097
2,924
2,924
7777
16,098
16,098
3,076
3,076
966966
5050
4,092
4,092
12,006
12,006
10,021
10,021
697697
245245
-‐-‐
942942
202202
142142
-‐-‐
344344
598598
495495
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
Total
£’000
33,690
3,252
226
37,168
3,289
1,123
50
4,462
32,706
30,401
The
amortisation
charge
of
:
£1,495,000
(2011:
£1,123,000)
has
been
charged
to
selling,
general
and
administrative
expenses
in
the
Consolidated
Income
Statement.
The
carrying
value
of
deferred
development
costs
continue
to
be
supported
by
forecast
cash
flows.
The
NanoGaN
adjustment
shown
above
relates
to
a
reduction
in
the
estimated
deferred
consideration
payable.
Impairment
tests
for
goodwill
Goodwill
is
allocated
to
the
group’s
cash
generating
units
(CGUs)
identified
according
to
operating
segment.
An
operating
segment
level
summary
of
the
goodwill
allocation
is
presented
below:
Allocation
of
goodwill
by
operating
segment
Wireless
Photonics
Total
Goodwill
2012
£’000
29,379
6,986
36,365
2011
£’000
12,070
7,753
19,823
Multiple
production
facilities
can
be
included
in
a
single
CGU
reflecting
that
production
can
(and
is)
transferred
between
sites
to
suit
capacity
planning
and
operational
efficiency.
The
recoverable
amount
of
all
CGUs
has
been
determined
based
on
value
in
use
calculations,
using
pre-‐tax
cash
flow
projections
for
a
five
year
period.
The
Board
approved
budget
is
used
for
the
first
year
of
the
forecast.
Beyond
this
the
Board
has
used
assumptions
which
are
below
expectations
in
order
to
“stress
test”
for
potential
impairment,
namely
:
revenue
growth
5%
pa;
margin
erosion
1%
pa,
cost
inflation
3%.
A
pre-‐tax
discount
rate
of
11%
(2011:
10%)
has
been
used
in
these
calculations,
which
management
believe
is
appropriate
for
each
CGU
given
that
they
have
similar
risk
profiles
and
common
funding.
Even
on
this
“stressed”
basis,
there
remains
a
significant
level
of
headroom
in
the
calculations.
In
addition,
to
test
the
sensitivity
of
the
discount
rate,
if
a
15%
discount
rate
is
used
there
is
still
no
impairment
of
assets.
69
IQE Annual Report & Financial Statements 2012
11.
Property,
plant
and
equipment
Short
leasehold
improve-‐
ments
£’000
Land
and
buildings
£’000
Fixtures
and
fittings
£’000
Plant
and
machinery
£’000
6,393
15
-‐
-‐
(110)
6,298
2,802
-‐
151
(15)
11,284
225
13,032
-‐
(887)
23,654
9,955
-‐
799
(214)
2,938
10,540
3,360
3,591
13,114
1,329
Short
leasehold
improve-‐
ments
£’000
10,762
925
(685)
282
Land
and
buildings
£’000
6,344
12
-‐
37
6,393
11,284
2,646
-‐
149
7
2,802
3,591
3,698
10,444
(685)
168
28
9,955
1,329
318
2,398
107
-‐
(2)
(54)
2,449
2,133
(2)
104
(50)
2,185
264
265
112,248
12,709
6,968
(228)
(3,090)
128,607
80,085
(228)
4,944
(1,776)
83,025
45,582
32,163
Fixtures
and
fittings
£’000
Plant
and
machinery
£’000
2,387
143
(184)
52
2,398
2,202
(184)
97
18
2,133
265
185
100,130
16,308
(4,810)
620
112,248
80,527
(4,788)
3,761
585
80,085
32,163
19,603
Total
£’000
132,323
13,056
20,000
(230)
(4,141)
161,008
94,975
(230)
5,998
(2,055)
98,688
62,320
37,348
Total
£’000
119,623
17,388
(5,679)
991
132,323
95,819
(5,657)
4,175
638
94,975
37,348
23,804
a)
The
Group
Cost
At
1
January
2012
Additions
Acquisitions
(note
17)
Disposals
Foreign
exchange
At
31
December
2012
Accumulated
depreciation
At
1
January
2012
Disposals
Charge
for
the
year
Foreign
exchange
At
31
December
2012
Net
book
value
At
31
December
2012
At
31
December
2011
b)
The
Group
Cost
At
1
January
2011
Additions
Disposals
Foreign
exchange
At
31
December
2011
Accumulated
depreciation
At
1
January
2011
Disposals
Charge
for
the
year
Foreign
exchange
At
31
December
2011
Net
book
value
At
31
December
2011
At
31
December
2010
70
IQE Annual Report & Financial Statements 2012
c) Capitalised
finance
leases
c) Capitalised
finance
leases
c) Capitalised
finance
leases
Plant
and
machinery
includes
the
following
amounts
where
the
group
is
a
lessee
under
a
finance
lease:
Plant
and
machinery
includes
the
following
amounts
where
the
group
is
a
lessee
under
a
finance
lease:
Plant
and
machinery
includes
the
following
amounts
where
the
group
is
a
lessee
under
a
finance
lease:
Cost
Accumulated
depreciation
Net
book
value
2012
£‘000
2,576
(46)
2,530
2011
£’000
-‐
-‐
-‐
The
group
leases
various
plant
and
machinery
assets
under
non-‐cancellable
finance
lease
agreements.
The
lease
terms
are
up
to
three
years,
and
the
ownership
of
the
assets
lie
within
the
group.
12.
Investments
a)
Company
Cost
At
1
January
2012
Investment
in
Solar
Junction
Corporation
(note
12b)
Adjustment
to
NanoGaN
Limited
deferred
consideration
(note
10)
Subsidiaries
share
based
payments
charge
At
31
December
2012
Accumulated
amortisation
At
1
January
2012
and
31
December
2012
Net
book
value
At
31
December
2012
At
1
January
2012
Cost
At
1
January
2011
Adjustment
to
NanoGaN
Limited
deferred
consideration
Subsidiaries
share
based
payments
charge
At
31
December
2011
Accumulated
amortisation
At
1
January
2011
and
31
December
2011
Net
book
value
At
31
December
2011
At
1
January
2011
Details
of
principal
subsidiaries
are
set
out
in
note
24.
Investments
in
subsidiaries
£’000
Other
equity
investments
£’000
Total
£’000
84,125
3,205
(1,078)
329
-‐
3,205
-‐
-‐
3,205
86,581
84,125
-‐
(1,078)
329
83,376
70,438
-‐
70,438
12,938
13,687
3,205
-‐
16,143
13,687
Investments
in
subsidiaries
£’000
Other
equity
investments
£’000
84,676
(750)
199
84,125
70,438
13,687
14,238
-‐
-‐
-‐
-‐
-‐
-‐
-‐
Total
£’000
84,676
(750)
199
84,125
70,438
13,687
14,238
71
IQE Annual Report & Financial Statements 2012
b)
Group
On
8
February
2012,
the
Group
(and
Company)
invested
£3.2m
for
a
9%
equity
investment
in
Solar
Junction
Corporation
(“SJC”),
and
contemporaneously
entered
into
an
exclusive
long
term
supply
contract
to
supply
SJC
with
advanced
semi-‐conductor
materials
for
the
Concentrated
Photovoltaic
Market.
This
investment
is
accounted
for
at
cost
of
investment
less
provision
for
impairment
on
the
basis
that
the
Group
(and
Company)
does
not
have
the
ability
to
exert
significant
influence
or
control
over
the
strategic
and
operating
activities
of
SJC.
13.
Inventories
The
Group
Raw
materials
and
consumables
Work-‐in-‐progress
and
finished
goods
2012
£’000
14,334
4,017
18,351
2011
£’000
12,144
2,978
15,122
The
directors
are
of
the
opinion
that
the
replacement
values
of
inventories
are
not
materially
different
to
the
carrying
values
stated
above.
These
carrying
values
are
stated
net
of
impairment
provisions
of
£1,781,000
(2011:
£1,989,000).
14.
Trade
and
other
receivables
Trade
receivables
Amounts
owed
by
group
undertakings
Other
receivables
and
prepayments
2012
Group
£’000
9,870
-‐
9,316
19,186
2012
Company
£’000
-‐
56,251
141
56,392
2011
Group
£’000
7,244
-‐
7,094
14,338
2011
Company
£’000
-‐
45,991
143
46,134
As
at
31
December
2012,
93%
(2011:
82%)
of
trade
receivables
were
within
terms.
Of
the
other
trade
receivables,
64%
(2011:
87%)
were
less
than
30
days
past
due.
An
allowance
has
been
made
for
estimated
irrecoverable
amounts
from
the
sale
of
goods
of
£79,000
(2011:
£135,000).
This
allowance
has
been
determined
by
reference
to
past
default
experience.
Included
in
other
receivables
is
accrued
income
of
£7,375,000
(2011:
£4,531,000).
The
carrying
values
of
trade
and
other
receivables
also
represent
their
estimated
fair
values.
The
maximum
exposure
to
credit
risk
at
the
reporting
date
is
the
carrying
value
of
each
class
of
receivable
as
set
out
above.
In
terms
of
trade
receivables,
the
terms
of
sale
provide
that
the
group
has
recourse
to
the
products
sold
in
the
event
of
non-‐payment
by
a
customer.
Trade
receivables
and
accrued
income
are
primarily
denominated
in
US
dollars,
as
are
trade
payables
(note
15).
The
natural
hedge
between
these
financial
instruments
limits
the
exposure
of
the
group
to
movements
in
foreign
exchange
rates.
Based
on
the
balances
held
at
31
December
2012
a
1
cent
movement
in
the
US
dollar
to
Sterling
rate
would
impact
the
net
value
of
these
instruments
by
£11,000
(2011:
£6,000)
(before
the
mitigating
impact
of
cash
flow
hedges).
72
IQE Annual Report & Financial Statements 2012
15.
Trade
and
other
payables
Current
Trade
payables
Deferred
consideration
(note
17)
Other
taxation
and
social
security
Forward
foreign
exchange
contracts
(cash
flow
hedge)
Accruals
and
deferred
income
Non-‐current
Deferred
consideration
(note
17)
2012
Group
£’000
16,046
10,000
316
-‐
5,347
31,709
2012
Group
£’000
34,386
2012
Company
£’000
-‐
-‐
139
-‐
545
684
2012
Company
£’000
484
2011
Group
£’000
11,630
6,080
307
246
4,894
23,157
2011
Group
£’000
1,562
2011
Company
£’000
-‐
-‐
63
246
1,428
1,737
2011
Company
£’000
1,562
Within
deferred
consideration
is
£43.9m
being
the
best
estimate
of
the
amount
that
will
be
settled
through
contractually
agreed
price
discounts
over
the
next
four
years
(as
set
out
in
note
17).
The
carrying
values
of
trade
and
other
payables
also
represent
their
estimated
fair
values.
Forward
foreign
currency
exchange
contracts
are
designated
as
cash
flow
hedges
against
highly
probable
forecast
transactions
denominated
in
US
dollars
that
are
expected
to
occur
at
various
dates.
The
amount
recognised
within
payables
represents
the
mark
to
market
value
of
these
contracts
at
each
reporting
date.
Movements
in
the
mark
to
market
value
are
included
within
other
comprehensive
income
and
other
reserves
within
equity.
16.
Borrowings
The
Group
Non-‐current
borrowings:
Bank
loans
Finance
leases
Current
borrowings:
Bank
loans
Finance
leases
Total
Borrowings
2012
£’000
14,094
1,734
15,828
1,687
741
2,428
2011
£’000
7,087
18
7,105
-‐
49
49
18,256
7,154
73
IQE Annual Report & Financial Statements 2012
a)
Bank
loans
Bank
Borrowings
fall
due
for
repayment
as
follows:
Within
one
year
Between
one
and
five
years
After
five
years
2012
£’000
1,687
14,094
-‐
15,781
2011
£’000
-‐
7,087
-‐
7,087
The
group’s
bank
loans
consist
of
a
series
of
variable
and
fixed
rate
term
loans,
and
a
revolving
credit
facility.
The
variable
rate
term
loans,
which
had
principle
outstanding
at
31
December
2012
of
£4.1m
(2011
:
£nil),
bear
interest
of
between
2.0%
to
2.5%
over
LIBOR.
These
loans
are
repayable
by
monthly
installment
with
remaining
terms
of
up
to
4
years.
The
fixed
rate
term
loans,
which
had
principle
outstanding
at
31
December
2012
of
£2.1m
(2011
:
£nil),
bear
interest
of
5%
until
2017
and
is
variable
thereafter.
These
loans
are
repayable
by
monthly
installment
with
remaining
terms
of
up
to
20
years.
The
revolving
credit
facility
is
a
multi-‐currency
facility
of
up
to
£21
million,
committed
until
2016.
It
bears
interest
of
between
1.75%
to
1.95%
over
LIBOR.
The
balance
drawn
at
31
December
2012
was
£9.6m
(2011
:
£7.1m).
Bank
loans
are
secured
against
the
assets
of
the
group.
The
carrying
value
of
loans
approximates
to
their
fair
value
based
on
the
net
present
value
of
future
cash
flows.
As
disclosed
in
note
25,
on
10
January
2013
the
group
raised
$40m
of
acquisition
finance
to
part
fund
the
acquisition
of
Kopin
Wireless.
b)
Finance
leases
Gross
finance
lease
liabilities
–
minimum
lease
payments:
Within
one
year
Between
one
and
five
years
Finance
charges
Present
value
of
finance
lease
liabilities
Present
value
of
finance
lease
liabilities:
Within
one
year
Between
one
and
five
years
2012
£’000
813
1,803
2,616
(141)
2,475
2012
£’000
741
1,734
2,475
2011
£’000
50
19
69
(2)
67
2011
£’000
49
18
67
Lease
liabilities
are
effectively
secured
as
the
rights
to
the
leased
asset
reverts
to
the
lessor
in
the
event
of
default.
The
company
The
borrowings
of
the
parent
company
comprise
the
bank
loan
of
£9,565,000
(2011
£7,087,000)
which
is
denominated
in
US
dollars
(2011:
£700,000
was
denominated
in
sterling
and
the
remainder
was
denominated
in
US
Dollars).
This
amount
is
repayable
between
two
and
five
years
(2011:
repayable
between
two
and
five
years).
74
IQE Annual Report & Financial Statements 2012
17.
Business
combination
On
11
June
2012
the
group
acquired
the
in-‐house
epitaxy
operation
of
a
leading
wireless
chip
manufacturer.
Under
the
terms
of
this
trade
and
assets
deal,
the
Group
acquired
the
leasehold
production
facility,
the
production
equipment
and
related
inventories;
assumed
employment
of
the
workforce;
and
entered
into
a
long
term
supply
contract.
The
consideration
for
the
acquisition
is
being
settled
entirely
via
a
contractually
agreed
price
discount
on
future
product
sales
to
the
vendor
until
2016.
The
comparison
of
book
value
to
fair
value
is
summarised
as
follows:
Intangible
assets
Intangible
assets
Intangible
assets
Property
plant
and
equipment
Property
plant
and
equipment
Property
plant
and
equipment
Inventory
Inventory
Inventory
Deferred
tax
asset
Deferred
tax
asset
Deferred
tax
asset
Goodwill
Goodwill
Goodwill
Total
contingent
deferred
consideration
Total
contingent
deferred
consideration
Total
contingent
deferred
consideration
Fair
value
Book
value
Adjustment
Fair
value
£’000
-‐
17,400
1,001
-‐
-‐
18,401
£’000
3,116
2,600
-‐
13,187
18,287
37,190
£’000
3,116
20,000
1,001
13,187
18,287
55,591
The
fair
value
of
the
intangible
assets
represents
the
estimated
fair
value
of
the
supply
contract,
and
has
been
assessed
based
on
an
imputed
royalty
stream
to
recover
the
estimated
cost
of
product
development
and
qualifications
to
which
the
contract
relates.
The
fair
value
of
the
property
plant
and
equipment
has
been
estimated
on
a
depreciated
replacement
cost
basis,
using
internal
and
external
cost
data.
Inventory
has
been
recognised
at
the
lower
of
cost
and
net
realisable
value.
Deferred
tax
has
been
recognised
in
respect
of
temporary
timing
differences
between
the
accounting
and
tax
treatments
for
the
assets
and
liabilities
recognised.
Goodwill
reflects
items
not
separately
recognisable
under
IFRS,
and
largely
reflects
financial
and
operational
synergies
of
the
enlarged
group
including
improved
economies
of
scale
and
equipment
utilisation.
The
fair
value
of
the
consideration
has
been
estimated
based
on
expected
future
sales
volumes
and
price
discounts.
Sales
are
recorded
at
their
fair
value,
but
billed
at
the
contractually
agreed
discounted
rate.
The
discount
on
each
sales
transaction
is
accounted
for
as
a
reduction
in
the
contingent
deferred
consideration
balance.
As
a
guide
to
the
sensitivity
of
this
estimate,
if
actual
volumes
were
5%
lower
than
the
estimated
future
volumes
then
the
total
consideration
would
reduce
by
approximately
£2.8m.
The
fair
values
for
intangibles
assets
and
consideration
are
provisional
fair
values,
and
as
long
term
balances
have
been
discounted
at
discount
rate
of
1%.
Acquisition
related
costs
of
£0.1m
have
been
charged
to
administration
expenses
in
the
consolidated
income
statement
for
the
year
ended
31
December
2012.
Prior
to
acquisition
this
business
was
part
of
a
larger
internal
manufacturing
process,
and
therefore
a
separate
trading
account
is
not
available.
Post
acquisition
this
business
unit
contributed
revenue
of
£20m,
and
profit
after
tax
of
£4m
to
the
Consolidated
Income
Statement.
Management
believes
that
it
would
be
impracticable
to
extrapolate
a
trading
result
for
a
full
year
2012
due
to
the
impact
of
changes
in
inventory
levels
in
the
supply
chain.
The
purchase
agreement
provided
that
the
consideration
for
the
acquisition
is
settled
via
a
contractually
agreed
price
discount
on
product
sales
to
the
vendor
until
2016.
Accordingly,
the
total
consideration
payable
is
entirely
contingent
on
future
sales,
and
has
been
estimated
at
£54.6
million
based
on
the
expected
future
volumes
and
price
discounts.
The
revenue
on
these
product
sales
is
recognised
at
their
full
market
value
but
billed
net
of
the
contractual
discount,
hence
the
operating
cash
flow
is
inherently
lower
than
the
operating
profit
during
the
discount
period.
The
value
of
the
discount
in
2012
was
£8.4m
(2011
:
nil).
If
the
purchase
agreement
had
provided
for
the
sales
to
be
billed
and
settled
at
full
market
value,
and
for
the
purchase
consideration
to
be
paid
to
the
vendor
in
cash
(“Gross
basis”),
then
the
operating
cash
generated
from
the
trade
would
have
been
reported
at
the
higher
value,
and
the
purchase
consideration
paid
would
have
been
classified
as
an
investing
activity.
Assuming
no
other
changes
to
the
terms
of
trade
(including
volumes,
timing
and
pricing)
then
under
the
Gross
basis
there
would
be
no
impact
on
the
Consolidated
Balance
Sheet
or
Income
Statement,
however
the
cash
flow
presentation
would
have
been
impacted
as
follows:
£’000
Net
cash
generated
from
operating
activities
Net
cash
used
in
investing
activities
As
currently
reported
4,777
(26,159)
Impact
8,379
(8,379)
Gross
basis
13,156
(34,538)
75
IQE Annual Report & Financial Statements 2012
18.
Share
capital
Group
and
Company
Allotted,
called
up
and
fully
paid
Ordinary
shares
of
1p
each
2012
Number
of
shares
2012
£’000
2011
Number
of
shares
2011
£’000
588,215,751
5,882
525,111,639
5,251
The
movement
in
the
number
of
ordinary
shares
during
the
year
was:
At
1
January
Employee
share
schemes
Placing
At
31
December
2012
Number
2011
Number
525,111,639
515,327,055
19,336,112
43,768,000
9,804,267
-‐
588,215,751
525,111,639
63,104,112
ordinary
shares
(2011:
9,784,584
ordinary
shares)
were
issued
during
the
as
follows:
Employee
share
schemes
Placing
2012
Number
of
shares
2012
Consideration
2011
Number
of
shares
2011
Consideration
19,336,112 Nil
cost
to
52.08p
9,784,584 Nil
cost
to
52.08p
43,768,000
63,104,112
24.00p
-‐
-‐
9,804,267
The
group’s
objectives
when
managing
capital
are
to
safeguard
the
entity’s
ability
to
continue
as
a
going
concern
so
that
it
can
continue
to
provide
returns
for
shareholders
and
benefits
for
other
stakeholders.
The
group
sets
the
amount
of
capital
in
proportion
to
risk.
The
group
manages
the
capital
structure
and
makes
adjustments
to
it
in
the
light
of
changes
in
economic
conditions
and
the
characteristic
of
the
underlying
assets.
The
group
monitors
capital
by
reviewing
net
debt
against
shareholders’
funds.
The
position
of
these
indicators
and
the
movement
during
the
period
is
shown
in
the
Five
Year
Financial
Summary
and
on
page
[18]
of
the
Directors’
Report.
19.
Share
based
payments
The
total
amount
charged
to
the
income
statement
in
2012
in
respect
of
share
based
payments
was
£1,360,000
(2011:
£1,284,000).
Share
option
scheme
The
IQE
Plc
Share
Option
Scheme
was
adopted
on
26
May
2000
and
amended
by
shareholders
at
the
Annual
General
Meeting
on
17
May
2002.
Under
the
scheme,
the
Remuneration
Committee
can
grant
options
over
shares
in
the
company
to
employees
of
the
group.
Options
are
granted
with
a
contractual
life
of
ten
years
and
with
a
fixed
exercise
price
equal
to
the
market
value
of
the
shares
under
option
at
the
date
of
grant
or
as
otherwise
disclosed
in
the
remuneration
report.
Options
become
exercisable
between
one
and
four
years
from
the
date
of
grant
subject
to
continued
employment
and
the
achievement
of
performance
conditions,
including
growth
in
EBITDA
and
earnings
per
share
against
various
targets.
The
group
has
no
legal
or
constructive
obligation
to
repurchase
or
settle
the
options
in
cash.
76
IQE Annual Report & Financial Statements 2012
Options
are
valued
using
the
Black-‐Scholes
option-‐pricing
model
and
the
total
amount
to
be
expensed
is
charged
to
income
statement
over
the
vesting
period
of
the
option.
The
principal
assumptions
used
in
the
calculation
of
the
fair
value
of
share
options
are
as
follows:
Principal
assumptions
Weighted
average
share
price
at
grant
date
Weighted
average
exercise
price
Weighted
average
vesting
period
(years)
Option
life
(years)
Weighted
average
expected
life
(years)
Weighted
average
expected
volatility
factor
Weighted
average
risk
free
rate
Dividend
yield
2012
27.75p
6.40p
3
10
3
61%
0.37%
0%
2011
22.35p
22.88p
3
10
3
72%
0.90%
0%
The
expected
volatility
factor
is
based
on
historical
share
price
volatility
over
the
three
years
immediately
preceding
the
grant
of
the
option.
The
expected
life
is
the
average
expected
period
to
exercise.
The
risk
free
rate
of
return
is
the
yield
of
zero-‐coupon
UK
government
bonds
of
a
term
consistent
with
the
assumed
option
life.
Performance
conditions
are
incorporated
into
the
calculation
of
fair
value
by
estimating
the
proportion
of
share
options
that
will
vest
and
be
exercised
based
on
a
combination
of
historical
trends
and
future
expected
trading
performance.
These
are
reassessed
at
the
end
of
each
period
for
each
tranche
of
unvested
options.
The
fair
value
of
options
granted
during
the
year
ended
31
December
2012
was
£1,521,920
(2011:
£373,263).
The
movements
on
share
options
during
the
year
were
as
follows:
At
1
January
Granted
Exercised
Cancelled/lapsed
At
31
December
2012
Number
of
options
51,043,125
9,471,944
(17,702,729)
(4,118,826)
38,693,514
2012
Average
exercise
price
(pence)
10.14
6.40
8.88
7.11
10.12
2011
Number
of
options
58,617,656
5,889,277
(8,943,919)
(4,519,889)
51,043,125
2011
Average
exercise
price
(pence)
8.96
22.88
6.88
17.95
10.14
The
weighted
average
share
price
at
the
time
of
the
options
exercised
during
2012
was
25.51p
(2011:
46.91p).
As
at
31
December
2012,
the
total
number
of
options
held
by
employees
was
38,693,514
(2011:
51,043,125)
as
follows:
Option
price
pence/share
1.00p
–
86.20p
5.63p
-‐
10.17p
6.87p
-‐
10.25p
10.40p
-‐
19.42p
0.00p
-‐
19.42p
16.10p
-‐
16.10p
0.00p
-‐
17.07p
0.00p
–
45.58p
9.15p
–
50.25p
0.00p
–
86.19p
At
31
December
Option
period
ending
31
December
2012
2012
Number
of
options
-‐
2011
Number
of
options
1,475,469
31
December
2014
31
December
2015
31
December
2016
31
December
2017
31
December
2018
31
December
2019
31
December
2020
31
December
2021
31
December
2022
1,234,318
704,856
1,850,638
5,380,791
247,029
8,619,521
6,879,449
6,060,154
7,716,758
38,693,514
6,272,579
934,352
8,032,500
5,625,175
508,221
10,269,732
12,035,820
5,889,277
-‐
51,043,125
77
IQE Annual Report & Financial Statements 2012
20.
Parent
company
profit
and
loss
As
permitted
by
Section
408
of
the
Companies
Act
2006,
the
income
statement
of
the
parent
company
is
not
presented
as
part
of
these
financial
statements.
The
parent
company’s
profit
for
the
financial
year
amounted
to
£1,974,000
(2011:
profit
£1,243,000).
21.
Cash
generated
from
operations
The
Group
Operating
profit
Depreciation
of
property,
plant
and
equipment
Amortisation
of
intangible
assets
Gain
on
sale
of
property,
plant
and
equipment
Contingent
deferred
consideration
(settled
through
contractual
discounts)
Share
based
payments
Cash
inflow
from
operations
before
changes
in
working
capital
Increase
in
inventories
(Increase)/decrease
in
trade
and
other
receivables
Increase/(decrease)
in
trade
and
other
payables
Cash
inflow
from
operations
The
Company
Operating
loss
Share
based
payments
Cash
(outflow)/inflow
from
operations
before
changes
in
working
capital
Increase
in
trade
and
other
receivables
Decrease
in
trade
and
other
payables
2012
£’000
7,014
5,998
1,495
-‐
(8,379)
1,360
7,488
(3,030)
(5,924)
5,575
4,109
2012
£’000
(927)
1,031
104
(10,258)
(563)
2011
£’000
7,373
4,175
1,123
(68)
-‐
1,284
13,887
(3,087)
2,033
(2,010)
10,823
2011
£’000
(924)
1,085
161
(8,170)
(444)
Cash
outflow
from
operations
(10,717)
(8,453)
22.
Reconciliation
of
net
cash
flow
to
movement
in
net
debt
Decrease
in
cash
in
the
year
Loans
received
Loans
repaid
Leases
repaid
Net
movement
resulting
from
cash
flows
Net
(debt)/funds
at
1
January
Net
movement
resulting
from
cash
flows
Non-‐cash
movements
Net
debt
at
31
December
78
2012
£’000
(443)
(10,877)
1,335
48
(9,937)
(3,921)
(9,937)
(1,625)
(15,483)
2011
£’000
(9,284)
(7,267)
5,777
1,156
(9,618)
7,021
(9,618)
(1,324)
(3,921)
IQE Annual Report & Financial Statements 2012
23.
Analysis
of
net
debt
Cash
and
cash
equivalents
Loans
due
after
one
year
Loans
due
within
one
year
Finance
leases
due
after
one
year
Finance
leases
due
within
one
year
Total
borrowings
Net
debt
At
1
January
2012
£’000
3,233
(7,087)
-‐
(18)
(49)
(7,154)
(3,921)
Cash
flow
£’000
(443)
(7,855)
(1,687)
18
30
(9,494)
(9,937)
Other
non-‐cash
movements
£’000
(17)
848
-‐
(1,734)
(722)
(1,608)
(1,625)
At
31
December
2012
£’000
2,773
(14,094)
(1,687)
(1,734)
(741)
(18,256)
(15,483)
Cash
and
cash
equivalents
at
31
December
2012
comprised
balances
held
in
instant
access
bank
accounts.
Non-‐cash
movements
include
the
drawdown
of
a
finance
lease
and
foreign
exchange
movements
on
US
dollar
denominated
borrowings.
24.
Principal
subsidiary
undertakings
Name
of
company
IQE
(Europe)
Limited
Class
of
capital
Ordinary
shares
of
£1
Proportion
of
shares
held
100%*
IQE
Inc
Common
stock
of
$0.001
100%*
Activity
Manufacture
of
advanced
semiconductor
materials
Manufacture
of
advanced
semiconductor
materials
IQE
RF
LLC
Limited
liability
company
100%
Manufacture
of
advanced
semiconductor
materials
IQE
Silicon
Compounds
Limited Ordinary
shares
of
£1
100%
Manufacture
of
silicon
epitaxy
Country
of
incorporation
UK
USA
USA
UK
MBE
Technology
Pte
Ltd
Preferred
shares
of
S$1
Ordinary
shares
of
S$1
Wafer
Technology
Limited
Ordinary
shares
of
£1
100%
100%
100%*
Manufacture
of
advanced
semiconductor
materials
Singapore
Manufacture
of
semiconductor
compounds
and
ultra
high
purity
materials
NanoGaN
Limited
Ordinary
shares
of
£0.001
100%
Development
of
advanced
semiconductor
materials
Galaxy
Compound
Semiconductors
Inc
Common
stock
of
$0.00
par
value
100%*
Manufacture
of
semiconductor
compounds
* Indirect
holdings
* The
proportion
of
voting
rights
of
subsidiaries
held
by
the
group
is
the
same
as
the
proportion
of
shares
held.
UK
UK
USA
79
IQE Annual Report & Financial Statements 2012
25.
Post
balance
sheet
event
On
15
January
2013,
IQE
plc
completed
the
acquisition
of
the
Kopin
Wireless,
the
compound
semiconductor
epiwafer
manufacturing
business
of
Kopin
Corporation
(“Kopin”),
a
NASDAQ
listed
entity.
The
consideration
for
the
acquisition
was
$75m,
of
which
$60m
was
paid
in
cash
on
completion,
and
$15m
falls
payable
in
January
2016.
The
assets
acquired
were
the
trade
and
assets
of
Kopin
Wireless’
US
domiciled
business,
which
operates
from
a
long
leasehold
premises
located
in
Massachusetts
USA;
and
its
90%
equity
stake
in
its
Taiwanese
subsidiary
(KTC),
which
operates
from
a
freehold
premises
in
Hsinchu
Taiwan.
This
acquisition
brings
a
number
of
strategic
advantages
to
IQE,
including
:
•
•
•
•
•
a
HBT
business
to
complement
IQE’s
existing
pHEMT
business;
greater
customer
diversity
to
help
mitigate
against
the
impact
of
changes
in
market
share
between
customers;
expands
IQE’s
Asian
footprint,
providing
improved
access
to
the
growing
Asian
market;
improved
economies
of
scale;
and
providing
access
to
significant
expected
cost
synergies.
The
upfront
consideration
of
$60
million
was
part
financed
by
$40
million
of
acquisition
finance
provided
by
HSBC.
The
balance
was
financed
from
the
proceeds
of
a
placing
of
56,900,961
new
ordinary
shares
at
29.00p.
The
deferred
consideration
of
$15
million
will
be
settled
through
future
cash
generation.
26.
Related
party
transactions
The
group
incurred
professional
fees
and
expenses
during
the
year
of
£70,000
(2011:
£70,000)
payable
to
Horton
Corporate
Finance
and
£35,000
(2011:
£35,000)
payable
to
Fishstone
Limited.
Dr
G
H
H
Ainsworth,
who
is
a
director
of
IQE
Plc,
is
a
director
of
Horton
Corporate
Finance.
S
J
Gibson,
who
is
a
director
of
IQE
Plc,
is
also
a
director
of
Fishstone
Limited.
An
amount
of
£26,000
(2011:
£26,000)
was
outstanding
to
these
parties
at
the
year-‐end.
The
group
incurred
professional
fees
and
expenses
during
the
year
of
£12,000
(2011:
£nil)
payable
to
Dr
D
Grant
which
remains
outstanding
at
year
end.
27.
Operating
lease
commitments
The
group
was
committed
at
31
December
2012
and
31
December
2011
to
making
the
following
aggregate
payments
in
respect
of
non-‐cancellable
operating
leases:
Due
within
one
year
Due
between
two
and
five
years
Due
after
five
years
28.
Commitments
The
group
had
the
following
capital
commitments
at
31
December
2012
and
31
December
2011:
Authorised
and
contracted
for
2012
£’000
2,062
7,440
9,065
18,567
2012
£’000
-‐
2011
£’000
2,130
6,833
10,337
19,300
2011
£’000
243
80
IQE Annual Report & Financial Statements 2012
Officers
and
professional
advisers
IQE
plc
is
a
public
limited
company
incorporated
in
England
and
Wales.
Directors
Dr
G
H
H
Ainsworth
BSc,
Ph.D,
FCA
(Chairman,
Non-‐Executive)
Dr
A
W
Nelson
OBE,
BSc,
Ph.D,
FREng
(President
and
Chief
Executive
Officer)
Mr
S
J
Gibson
OBE
(Non-‐Executive)
Dr
David
Grant
CBE,
FREng,
FLSW,
CEng,
FIET
(Senior
Independent
Director,
appointed
18
September
2012)
Mr
P
J
Rasmussen
BSc,
ACA
(Finance
Director
and
Company
Secretary)
Dr
H
R
Williams
BSc,
Ph.D,
CEng,
MIMechE,
MCIBSE
(Operations
Director)
Mr
A
G
Meldrum
(Business
Development
Director,
resigned
21
September
2012)
Registered
office
Pascal
Close,
St
Mellons,
Cardiff,
CF3
0LW
Principal
Bankers
HSBC
Bank
Plc
8
Canada
Square,
London,
E14
5HQ
Auditors
PricewaterhouseCoopers
LLP
One
Kingsway,
Cardiff,
CF10
3PW
Nominated
advisers
and
brokers
Espirito
Santo
Investment
Bank,
incorporating
Execution
Noble
Limited
10
Paternoster
Square,
London,
EC4M
7AL
Joint
brokers
Canaccord
Genuity
Limited
88
Wood
Street,
London,
EC2V
7QR
Registrars
Capita
Registrars
Northern
House,
Woodsome
Park,
Fenay
Bridge,
Huddersfield,
HD8
0GA
Investor
relations
Chris
Meadows
Tel
+44(0)29
2083
9400
Fax
+44(0)29
2079
4592
investors@iqep.com
81
IQE Annual Report & Financial Statements 2012
82
IQE Annual Report & Financial Statements 2012
IQE
plc
Pascal
Close
Cardiff
United
Kingdom
CF3
0LW
tel:
+44
(0)29
2083
9400
Fax:
+44
(0)29
2079
4592
www.iqep.com
©
2013
IQE
plc
83
IQE Annual Report & Financial Statements 2012
84